SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] Annual Report pursuant Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission File Number 0-24760
ORPHAN MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1784594
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
13911 RIDGEDALE DRIVE, SUITE 475,
MINNETONKA, MN 55305 (612) 513-6900
(Address of principal executive offices (Registrant's telephone number,
and zip code) 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, $.01 PAR VALUE
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, 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 the
best of 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. [ ]
Aggregate market value of common stock held by non-affiliates of Registrant,
based upon the last sale price of the Common Stock reported on the Nasdaq
National Market tier of The Nasdaq Stock Market on March 10, 1997 was
$20,794,255. Common stock outstanding at February 28, 1997: 6,063,088 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the Registrant's Annual Meeting of Shareholders to be held on May 8,
1997 are incorporated by reference in Part III, Items 10, 11, 12 and 13 of this
Form 10-K.
PART I.
ITEM 1. BUSINESS
THIS ANNUAL REPORT CONTAINS STATEMENTS THAT ARE NOT DESCRIPTIONS OF HISTORICAL
FACTS. THE WORDS OR PHRASES "WILL LIKELY RESULT", "LOOK FOR", "MAY RESULT",
"WILL CONTINUE", "IS ANTICIPATED", "EXPECT", "PROJECT", OR SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS MAY BE
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DUE TO A NUMBER
OF FACTORS, INCLUDING THOSE IDENTIFIED IN THE "CAUTIONARY STATEMENTS" FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION AS AN EXHIBIT TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K.
GENERAL
Orphan Medical, Inc., a development stage company, was formed to acquire,
develop and market products of high medical value intended to address
inadequately treated or uncommon diseases of well-defined patient populations
treated by health care specialists. A drug has high medical value if it offers a
major improvement in the safety or efficacy of patient treatment and has no
substantially equivalent substitute.
The Company is currently developing thirteen potential products and has three
marketed products (the "Current Products"). In 1996, the Company received
clearance from the Food and Drug Administration ("FDA") to market Cystadane,
Elliotts B Solution and Antizol-Vet. Elliotts B Solution and Cystadane were
first sold commercially in December 1996, followed by Antizol-Vet in late
January 1997. In addition, a new drug application ("NDA") was submitted in
December 1996 for Antizol as an antidote for ethylene glycol poisoning in
humans. The Company also received 510(k) marketing clearance for Repliderm Wound
Dressing, but the Company will not market Repliderm until additional clinical
trials are completed.
The Company believes its strategies reduce the time, costs and risks
traditionally involved in bringing pharmaceutical products to market. The
Company does not conduct basic research and does not attempt to discover new
drugs. Instead, the Company acquires licenses for development projects that
already have some clinical safety and efficacy data that indicate the presence
of therapeutic value and safety. The Company uses contract development,
manufacturing, distribution and consulting companies to assist it in product
development and sales activities. This approach is designed to avoid the costs
and financial risks associated with developing these capabilities internally.
The Company manages product development risk by pursuing a diversified portfolio
of products and by its approach to product selection, development and marketing.
The Company's focus on distinct markets is intended to allow it to concentrate
its marketing efforts on a limited number of medical specialists or patients,
making a large sales force unnecessary to market most of the Company's proposed
products. The high therapeutic value of the Company's products is expected to
facilitate marketing efforts directed toward users and prescribers. The Company
believes the physical distribution of its products can be efficiently handled by
other companies that specialize in distributing pharmaceutical products.
To date, the activities of the Company have consisted primarily of obtaining the
rights for pharmaceutical products, hiring the personnel required to implement
the Company's business plan, managing the development of these products and
preparing for the commercial introduction of the three products it currently
distributes. The Company reported its first revenues in December 1996 with the
commercial introduction of Cystadane and Elliotts B Solution. The Company does
not expect to achieve profitable operations until at least 1999 due to marketing
delays for Busulfanex resulting from the FDA's requirement that the Company
broaden the clinical data to be submitted as part of the Company's NDA for
Busulfanex.
THE REGULATORY PROCESS
Pharmaceutical products intended for therapeutic use in humans are governed by
extensive FDA regulations in the United States and by comparable regulations in
foreign countries. The process of seeking and obtaining FDA approval for a
previously unapproved new human pharmaceutical product generally requires a
number of years and involves the expenditure of substantial resources.
Following drug discovery, the process required before a drug product may be
marketed in the United States includes (i) pre-clinical laboratory and animal
safety tests, (ii) the submission to the FDA of an investigational new drug
("IND") application, (iii) clinical and other studies to assess safety and
parameters of use, (iv) adequate and well-controlled clinical trials to
establish the safety and effectiveness of the drug product, (v) the submission
to the FDA of an NDA, (vi) FDA approval of the NDA prior to any commercial sale
or shipment of the product and (vii) finally marketing of the drug.
Typically, pre-clinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the product's pharmacology and
toxicology and to identify any potential safety problems that would preclude
testing in humans. The results of these studies, together with the general
investigative plan, protocols for specific human studies and other information,
are submitted to the FDA as part of the IND application. The FDA regulations do
not, by their terms, require FDA approval of an IND. Rather, if the FDA does not
notify the sponsor to the contrary within 30 days of receipt of the IND, they
allow a clinical investigation to commence. As a practical matter, however, FDA
approval is often sought before a company commences clinical investigations.
That approval may come within 30 days of IND receipt, but may involve
substantial delays if the FDA requests additional information.
The initial phase of clinical testing (Phase I) is conducted to evaluate the
metabolism and pharmacological actions of the experimental product in humans, as
well as the side effects associated with increasing doses, and, if possible, to
gain early evidence of possible effectiveness. Phase I studies can also evaluate
various dosages, methods and schedules of product administration. These studies
generally involve a small number of healthy volunteer subjects, but may be
conducted in people with the disease that the product is intended to treat. The
total number of subjects is generally in the range of 20 to 80. A demonstration
of therapeutic benefit is not required in order to complete Phase I trials
successfully. If acceptable product safety is demonstrated, Phase II trials may
be initiated.
Phase II trials are designed to evaluate the effectiveness of the product in the
treatment of a given disease and involve patients with the disease under study.
These trials often are well-controlled, closely monitored studies involving a
relatively small number of subjects, usually no more than several hundred. The
optimal dosages, methods and schedules of administration are determined in these
studies. If Phase II trials are successfully completed, Phase III trials are
often commenced, although Phase III trials are not always required, particularly
for drugs of high medical value intended for smaller patient populations.
Phase III trials are expanded, controlled trials that are performed after
preliminary evidence of the effectiveness of the experimental product has been
obtained. These trials are intended to gather the additional information about
safety and effectiveness needed to evaluate the overall risk/benefit
relationship of the experimental product. In addition, these trials provide the
substantial evidence of both effectiveness and safety necessary for product
approval. Phase III trials usually involve from several hundred to several
thousand subjects.
A clinical trial may combine the elements of more than one phase (i.e., a Phase
I/II or II/III trial) and typically two or more Phase III studies are required
for FDA approval. A company's designation of a clinical trial as being of a
particular Phase is not necessarily indicative that such a trial will be
sufficient to satisfy the FDA requirements of that Phase because this
determination cannot be made until the protocol and data have been submitted to
and reviewed by the FDA. In addition, a clinical trial may contain elements of
more than one Phase notwithstanding the designation of the trial as being of a
particular Phase. The FDA closely monitors the progress of the Phases of
clinical testing and may, at its discretion, re-evaluate, alter, suspend or
terminate the testing based on the data accumulated and its assessment of the
risk/benefit ratio to patients. It is not possible to predict with certainty the
time required to complete Phase I, II and III studies with respect to a given
product.
Upon the successful completion of clinical testing, a marketing application
(e.g., NDA) is submitted to the FDA for approval. This application requires
detailed data on the results of pre-clinical testing, clinical testing and the
composition of the product; specimen labeling to be used with the drug;
information on manufacturing methods; and samples of the product. Following the
passage of the Prescription Drug User Fee Act ("PDUFA"), the FDA typically takes
from six to eighteen months to review an NDA after it has been accepted for
filing. Following its review of a marketing application, the FDA invariably
raises questions or requests additional information. The NDA approval process
can, accordingly, be very lengthy. Further, there is no assurance that the FDA
will ultimately approve an NDA. If the FDA approves the NDA, the new product may
be marketed for the applications or treatments that have been approved by the
FDA. The claims with which a product can be marketed are also subject to review
and approval by the Division of Drug Marketing, Advertising and Communications
("DDMAC"), the FDA's marketing surveillance department within the Center for
Drugs. The FDA often clears a product for marketing with a modification to the
proposed label claims or requires that post-marketing surveillance, or Phase IV
testing, be conducted.
PHARMACEUTICAL INDUSTRY OVERVIEW
In the 1950s and early 1960s, drug development was relatively inexpensive and
regulatory approval was straightforward. Pharmaceutical companies marketed their
products directly to physicians who made prescription and purchase decisions. In
the 1970s, however, regulatory standards and competition increased and the price
of research and development and manufacturing rose dramatically. In the 1980s
and 1990s, drug companies revised their targeted rates-of-return or financial
"hurdle rates", as well as other selection criteria, to avoid developing drugs
whose incremental profit contributions were considered insufficient to maintain
acceptable returns on investment. Many of the drugs that did not meet these
criteria were drugs for smaller patient populations. As a consequence, new drugs
for smaller patient populations were less likely to be developed by larger
companies. Some research institutions, universities and small companies,
however, have continued to develop and initiate clinical studies on such drugs.
ORPHAN DRUG ACT
To encourage the continued development of drugs for smaller patient populations,
the federal government enacted the Orphan Drug Act of 1983. This Act provides
incentives to manufacturers to develop and market drugs for rare diseases or
conditions that are believed to affect fewer than 200,000 people in the United
States. A drug receiving orphan drug designation and which is the first product
to receive marketing approval for its indication, is entitled to a seven-year
exclusive marketing period in the United States for that indication, subject to
certain limitations. However, orphan drug designation and marketing approval
neither prevent subsequent approval of a different drug for the same indication,
nor subsequent approval of the same drug for a different indication, nor provide
any marketing exclusivity in foreign markets.
Since 1983, the FDA has assigned orphan drug designation to more than 650
potential products, of which approximately 130 have been approved for marketing
and have received orphan drug marketing exclusivity. The Company estimates that
thousands of additional compounds could currently qualify for orphan drug
designation. Although the Company believes the size of the aggregated markets
for orphan or small market drugs may be large, the total annual market for any
particular orphan drug rarely exceeds $50 million and most have potential
markets of less than $10 million annually.
STRATEGIC BACKGROUND
The Company's strategy is based on several factors relating to changes in the
health care and pharmaceutical industries:
* Larger pharmaceutical companies generally have increased their financial
hurdle rates, seek new products with markets greater than $100 million in
annual revenues and avoid developing new products that address diseases
outside their therapeutic area of focus. As a result, many developmental
products of high medical value are available for licensing on favorable
terms. If these products are intended to address smaller markets, they may
be eligible for orphan drug status. Many of these products have already
been developed to the point where the time and cost required to bring the
product to market can be reasonably estimated.
* Because of corporate "downsizings," many pharmaceutical companies have
released skilled employees experienced in the research, development,
manufacturing or commercialization of new medicines. These individuals have
often formed or joined contract clinical research organizations ("CROs"),
contract manufacturing companies or drug development and marketing
consulting firms. Thus, the knowledge and skills required to address many
aspects of drug development are available on a contract basis from outside
companies or individuals.
* To address rapidly changing market forces, alternative means of marketing
and distributing pharmaceuticals have been created. Many products,
particularly those targeted to smaller, well-defined markets, do not
require a large sales force and can be marketed through direct means such
as telemarketing, direct mailings, continuing medical education programs
and exhibits at professional meetings. In addition, these products can be
effectively distributed through companies proficient in distribution of
pharmaceutical products to smaller patient populations.
In response to these changes, the Company has adopted a business strategy that
is centered on products of high medical value, that uses the knowledge and
skills available on a contract basis from outside sources and that uses
alternative marketing and distribution channels.
STRATEGY
The Company focuses on products of high medical value intended to address
inadequately treated or uncommon diseases of well-defined patient populations
treated by health care specialists. A drug has high medical value if it offers a
major improvement in the safety or efficacy of patient treatment and has no
substantially equivalent substitute. In addition to those with high medical
value, the Company seeks products that will likely be eligible for insurance
reimbursement; have readily measured clinical endpoints, existing positive
clinical data, and proprietary attributes; and offer attractive financial
returns. The Company does not conduct basic research and does not attempt to
discover new drugs, but instead seeks to acquire and further develop products
that already have some clinical safety and efficacy data that indicate the
presence of therapeutic value and safety. Finally, the Company seeks to manage
product development risk by pursuing a diversified portfolio of products and by
its approach to product selection, development and marketing. The Company's
strategy of developing and marketing high medical value drugs with these
additional characteristics is intended to achieve the following benefits.
* REGULATORY REQUIREMENTS AND REVIEW -- The informational requirements for
marketing approval, as well as the time required for FDA review, are
related to a drug's medical value and the estimated size of the patient
population. Drugs of high medical value have greater likelihood of
receiving expedited review by the FDA. If such drugs also have smaller
patient populations, the number of patients required for clinical trials is
generally reduced.
* REDUCTION OF PRODUCT DEVELOPMENT TIME AND COST -- The amount of data
required to bring a new drug of high medical value to market is generally
less than for a drug that is available in similar dosage forms or
formulations that is intended for very large markets. Furthermore, the
Company generally attempts to concentrate resources and project management
attention on a single medical indication in order to limit the amount of
clinical information required by the FDA to clear a product for marketing.
The time and cost of development is directly related to the amount of
clinical information required for regulatory approval.
* BROAD THERAPEUTIC FOCUS -- Most pharmaceutical companies focus on one or a
few therapeutic or disease categories in order to "leverage" or maximize
utilization of the substantial investment in research and development and
sales efforts. The Company, on the other hand, focuses on managing the
development and marketing process and can therefore develop products in
various therapeutic areas. This allows the Company to find and develop
products that best fit its strategy and portfolio needs.
* LIMITED INFRASTRUCTURE -- The Company believes that high quality
pharmaceutical products can be efficiently and economically developed using
independent contractors. Accordingly, the Company intends to utilize the
available pool of contract development, manufacturing, distribution and
consulting companies to assist in product development and sales activities.
This approach allows the Company to avoid the costs, time and financial
risks associated with developing these capabilities internally.
* MARKETING STRATEGY -- Since the Company currently does not intend to engage
or maintain a large sales force that must regularly be provided new
products, the Company should be better able to choose whatever marketing
strategy it believes would be the most effective for any particular
product. This may involve marketing and distributing a product itself,
granting marketing and distribution rights to another company with the
product's therapeutic focus, hiring a contract sales force or some
combination thereof.
* DIRECT SALES -- Diseases for which there are no satisfactory therapeutic
options often have groups of patients, physicians and others that promote
awareness and support development of any new treatments for a particular
disease. The Company believes that a large sales force is not necessary to
promote and market such products since, once aware of the product's high
medical value, patients and their physician specialists will usually seek
to procure such drug products. In addition, there are pharmaceutical
companies with sales forces that are seeking additional products to promote
in a given therapeutic category, which may lend itself to co-promotion
arrangements for a product. Therefore, the Company currently does not
intend to incur the costs associated with developing and maintaining a
large sales force.
* ALLIANCES -- The high medical value of the Company's products is expected
to interest companies seeking to market the Company's products in domestic
and/or foreign markets. The Company believes that its relationships with
distribution partners could also provide the Company with strategic
benefits.
* ATTRACTION OF POTENTIAL NEW PRODUCTS -- As the Company's strategy and focus
on products of high medical value become better known and understood by
others in the research and development community, a greater number of
viable product opportunities may be presented to the Company.
RISK MANAGEMENT
The Company's strategy is designed, in part, to manage its overall business
risk. The Company is pursuing a diversified portfolio of products rather than
concentrating financial, development and marketing resources on a single or a
few products. To reduce its product development risk, the Company generally
seeks to develop products that (1) are not biotechnology derived, (2) have a
straightforward formulation that can be synthesized in one or two steps as
opposed to requiring many steps, and (3) may be on the market in other dosage
forms and are therefore well known to the medical community and to the FDA.
However, one of the Company's Current Products, alpha-galactosidase A, is an
exception to Company's general development profile because it is biotechnology
derived. In addition, the Company generally seeks to acquire products that are
already in Phase II or Phase III clinical trials, or in an earlier stage of
development if the Company believes there is a relatively high likelihood of
obtaining FDA approval. When a product is licensed without the equivalent of
Phase II or III data, the Company may conduct one or more "pilot clinical
trials" to better assess this likelihood. Each such pilot trial is narrowly
defined and has a separate budget that to date has not exceeded $500,000. Upon
the completion of such a pilot clinical trial, management seeks the approval of
the Board of Directors for authority to proceed to full development of the
product. The Company does not conduct basic research and does not attempt to
discover new drugs. The Company may also purchase rights to existing products in
order to reduce development risk. To reduce its marketing risk, the Company
generally attempts to obtain some form of proprietary protection, such as orphan
drug designation, patent protection, exclusive licensing agreements, predominant
market penetration or sole supplier agreements.
PROPRIETARY RIGHTS
The Company believes it is important that its proposed products receive patent
protection or orphan drug designation or have other factors that limit potential
competition. Eight of the Current Products have been designated orphan drugs and
applications for such designation will be made for any additional products to
the extent available. A drug that has orphan drug designation and which is the
first product to receive marketing approval for its product claim, indication or
application receives orphan drug status and is entitled to a seven-year
exclusive marketing period in the United States for that product claim,
indication or application, subject to certain limitations.
The Company has two products with orphan drug status and one veterinary product
with five years of exclusivity. The Company may acquire products that are not
currently being marketed by others and that are not subject to patent protection
or designation as orphan drugs if it believes that regulatory approvals can be
obtained without the need to conduct new clinical trials or other expensive
tests.
The license agreements pursuant to which the Company has acquired eleven of the
Current Products include, and the Company expects that any licenses with respect
to any additional products will include, an assignment of the licensor's
proprietary rights with respect to the licensed product. United States patents
with respect to the use of the Company's proposed Colomed, Busulfanex,
Intrachol, 5FU, colloidal bismuth subcitrate, alpha-galactosidase A, clonidine
and Caprogel products have been issued to, or applied for by, other companies
that have granted exclusive licensing rights to the Company. Corresponding
"patent cooperation treaty" foreign patent applications have or are expected to
be filed for Colomed, Busulfanex, Caprogel, 5FU and colloidal bismuth
subcitrate. The Company evaluates the desirability of seeking patent or other
forms of protection for its products in foreign markets based on the expected
costs and relative benefits of attaining such protection. There can be no
assurance that any United States or foreign patents will be issued from any
pending patent applications or that any issued patents will provide the Company
with any significant protection from competition or other benefits.
OPERATING FUNCTIONS
The Company has structured each of its operating functions to support its
strategy. Following is a general explanation of the typical steps in the
Company's processes of product acquisition, development and marketing.
PRODUCT ACQUISITION
The Company actively searches for product licensing opportunities and currently
has numerous potential additional products under consideration. The continual
acquisition of products is a key element of the Company's growth strategy. The
Company attracts product proposals through a network of industry contacts,
licensing brokers and a growing awareness of its activities by governmental,
academic and industry sources. To encourage product submissions, the Company may
offer a finder's fee and/or royalty arrangements to persons who deliver products
that are licensed by the Company. Since its inception, the Company has carefully
evaluated several hundred product opportunities. To date, sixteen have been
licensed and are in development or being marketed. Because of the large number
of products that may potentially meet the product acquisition criteria outlined
below, the Company believes that it can build a portfolio of viable products.
The Company seeks to acquire pharmaceutical products in any therapeutic area
that, in the Company's opinion, generally:
* Represent important new therapies for inadequately treated diseases or a
significant advance over current methods of treatment;
* Are targeted at distinct patient populations;
* Are prescribed by physician specialists;
* Are suitable for marketing and distribution directly to patients, health
care specialists and health care institutions;
* Are likely to be eligible for reimbursement by third-party payors;
* Have or are candidates for patent protection or orphan drug designation or
have other characteristics that enhance the Company's competitive position;
* Treat diseases that have clinical endpoints (i.e., signs or symptoms) that
are readily measured;
* Are conventional pharmaceutical products whose development is relatively
straightforward and does not involve the application of new technologies;
* Are in Phase II or Phase III clinical trials and have a relatively high
likelihood of obtaining the approval of the FDA within three years of their
acquisition;
* Offer attractive potential financial returns with relatively inexpensive
development costs, typically expected to be under $3 million.
In selecting additional products for potential inclusion in its portfolio, the
Company generally focuses on acquiring rights to medicines that serve distinct
patient populations. Many major drug companies and generic manufacturers are
less likely to address these orphan drug and niche markets because they do not
believe that these types of markets are capable of producing acceptable revenues
and returns on their product development investments. This reluctance limits the
number of potential sources of competition with the Company. In addition, a
product designed for smaller patient populations is often eligible for orphan
drug designation. This would give the Company exclusive marketing rights in the
United States for seven years (five years for veterinary products), subject to
certain limitations, after an NDA for a product is approved if the Company is
the first to receive approval for the designated drug and indication. This focus
on relatively small patient populations may reduce the likelihood that a single
product will account for a dominant portion of the Company's revenues.
The Company seeks to acquire potential products that already have, or will not
require, a substantial quantity of clinical data to demonstrate their relative
efficacy and safety. The Company also searches for product candidates that
represent new dosage forms of previously approved compounds because the Company
believes these types of products are more likely to be quickly approved by the
FDA and accepted by the medical community. In addition, the Company attempts to
develop medicines where there are clear clinical endpoints that demonstrate
their effectiveness. In general, the Company seeks to acquire products that can
be developed to the point of FDA approval within three years of their
acquisition with expected development costs of $3 million or less. This approach
is in contrast to the development of therapies for complex diseases (e.g.,
Alzheimer's disease, AIDS, psychoses or complex cancers) that can require a
decade or more of development and involve the expenditure of tens of millions of
dollars. Products directed at these types of markets will not be acquired.
Typically, the Company also focuses its development efforts on one indication
and, when possible, one dosage form to minimize development costs. Additional
indications or dosage forms will only be evaluated after the primary NDA is
submitted.
An additional element of the Company's product development strategy is to
acquire products that have or can have a degree of proprietary protection.
Generally, this goal is accomplished by selecting products that are eligible for
orphan drug designation, are covered by patents or are the subject of an
exclusive license from a sole supplier or a manufacturer with specialized or
proprietary processes. The likely availability of adequate levels of
reimbursement from third-party payors is also an important factor in product
acquisition decisions.
The Company has established a Product Selection and Review Committee consisting
of John Howell Bullion, Chief Executive Officer of the Company, Bertram A.
Spilker, Ph.D., M.D., President of the Company, Dayton T. Reardan, Ph.D., the
Company's Vice President of Regulatory Affairs and Patti A. Engel, the Company's
Vice President of Marketing. This Committee reviews all new product
opportunities and makes recommendations to the Board of Directors of the Company
regarding the approval of any proposed additional products.
The product review process generally involves discussions with the initial
product developer and experts in the disease the drug treats, a review of
research publications and other databases to gauge competitive activities,
market research aimed at identifying potential acceptance by the end user,
technical evaluations to determine manufacturability and cost, regulatory
requirements expected to gain marketing approval and a legal review of any
relevant proprietary rights. If this review indicates that the proposed product
meets the Company's selection criteria, efforts to negotiate a license are
initiated. Generally, the Company seeks to obtain licenses that require a
minimal signing fee, are subject to commercially acceptable royalty levels and,
where appropriate, provide for the continued involvement of the original
developer in the development process through a consulting or similar
arrangement.
In addition to developing the thirteen Current Products, the Company is
continually evaluating additional proposed products. Although the Company is
actively discussing licensing possibilities for several products, it does not
have any binding agreements or arrangements for the acquisition of any
additional products, and there can be no assurance that any such products will
be acquired on terms satisfactory to the Company, or at all.
PRODUCT DEVELOPMENT
A major element of the Company's product development strategy is to use
third-parties to conduct safety and efficacy testing and clinical studies,
assist the Company in guiding products through the FDA review and approval
process and manufacture and distribute any developed products. The Company
believes that maintaining a minimal infrastructure will enable it to develop
products efficiently and cost effectively. To facilitate this strategy, the
Company is organized so that its Directors of New Medicine Development function
as managers in the development of particular drugs. These Directors design a
development plan and budget for each product and contract with outside
development agents and consultants to arrange for the necessary clinical and
toxicology studies, manufacturing arrangements and FDA filings. Upon FDA
approval, the management of each product is undertaken by Market Development
Managers in the Company's Marketing Department. The Directors also work with the
Company's regulatory and patent counsel and coordinate the activities of the
Company's outside consultants and its in-house experts. The Company currently
employs six Directors of New Medicine Development.
The Company believes the use of third-parties to develop, manufacture and
distribute its products has several advantages. This approach generally allows a
greater pool of resources to be concentrated on a product than if these
functions were performed by internal personnel who were required to support all
of the Company's products. Although this approach will allow the Company to
avoid the expense associated with developing a large internal infrastructure to
support its product development efforts, it will result in the Company being
dependent on the ability of outside parties to perform critical functions for
the Company.
This contract approach to product development requires project management by
professionals with substantial industry experience. The Company has in-house
experts in areas of critical importance to all of its products who can be
consulted by its Directors of New Medicine Development. These areas include
regulatory affairs, marketing, manufacturing, clinical trials management and
general management.
The product development process is designed to identify any problems associated
with a product's clinical aspects. The Company attempts to reduce the risk that
a product will not be accepted in the marketplace by conducting the market
research and planning process concurrently with a product's development. No drug
development portfolio can be completely insulated from potential failures and it
is likely that some products selected for development by the Company will not
produce the clinical or revenue results expected. The Company will, however,
attempt to terminate the development of a product and the associated
expenditures when clinical results or estimated financial potential is
unacceptable to management.
MANUFACTURING
The Company does not have, and does not intend to develop, its own manufacturing
facilities. Instead, the Company will contract with third-parties for the
manufacture of its products. The manufacture of the Company's planned products
will be subject to good manufacturing practices ("GMP") prescribed by the FDA or
other standards prescribed by the appropriate regulatory authorities in the
country of use. The Company has established a quality assurance program in order
to ensure that its proposed products are manufactured in accordance with all
domestic and foreign regulations and a production planning program to ensure
manufacturing logistics are carried out by contract manufacturers. The Company
has entered into long-term manufacturing and supply agreements for several of
its Current Products. The Company believes that qualified manufacturers are and
will be available to manufacture its proposed products, although there can be no
assurance that this will be the case.
MARKETING -- UNITED STATES
The Company has designed its product selection strategy to maximize the success
of its marketing efforts. By having products of high medical value, the Company
believes it should be able to more easily attract the attention of the medical
community. The Company also believes that its focus on well-defined patient
populations will be of significant assistance to its marketing efforts and will
eliminate the need for a large sales force. Because of the distinct nature of
most of its potential markets, the Company expects to be able to concentrate its
marketing efforts on a limited number of medical specialists, or on patients
themselves.
The Company's marketing efforts are applied to supporting the product selection
process and, if FDA approval is obtained, to design and implement marketing
plans for each of its approved products. Market research is conducted to analyze
the potential of products prior to their acquisition. Once a product is acquired
and is being developed, further market research is completed and, based on this
analysis, marketing plans and introduction schedules are established. Upon FDA
approval of a given product, the product management responsibilities shift from
a Director of New Medicine to a Market Development Manager in the Company's
Marketing Department. The Market Development Manager is responsible for all
aspects of a product's marketing introduction and commercialization, including
product forecasting, defining product positioning, price, promotion and physical
distribution to successfully commercialize the product. The Market Development
Manager chairs a cross functional team of internal personnel and external
consultants to ensure all aspects of a product's marketing introduction and
commercialization are properly executed.
The Company expects to market its proposed products by various methods commonly
utilized in the pharmaceutical industry.
MARKETING -- FOREIGN
For markets outside of the United States, the Company intends to identify
foreign partners (usually pharmaceutical companies) to market and distribute its
proposed products. A Director of International Licensing and Sales is currently
assessing opportunities outside the United States for the Company's Current
Products. In certain cases, marketing in foreign countries may be initiated
before FDA approval is granted in the United States. The Company considers
Europe, Japan and Canada to be its most attractive foreign markets. The Company
has initiated discussions with several companies to potentially market and
distribute certain of the Company's Current Products in foreign countries. In
general, the Company expects to license foreign marketing and distribution
rights after the NDA is submitted in the United States.
DISTRIBUTION
Although the Company intends to develop its internal marketing capabilities
further, it does not intend to develop internal physical distribution
capabilities because the Company believes its relatively low-volume products can
be most economically and efficiently distributed through distribution
organizations that specialize in this activity. Cystadane is currently
distributed by Chronimed, who distributes this product directly to patients
through its mail order pharmacy. The Company believes this method of
distribution is appropriate for this chronic use product. Elliotts B Solution is
primarily used in a hospital setting and is distributed by a subsidiary of
Cardinal Health. This method of distribution allows sales directly into
hospitals or, if customers prefer, through their primary distribution agent.
Antizol-Vet is a product stocked and used in veterinary clinics. The Company has
an agreement with W.A. Butler Company, the largest distributor of veterinary
products in the United States, to exclusively distribute Antizol-Vet. The
Company will continue to evaluate distribution for each of its products and will
attempt to arrange distribution arrangements that maximize a product's sales
potential.
Under the terms of the Marketing and Distribution Agreement dated July 2, 1994,
as amended, Chronimed has the exclusive right to distribute Caprogel,
Busulfanex, Antizol and Colomed (collectively, the "Exclusive Products") for a
period of at least three years following the date of first delivery of a
commercial shipment of any such product. In addition, Chronimed is presently the
non-exclusive distributor of Cystadane in the United States. The Company will,
therefore, be substantially dependent upon Chronimed's ability to successfully
distribute the Exclusive Products and Cystadane. Although, if Chronimed elects
not to distribute an Exclusive Product or discontinues distributing Cystadane,
the Company has identified other companies with the capabilities to distribute
the Company's products. Furthermore, it is expected that the Company and
Chronimed will continue to evaluate the distribution of the Company's Exclusive
Products and Cystadane.
COMPETITION
Potential competitors in the United States are numerous and include
pharmaceutical, chemical and biotechnology companies. To the knowledge of the
Company, there are no existing pharmaceutical companies that have adopted all
aspects of the Company's strategy of developing and marketing a portfolio of new
medicines of high medical value for smaller patient populations. However, the
Company will experience competition in several specific areas, including those
described below.
* PRODUCT ACQUISITION -- The Company intends to acquire the rights to
products with important therapeutic advantages that generally are not of
interest to larger pharmaceutical companies. Nevertheless, the Company will
compete with other entities in acquiring product rights from universities
and other research institutions, as well as other potential licensors.
* PRODUCT DEVELOPMENT RESOURCES -- The Company will compete for certain
resources, such as the services of clinical investigators, contract
manufacturers, advisors and other consultants. The Company will generally
have little or no control over the allocation of such resources.
* ORPHAN DRUG DESIGNATION -- The Company is aware of three companies that
have filed and have received orphan drug designation on products similar to
three of its products. Sparta Pharmaceutical, Biocraft and Genzyme have
been granted orphan drug designations for their intravenous busulfan, gamma
hydroxybutyrate and alpha-galactosidase A products, respectively.
Intravenous busulfan and gamma hydroxybutyrate are the equivalent of the
Company's Busulfanex and Xyrem products, respectively. While the Company is
not aware of others holding or seeking orphan drug designations for
products that would compete with the Company's products for NDA approval,
there can be no assurance that the Company's products will not have such
competition for the protection conferred by orphan drug status.
* MARKETING AND SALES -- Each of the Company's products will face competition
from other products or from other therapeutical alternatives. In general,
the Company's products will compete against products whose marketers have
substantially greater resources than the Company.
GRANTS
The FDA Office of Orphan Drug Products, as well as the Small Business
Administration, offer grants to companies whose efforts meet certain
requirements. Orphan Drug grants and Small Business Innovation Research (SBIR)
grants may be available to fund aspects of the Company's development efforts. To
date, the Company has received four FDA Orphan Drug and one SBIR grants totaling
approximately $1.7 million to support certain development activities planned for
Busulfanex, Colomed, Antizol and Intrachol. However, approximately $.7 million
of the $1.7 million is allocable to subsequent periods of multi-year awards for
three Orphan Drug grants awarded in late 1996 for Busulfanex, Colomed and
Antizol, the payment of which is conditional upon the FDA Office of Orphan Drug
Products funding these grants in such subsequent periods. Through February 28,
1997, the Company has collected approximately $377,000 in cash proceeds on its
Orphan Drug and SBIR grants. There can be no assurance that the FDA will fund
multi-year awards for the Busulfanex, Colomed or Antizol Orphan Drug grants past
the first year nor can there be any assurance that the Company will fully
collect the grant proceeds on any grant it presently has or may have in the
future.
GOVERNMENT REGULATION
GENERAL.
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Several potential
approaches are under consideration, including mandated basic health care
benefits, controls on health care spending through limitations on the growth of
private health insurance premiums and Medicare and Medicaid spending, price
discounts from drug manufacturers, the creation of large purchasing groups and
other significant changes to the health care delivery system. In addition, some
states have adopted or are considering various health care reform proposals. The
Company anticipates that Congress and state legislatures will continue to review
and assess alternative health care delivery systems and payment methods and that
public debate of these issues will likely continue in the future. Because of
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted or what impact they
may have on the Company or its prospects.
REIMBURSEMENT.
Employers, through payments to their employee benefit plans, bear a significant
share of the health care costs of their employees. These plans are typically
administered by insurance companies, health maintenance organizations, preferred
provider organizations and other third-party payors. Health care services and
products, including pharmaceutical products, are also paid for by government
agencies, such as Medicaid. Employers and the payors involved in providing or
administering health care benefits are increasingly turning to "managed care"
systems to control health care costs. Under these systems, the administrative
requirements and standards of care are established by the health care purchasers
and providers and the benefit level depends on the negotiated price. Managed
care systems usually limit treatment options to approved therapeutic regimens
and "formularies," or lists of approved drugs and medical products.
Being included on the formularies of managed care groups is important to the
commercial success of a prescription medicine. A pharmaceutical must be included
on a third-party payor's formulary or must be deemed "medically necessary" to be
eligible for reimbursement by that payor. In deciding whether a drug is to be
included on a formulary, payors will generally consider its therapeutic value
and cost in comparison to other available treatments. The Company believes that
the proprietary nature and medical usefulness of its proposed products should
assist it in its efforts to have its products approved for reimbursement. No
assurance can be given, however, that the Company's products will be approved
for reimbursement by third-party payors at acceptable levels, or at all.
PRODUCT APPROVALS.
The Company's products require FDA approvals in the United States and comparable
approvals in foreign markets before they can be marketed.
MANUFACTURING REGULATION.
All facilities and manufacturing techniques used to manufacture products for
clinical use or sale in the United States must be operated in conformity with
GMP, the FDA requirements governing the production of pharmaceutical products.
The Company has established a quality assurance program to ensure that its
products are manufactured in accordance with domestic and foreign regulations.
FOREIGN REGULATION.
Products marketed outside of the United States are subject to regulatory
approval requirements similar to those required in the United States, although
the requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. No action can be
taken to market any product in a country until an appropriate application has
been approved by the regulatory authorities in that country. The current
approval process varies from country to country, and the time spent in gaining
approval varies from that required for FDA approval. In certain European
countries, the sales price of a product must also be approved. The pricing
review period often begins after market approval is granted. The Company intends
to utilize foreign partners to apply for foreign marketing approvals.
INSURANCE
Providing health care products entails an inherent risk of liability. In recent
years, participants in the health care industry have been subject to a large
number of lawsuits alleging malpractice, product liability or related legal
theories, many of which involve large claims and significant defense costs. The
Company may from time to time be subject to such suits as a result of the nature
of its business. The Company carries product liability insurance coverage in the
aggregate amount of $5 million. The Company also carries a $1 million general
business insurance policy. There can be no assurance, however, that such
insurance policies will be sufficient to fully indemnify the Company against any
asserted claims or that such insurance will continue to be available.
HUMAN RESOURCES
The Company has twenty eight full-time employees. The Company believes that its
relationship with its employees is good. None of the Company's employees is
represented by a labor union.
TRADE SECRETS
The Company also relies on trade secrets and proprietary know-how to protect
certain of its technologies and potential products. The Company requires
employees, consultants and advisors to enter into confidentiality agreements
that prohibit disclosure to any third-party or use of such secrets and know-how
for commercial purposes. Company employees also agree to disclose and assign to
the Company all methods, improvements, modifications, developments, discoveries
and inventions conceived during their employment that relate to the Company's
business. There can no assurance, however, that these agreements will be
observed and prevent disclosure or provide adequate protection for the Company's
confidential information and inventions.
TERMINATED DEVELOPMENT PROJECTS
In May 1996, the Company terminated the development of glucaric acid after
careful evaluation of results from a pilot clinical trial and technical studies.
Glucaric acid was being evaluated for effectiveness and safety in the treatment
of patients with elevated cholesterol levels. With this action, the Company has
terminated two products from its portfolio since inception (L-Cycloserine in
1994).
OTHER
In June 1996, the Company and Chronimed terminated a marketing agreement whereby
the Company will no longer share in the profits earned by Chronimed from the
sales of Cystagon(R), which is a FDA approved product developed by Mylan
Pharmaceuticals, Inc. for the treatment of nephropathic cystinosis. The Company
agreed to terminate this agreement as a condition to Chronimed's agreement to
relinquish its exclusive distribution rights in the United States for Elliotts B
Solution and Antizol-Vet.
CURRENT PRODUCTS
The following table summarizes certain information relating to the Current
Products:
<TABLE>
<CAPTION>
MARKETED PRODUCTS
- -----------------------------------------------------------------------------------------------------------------
U.S. Patent
Issued or
NDA Approval Applied For Orphan Drug
Product Application Date *** Designation
- -------------------------------- ----------------------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Elliotts B(TM) Solution Diluent for intrathecal Sept. 1996 No Orphan Drug
(buffered intrathecal injection of chemotherapeutic Status
electrolyte/dextrose drugs delivered into
solution) cerebrospinal fluid
*Cystadaneo(TM) (betaine Homocystinuria, a genetic Oct. 1996 No Orphan Drug
anhydrous for oral solution) disease Status
Antizol-Vet(TM) (fomepizole) Ethylene glycol (antifreeze) Nov. 1996 No Five year
for injection poisoning in dogs period of
exclusivity
</TABLE>
Antizol(TM), Antizol-Vet(TM), Caprogel(TM), Busulfanex(TM), Repliderm(TM),
Intrachol(TM), Colomed(TM), Cystadane(TM), Elliotts B(TM) Solution, Sucraid(TM),
Xyrem(TM), "The" Orphan Drug Company(TM), Orphan Medical, Inc.(R) and Dedicated
to Patients with Uncommon Diseases(R) are trademarks of the Company.
CURRENT PRODUCTS (CONTINUED)
<TABLE>
<CAPTION>
PRODUCTS UNDER DEVELOPMENT
- -------------------------------------------------------------------------------------------------------------------
U.S. Patent
Issued or
Phase of Applied For Orphan Drug
Product Application Development ** *** Designation
- -------------------------------- ---------------------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
*Cystadane(TM) (betaine Hyperhomocysteinemia in II No None
anhydrous for oral solution) hemodialysis patients
*Antizol(TM) (fomepizole) for Ethylene glycol (antifreeze) NDA submitted No Granted
injection and methanol poisoning in
humans
Sucraid(TM) (sacrosidase) Sucrase deficiency, a genetic III No Granted
oral solution disease
*Colomed(TM) (short chain Chronic radiation proctitis III Yes Granted
fatty acids) enema (rectal inflammation after
radiation)
*Busulfanex(TM) (busulfan) Chemotherapy in bone marrow II/III Yes Granted
for injection transplant patients with
cancer
*Caprogel(TM) (aminocaproic Bleeding in the eyes, usually III Yes Granted
acid) topical gel as a result of trauma
Clonidine for intrathecal use Chronic intractable pain I/II Yes Pending
Alpha-galactosidase A Fabry Disease Pre-clinical Yes Granted
Xyrem(TM) (gamma Narcolepsy II No Granted
hydroxybutyrate)
Colloidal bismuth subcitrate Reduction of H. pylori I Yes Not Available
Intrachol(TM) (choline Choline deficiency in II Yes Granted
chloride) for injection patients receiving total
parenteral nutrition ("TPN")
Repliderm(TM) Wound Wound dressing in patients 510(k) No Not Available
Dressing with decubitus or diabetic clearance in
ulcers Dec. 1996
5FU (5-fluorouracil) Glaucoma surgery II Yes Pending
</TABLE>
* Exclusive distribution rights held by Chronimed for the United States.
** Development Phases are discussed under "Business - The Regulatory Process."
*** The patents are owned by third parties from whom the Company has obtained
exclusive licensing rights.
ELLIOTTS B SOLUTION (BUFFERED INTRATHECAL ELECTROLYTE/DEXTROSE SOLUTION)
Elliotts B Solution received marketing clearance from the FDA in September 1996.
The first commercial sales of Elliotts B Solution occurred in December 1996.
Elliotts B Solution is primarily used in a hospital setting and is distributed
by a subsidiary of Cardinal Health. Elliotts B Solution is a buffered diluent
for the intrathecal administration (injection into the spinal cord) of
chemotherapeutic agents. Intrathecal injections are the most common injection
made in treating acute lymphoblastic leukemia ("ALL"). ALL is the most prevalent
form of leukemia in children. Due to advances in chemotherapy, the cure rate for
ALL has improved dramatically in the past 30 years, going from almost zero to 65
to 75% today. As a part of modern chemotherapy, doctors often administer a
series of up to 20 injections of methotrexate sodium into the cerebrospinal
fluid of patients. It is estimated that cerebrospinal injections of methotrexate
sodium are administered to about 6,000 people in the United States, and
approximately the same number of people in the Company's anticipated foreign
markets, on an annual basis. Elliotts B Solution is comparable in pH,
electrolyte composition, glucose content and osmolarity to cerebrospinal fluid.
From 1976 to 1992, the National Cancer Institute provided Elliotts B Solution
without charge to treatment facilities for use in clinical trials as a diluting
solution for the intrathecal administration of methotrexate sodium. The Company
believes the familiarity with Elliotts B Solution on the part of clinicians and
pharmacists will prove helpful in gaining sales. The Company has obtained orphan
drug status for the use of Elliotts B Solution as a diluent for methotrexate
sodium or cytarabine, which provides marketing exclusivity through September 26,
2003. Elliotts B Solution is not patentable for the Company's proposed use. No
license was required for the Company to develop and market Elliotts B Solution.
CYSTADANE (BETAINE ANHYDROUS FOR ORAL SOLUTION)
FOR HOMOCYSTINURIA
Cystadane received marketing clearance from the FDA in October 1996. The first
commercial sales of Cystadane occurred in December 1996. Chronimed distributes
Cystadane directly to patients in the United States through its mail order
pharmacy. It is the first agent approved by the FDA for the treatment of
homocystinuria, an inherited metabolic disease. The clinical consequences are
wide-ranging and include dislocation of the ocular lens, early (under age 30)
thromboembolism, developmental and mental retardation and reduced life span
related to elevated plasma homocysteine levels. It has been estimated that
homocystinuria occurs about once in every 200,000 live births worldwide. There
are approximately 1,000 patients with homocystinuria in the United States.
Cystadane is a known compound which has already been used to treat
homocystinuria and is, therefore, not patentable for this indication. The
Company has obtained orphan drug status for Cystadane for the treatment of
homocystinuria, which provides marketing exclusivity to the Company through
October 24, 2003.
FOR HYPERHOMOCYSTEINEMIA
The Company is studying the use of Cystadane to treat hemodialysis patients with
hyperhomocysteinemia. Hyperhomocysteinemia is a common finding among dialysis
patients and has been shown to be an independent risk factor for cardiovascular
disease. There are approximately 200,000 dialysis patients in the United States.
Cardiovascular disease is the leading cause of death in patients on chronic
hemodialysis therapy. A supplement to the Company's approved NDA for Cystadane
would have to be submitted to and approved by the FDA before Cystadane can be
marketed as a treatment for patients with hyperhomocysteinemia.
FOR OTHER POTENTIAL INDICATIONS
The Company is currently evaluating potential additional indications for
Cystadane in cardiovascular, liver disease and central nervous system disorders.
However, before the Company can market Cystadane for any specific additional
indications, it must conduct clinical trials and obtain regulatory approval from
the FDA.
ANTIZOL-VET (FOMEPIZOLE) FOR INJECTION
In November 1996, the Center for Veterinary Medicine of the FDA approved
Antizol-Vet for dogs who have ingested or are suspected of having ingested
ethylene glycol. The first commercial sales of Antizol-Vet occurred in late
January 1997. Antizol-Vet is available exclusively through W.A. Butler Company,
the largest distributor of veterinary pharmaceuticals in the United States. It
is estimated that at least 10,000 cases of ethylene glycol poisoning occur in
dogs each year. The earlier an ethylene glycol poisoned dog is treated with
Antizol-Vet, the more likely that there will be a positive outcome. For this
reason, the Company believes many veterinary practices will stock Antizol-Vet to
ensure timely treatment. The Company estimates there are over 22,000 veterinary
practices in the United States in which the treatment of small animals
constitutes a significant portion of their business. The FDA has granted
Antizol-Vet a five-year exclusive marketing period.
ANTIZOL (FOMEPIZOLE) FOR INJECTION
When ingested by humans, ethylene glycol (found in antifreeze) and methanol
(found in windshield wiper fluid) can lead to death or permanent and serious
physical damage. In a survey conducted in 1993 by the American Association of
Poison Control Centers, over 6,000 cases of methanol or ethylene glycol
poisonings were reported to United States poison control centers.
When ethylene glycol or methanol is introduced into the body, they are converted
into toxic substances that produce the severe side effects associated with these
poisonings. Historically, therapy for ethylene glycol and methanol poisoning
ranged from observation in mild cases to ethanol infusion and/or hemodialysis in
severe cases. Ethanol is, however, not approved by the FDA to treat such
poisonings. If the correct amount of ethanol is introduced in the patient's
system over a sufficient period of time, fewer toxic substances are created and
the body is able to remove them without substantial injury. Differences in each
patient's metabolism, however, make it difficult to determine and maintain the
appropriate level of ethanol. If the effective dose level is quite high, it may
cause further depression of the patient's central nervous system. If too little
ethanol is infused, however, further toxicity will not be prevented. The current
form of treatment also requires hospitalization for up to five days in an
intensive care unit ("ICU") and the specialized care needed is very costly.
Antizol does not act as a central nervous system depressant at the doses used to
treat methanol or ethylene glycol poisonings. Because Antizol is eliminated from
the body more slowly than ethanol, therapeutic dose levels are easier to
maintain. Based on limited human studies, Antizol appears to be effective in
preventing further toxicity from potentially lethal doses of ethylene glycol and
methanol. The Company believes that patients treated with Antizol will not have
to remain in the ICU as long as is required with current ethanol-based
therapies, which should lead to substantial cost savings. Because it is
important to treat poisoned patients very quickly in order to improve the
chances of successful recovery, the Company also believes that hospital
pharmacies will stock at least a minimum quantity of Antizol.
The Company, through a sublicense agreement with Mericon Investment Group, Inc.,
has an exclusive, worldwide license to develop and market Antizol. Antizol has
been studied by several clinical investigators in several clinical trials. The
Company has successfully contracted for the production of Antizol under GMP
conditions. The Company has obtained orphan drug designation for Antizol as an
antidote to treat methanol or ethylene glycol poisonings, but the compound is
not eligible for patent protection. Two INDs have been accepted by the FDA and
clinical trials have been ongoing since late 1995. An NDA for Antizol was
submitted by the Company in December 1996 for the treatment of ethylene glycol
poisoning. Studies on treatment with Antizol for methanol poisoning are ongoing.
Should these studies provide sufficient positive data, a supplemental NDA for
Antizol will be submitted to the FDA.
SUCRAID (SACROSIDASE) ORAL SOLUTION
Sucraid is an enzyme in the small intestine that is necessary to the digestion
of sucrose, which is common table sugar. A genetic deficiency of this enzyme
results in a disorder known as Congenital Sucrase-Isomaltase Deficiency
("CSID"). The primary symptoms of CSID include severe watery diarrhea, chronic
malabsorption and failure to thrive (in infants and toddlers). Other common
symptoms include nausea, vomiting, abdominal cramps and abdominal pain following
the consumption of foods containing sucrose. Based upon medical literature, it
is estimated that between 10,000 and 50,000 persons in the United States suffer
from CSID, and it is believed that many additional cases may be unreported due
to the difficulties associated with diagnosing the disease. It is yet
undetermined how many patients exhibit significant symptoms and seek treatment.
An approximately equal number of cases occurs worldwide.
Presently, the only specific treatment of CSID consists of a life-long adherence
to a sucrose-free diet. In many patients, starch consumption must also be
limited. Compliance with a sucrose-free diet is very difficult because sucrose
is found in many foods in the typical American diet. Nonspecific symptomatic
treatments include antidiarrheal, antispasmodic and antiflatulence drugs, all of
which are limited in their efficacy.
Sucraid is a specific replacement of the missing enzyme responsible for CSID.
Hartford Hospital has granted the Company exclusive worldwide rights to the data
on Sucraid for CSID, including the results of two randomized controlled clinical
trials. The Company has received orphan drug designation for Sucraid, but it is
unlikely that patent protection can be obtained. The Company intends to submit
an NDA in the first half of 1997.
Numerous diseases are associated with a secondary sucrase deficiency and the
Company intends to evaluate the efficacy and safety of Sucraid in treating
several of these. However, before the Company can market Sucraid for any
specific additional indications, it must conduct clinical trials and obtain
regulatory approval from the FDA. The Company is not presently conducting any
such clinical trials.
COLOMED (SHORT CHAIN FATTY ACIDS) ENEMA
An estimated 200,000 patients annually receive pelvic radiation for cancer which
may result in chronic radiation proctitis. Chronic radiation proctitis is
characterized by rectal bleeding, pain, diarrhea and an urgent need to defecate.
In patients experiencing severe symptoms, excessive blood loss and the need for
transfusions are not uncommon. Mild symptoms occur in most patients receiving
pelvic radiation and severe symptoms occur in up to 10% of these patients. The
current therapy for treatment of radiation proctitis is oral and/or rectal
corticosteroids, lasers or surgery. Long-term steroid use can, however, lead to
weight gain, blood pressure increases, tissue protein loss, osteoporosis,
behavioral disturbances and suppression of the immune system. In addition, the
Company believes current drug treatments are seldom effective.
The Company is currently developing Colomed as a treatment for chronic radiation
proctitis. The short chain fatty acids in Colomed provide important nutrients
required for large bowel cells to function normally. Three clinical trials,
including one randomized controlled clinical trial, have been conducted with
short chain fatty acid enemas to treat patients with chronic radiation
proctitis. The Company has an IND and began its Phase III clinical trials in
1996. Preliminary clinical results suggest that rectal therapy with Colomed is a
safe and effective treatment for patients with chronic radiation proctitis
resulting from radiation for various pelvic cancers. The Company has an
exclusive license from Dr. Richard Breuer, the patent holder, to develop and
market Colomed for the treatment of inflammatory bowel disorders, including
radiation proctitis, worldwide, except for Canada.
BUSULFANEX (BUSULFAN) FOR INJECTION
Leukemias and lymphomas are often fatal diseases that are characterized by a
progressive proliferation of abnormal white blood cells in the blood and body
tissues. If untreated, they lead to severe anemia, hemorrhages and eventual
death. Bone marrow transplants ("BMTs") are now considered to be one of the more
effective treatments currently available for patients with certain types of
these diseases. It is estimated that by the year 2000 more than 20,000 BMTs will
be done each year for leukemia and lymphoma patients worldwide, half of which
will be done in the United States. Another 20,000 patients worldwide may receive
BMTs for other cancers.
One of the many complex steps in performing a BMT includes killing the patient's
abnormal white blood cells. In the past, total body irradiation was used for
this purpose. This type of radiation treatment, however, is associated with
several adverse side effects, including damage to the blood vessels of various
internal organs, occlusions of veins in the liver (veno-occlusive disease) and
degeneration of the white matter of the brain. Researchers discovered, however,
that certain types of drugs, termed "chemotherapeutic" drugs, can also be used
to kill abnormal white blood cells. Busulfan is a chemotherapeutic drug that is
currently available only in oral form, but this form of busulfan adversely
affects the liver and lungs and can lead to fatal failure of either organ. An
additional drawback arises because of busulfan's poor solubility in water. As a
result, busulfan is currently available only in tablets that contain a small
amount of the drug. Because a BMT requires high dosages of busulfan, patients
are required to take large numbers of tablets, usually more than 100 per day for
four days, in order to absorb enough of the drug to achieve the desired
therapeutic effects. This requirement has limited the use of busulfan for BMT
procedures, particularly those involving children. Further, the severe nausea
and vomiting that accompanies the administration of oral busulfan leads to loss
of some or all of the administered dose.
Insufficient dosage levels of busulfan may not completely destroy the abnormal
white blood cells and may result in the patient relapsing after the BMT.
Conversely, if the busulfan dosage is too high, the risk of damage to the liver
or lung is increased and the framework upon which the new bone marrow is placed
could be damaged, resulting in poor engraftment of the new marrow. An additional
complication arises because intestinal absorption of oral busulfan is erratic
due to differences among patients in their nutritional states and the effects of
other drugs on their gastrointestinal system.
The Company has an exclusive, worldwide license agreement with the M.D. Anderson
Cancer Center at the University of Texas to develop and market an intravenous
form of busulfan that will be called Busulfanex. Because the drug would not
enter the patient's gastrointestinal system, vomiting should not occur and
dosage levels, therefore, should be more accurately controlled. This may lead to
improved safety and an improved likelihood that the BMT will be successful. An
increased success rate is important given that the average cost of a BMT in the
United States exceeds $100,000. The Company may evaluate further whether liver
and lung toxicity rates are reduced through the use of Busulfanex after the
product is approved for sale.
Many other drugs are currently being developed for use in the BMT area. Although
most of these new drugs treat bone marrow cells removed from the body as a part
of a BMT and are not chemotherapeutic drugs, some of them may compete with
Busulfanex. In addition, the Company is aware of another company that has
received orphan drug designation for the use of an intravenous form of busulfan
in BMT procedures and is currently developing its own form of intravenous
busulfan.
In January of 1997, the FDA required the Company to broaden the clinical data to
be submitted as part of the Company's NDA. In order to satisfy this requirement,
the Company will expand the number of patients to be enrolled in its Phase
II/III trials currently underway. A manufacturer has been located and the
Company has obtained an IND. The M.D. Anderson Cancer Center has obtained a
patent covering Busulfanex and orphan drug designation has been obtained by the
Company. It is expected that the information already known about the oral form
of the drug will be helpful in expediting the FDA's approval of an NDA for
Busulfanex. If the NDA for Busulfanex is approved, the Company plans to market
it to oncologists who conduct BMTs at cancer treatment centers in the United
States.
CAPROGEL (AMINOCAPROIC ACID) TOPICAL GEL
The Company is developing Caprogel in a topical gel form as a therapy for
non-penetrating traumatic hyphema. Traumatic hyphema is bleeding caused by
damage to one or more blood vessels in the eye and is usually caused by the
impact of an object, such as a baseball or racquetball. Secondary hemorrhaging
(rebleeding at the site of injury) is believed to occur in approximately 15% to
25% of all hyphema patients.
Typically, this rebleeding occurs between the second to seventh day after the
initial trauma. It is believed that rebleeding is due to the premature breakdown
of the clots which form after the initial hemorrhage. Secondary hemorrhaging is
usually more severe than the initial hemorrhage and can lead to complications
that can result in permanent vision impairment. It is estimated that traumatic
hyphema affects approximately 35,000 people in the United States each year and
an additional 35,000 in the Company's anticipated foreign markets.
The customary treatment for traumatic hyphema has included hospitalization, bed
rest, eye patches and sedation, none of which directly prevents premature
breakdown of clots. In some cases, aminocaproic acid ("ACA") has been
administered in tablet, syrup or intravenous form. ACA reduces the rate of
breakdown of clots, but administering the drug in these forms often causes
nausea, vomiting and hypotension. Vomiting after administration of ACA is of
particular concern because vomiting increases venous pressure on the eye, which
may increase the risk of rebleeding. Although studies show that ACA administered
in the presently available forms reduces the incidence of secondary hemorrhage,
many physicians are reluctant to prescribe it due to these side effects. When
physicians prescribe the presently available forms of ACA, it is often
administered in the hospital due to its side effects. The resulting
hospitalization costs can be significant.
The Company believes that administration of ACA in a topical gel form, Caprogel,
directly into the affected eye will offer an improvement over current therapy
for the treatment of traumatic hyphema by reducing rebleeding and other side
effects. Treatment with Caprogel should also allow out-patient therapy for at
least part of the treatment period, reducing overall therapy costs.
The Company has an exclusive, worldwide license agreement with Virginia's Center
for Innovative Technology to develop and market Caprogel. This center has two
patents on the Company's proposed uses of this product. The Company has obtained
orphan drug designation for ACA for the treatment of non-penetrating traumatic
hyphema. Phase II clinical trials have been conducted and a large Phase III
trial is underway at numerous sites. Two supplementary toxicology studies have
been conducted and no others are planned or believed necessary.
The Company has executed an agreement with a manufacturer in order to enable the
Company to conduct its Phase III trials and prepare for commercial production of
Caprogel. If an NDA is approved, Caprogel would likely be marketed to
ophthalmologists, particularly those who provide emergency room services.
The Company is evaluating a second indication of Caprogel for treatment of both
superficial and deep corneal epithelial wounds. This use is covered by one of
the aforementioned patents. However, before the Company can market for any
specific additional indications, it must conduct clinical trials and obtain
regulatory approval from the FDA. The Company is not presently conducting any
such clinical trials.
CLONIDINE FOR INTRATHECAL USE
In a collaborative development agreement with Medtronic, the Company will test
the use of clonidine, delivered directly to the spinal fluid by the Medtronic
SynchroMed(R) implantable drug infusion system, in the treatment of chronic
intractable pain. Intractable pain is typically defined as constant, long-term
pain that is not manageable without intervention. Clonidine delivered
intrathecally (inside the sheath that surrounds the spinal cord) may be
effective in patients with pain who no longer experience adequate relief with
intrathecal morphine. These patients, if not already using a SynchroMed system,
will require its implant to deliver intrathecal clonidine.
Chronic pain historically has been classified into two categories: neuropathic
pain, defined as pain in which the predominating mechanism is site of aberrant
somatosensory processing in the peripheral or central nervous system, and
nociceptive pain, defined as pain in which prolonged stimulus leads to tissue
damage. Both neuropathic and nociceptive pain can be of malignant (cancer) or
non-malignant (non-cancer related) origin. Examples of non-cancer pain are
low-back or post-traumatic pain, phantom limb pain, or pain from failed back
surgery, spinal cord injury, diabetic nerve damage, chronic regional pain
syndrome, or post-herpetic neuralgia (shingles).
The SynchroMed system is the only externally programmable, implantable, drug
infusion system available today. Using telemetry, the clinician can program its
pump to deliver precise doses of medication at specific times to provide optimum
therapy for each patient. It is widely used with morphine sulfate to block pain
signals traveling to the brain and is also used to treat severe spasticity
associated with multiple sclerosis, spinal cord injury, cerebral palsy, and
traumatic brain injury. Clinical trials are expected to be initiated in 1998.
ALPHA-GALACTOSIDASE A
Patents and technology for alpha-galactosidase A were licensed from Research
Corporation Technology ("RCT") of Tucson, Arizona for the treatment of Fabry
Disease. This technology was developed by David Calhoun at the Center for
Applied Biomedicine and Biotechnology of the City University of New York. Fabry
Disease is characterized by an enzyme deficiency of alpha-galctosidase A which
results in the accumulation of ceramidetrihexoside, a toxic compound, in the
body. Symptoms of the disease include severe pain, particularly in the fingers
and toes, renal disease, and cardiovascular complications. The life expectancy
for patients with Fabry Disease is markedly reduced and many do not survive
young adulthood. Currently, there is no effective therapy for Fabry Disease,
which is estimated to affect approximately 1,500 to 2,500 patients in the United
States and an equal number in Europe.
One patent has been issued and a second broader patent was recently allowed in
the United States for the Company's recombinant alpha-galactosidase A. A
Cooperative Research and Development Agreement ("CRADA") has been approved by
the United States' National Institute of Health ("NIH"). A CRADA is an agreement
between a company and the government that outlines responsibilities for a
development project. Beginning this year, NIH's Dr. Roscoe Brady, one of the
world's leading experts in Fabry Disease, will conduct clinical trials for
alpha-galactosidase A. The Company has met with the FDA to discuss the IND
application and has agreed on a development plan for alpha-galactosidase A with
the FDA. The Company's focused approach to developing alpha-galactosidase A is
believed to shorten the time it usually takes for most biotechnology drugs to
reach the market.
The Company is aware of at least two other companies pursuing products for the
treatment of Fabry Disease. Genzyme is pursuing a similar enzyme replacement
therapy and Transkaryotic Therapies is pursuing a gene therapy product for this
disease.
XYREM (GAMMA HYDROXYBUTYRATE)
Narcolepsy is a chronic neurologic disorder characterized by excessive daytime
sleepiness, unavoidable daytime sleep episodes, cataplexy or sudden loss of
muscle control, brief periods of muscle paralysis when awakening or falling
asleep and hallucinogenic dreams. Other related symptoms include disturbances of
auditory and visual perception, lapses of consciousness and memory problems.
These symptoms can lead to a variety of complications, such as driving or
machine accidents, difficulties at work resulting in disability, forced
retirement or job dismissal, impotence and depression. Narcolepsy is thought to
affect between 120,000 and 180,000 patients in the United States. Although the
peak age of reported symptoms is between 15 to 25 with a smaller peak occurring
between 35 and 45, symptoms have been noted in persons as young as five years
old.
The usual treatment for narcolepsy includes symptomatic treatment of daytime
drowsiness and sleep attacks with stimulants. The auxiliary symptoms of
cataplexy, sleep paralysis and hallucinogenic dreams are typically treated with
tricyclic antidepressants. These treatment regimens, in addition to being only
minimally effective, are often unsatisfactory for a number of other reasons.
Amphetamines and other stimulants often cause undesirable side effects of
insomnia, hypertension, palpitations, irritability and, at higher doses, may
mimic the symptoms of schizophrenia. The tricyclic antidepressants can cause the
side effects of dry mouth, impotence, loss of libido, rapid heart beats and drug
tolerance. Xyrem is a naturally occurring substance found in many human tissues.
Previous clinical studies with Xyrem suggest that it is a safe, nontoxic
substance that is effective in the treatment of narcolepsy. When administered at
night, it has been shown to improve night-time sleep and to control cataplexy,
sleep paralysis and hallucinations. More than 120 narcolepsy patients have been
exposed to clinical doses with no consistent ill effects for up to 12 years of
treatment. Xyrem does not appear to have the side effects associated with
tricyclic antidepressants and appears to reduce the level of stimulant
medication required to maintain alertness. Narcoleptic patients could be treated
with Xyrem at night and, if needed, with stimulants during waking hours.
Xyrem is a known compound that has already been used to treat narcolepsy and is
not patentable for this indication. The Company has, however, received orphan
drug designation for Xyrem and has negotiated certain exclusive manufacturing
agreements. An IND has been submitted to and approved by the FDA and controlled
clinical trials have begun. Gamma hydroxybutyrate has been reported to be abused
and may be designated a "scheduled drug" under the Controlled Substances Act by
the Drug Enforcement Agency and/or by certain states. A scheduled drug must be
manufactured, sold, distributed and used according to strict regulations, all of
which are routinely done in the pharmaceutical industry.
COLLOIDAL BISMUTH SUBCITRATE
The Company licensed colloidal bismuth subcitrate ("CBS") from Josman
Laboratories, Inc., which has filed United States and foreign patents for the
CBS treatment of oral Helicobacter pylori ("H. pylori"). H. pylori is the
bacterium shown to cause both duodenal and gastric ulcers and is estimated to be
present in the majority of patients with duodenal or gastric ulcers. Some
physicians believe that H. pylori in the mouth may reinfect the stomach or
duodenum with ulcers. Within a year of effective ulcer eradication, up to 80% of
patients experience recurrence of these ulcers. In the United States, duodenal
and gastric ulcers afflict about four and a half million people, many of whom
are treated with "triple therapy" that involves use of bismuth, metronidazole
and an antibiotic such as clarithromycin. CBS is currently marketed in Europe as
an antibiotic treatment in tablet form to kill H. pylori in the duodenum or
stomach. Although there are numerous other products in development for the
treatment of H. pylori, the Company is not aware of any that are intended to
treat this bacterium in the mouth.
The Company will complete a Phase I trial in the first quarter of 1997. This
trial was initiated by Josman as a "pilot clinical trial" to determine whether
CBS delivered as a chewing gum reduces H. pylori in the mouth. If the results of
this trial are positive, the Company will continue development of the product.
If the link between H. pylori's presence in the mouth and the reoccurrence of
stomach and duodenum ulcers is established, the Company believes the medical
value of a fully developed CBS product will increase substantially. As it
advances development of CBS as a treatment for oral H. pylori, the Company may
assess additional potential indications for this product.
INTRACHOL (CHOLINE CHLORIDE) FOR INJECTION
Choline is necessary for normal functioning in the human organism. Patients on
long-term total parenteral nutrition ("TPN") may develop a choline deficiency
manifested by low plasma choline levels, elevated liver enzymes and the
development of fatty deposits in the liver (hepatic steatosis). If untreated,
the fatty liver condition can progress to cirrhosis and other serious liver
diseases that may cause death. Existing clinical studies indicate that by adding
Intrachol to the TPN solution, a fatty liver may be returned to normal.
The Company is developing Intrachol as a sterile intravenous solution to treat,
and possibly prevent, choline deficiency and its consequences in patients on
long-term TPN therapy. It is estimated that roughly 40,000 patients in the
United States receive daily, long-term TPN.
Intrachol has been licensed by the Company from Dr. Alan Buchman of the
University of Texas. The license agreement gives the Company exclusive worldwide
rights to Intrachol for the treatment of TPN-associated liver disorders. A
United States patent has been issued, and orphan drug designation has been
granted by the FDA. Dr. Buchman has completed one clinical trial and one
pharmacokinetic study with choline. A larger controlled trial supported by an
FDA orphan drug grant began in 1995 under Dr. Buchman's direction.
The Company has an IND for Intrachol and plans to initiate a Phase III
controlled trial in 1997. Prior to filing the IND, the Company reviewed its
development plan with the FDA. Negotiations are underway with contract
manufacturers that can produce this sterile product both for future clinical
trials and for commercial production. A clinical trial to evaluate the use of
Intrachol to prevent choline deficiency and its consequences in patients
receiving chronic TPN is being initiated in 1997, supported by a SBIR grant.
The Company intends to evaluate and possibly pursue additional indications for
Intrachol as a treatment for choline deficiency in children who are receiving
TPN. However, before the Company can market Intrachol for any specific
additional indications, it must conduct clinical trials and obtain regulatory
approval from the FDA. The Company is not presently conducting any such clinical
trials.
REPLIDERM WOUND DRESSING
Chronic dermal ulcers are often the most difficult and costly wounds for
physicians to treat. The Company plans to focus on one of the three most common
types of these ulcers, decubitus ulcers (pressure sores). Decubitus ulcers occur
in immobile patients whose circulation is compromised when soft tissue is
compressed between a bone and a hard surface, such as a bed. It is estimated
that one to two million Americans suffer from these chronic wounds. Since it has
such a broad potential market, Repliderm is not eligible for orphan drug
designation.
Treatment of these wounds often includes regular dressing changes, use of
pressure resistant bandages, surgical removal of necrotic tissue and the use of
antibiotics when the wound is infected. The cost of treatment for one chronic
wound with current therapy is estimated to range from $5,000 to $36,000. A
number of wound healing therapies are currently under development by other
companies, although no currently available single product has proven sufficient
to accelerate wound repair.
Repliderm is a powder of ground bovine tracheal cartilage containing a mixture
of collagen, mucopolysaccharides, minerals and amino acids. The Company has an
exclusive worldwide license agreement with Lescarden, Inc. to develop and market
Repliderm for topical application. Repliderm received 510(k) marketing clearance
by the FDA in December 1996. However, the Company will not market Repliderm
until it completes additional clinical trials that indicate Repliderm
successfully accelerates healing of decubitus ulcers. Accordingly, if the
clinical trials provide sufficient positive data, the Company will file a
Pre-Market Application ("PMA") in order to obtain broader marketing claims not
available in the approved 510(k).
5FU (5-FLUOROURACIL)
A drug/device combination containing 5FU (5-fluorouracil) and a biodegradable
polymer was licensed from the Bascom Palmer Eye Institute at the University of
Miami School of Medicine. Designed to be implanted during conventional glaucoma
surgery, this product slowly releases 5FU to control the inflammation and
scarring associated with the post-surgical wound healing process and may
significantly improve the surgical success rate. 5FU has been used for many
years for this application through daily intraocular injections following
glaucoma surgery. Animal data have demonstrated that the implant releases the
5FU over a period of weeks, after which the polymer carrier slowly dissolves.
The Company has rights to develop and market this product in the United States,
Japan and Canada. Corneal, a French company, has rights to develop and market
this product for the same indication in other countries. The Company expects to
use data from the Corneal trials that are being initiated in Europe, as well as
their manufacturing and toxicology data, in its NDA.
ITEM 2. PROPERTIES
The Company currently occupies approximately 5,888 square feet of leased office
space at a monthly rent of approximately $6,300, including operating expenses.
This lease expires in July 1997. The Company believes its current facilities
will be adequate for its presently anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of March 1, 1997.
Name Age Title
---- --- -----
William B. Adams 50 Chairman of the Board of Directors
John Howell Bullion 45 Chief Executive Officer and Director
Bertram A. Spilker, Ph.D., M.D. 55 President and Director
Dayton T. Reardan, Ph.D. 41 Vice President of Regulatory Affairs
Patti A. Engel 36 Vice President of Marketing
Executive officers of the Company serve at the discretion of the Board of
Directors with no fixed term. There are no family relationships between or among
any of the executive officers or directors of the Company.
Mr. Adams has been the Company's Chairman of the Board since June 24, 1994. Mr.
Adams is a co-founder of Chronimed and served as Chairman of the Board and a
director of Chronimed from 1985 to June 1994. Since 1990, Mr. Adams has served
as Chairman of the Board and Chief Executive Officer of Eco Soil Systems Inc., a
water treatment and turf management company.
Mr. Bullion has been Chief Executive Officer of the Company since June 24, 1994.
Mr. Bullion is a co-founder of Chronimed and has been a director of Chronimed
since 1985. Since September 1993, Mr. Bullion has been President of Bluestem
Partners, Ltd., which invests in and provides management services to developing
businesses. From March 1992 to July 1993, Mr. Bullion served as President of
Dahl & Associates, an environmental soil and ground water remediation company.
Prior to joining Dahl & Associates, Mr. Bullion served for one year as President
of Concurrent Knowledge Systems, Inc.
Dr. Spilker has been President of the Company since June 24, 1994. From January
1993 to June 1994, Dr. Spilker was a Vice President of Chronimed with
responsibility for managing the Orphan Medical Division. From 1983 to 1992, Dr.
Spilker was Director of Project Coordination and from 1979 to 1983, he was a
Senior Clinical Research Scientist at Burroughs Wellcome. Dr. Spilker has held
appointments as full professor in medicine and pharmacology at the University of
North Carolina Medical School and as Clinical Professor at the University of
North Carolina School of Pharmacy. Dr. Spilker was a full professor at the Duke
University Fuqua School of Business in 1993 and is currently a Clinical
Professor in Pharmacy Practice at the University of Minnesota.
Dr. Reardan has been the Company's Vice President of Regulatory Affairs since
May 1995 and had been the Director of Regulatory Affairs since joining the
Company in 1994. From 1993 to 1994, he was Director of Development at CV
Therapeutics. From 1984 to 1993, he held a variety of management positions at
Xoma Corporation, most recently Director of Project Management.
Ms. Engel has been the Company's Vice President of Marketing since May 1995 and
had been Director of Marketing for the Company since joining the Company in
1994. From 1984 to 1994, Ms. Engel held a variety of sales and marketing
management positions with 3M Pharmaceuticals, a division of the 3M Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the Symbol: ORPH. The following table sets forth the
high and low sales prices for the Company's Common Stock for the periods
indicated commencing with the date on which the Company's Common Stock became
publicly traded.
High Low
------------ ------------
YEAR ENDED JUNE 30, 1995
October 12, 1994 through December 30, 1994 $5.125 $3.500
December 31, 1994 through March 31, 1995 $5.125 $3.000
April 1, 1995 through June 30, 1995 $5.125 $3.875
SIX MONTHS ENDED DECEMBER 31, 1995
July 1, 1995 through September 29, 1995 $8.500 $4.875
September 30, 1995 through December 31, 1995 $7.625 $5.500
YEAR ENDED DECEMBER 31, 1996
January 1, 1996 through March 31, 1996 $9.750 $5.375
April 1, 1996 through June 30, 1996 $10.250 $7.250
July 1, 1996 through September 30, 1996 $11.125 $6.875
October 1, 1996 through December 31, 1996 $11.125 $7.875
As of March 10, 1997, the Company's Common Stock was held by 313 shareholders of
record and the Company estimates that there were approximately 4,900 beneficial
owners of its Common Stock on such date.
The Company has never declared or paid any dividends and does not anticipate
paying dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain future earnings, if any, for use in the Company's
business. The payment of any future dividends will be determined by the Board of
Directors in light of conditions then existing, including the Company's
earnings, financial condition and requirements, restrictions in financing
agreements, business conditions and other factors.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FINANCIAL POSITION
(Unaudited)
December 31, December 31, December 31, July 1,
1996 1995 1994 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,927,945 $ 5,029,682 $ 3,186,328 $ -
Working capital 14,538,893 7,317,554 3,736,121 4,924,303
Total assets 17,150,599 8,987,362 4,087,599 5,067,392
Deficit accumulated during the development (14,808,669) (7,191,485) (2,033,538) (892,330)
stage
Total shareholders' equity 14,795,331 7,493,990 3,850,171 4,991,379
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
FINANCIAL RESULTS
(Unaudited) (Unaudited) Period from
For the Year For the Year For the Six Period from January 1, 1993
Ended Ended Months Ended January 1,1993 (Inception) to
December 31, December 31, December 31, (Inception) to December 31,
1996 1995 1994 July 1, 1994 1996
----------------- ---------------------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 36,681 $ - $ - $ - $ 36,681
Operating expenses:
Cost of sales 10,446 - - - 10,446
Research and development 6,248,381 4,100,502 727,404 647,125 11,723,412
General and administrative 2,253,717 1,496,113 510,556 245,205 4,505,591
----------------- ---------------- ----------------- ----------------- ----------------
Loss from operations (8,475,863) (5,596,615) (1,237,960) (892,330) (16,202,768)
Other income:
Interest 858,679 438,668 96,752 - 1,394,099
----------------- ---------------- ----------------- ----------------- ----------------
Net loss and deficit
accumulated during the
development stage $(7,617,184) $(5,157,947) $(1,141,208) $(892,330) $(14,808,669)
================= ================ ================= ================= ================
Net loss per common share $(1.43) $(1.89) $(.96) $(.75) $(5.67)
================= ================ ================= ================= ================
Weighted average number of
shares outstanding 5,331,356 2,734,680 1,184,712 1,187,750 2,611,863
================= ================ ================= ================= ================
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Orphan Medical, Inc., a development stage company, was incorporated on June 17,
1994 in order to carry on the business previously conducted by the Orphan
Medical Division of Chronimed Inc. The activities of the Orphan Medical
Division, formed in January 1993, and the Company, since its incorporation, have
consisted primarily of obtaining the rights for pharmaceutical products, hiring
the personnel required to implement the Company's business plan, managing the
development of these products and preparing for the commercial introduction of
three products. The Company reported its first revenues in December 1996 with
the commercial introduction of Cystadane and Elliotts B Solution. As of December
31, 1996, approximately $12,560,352 of cash has been used to fund operating
activities since January 1, 1993 (inception). The Company does not expect to
achieve profitable operations until at least 1999.
RESULTS OF OPERATIONS
In 1995, the Company changed from a June 30 fiscal year to a calendar year,
resulting in a shortened fiscal year of six months from July 1, 1995 to December
31, 1995. Management's discussion and analysis of results of operations includes
a comparison of audited financial results for the twelve months ended December
31, 1996 to the unaudited financial results for the twelve months ended December
31, 1995, and a comparison of the audited financial results for the six months
ended December 31, 1995 to the unaudited financial results for the six-months
ended December 31, 1994. See Note 11 of the Notes to the Financial Statements.
TWELVE MONTHS ENDED DECEMBER 31, 1996 (AUDITED) VS. TWELVE MONTHS ENDED DECEMBER
31, 1995 (UNAUDITED)
The Company commenced shipping Elliotts B Solution and Cystadane for the first
time in December 1996, whereas it had no sales in 1995. Sales were $36,681 for
the twelve months ended December 31, 1996. Sales will fluctuate from quarter to
quarter and from year to year depending on, among other factors, demand for the
Company's products, new product introductions and the Company's ability to
optimize distribution of its approved products.
Cost of sales increased from zero for the twelve months ended December 31, 1995
to $10,446 for the twelve months ended December 31, 1996. Cost of sales as a
percentage of sales will fluctuate from quarter to quarter and from year to year
depending on, among other factors, demand for the Company's products, new
product introductions and the mix of approved products shipped.
Research and development expenses increased from $4,100,502 (73% of the total
loss from operations) for the twelve months ended December 31, 1995 to
$6,248,381 (74% of the total loss from operations) for the twelve months ended
December 31, 1996. The $2,147,879 increase is largely attributable to higher
levels of outside development expenditures, principally clinical trial programs,
toxicology and drug manufacturing costs, for Caprogel, Xyrem and Sucraid, and
development spending that commenced in 1996 on four new products and one
additional indication of a Current Product. The Company filed one NDA for
Antizol and a 510(k) application for Repliderm during 1996, whereas the Company
filed three NDAs (Cystadane, Elliotts B Solution and Antizol-Vet) during 1995.
As of December 31, 1996, the Company had thirteen products under development,
whereas twelve products were under development as of December 31, 1995. Research
and development expenditures will likely continue to fluctuate from quarter to
quarter and from year to year depending on, among other factors, the timing of
product development and the progress of pre-clinical and clinical development
programs. The Company's product development schedule for the products currently
under development and additional products it may develop in the future will also
be influenced by regulatory decisions, competitive pressures and the
availability of funding.
General and administrative expenses increased from $1,496,113 (27% of the total
loss from operations) for the twelve months ended December 31, 1995 to
$2,253,717 (27% of the total loss from operations) for the twelve months ended
December 31, 1996. The $757,604 increase is principally due to adding staff and
sales and marketing costs for the commercial introduction of the Company's first
FDA approved products. General and administrative expenses will likely increase
principally due to the full year effect of sales and marketing programs
associated with the Company's three approved products and for marketing
awareness programs for products the Company expects to receive FDA clearance in
1997 and early 1998.
Other income increased from $438,668 for the twelve months ended December 31,
1995 to $858,679 for the twelve months ended December 31, 1996. This increase is
due solely to interest income attributable to higher levels of investable funds,
which resulted from the Company's secondary offering of Common Stock in April
1996. Other income is expected to decline as currently invested funds are used
to fund development activities.
Net losses for the twelve months ended December 31, 1996 and for the twelve
months ended December 31, 1995 were $(7,617,184) and $(5,157,947), respectively.
Net losses per common share for these respective periods were $(1.43) and
$(1.89), based on weighted average number of common shares outstanding of
5,331,356 and 2,734,680, respectively.
SIX MONTHS ENDED DECEMBER 31, 1995 (AUDITED) VS. SIX MONTHS ENDED DECEMBER 30,
1994 (UNAUDITED)
Research and development expenses increased from $727,404 (59% of the total loss
from operations) for the six months ended December 30, 1994 to $2,414,988 (73%
of the total loss from operations) for the six months ended December 31, 1995.
The $1,687,584 increase is largely attributable to outside development
expenditures, principally clinical programs, toxicology and drug manufacturing
costs for Caprogel, Antizol, Cystadane, Busulfanex and Xyrem. This increase
reflects increased spending for several products for which the Company has filed
NDAs and for which it expects to file NDAs in 1996. The Company filed three NDAs
(Cystadane, Elliotts B Solution and Antizol-Vet) during the six months ended
December 31, 1995, whereas no NDAs were filed during the six months ended
December 30, 1994. As of December 31, 1995, the Company had twelve products
under development, whereas ten products were under development as of December
30, 1994.
General and administrative expenses increased from $510,556 (41% of the total
loss from operations) for the six months ended December 30, 1994 to $872,773
(27% of the total loss from operations) for the six months ended December 31,
1995. The $362,217 increase is principally due to adding staff and a bonus
arrangement.
Other income increased from $96,752 for the six months ended December 30, 1994
to $289,611 for the six months ended December 31, 1995. This increase is due
solely to interest income attributable to higher levels of investable funds,
which resulted from the Company's public offering of Common Stock in May 1995.
Net losses for the six months ended December 31, 1995 and for the six months
ended December 30, 1994 were $(2,998,150) and $(1,141,208), respectively. Net
losses per common share for these respective periods were $(.80) and $(.96),
based on weighted average number of common shares outstanding of 3,739,588 and
1,184,712, respectively.
FISCAL YEAR ENDED JUNE 30, 1995 (AUDITED) VS. TO FISCAL YEAR ENDED JULY 1, 1994
(AUDITED)
Research and development expenses increased from $647,125 (76% of the total loss
from operations) for the fiscal year ended July 1, 1994 to $2,412,918 (68% of
the total loss from operations) for the fiscal year ended June 30, 1995. The
$1,765,793 increase is largely attributable to outside development expenditures,
principally toxicology and drug manufacturing costs related to Busulfanex, Xyrem
and Antizol. During fiscal 1994, the Company commenced development spending for
seven products, with only partial year spending on several of the products.
During fiscal 1995, the number of products under development increased to twelve
and the spending on several of the carryover products from 1994 covered a full
year.
General and administrative expenses increased from $201,537 (24% of the total
loss from operations) in fiscal 1994 to $1,133,896 (32% of the total loss from
operations) in fiscal 1995. The $932,359 increase is principally due to adding
executive, regulatory and marketing personnel and, to a lesser extent, to legal
expenses, investor relations costs and other expenses related to the Company
being a public company.
Other income increased from zero in fiscal 1994 to $245,809 in fiscal 1995. This
increase is due solely to interest income attributable to higher levels of
investable funds, which resulted from the Company's public offering of Common
Stock in May 1995 and the collection of a $5,000,000 receivable from Chronimed
in July and September 1994.
Net losses for fiscal 1995 and 1994 were $(3,301,005) and $(848,662),
respectively. Net losses per common share for these respective periods were
$(2.28) and $(.71), based on weighted average number of common shares
outstanding of 1,447,452 and 1,187,750, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since July 2, 1994, the effective date the Company was spun-off from Chronimed,
it has financed its operations from initial working capital balances, the net
proceeds from the 1995 and 1996 public offerings, and interest income. The 1995
and 1996 public offerings resulted in aggregate net proceeds, after commissions
and expenses, of $23,636,666.
The Company has used $12,560,352 to fund operations from January 1, 1993
(inception) through December 31, 1996. Of this amount, Chronimed paid $826,063
to fund the Company's operating expenses from January 1, 1993 through July 1,
1994. Thereafter, the Company has used $11,734,289 to fund operations.
Net working capital (current assets less current liabilities) increased from
$7,317,554 at December 31, 1995 to $14,538,893 at December 31, 1996. Total
current assets (consisting primarily of cash and cash equivalents, and
available-for-sale securities) increased from $8,810,926 at December 31, 1995 to
$16,894,161 at December 31, 1996.
The Company's commitments for outside development spending increased from
$1,839,000 at December 31, 1995 to $4,287,000 at December 31, 1996 (also see
Note 9 to the Financial Statements). As a result, the Company expects
development expenditures to increase. The Company estimates that a significant
portion of its future commitments for proposed development expenditures will
relate to Xyrem. In order to limit its potential financial commitment on this
product, the Company is currently exploring several options that could reduce
the Company's future cash funding requirements for this product.
The Company believes that it has sufficient capital to fund its operations
through the first half of 1998. The Company's future liquidity and capital
requirements will depend on, among other factors, the extent to which the
Company's FDA approved products gain market acceptance, the timing of regulatory
actions regarding future products, the costs and timing of sales, marketing and
manufacturing activities, the results of clinical trials and competition.
However, to fully implement the Company's current business plan through 1999,
the Company believes it will need to raise at least $15,000,000 of additional
capital, assuming no internally generated funding is available. The Company's
future capital requirements take into account the expected delay in the market
introduction and the added development costs resulting from the FDA's
requirement to broaden clinical data to be submitted with the NDA for
Busulfanex, as well as the development costs for the new products the Company
licensed during 1996. The Company currently has no assurance that such capital
will be available on acceptable terms, or at all. In the event that the Company
is unable to raise additional capital on a timely basis, it expects to reduce or
defer the amount allocated to planned development activities of its Current
Products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements of the Company as of and for the year ended December
31, 1996 begin on page F-1 of this Annual Report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) DIRECTORS OF THE REGISTRANT.
The information required by this item is incorporated by reference from the
information under the caption "Election of Directors" contained in the Company's
Proxy Statement filed with the Securities and Exchange Commission in connection
with the solicitation of proxies for the Company's Annual Meeting of
Shareholders to be held on May 8, 1997 (the "Proxy Statement").
(b) EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning Executive Officers of the Company is included in this
Annual Report in Item 4A under the caption "Executive Officers of the
Registrant".
(c) COMPLIANCE WITH 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
The information required by this item is incorporated by reference from the
information under the caption "Section 16(a) Reporting" contained in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership" contained in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Transactions" contained in the
Proxy Statement.
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
PAGE NUMBER
IN THIS
DESCRIPTION ANNUAL REPORT
- -------------------------------------------------------------- -------------
Report of Independent Auditors F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Cash Flows F-4
Statement of Changes in Shareholders' Equity F-5
Notes to Financial Statements F-6 to F-10
(a)(2) All financial statement schedules normally required under Regulation S-X
are omitted as the required information is inapplicable.
(a)(3) LISTING OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
- ------------------------------------------------------------------------------------------ ---------
<S> <C> <C>
3.1 Articles of Incorporation of Orphan Medical, Inc. ("OMI") (1)
3.2 Bylaws of OMI, as amended (1)
4.1 OMI 1994 Stock Option Plan (1)
4.2 OMI Employee Incentive Stock Option Agreement (1)
4.3 OMI Non-Incentive Stock Option Agreement (1)
4.4 OMI Non-Incentive Stock Option Agreement for Non-Employee Directors (1)
10.1 Marketing and Distribution Agreement between OMI and Chronimed effective July 2, 1994 (1)
10.2 Transfer Agreement between OMI and Chronimed effective July 1, 1994 (1)
10.3 Distribution and Spin-off Agreement between OMI and Chronimed effective July 2, 1994 (1)
10.4 Administrative Services Agreement between OMI and Chronimed effective July 2, 1994 (1)
10.5 Security Agreement between OMI and Chronimed effective July 2, 1994 (1)
10.6 Aminocaproic Acid License Agreement between Chronimed and Virginia's Center for
Innovative Technology dated September 17, 1993 (1)
10.7 Patent and Technology License Agreement for Busulfan between Chronimed and The University
of Texas M.D., Anderson Cancer Center, the Board of Regents of the University of Texas
System and the University of Houston effective February 14, 1994 (1)
10.8 Letter Agreement regarding L-Cycloserine between Chronimed and Dr. Meier Lev dated
December 29, 1993 (1)
10.9 Sublicense Agreement regarding 4-Methylpyrazole between Chronimed and Mericon Investment
Group, Inc. dated December 17, 1993 (1)
10.10 License Agreement regarding Short Chain Fatty Acids between Chronimed and Richard Breuer
dated March 2, 1994 (1)
10.11 Employment Agreement between OMI and John Howell Bullion dated August 31, 1994 (1)
10.12 Employment Agreement between OMI and Bertram A. Spilker, Ph.D., M.D. dated August 31, 1994 (1)
10.13 Assumption Agreement and Consent to Assignments regarding Short Chain Fatty Acids between
OMI and Richard Breuer dated September 30, 1994 (2)
10.14 Assumption Agreement and Consent to Assignment regarding Aminocaproic Acid between OMI
and Virginia's Center for Innovative Technology dated September 30, 1994 (2)
10.15 Assumption Agreement and Consent to Assignment regarding 4-Methylpyrazole between OMI and
Mericon Investment Group, Inc. dated October 5, 1994 (2)
10.16 License Agreement regarding 4-Methylpyrazole between Kenneth McMartin and Mericon
Investment Group, Inc. dated July 6, 1993 (2)
10.17 License Agreement regarding Glucaric Acid between OMI and Ohio State University Research
Foundation dated December 28, 1994 (2)
10.18 Manufacturing Development and Supply Agreement regarding Aminocaproic Acid between OMI
and Lifecore Biomedical, Inc. dated December 21, 1994 (2)
10.19 Marketing Agreement regarding Cystagon between OMI and Chronimed dated October 19, 1994 (2)
10.20 Assumption Agreement and Consent to Assignment regarding Busulfan between OMI and the
University of Texas, M.D., Anderson Cancer Center, the Board of Regents of the University
of Texas System and the University of Houston dated October 18, 1994 (2)
10.21 License Agreement regarding Catrix between OMI and Lescarden, Inc. dated October 28, 1994 (2)
10.22 License Agreement regarding Sucrase between OMI and Hartford Hospital dated December 30,
1994 (2)
10.23 Option to Acquire License regarding Tretinoin between OMI and James Hannan dated February
6, 1995 (2)
10.24 Consulting Agreement between OMI and William B. Adams dated November 15, 1994 (3)
10.25 Lease Agreement between OMI and Wahldick Rice Property Management, Inc. ("Wahldick")
dated January 5, 1995 (2)
10.26 Lease Agreement between OMI and Wahldick dated October 3, 1994 (2)
10.27 Agreement regarding Cystagon between Chronimed and Mylan Pharmaceutical dated October 17,
1994 (2)
10.28 Lease Agreement between OMI and Wahldick dated May 26, 1995 (4)
10.29 Agreement between OMI and David A. Feste effective July 1, 1995 (4)
10.30 Development and License Agreement regarding Choline Chloride between OMI and Alan
Buchman, Donald J. Jenden, Marvin E. Ament and Mark D. Dubin dated May 11, 1995 (4)
10.31 Addendum to License Agreement regarding Short Chain Fatty Acids between OMI and Richard
Breuer dated May 12, 1995 (4)
10.32 Addendum to Administrative Services Agreement between OMI and Chronimed dated August 2,
1995 (4)
10.33 Amendment to Aminocaproic Acid License Agreement between OMI and Virginia's Center for
Innovative Technology dated September 17, 1993 (5)
10.34 Amendment No. 1 to Marketing and Distribution Agreement between OMI and Chronimed dated
July 2, 1994 (5)
10.35 Amendment to Marketing Agreement regarding Cystagon between OMI and Chronimed dated
October 19, 1994 (5)
10.36 IRS tax qualification letter dated January 10, 1996 regarding the favorable determination
of the tax status of the OMI 401(k) Savings Plan (5)
10.37 Lease Agreement between OMI and Wahldick Rice Property Management, Inc. dated February 5,
1996 (5)
10.38 Form of License Agreement regarding Colloidal Bismuth Subcitrate between OMI and Josman
Laboratories, Inc. dated March 4, 1996 (5)
10.39 Agreement between OMI and Chronimed dated June 3, 1996 to amend Marketing and
Distribution Agreement dated July 2, 1996 (6)
10.40 Cystadane Agreement between the OMI and Chronimed dated October 11, 1996 (7)
10.41 License Agreement regarding alpha galactosidase A between OMI and Research Corporation Filed
Technologies, Inc. dated March 15, 1996(8) herewith
10.42 License Agreement regarding 5-fluorouracil between OMI and the University of Miami and Filed
its Department of Opthalmology dated December 6, 1996 (8) herewith
10.43 Collaborative Development Agreement regarding clonidine between OMI and Medtronic, Inc. Filed
dated November 27, 1996 (8) herewith
10.44 Distribution Agreement between OMI and W. A. Butler Company dated November 26, 1996 (8) Filed
herewith
23.1 Consent of Ernst & Young LLP Filed
herewith
24 Power of Attorney Filed
herewith
27 Financial Data Schedule - EDGAR SCHEDULE Filed
herewith
99 Cautionary Statements Filed
herewith
</TABLE>
(1) Incorporated by reference to the corresponding exhibit numbers in OMI's
Registration Statement on Form 10 filed on August 31, 1994, Commission File No.
0-24760.
(2) Incorporated by reference to the corresponding exhibit numbers in OMI's
Registration Statement on Form S-1 filed on March 3, 1995, Commission File No.
0-24760.
(3) Incorporated by reference to the corresponding exhibit number in OMI's
Quarterly Report on Form 10-Q for the quarter ended December 30, 1994,
Commission File No. 0-24760.
(4) Incorporated by reference to the corresponding exhibit numbers in OMI's
Annual Report on Form 10-K filed for the year ended June 30, 1995, Commission
File No. 0-24760.
(5) Incorporated by reference to the corresponding exhibit numbers in OMI's
Registration Statement on Form S-1 filed on March 11, 1996, Commission File No.
0-24760.
(6) Incorporated by reference to the corresponding exhibit number in OMI's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, Commission
File No. 0-24760.
(7) Incorporated by reference to the corresponding exhibit number in OMI's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
Commission File No. 0-24760.
(8) Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of these Exhibits have been deleted and filed separately
with the Securities and exchange Commission pursuant to a request for
confidential treatment.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of
Minnetonka, Minnesota, on the 17th day of March, 1997.
ORPHAN MEDICAL, INC.
By:
/s/ John Howell Bullion
-----------------------------------
John Howell Bullion
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934 this report has been
signed by the following persons on behalf of the Registrant and in the
capacities indicated as of March 17, 1997.
SIGNATURE TITLE
- ------------------------------------------ ----------------------------------
/s/ John Howell Bullion Chief Executive Officer (Principal
- ------------------------------------------ Executive Officer) and a Director
John Howell Bullion
* President and Director
- ------------------------------------------
Bertram A. Spilker, Ph.D., M.D.
* Director
- ------------------------------------------
William A. Adams
* Director
- ------------------------------------------
Maurice R. Taylor, II
* Director
- ------------------------------------------
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.)
* Director
- ------------------------------------------
W. Leigh Thompson, Ph.D., M.D.
* Director
- ------------------------------------------
William M. Wardell, Ph.D., M.D.
By: /s/ John Howell Bullion
-------------------------------------
John Howell Bullion, Attorney-In-Fact
* John Howell Bullion, pursuant to the Powers of Attorney executed by
each of the officers and directors above whose name is marked by a "*",
by signing his name hereto, does hereby sign and execute this Annual
Report on behalf of each of the officers and directors in the
capacities in which the name of each appears above.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Orphan Medical, Inc.
We have audited the accompanying balance sheets of Orphan Medical, Inc. (a
development stage company) as of December 31, 1996 and 1995, the related
statements of operations, changes in shareholders' equity and cash flows for the
year ended December 31, 1996, the six months ended December 31, 1995, the years
ended June 30, 1995 and July 1, 1994, and the period from January 1, 1993
(inception) to December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orphan Medical, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the year ended December 31, 1996, the six months ended December 31, 1995,
the years ended June 30, 1995 and July 1, 1994 and the period from January 1,
1993 (inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 31, 1997
<TABLE>
<CAPTION>
ORPHAN MEDICAL, INC.
(A Development Stage Company)
BALANCE SHEETS
DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,927,945 $ 5,029,682
Available-for-sale securities 12,779,961 3,719,555
Accounts receivable 36,679 14,192
Other receivables 114,506 4,868
Prepaid expenses 35,070 42,629
------------ ------------
Total current assets 16,894,161 8,810,926
Property and equipment:
Office equipment 336,991 211,372
Accumulated depreciation (80,957) (35,502)
------------ ------------
256,034 175,870
Organization costs, net of amortization 404 566
------------ ------------
Total assets $ 17,150,599 $ 8,987,362
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 2,297,736 $ 1,454,081
Accrued payroll and related taxes 57,532 39,291
------------ ------------
Total current liabilities 2,355,268 1,493,372
Commitments (Note 9)
Shareholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 6,056,088 and 3,739,588 issued and
outstanding 60,561 37,396
Additional paid-in capital 29,543,439 14,648,079
Deficit accumulated during the development stage (14,808,669) (7,191,485)
------------ ------------
Total shareholders' equity 14,795,331 7,493,990
------------ ------------
Total liabilities and shareholders' equity $ 17,150,599 $ 8,987,362
============ ============
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
ORPHAN MEDICAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR FOR THE SIX FOR THE YEAR FOR THE YEAR PERIOD FROM
ENDED MONTHS ENDED ENDED ENDED JANUARY 1, 1993
DECEMBER 31, DECEMBER 31, JUNE 30, JULY 1, (INCEPTION) TO
1996 1995 1995 1994 DECEMBER 31, 1996
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 36,681 $ -- $ -- $ -- $ 36,681
Operating expenses:
Cost of sales 10,446 -- -- -- 10,446
Research and development 6,248,381 2,414,988 2,412,918 647,125 11,723,412
General and
administrative 2,253,717 872,773 1,133,896 201,537 4,505,591
------------ ------------ ------------ ------------ ------------
Loss from operations (8,475,863) (3,287,761) (3,546,814) (848,662) (16,202,768)
Other income:
Interest 858,679 289,611 245,809 -- 1,394,099
------------ ------------ ------------ ------------ ------------
Net loss and deficit
accumulated during the
development stage $ (7,617,184) $ (2,998,150) $ (3,301,005) $ (848,662) $(14,808,669)
============ ============ ============ ============ ============
Net loss per common share $ (1.43) $ (.80) $ (2.28) $ (.71) $ (5.67)
============ ============ ============ ============ ============
Weighted average number of
shares outstanding 5,331,356 3,739,588 1,447,452 1,187,750 2,611,863
============ ============ ============ ============ ============
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
ORPHAN MEDICAL, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
PERIOD FROM
FOR THE YEAR FOR THE SIX FOR THE YEAR JANUARY 1, 1993
ENDED MONTHS ENDED EMDED FOR THE YEAR (INCEPTION) TO
DECEMBER 31, DECEMBER 31, JUNE 30, ENDED JULY 1, DECEMBER 31,
1996 1995 1995 1994 1996
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,617,184) $ (2,998,150) $ (3,301,005) $ (848,662) $(14,808,669)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 48,898 17,672 18,072 -- 84,642
Loss on disposition of fixed assets 4,091 -- -- -- 4,091
Changes in operating assets and
liabilities:
Increase in accounts
payable and accruals 861,896 894,706 522,653 76,013 2,355,268
Decrease (increase)
in prepaid expenses 7,559 (6,579) (35,734) (316) (35,070)
Increase in receivables and
other (132,125) 1,423 (20,482) (9,430) (160,614)
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (6,826,865) (2,090,928) (2,816,496) (782,395) (12,560,352)
INVESTING ACTIVITIES
Purchase of office equipment (132,991) (31,772) (151,525) (66,267) (382,555)
Proceeds from sale of office equipment -- -- 38,192 -- 38,192
Purchase of short-term investments (19,523,044) (5,395,704) -- -- (24,918,748)
Maturities of short term investments 10,462,638 1,676,149 -- -- 12,138,787
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (9,193,397) (3,751,327) (113,333) (66,267) (13,124,324)
FINANCING ACTIVITIES
Net proceeds from capital contribution -- -- 5,000,000 -- 5,000,000
Stock option exercised 83,625 -- -- -- 83,625
Net proceeds from stock offering 14,834,900 -- 8,801,766 -- 23,636,666
Expenses paid by Chronimed -- -- -- 848,662 892,330
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 14,918,525 -- 13,801,766 848,662 29,612,621
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents (1,101,737) (5,842,255) 10,871,937 -- 3,927,945
Cash and cash equivalents at
the beginning of period 5,029,682 10,871,937 -- -- --
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of period $ 3,927,945 $ 5,029,682 $ 10,871,937 $ -- $ 3,927,945
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW
INFORMATION
Interest received $ 719,542 $ 261,562 $ 236,938 $ -- $ 1,218,039
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
ORPHAN MEDICAL, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
------------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net loss for the period of January
1, 1993 (inception) to July 2, -- $ -- $ -- $ (43,668) $ (43,668)
Contribution by Chronimed -- -- 43,668 -- 43,668
------------ ------------ ------------ ------------ ------------
Balance at July 2, 1993 -- -- 43,668 (43,668) --
Net loss -- -- -- (848,662) (848,662)
Issuance of Common Stock in
connection with establishment
of Company and net assets
distributed to Company in
connection with spin-off 1,187,750 11,878 5,828,163 -- 5,840,041
------------ ------------ ------------ ------------ ------------
Balance at July 1, 1994 1,187,750 11,878 5,871,831 (892,330) 4,991,379
Net loss -- -- -- (3,301,005) (3,301,005)
Adjustment related to actual
number of shares distributed
to shareholders in connection
with spin-off (6,912) (70) 70 -- --
Proceeds from public offering
in May and June of 2,558,750
shares at $4.00 per share,
net of commissions and
expenses of $1,433,284 2,558,750 25,588 8,776,128 -- 8,801,716
Proceeds from issuance of
warrant agreement to purchase
222,500 shares at $5.20 per share -- -- 50 -- 50
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1995 3,739,588 37,396 14,648,079 (4,193,335) 10,492,140
Net loss -- -- -- (2,998,150) (2,998,150)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 3,739,588 37,396 14,648,079 (7,191,485) 7,493,990
Net loss -- -- -- (7,617,184) (7,617,184)
Proceeds from public offering
in April of 2,300,000 shares
at $7.125 per share, net of
commissions and expenses of
$1,552,600 2,300,000 23,000 14,811,900 -- 14,834,900
Options exercised 16,500 165 83,460 83,625
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 6,056,088 $ 60,561 $ 29,543,439 $(14,808,669) $ 14,795,331
============ ============ ============ ============ ============
SEE ACCOMPANYING NOTES.
</TABLE>
ORPHAN MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS ACTIVITY
Orphan Medical, Inc. (the "Company") is a development stage company formed to
acquire, develop, and market products of high medical value intended to address
inadequately treated or uncommon diseases of distinct patient populations
treated by health care specialists. The Company is the successor to the business
previously conducted by the Orphan Medical Division of Chronimed Inc.
("Chronimed") from January 1, 1993 (inception) to July 1, 1994. In July 1994,
Chronimed contributed the assets and personnel of its Orphan Medical Division,
together with the rights to several proposed pharmaceutical products, to the
Company. In October 1994, Chronimed distributed the shares of the Company's
Common Stock to the shareholders of Chronimed. At December 31, 1996, three of
the Company's products had been cleared for marketing by the Food and Drug
Administration ("FDA"), a new drug application for one product was pending
before the FDA, and thirteen products were in various stages of development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Accordingly, actual results could differ from those estimates.
FISCAL YEAR
In 1995, the Company changed its fiscal year ending June 30 to a calendar year
ending December 31. This change resulted in a shortened fiscal year of six
months, July 1, 1995 to December 31, 1995.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to the Company's customers.
CASH EQUIVALENTS
The Company considers all highly liquid investments, consisting of U.S.
government agency securities and investment grade commercial paper, with
remaining maturities of 90 days or less when purchased to be cash equivalents.
Cash equivalents are carried at cost plus accrued interest, which approximates
market value.
SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments, consisting of U.S.
government agency securities and investment grade commercial paper, with
remaining maturities of more than 90 days, but less than one year, when
purchased to be short-term investments. Short-term investments are carried at
cost plus accrued interest, which approximates market value, with no resulting
unrealized gains or losses recognized. The Company has classified its short-term
investments as available-for-sale.
PROPERTY AND EQUIPMENT
Property and equipment acquired since July 1, 1994 are recorded at cost.
Depreciation is computed using the straight-line method over the assets'
estimated useful lives of five to seven years.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over a five-year
period.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
ACCOUNTS RECEIVABLE ALLOWANCE
The Company determines an allowance amount based upon an analysis of the
collectibility of specific accounts and the aging of the accounts receivable.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out basis.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between the financial
reporting and tax bases of assets and liabilities.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees and
directors with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for the stock option grants. In
1996, the Company adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123 , "Accounting for Stock Based
Compensation ("SFAS 123"), issued in October 1995.
LOSS PER SHARE
Loss per share is based upon the weighted average number of shares outstanding
during the respective periods. For the period ended July 1, 1994, net loss per
common share is based on the number of shares that Chronimed estimated would be
distributed in the spin-off. Common stock equivalents are not included as their
effect is anti-dilutive.
RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform with the
current year presentation. These reclassifications have no impact on net loss or
shareholders' equity as previously reported.
3. OPERATING LEASES
The Company has a non-cancelable operating lease for office space which expires
on July 31, 1997. Future minimum lease payments, including current real estate
taxes and operating expenses under this operating lease are as follows:
AMOUNT
-------------
Calendar year:
1997 $ 44,000
-------------
Total $ 44,000
=============
Total rent expense was approximately $66,000, $27,000 and $47,000 for the year
ended December 31, 1996, the six month period ended December 31, 1995, and for
the year ended June 30, 1995, respectively. The Company had no rent expense
prior to July 2, 1994.
4. INCOME TAXES
The Company has incurred net operating losses since inception. Losses through
July 1, 1994, the effective date of the spin-off, were utilized by Chronimed in
its consolidated income tax return. As of December 31, 1996, the Company had net
operating loss (NOL) carryforwards of approximately $13,509,000 and research and
experimentation tax credit carryforwards of approximately $1,008,000, which will
be available to reduce its future tax liabilities through the year 2011. For
financial reporting purposes, a valuation allowance of $5,709,000 has been
recognized to offset the deferred tax assets related to these carryforwards.
No current income taxes have been provided for the year ended December 31, 1996,
the six month period ended December 31, 1995 nor for the years ended June 30,
1995 and July 1, 1994, as the Company had a loss for both financial reporting
and tax purposes.
Significant components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $4,593,000 $2,155,000
Research and experimentation credit carryforwards 1,008,000 130,000
Vacation and other accrual 130,000 28,000
---------------- ---------------
5,731,000 2,313,000
Total deferred tax liabilities:
Depreciation (22,000) (8,000)
Valuation allowance for deferred tax assets (5,709,000) (2,305,000)
---------------- ---------------
Net deferred tax assets $ -- $ --
================ ===============
</TABLE>
In May 1995, the Company exceeded the limits allowable under Section 382 of the
Internal Revenue Code related to changes in ownership percentage governing
future utilization of NOL and research and experimentation tax credit
carryforwards (tax benefit carryforwards). The effect of this occurrence is to
limit the annual utilization of tax benefit carryforwards. As of December 31,
1996, approximately $1,259,000 of tax benefit carryforwards will be limited to
either approximately $339,000 per year pre-tax for the NOL carryforward, or
approximately $115,000 per year for the research and experimentation tax credit
carryforward.
5. STOCK OPTIONS
In October 1995, shareholders approved the 1994 Stock Option Plan (the Plan),
pursuant to which 1,250,000 shares of Common Stock are reserved for issuance to
employees, directors and consultants. Under terms of the Plan, the Board of
Directors may grant employee incentive stock options and non-qualified stock
options at a price of not less than 100% of fair market value. Options are
exercisable as prescribed by the Plan and expire up to fifteen years from the
grant date for non-qualified stock options and up to ten years from the grant
date for employee incentive stock options. The pro forma effect of applying SFAS
123 to the Company's stock based awards results in net loss and loss per share
that are not materially different from amounts reported.
The following table summarizes all option grants made by the Company through
December 31, 1996:
<TABLE>
<CAPTION>
SHARES
RESERVED OPTIONS AVERAGE OPTION
FOR GRANT OUTSTANDING EXERCISABLE PRICE PER SHARE
------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance at July 1, 1994 -- -- --
Reserved - August 1994 1,250,000 --
Options granted or became exercisable (1,044,500) 1,044,500 151,900 $5.00
------------- -------------- -------------
Balance at June 30, 1995 205,500 1,044,500 151,900
Options granted or became exercisable (189,500) 189,500 286,100 5.81
------------- -------------- -------------
Balance at December 31, 1995 16,000 1,234,000 438,000
Options granted or became exercisable (36,500) 36,500 169,433 8.06
Options cancelled 46,000 (46,000) -- 5.23
Options exercised -- (16,500) (16,500) 5.07
Reserved - December 1996 300,000 -- --
------------- -------------- -------------
Balance at December 31, 1996 325,500 1,208,000 590,933
============= ============== =============
</TABLE>
In December 1996, the 1994 Stock Option Plan was amended, subject to shareholder
approval, to increase by 300,000, the number of shares reserved for issuance
under the Plan.
6. STOCK WARRANTS
The Company issued warrants to the underwriter related to the Company's 1995
initial public stock offering to purchase 222,500 shares of Common Stock at a
price of $5.20 per share. These warrants are exercisable at any time between May
11, 1997 and May 12, 2000.
7. SHAREHOLDERS' EQUITY
On October 12, 1994, Chronimed Inc. distributed 1,180,838 shares of the
Company's Common Stock to its shareholders of record as of September 6, 1994.
The distribution of the Company's Common Stock by Chronimed Inc. represented a
complete distribution in connection with a spin-off of the Company, effective
July 1, 1994.
The Company completed a public offering of Common Stock on May 19, 1995, and
June 29, 1995, pursuant to which it sold 2,558,750 shares of Common Stock at
$4.00 per share, before commissions and expenses.
The Company completed a secondary public offering of Common Stock on April 23,
1996 pursuant to which it sold 2,300,000 shares of Common Stock at $7.125 per
share, before commissions and expenses.
8. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) Savings Plan which is funded by elective salary
deferrals by employees. The Plan covers substantially all employees meeting
minimum eligibility requirements. The Plan does not require mandatory
contributions by the Company, but discretionary contributions may be made at the
election of the Company. The Company has not made any provision for
discretionary contributions to the Plan.
9. COMMITMENTS
CONSULTING, AND TECHNICAL SERVICE AGREEMENTS: The Company has various
commitments under agreements with outside consultants, contract drug development
and technical service companies, license and research agreements, and agreements
with drug distributors. The fees paid or accrued under these agreements with
contract drug development and technical service companies totaled approximately
$5,242,000 for the year ended December 31, 1996, $1,826,000 for the six month
period ended December 31, 1995 and $1,040,000 for twelve month period ended June
30, 1995. At December 31, 1996, the Company expects to incur approximately
$4,287,000 of additional expenditures in subsequent periods under these existing
commitments. Commitments for development expenditures will likely fluctuate from
year to year depending on, among other factors, the timing of product
development and the progress of preclinical and clinical development programs.
LICENSE AGREEMENTS: Several of the license agreements for inventions, compounds
and technologies obligate the Company to pay certain royalties on net sales and
certain fees upon the occurrence of certain events. These agreements are subject
to termination by the Company, with significant financial penalties in certain
cases. Unless these agreements are terminated or modified, the Company must pay
minimum royalties and fees as set forth below. The Company has not recognized
any royalty expense to date.
CALENDAR YEAR: AMOUNT
1997 $ 0
1998 15,000
1999 69,000
2000 92,000
2001 119,000
The Company is also obligated to pay certain licensors additional amounts when
certain milestones are achieved. Generally, filing a New Drug Application
("NDA") or obtaining approval of an NDA is considered a milestone under these
agreements. Fees incurred under these agreements totaled approximately $25,000
for the year ended December 31, 1996, $7,500 for the six months ended December
31, 1995, $49,000 for the fiscal year ended June 30, 1995 and $77,000 for the
fiscal year ended July 1, 1994.
CHRONIMED: Chronimed has the exclusive domestic distribution rights with respect
to four of the Company's proposed pharmaceutical products. In addition,
Chronimed shall receive a royalty on the domestic sales of two of the Company's
products that have been granted marketing approval by the FDA in 1996. At
December 31, 1996, royalties earned by Chronimed are not material.
10. RELATED PARTY TRANSACTIONS
Three directors of the Company are also directors of Chronimed. In addition, the
Chairman of the Board of Directors of the Company was Chairman of the Board of
Directors of Chronimed until June 1994 and an officer of the Company was also an
officer of Chronimed until July 1994. The Company paid approximately $22,000,
$41,000 and $69,000 in director fees and reimbursed expenses to these directors
for the year ended December 31, 1996, the six months ended December 31, 1995 and
for the fiscal year ended June 30, 1995, respectively. Employees of the Company
serving as directors were not paid for their duties as directors.
11. CHANGE IN FISCAL YEAR
During 1995, the Company changed its fiscal year ending June 30 to a calendar
year ending December 31. The following comparative financial information for
calendar 1995 and the six months ended December 30, 1994 is unaudited. In the
opinion of the management of the Company, these financial results reflect all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair presentation:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
---------------- ----------------
<S> <C> <C>
Operating expenses:
Research and development $ 4,100,502 $ 727,404
General and administrative 1,496,113 510,556
---------------- ----------------
Loss from operations (5,596,615) (1,237,960)
Other income:
Interest 438,668 96,752
---------------- ----------------
Net loss $(5,157,947) $ (1,141,208)
================ ================
Net loss per common share $ (1.89) $ (.96)
================ ================
Weighted average number of
shares outstanding 2,734,680 1,184,712
================ ================
</TABLE>
EXHIBIT 10.41
THE EXISTENCE OF THIS LICENSE IS TO BE KEPT CONFIDENTIAL
LICENSE AGREEMENT
Effective March 15, 1996, (the "Effective Date"), Research Corporation
Technologies, Inc., a Delaware nonprofit corporation, with offices at 101 N.
Wilmot Road, Suite 600, Tucson, AZ 85711-3335, ("RCT"), and Orphan Medical,
Inc., a Minnesota corporation, with offices at 13911 Ridgedale Drive,
Minnetonka, MN 55305 ("Orphan"), agree as follows (fully-capitalized terms are
defined in ARTICLE VIII):
ARTICLE I
LICENSE
SECTION 1.1. Grant of License. RCT hereby grants to Orphan a license
under the LICENSED PATENTS to make and have made LICENSED PRODUCTS, to USE
LICENSED PRODUCTS, to SELL LICENSED PRODUCTS, to offer to SELL LICENSED
PRODUCTS, and to import LICENSED PRODUCTS for USE or SALE, free from suit by RCT
for infringement of the PATENT CLAIMS in all countries of the world in which RCT
has LICENSED PATENTS. In addition, Orphan shall be free to make, use, sell, and
import LICENSED PRODUCTS in all countries of the world in which it so chooses.
Except as provided in the following sentence, this license is exclusive to
Orphan in that RCT agrees not to grant to a third party another concurrently
effective license under the LICENSED PATENTS to make, USE, SELL, offer to SELL,
or import LICENSED PRODUCTS during the term of this Agreement. The foregoing
exclusivity is expressly subject to RCT's reserved right to grant a
non-exclusive license under the LICENSED PATENTS to INSTITUTION and the
INVENTORS for noncommercial educational and research purposes. No license or
rights are granted or implied under any patent application or patent not a
LICENSED PATENT.
SECTION 1.2. Term of License Grant. The term of the license granted
under ARTICLE I shall end on the TERMINATION DATE unless sooner terminated.
SECTION 1.3. Extensions to AFFILIATES.
Subsection 1.3.1. GRANT OF RIGHT. RCT hereby grants to Orphan
the right to extend to Orphan's AFFILIATES the license granted under SECTION 1.1
of this Agreement. Orphan shall notify RCT in writing before any extension to an
AFFILIATE is made.
Subsection 1.3.2. ORPHAN RESPONSIBLE FOR PERFORMANCE. Orphan
shall be responsible for the performance of its AFFILIATES to which it extends
this license. For assessing, reporting and paying earned royalties under this
Agreement, the manufacture, SALE, USE or importation of LICENSED PRODUCTS by
Orphan's AFFILIATES shall be considered the manufacture, SALE, USE, or
importation of such LICENSED PRODUCT by Orphan.
Subsection 1.3.3. REPORTS AND PAYMENTS. Each AFFILIATE may
make the pertinent reports and royalty payments specified in ARTICLE II
("Financial Terms") directly to RCT on behalf of Orphan if Orphan provides RCT
prior written notice. Otherwise, Orphan shall make such payments and reports
separately showing the AFFILIATE's USE, SALE, and importation of LICENSED
PRODUCTS.
SECTION 1.4. Right and Power to Sublicense.
Subsection 1.4.1 GENERALLY. Orphan may grant to others
nonassignable, royalty-bearing sublicenses under the LICENSED PATENTS
commensurate in scope to the license granted under SECTION 1.1. Orphan's right
and power to grant sublicenses shall only be in effect for so long as: (a)
Orphan is not in uncured, material default under this Agreement (wherein
"uncured, material default" means the failure to cure, within the time specified
in Subsection 6.3.2, any material default under this Agreement after written
notice of such default); and (b) the license granted hereunder is in effect and
exclusive to Orphan.
Subsection 1.4.2. NOTIFICATION REQUIREMENTS. Orphan shall
promptly provide RCT written notice of the issuance of all SUBLICENSES. Each
SUBLICENSE shall be in writing and shall include provisions similar in all
material respects to those of ARTICLE VI, and SECTIONS 2.4, 2.5, 7.5, 7.6, 7.12,
7.13, 7.14, 7.16, and 7.18 of this Agreement. On or before the date 30 days
after the execution of any SUBLICENSE, Orphan shall provide RCT with a true copy
of each SUBLICENSE (and an English translation, if appropriate).
Subsection 1.4.3. COMPLIANCE WITH LAW. Each SUBLICENSE must
comply with all applicable laws and governmental regulations. In particular,
Orphan shall neither grant (and shall have neither the right nor power to grant)
a SUBLICENSE, nor refuse to grant a SUBLICENSE, under any circumstance or
condition amounting to a misuse of any LICENSED PATENT.
SECTION 1.5. No Further Rights. Except as expressly provided in this
ARTICLE I, no further or different license or right is granted or implied.
ARTICLE II
FINANCIAL TERMS
SECTION 2.1. Fees. Orphan shall pay to RCT a non-refundable,
non-creditable license issue fee of *** payable as follows: (a) *** upon
execution and delivery of this Agreement; and (b) *** on or before the date
thirty days after the date on which Orphan has filed with the FDA an NDA for a
LICENSED PRODUCT. Orphan shall also pay to RCT*** of any issue fee paid to
Orphan under any SUBLICENSE, which fee is likewise non-refundable and
non-creditable.
SECTION 2.2. Earned Royalties.
Subsection 2.2.1 . ACCRUAL AND PAYMENT. Orphan shall pay to RCT an
earned royalty on each LICENSED PRODUCT made, SOLD, or imported by or for
Orphan, its AFFILIATES or SUBLICENSEES during the term of this Agreement,
including any LICENSED PRODUCT made during the term of this Agreement but USED
or SOLD or imported after the termination of this Agreement.
Subsection 2.2.2. EARNED ROYALTY AMOUNT. The amount of earned royalties
Orphan shall pay to LICENSOR for LICENSED PRODUCTS SOLD or imported by LICENSEE,
its AFFILIATES or SUBLICENSEES shall be determined as follows:
(a) NET SALES VALUE NO GREATER THAN ***. If the cumulative,
aggregate NET SALES VALUE (from inception of this Agreement) of
LICENSED PRODUCT SOLD or imported under this Agreement (whether by or
for LICENSEE, its AFFILIATES, or SUBLICENSEES) is less than or equal to
*** the amount of the earned royalty shall be *** of the NET SALES
VALUE of all such LICENSED PRODUCTS SOLD or imported up to the point at
which such threshold is reached.
(b) NET SALES VALUE GREATER THAN *** BUT NO GREATER THAN ***.
If the cumulative, aggregate NET SALES VALUE (from inception of this
Agreement) of LICENSED PRODUCT SOLD or imported under this Agreement
(whether by or for LICENSEE, its AFFILIATES, or SUBLICENSEES) is
greater than *** but less than or equal to ***, the amount of the
earned royalty shall be *** of the NET SALES VALUE of all such LICENSED
PRODUCTS SOLD or imported after such lesser threshold is reached and up
to the point at which such higher threshold is reached.
(c) NET SALES VALUE GREATER THAN *** BUT NO GREATER THAN ***.
If the cumulative, aggregate NET SALES VALUE (from inception of this
Agreement) of LICENSED PRODUCT SOLD or
- ---------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
imported under this Agreement (whether by or for LICENSEE, its
AFFILIATES, or SUBLICENSEES) is greater than *** but less than or equal
to *** the amount of the earned royalty shall be *** of the NET SALES
VALUE of all such LICENSED PRODUCTS SOLD or imported after such lesser
threshold is reached and up to the point at which such higher threshold
is reached.
(d) NET SALES VALUE GREATER THAN ***. If the cumulative,
aggregate NET SALES VALUE (from inception of this Agreement) of
LICENSED PRODUCT SOLD or imported under this Agreement (whether by or
for LICENSEE, its AFFILIATES, or SUBLICENSEES) is greater than ***, the
amount of the earned royalty shall be *** of the NET SALES VALUE of all
such LICENSED PRODUCTS SOLD or imported after such threshold is
reached.
Subsection 2.2.3. ONE ROYALTY. Only one earned royalty will
accrue and be paid on a given LICENSED PRODUCT, even if such LICENSED PRODUCT is
SOLD or transferred between SPECIAL PARTIES for subsequent RESALE or
importation, or if the manufacture of such LICENSED PRODUCT in one country is
covered by the LICENSED PATENTS and the SALE or importation in another country
is covered by the LICENSED PATENTS.
SECTION 2.3. Taxes. Orphan shall bear all taxes and charges assessed or
imposed by a governmental authority, including taxes imposed on the payment of
earned royalties, (collectively, "Non-deductible Taxes"). Non-deductible Taxes
do not include income tax imposed by the United States (or other country) or a
political or governmental subdivision thereof, taxes or duties permitted as
deductions in determining NET SALES VALUE, or maintenance fees or annuity
payments for keeping any LICENSED PATENT in force. All payments hereunder shall
be made undiminished by any Non-deductible Tax. Orphan shall cooperate with and
assist RCT in obtaining any exemption from Non-deductible Taxes imposed by any
government (or instrumentality) on royalty payments made by Orphan to RCT.
SECTION 2.4. Periodic Reports and Payments.
Subsection 2.4.1. FREQUENCY OF REPORTS. On or before January
30, April 30, July 30, and October 30 of each calendar year, Orphan shall
deliver to RCT a true and complete written report, showing the items specified
in Subsection 2.4.3 below as they pertain to the calendar quarter just ended.
Orphan's payment of the earned royalties based on Orphan's, its AFFILIATES', and
all SUBLICENSEES' SALE or USE of LICENSED PRODUCTS in the calendar quarter
covered by the written report shall accompany the report. If no earned royalties
are due, Orphan shall so report. Orphan shall pay all amounts due to RCT under
this Agreement in United States currency collectible at par. On or before the
date 90 days after the end of the calendar quarter in which this Agreement is
terminated, Orphan shall provide to RCT a written report that complies in all
respects with this SECTION 2.4. Orphan shall require each AFFILIATE and
SUBLICENSEE to make appropriate reports to Orphan to enable Orphan to comply
with this SECTION 2.4.
Subsection 2.4.2. CERTIFICATION. A responsible financial
officer of Orphan (or that officer's responsible designee), Orphan's independent
accounting firm, or the head of Orphan's internal audit committee shall certify
in writing that each such report is correct and complete.
Subsection 2.4.3. CONTENT OF QUARTERLY REPORTS. Each report
shall provide the following information as it pertains to the preceding calendar
quarter just ended:
(a) the quantities of LICENSED PRODUCTS billed for
any SALE or USE thereof by Orphan, its AFFILIATES, and
SUBLICENSEES during the previous calendar quarter in each
country in which such billing occurred (separately stated for
each entity and each country);
- ---------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
(b) the United States dollar value of the billings on
such quantities in (a) above;
(c) the computation of the NET SALES VALUE based on
the dollar value determined in (b) above including a detailed
accounting of any allowed deductions from the invoice amounts
to arrive at the NET SALES VALUE; and
(d) the computation of earned royalties based on the
NET SALES VALUE computed under Paragraph (c) above.
Failure to satisfy the terms and obligations of this SECTION 2.4 shall be a
material default under this Agreement.
SECTION 2.5. Books and Records. Orphan shall keep complete and accurate
books and reasonable supporting documentation to determine the accurateness of
the items reported under SECTION 2.4 and Orphan's compliance in other respects
with this Agreement. Orphan shall keep such books and documentation at its
principal place of business for three years following the end of the calendar
year to which they pertain (and access shall not be denied thereafter if
reasonably available). RCT may retain an independent certified public accountant
to inspect and copy such books and documentation to verify Orphan's earned
royalty statements or Orphan's compliance in other respects with this Agreement.
If any such inspection discloses an underpayment of earned royalties of 5% or
more of the amount of royalties actually due for any quarterly period, then
Orphan shall promptly pay the reasonable cost of such inspection after Orphan's
receipt of the bill/invoice for such inspection. Orphan shall require its
AFFILIATES and SUBLICENSEES to keep such books and documentation to enable
Orphan to comply with this SECTION 2.5. Failure to satisfy the terms and
obligations of this SECTION 2.5 shall be a material default under this
Agreement.
SECTION 2.6. Sales Outside The U.S. If Orphan, an AFFILIATE or a
SUBLICENSEE SELL any LICENSED PRODUCTS for currency other than United States
currency, Orphan shall determine the earned royalty payable for such LICENSED
PRODUCT in such currency and then convert the earned royalty into its equivalent
in United States currency at the New York foreign exchange selling rate for such
currency for the last business day of the calendar quarter for which payment is
made, as published by the Wall Street Journal. If such rate is not so published,
the conversion shall be at the selling rate for such currency for the last
business day of the calendar quarter for which payment is made, as published by
a leading New York, New York bank chosen by Orphan and reasonably acceptable to
RCT. If Orphan is late in making any payment, the applicable exchange rate
obtained from the sources described above shall be the greater of the rate on
the date payment was actually made or the rate on the date on which payment was
due.
SECTION 2.7. Late Payment. If Orphan fails to make any payment required
under this Agreement on or before the date ten days after Orphan's receipt of
RCT's written notice of such failure, Orphan shall pay interest on the unpaid
portion of such amount at an annual rate equal to the prime rate, as quoted by
First Interstate Bank, N.A., plus 5%, which shall accrue from the date the
payment not timely made became due until the date such payment is paid in full.
The interest shall be compounded on the last day of each calendar quarter. If
such rate exceeds the rate allowed by applicable law, then the highest rate
allowed by law shall apply. Any payments received shall be applied first to the
satisfaction of any unpaid, accrued interest and then to the satisfaction of any
unpaid principal.
ARTICLE III
OBLIGATIONS OF Orphan; DILIGENCE
SECTION 3.1. Obligation to Diligently Develop. Orphan shall exercise
its reasonable commercial efforts, consistent with its usual and customary
business practices, to commercially develop, promote and SELL LICENSED PRODUCTS
in the United States.
SECTION 3.2. Obtain Governmental Approvals and Registrations. Orphan
shall, either on its own part or through an AFFILIATE or a SUBLICENSEE,
diligently pursue the obtaining of governmental approvals and registrations for
LICENSED PRODUCTS in the United States. To that end:
Subsection 3.2.1. CONDUCT IND PROGRAM. Promptly after the
Effective Date, Orphan shall diligently establish, maintain and fund a program
(the "IND Program"), or continue to conduct an existing program, reasonably
designed and funded to obtain information to enable Orphan to prepare and file
with the FDA, on or before *** an IND for a LICENSED PRODUCT. If Orphan fails to
timely file such IND, such failure shall be a material breach under this
Agreement.
Subsection 3.2.2. CONDUCT NDA PROGRAM. Promptly after filing
the IND, Orphan shall diligently establish, maintain and fund a program (the
"NDA Program"), or continue to conduct an existing program, reasonably designed
and funded to obtain information to enable Orphan to prepare and file with the
FDA, on or before ***, an NDA for a LICENSED PRODUCT. If Orphan fails to timely
file such IND, such failure shall be a material breach under this Agreement.
Subsection 3.2.3. PROSECUTE NDA. After a NDA for a LICENSED
PRODUCT is filed, Orphan shall exercise its reasonable efforts to prosecute such
NDA and file all necessary reports and respond to all reasonable requests from
the FDA for information, data, samples, tests and the like. Orphan shall exhaust
all administrative remedies reasonably available (it being understood that
litigation or other adversarial proceedings are not reasonably available
remedies) in instances of adverse action by the FDA.
SECTION 3.3. The Marketing Program. As approval of an NDA for a
LICENSED PRODUCT is obtained in the United States, Orphan shall proceed
diligently as follows (collectively, the "Marketing Program"):
(a) to market and SELL LICENSED PRODUCTS in the United States
on or before the date six months after approval is obtained;
(b) to advertise and promote the SALE of LICENSED PRODUCTS in
the United States in a manner reasonably designed to develop a public
demand for LICENSED PRODUCTS in the United States, and then to satisfy
such demand;
(c) upon reasonable written request of RCT, furnish RCT with
representative copies of advertising, sales and promotional material
relating to such LICENSED PRODUCTS.
SECTION 3.4. Periodic Reports. To keep RCT apprised of its diligence in
commercially developing, promoting and SELLING LICENSED PRODUCTS, Orphan shall
submit semiannual progress reports on its activities. Orphan shall submit the
first such report along with its first royalty report due under SECTION 2.4
("Periodic Reports and Payments"), and shall submit subsequent reports along
with subsequent, alternating royalty reports thereafter until LICENSED PRODUCTS
are being SOLD on a regular commercial basis in the United States.
SECTION 3.5. Default. Orphan's failure to timely perform any
requirement of this ARTICLE shall be a material breach of this Agreement. If
this Agreement is terminated, Orphan shall promptly prepare and deliver to RCT a
summary report regarding the status of its development and marketing efforts.
ARTICLE IV
LICENSED PATENTS
SECTION 4.1. Prosecution. At its sole cost and expense, RCT shall
maintain the issued patents of the LICENSED PATENTS. At its sole cost and
expense, RCT shall exercise its reasonable efforts to prosecute the patent
applications of the LICENSED PATENTS. RCT does not represent or warrant to
Orphan that any patent will
- ---------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
issue or be granted based on such patent applications. At its sole cost and
expense, RCT shall maintain any patents that may issue based on such patent
applications.
SECTION 4.2. Communication of Patent Prosecution Status. Upon
reasonable request of Orphan occurring not more frequently than monthly, RCT
shall keep Orphan apprised of the status of the patent prosecution of the
LICENSED PATENTS. From time to time, RCT may consult with Orphan on the
prosecution of any LICENSED PATENT and afford Orphan the opportunity to review
and comment on any responses or submissions to the USPTO, although it is
understood that RCT shall have final and sole authority to make any and all
decisions regarding the prosecution of any LICENSED PATENT.
SECTION 4.3. Abandonment. RCT may, in its sole discretion, abandon a
LICENSED PATENT. If RCT intends and elects to abandon a LICENSED PATENT, RCT
shall so advise Orphan in writing and give Orphan an opportunity to continue
such prosecution or maintenance at its own expense. RCT shall not have any
liability nor be subject to any claim for damages if it inadvertently or
unintentionally abandons any LICENSED PATENT.
SECTION 4.4. Patent Extensions. Orphan shall cooperate with RCT in
seeking any available extension of the term of any LICENSED PATENT. Orphan shall
advise RCT in a timely manner of approval by the FDA (or other pertinent foreign
regulatory authorities) to use or market any LICENSED PRODUCTS and any other
governmental approval that is pertinent to any such extension. Orphan shall
supply RCT with any information in its possession or control pertaining to, or
desirable for, the extension of any LICENSED PATENT. Orphan shall supply RCT in
a timely manner with any supporting affidavits or documents required in
connection with the extension of any LICENSED PATENT. Orphan shall require its
AFFILIATES and SUBLICENSEES to comply with this SECTION 5.2. None of Orphan, its
AFFILIATES, and SUBLICENSEES shall take any action the consequence of which is
to preclude RCT from obtaining any extension of the term of any LICENSED PATENT.
ARTICLE V
INFRINGEMENT
SECTION 5.1. Statement of Interests.
Subsection 5.1.1. RCT'S RIGHT. The parties recognize and agree
that the right to sue for infringement of the LICENSED PATENTS rests solely in
RCT, and that such right does not extend to any other party or PERSON, except to
the extent expressly granted in this ARTICLE V. The parties further recognize
and agree that RCT, as assignee of a LICENSED PATENT, has no duty to pursue
infringers.
Subsection 5. 1.2. BOTH PARTIES' INTERESTS. RCT recognizes
that Orphan will make significant investment in commercializing LICENSED
PRODUCTS, that Orphan has an interest in protecting its market share of the USE
and SALE of LICENSED PRODUCTS in the United States, and that Orphan is licensing
the LICENSED PATENTS, in part, to protect such market share. Orphan recognizes
that RCT, as an assignee of the LICENSED PATENTS, has an interest in preventing
infringement of the LICENSED PATENTS, collecting royalties on the manufacture,
SALE, USE, or importation of products covered by the LICENSED PATENTS, and has
the concern of not exposing the LICENSED PATENTS to a third party's charge of
invalidity, where the nature or extent of infringement does not justify such
risk. The parties agree to take into account each party's interest in
formulating the response to infringement or threatened infringement of the
LICENSED PATENTS.
Subsection 5.1.3. COOPERATION AND COMMUNICATION. During the
preparation and pendency of any proceeding taken or instituted by a party under
this ARTICLE, the instituting party shall cooperate with the other party by: (a)
keeping the other party reasonably informed as to the status of such proceeding
including providing copies of all documents filed in, and written communications
relating to, such proceeding to the extent the interest of RCT and Orphan are
not adverse; (b) consulting with the other party regarding the strategy for, and
status of, such proceeding, including providing the other party with an
opportunity to make suggestions and comments regarding such proceeding. Any of
the foregoing obligations shall be subject to each party's desire or need to
preserve any attorney-client privilege, or work-product privilege, which shall
take precedence.
SECTION 5.2. Notification and Meeting. If either party learns that a
third party (the "Infringer") is:
(a) filing with the United States Food and Drug Administration
("FDA"), or foreign counterpart, an Abbreviated New Drug Application
(or foreign equivalent) on a product that infringes a PATENT CLAIM,
which application contain the certification described in 21 U.S.C 355
(j)(2)(A)(vii)(IV);
(b) filing with the FDA an NDA seeking approval to market and
SELL a product that infringes a PATENT CLAIM;
(c) SELLING, offering to SELL, or importing into the United
States infringing products in competition with Orphan's, its
AFFILIATE'S, or a SUBLICENSEE'S SALE of LICENSED PRODUCTS in the United
States;
(d) inducing or contributing to any of the foregoing
infringing activities;
then, that party shall notify the other party, in writing, of such infringing
activity. As soon as possible thereafter, the parties shall convene a meeting at
which they shall discuss all available evidence of such infringement and the
manner of addressing such infringement, including possibly preventing and/or
stopping infringing activities (for example, by way of seeking a preliminary
injunction) and preserving the parties' rights to past and future damages (for
example, by way of sending a cease and desist letter). The parties may agree to
pursue the Infringer jointly, sharing attorneys and costs, or may decide to
designate either party as controlling party of any lawsuit. If the parties are
unable to expressly agree otherwise as to the manner of addressing such
infringement, the provisions of SECTIONS 5.3 through 5.6, inclusive, shall
govern the parties' respective rights and any legal proceedings taken in
connection with such infringement.
SECTION 5.3. Infringement Compelling Action by the Assignee.
Subsection 5.3.1. EVIDENCE OF INFRINGEMENT. If, at the meeting
described in SECTION 5.2, either party presents PRIMA FACIE evidence of the
Infringer conducting any of the infringing activities described above, and, in
the case of activities described in SECTION 5.2(c), evidence indicating that
such infringement involves significant quantities of infringing products, then
RCT shall have the right in the first instance to: (a) cause such infringement
to terminate; or (b) initiate legal proceedings (which for purposes of this
ARTICLE V include lawsuits, settlement discussions or negotiations, mediation,
and arbitration) against the Infringer. Evidence of such infringement may be in
the form of a written opinion from a party's outside legal counsel that such
activities of the Infringer constitute a PRIMA FACIE case of infringement of the
LICENSED PATENTS, which opinion is reasonably acceptable to RCT. If the
infringement involves significant quantities of infringing products, the
evidence shall be reasonably probative in demonstrating to the reasonable
satisfaction of RCT that the Infringer's level of SALES of infringing products
in the United States compete with Orphan's SALES of LICENSED PRODUCTS in such
country and constitute significant quantities of infringing products. Reasonably
probative evidence might include a showing of a comparable detrimental effect on
Orphan's SALES of LICENSED PRODUCTS, which detriment is reasonably attributable
to the third party's sales or trustworthy evidence of the amount of sales to
customers of prospective customers of Orphan concerning the amount of their
purchases from such third party.
Subsection 5.3.2. SIGNIFICANT QUANTITIES. "Significant
quantities" means sales of products by the Infringer in the country in which
such infringement is occurring within the immediately preceding twelve months
before the date of the written notice for a meeting under SECTION 5.2 above,
which sales have a NET SALES VALUE greater than 20% of the total, cumulative NET
SALES VALUE of LICENSED PRODUCTS SOLD by Orphan, its AFFILIATES or SUBLICENSEES
in the immediately preceding 12 month period in the United States, but in no
event less than $200,000.00.
SECTION 5.4. Orphan's Rights. If the conditions in Subsection 5.3.1
have been met but RCT does not undertake to perform the actions contemplated by
Subsection 5.3.1 on or before the date ninety days after the date of the SECTION
5.2 meeting, then Orphan shall have the right, at Orphan's sole expense, to take
any of the actions contemplated in Subsection 5.3.1 in its own name, and the
right to notify the Infringer that such activities are or may constitute
infringement of a PATENT CLAIM and that any such infringement should be
discontinued. Nothing in this ARTICLE V shall preclude RCT from exercising, at
any time, any right it may have as assignee. Any action taken by the other party
under this SECTION shall be further governed by SECTION 5.6 below. If the
infringement is the type described in Paragraph (a) of SECTION 5.2, the ninety
day period described above shall be reduced to ten days. For purposes of seeking
immediate injunctive relief, such as a temporary restraining order, to stop such
infringement, the ninety day period shall be reduced to five business days.
SECTION 5.5. Control of Suit Initiated by RCT.
Subsection 5.5.1. GENERALLY. If RCT institutes suit or other
legal proceedings to protect or enforce the LICENSED PATENTS, RCT shall have
sole control of such suit or other proceedings and shall pay all expenses of
such suit or proceeding, including without limitation, attorneys' fees and court
costs.
Subsection 5.5.2. ORPHAN'S RIGHT TO PARTICIPATE. Orphan shall
have the right to participate in such suit or proceeding at its own expense to
the extent it wishes to seek damages based on the infringement. Nonetheless, RCT
shall have sole control over any issues of validity or scope of any PATENT
CLAIM. If the other party hereunder participates in such suit, both parties
shall cooperate with each other as provided in Subsection 5.1.3 above but each
to bear its own expense.
Subsection 5.5.3. SHARING OF AWARDS. RCT shall be entitled to
keep all damages that it asserted and was awarded in such suit or proceeding. If
the other party hereunder participates in such suit or proceeding, the other
party shall have the right to keep any damages that it asserted and was awarded.
Punitive damages awarded shall be retained by the party to whom such damages are
awarded or, if the parties are jointly awarded punitive damages, such damages
shall be shared in the proportion that each party's normal damages bear to the
total damages awarded.
SECTION 5.6. Control of Suit Initiated by Orphan.
Subsection 5.6.1. RESPONSIBILITY AND LEGAL COUNSEL. If Orphan
takes any action under this ARTICLE V that results in legal proceedings relating
to the LICENSED PATENTS, Orphan shall assume the responsibility for such legal
proceedings at its sole expense. Orphan acknowledges that RCT, as assignee of
the LICENSED PATENTS, may be a necessary party to any suit or legal proceeding
brought by Orphan concerning the infringement of the LICENSED PATENTS. In light
of this fact, Orphan has the right to join RCT as a necessary party in any suit
or proceeding as a necessary party in any suit or proceeding RCT brings under
SECTION 5.1. In that event, and if RCT so requests, Orphan's legal counsel shall
represent RCT, at Orphan's expense, in any such legal proceedings. If Orphan's
legal counsel is unable to represent RCT because of a conflict of interest or
other bona fide reason, RCT may engage other competent legal counsel, reasonably
acceptable to Orphan and at Orphan's expense, to represent RCT in any such suit
or legal proceeding. If RCT does not wish to be represented by Orphan's legal
counsel for reasons other than a conflict of interest or other bona fide reason,
RCT may engage competent legal counsel of its own choosing to represent RCT at
RCT"s own expense.
Subsection 5.6.2. DISCONTINUANCE OR Settlement. Orphan shall
not discontinue or settle any such proceedings brought by it without obtaining
the concurrence of RCT and giving RCT a timely opportunity to continue such
proceedings in its own name, under its sole control, and at its sole expense if
such discontinuation or settlement is not acceptable to RCT. Such concurrence
shall not be withheld unless the discontinuation or settlement will result in
the invalidity, unenforceability or reduction in scope of any PATENT CLAIM or
compromise RCT's right to receive reasonable compensation for such infringement
or any future infringement.
Subsection 5.6.3. SHARING OF AWARDS. After deducting from any
award or recovery in such suit or legal proceeding all out-of-pocket expenses
incurred by Orphan in such suit or legal proceedings, the other party shall then
pay to RCT out of any recovery and damages awarded, including without limitation
punitive damages, the reasonable royalties that were awarded in such suit or
proceeding. The other party shall then be entitled to retain for its own account
the balance of such recovery awarded as damages. Punitive damages awarded and
remaining, if any, shall be retained by the party to whom such damages are
awarded or, if the parties are jointly awarded punitive damages, such damages
shall shared in the proportion that each party's normal damages bear to each
other.
Subsection 5.6.4. INDEMNITY. Orphan shall indemnify, defend
and hold RCT harmless from any and all claims, damages or other obligations
arising out of or resulting from any such claim or legal proceedings instituted
by Orphan. The foregoing indemnity shall not apply to the extent RCT incurs
claims, damages, or obligations because RCT elected to continue the proceedings
in its own name as contemplated under Subsection 5.6.2 above. The foregoing
indemnity shall not apply to the extent such claims, damages, or obligations are
based on the actions of RCT.
ARTICLE VI
TERMINATION
SECTION 6.1. Automatic Termination. The term of this Agreement shall
expire on the TERMINATION DATE unless sooner terminated.
SECTION 6.2. At Orphan's Election. Except as provided below, Orphan may
terminate this Agreement at any time by giving RCT three months' written notice
of Orphan's election to terminate.
SECTION 6.3. Orphan's Breach of Agreement.
Subsection 6.3.1. BREACH. Upon any breach of this Agreement by
Orphan, RCT, in addition to any other remedy available at law or equity, may
elect to terminate this Agreement by giving Orphan written notice of RCT's
election to terminate this Agreement. This Agreement shall terminate upon the
expiration of the period provided in Subsection 6.3.2 below unless Orphan has
cured such breach on or before the expiration of such period.
Subsection 6.3.2. NOTICE AND CURE PERIOD. If the breach is a
monetary breach (e.g., failure to timely pay amounts to RCT required to be paid
under this Agreement), the notice and cure period shall be thirty days. If the
breach is a nonmonetary breach (i.e., not involving the payment to Orphan of any
amounts required to be paid under this Agreement), the notice and cure period
shall be sixty days. If the nonmonetary breach is of a type that requires more
than sixty but less than ninety days to cure, the notice and cure period shall
be extended to ninety days so long as Orphan has, throughout the ninety day
period, diligently undertaken substantive and progressive efforts to cure such
breach on or before the date the ninety days expire.
Subsection 6.3.3. IMMEDIATE DEFAULT. The following shall be
breaches of this Agreement that Orphan may not cure: any voluntary or
involuntary dissolution, bankruptcy, insolvency of Orphan or assignment of
Orphan's assets for the benefit of creditors (collectively, a "Financial
Default"). Financial Defaults shall constitute immediate breaches of this
Agreement and, upon the occurrence of a Financial Default, this Agreement shall
immediately terminate. On or before the date 30 days before the occurrence of a
Financial Default or the filing of a bankruptcy petition concerning Orphan,
Orphan shall notify RCT in writing of Orphan's intention to file the petition or
of another's intention to file an involuntary petition in bankruptcy or the
impending Financial Default. Failure to provide such written notice shall be
deemed to be an immediate, pre-petition, incurable breach of this Agreement.
Subsection 6.3.4. DISPUTE OVER BASIS FOR TERMINATION. If
Orphan has a reasonable basis for disputing RCT's basis for terminating this
Agreement under this SECTION 6.3, RCT and Orphan shall submit such dispute to
the alternative dispute resolution procedures available provided under SECTION
7.4. This Agreement shall not be terminated until the dispute is resolved under
such proceedings and so long as Orphan has not otherwise defaulted under this
Agreement.
SECTION 6.4. Effect of Termination of this Agreement on SUBLICENSES.
Termination of this Agreement shall effect the immediate and simultaneous
termination of any SUBLICENSE and of any right extended to Orphan's AFFILIATES
under SECTION 1.3.
SECTION 6.5. Surviving Obligations and Provisions. Orphan's obligations
to pay, and report to RCT on, the SALE or USE of any LICENSED PRODUCT made or
imported before termination of this Agreement or expiration of the pertinent
LICENSED PATENTS (even if such LICENSED PRODUCT is USED or SOLD after the
termination of this Agreement or expiration of the pertinent LICENSED PATENT),
shall survive such termination or expiration. In addition to any provision of
this Agreement that expressly survives the termination of this Agreement or
expiration of the LICENSED PATENTS, the provisions of SECTIONS 2.4 ("Periodic
Reports and Payments"), 2.5 ("Books and Records") and 6.5 and ARTICLE VII shall
survive the termination of this Agreement. After expiration or termination of
this Agreement, Orphan shall have the right, subject to its obligation to pay
earned royalties as provided in this Agreement, to SELL its remaining inventory
of LICENSED PRODUCTS free from suit by RCT for infringement of the LICENSED
PATENTS. Orphan shall have such right for the period expiring three months after
the effective date of such termination. The foregoing shall not apply to any
termination of this Agreement by RCT for Orphan's material default under this
Agreement.
SECTION 6.6. Reverter. Upon termination of this Agreement, all licenses
and right granted under this Agreement shall revert to RCT for the benefit of
RCT.
ARTICLE VII
GENERAL
SECTION 7.1. Integration. This Agreement, and any EXHIBITS, attached to
this Agreement, constitute the entire agreement between the parties as to the
subject matter of such documents. All prior and contemporaneous negotiations,
representations, warranties, agreements, statements, promises, and
understandings are superseded and merged into, extinguished by, and completely
expressed by such documents. No party shall be bound by or charged with any
written or oral agreements, representations, warranties, statements, promises,
or understandings not specifically set forth in such documents.
SECTION 7.2. Addresses and Notices. All notices, requests, reports, and
other communications provided in this Agreement shall be in writing and shall be
deemed to have been made or given: (a) when delivered, if delivered by hand or
sent by facsimile or the like; (b) on the day following deposit with an
overnight courier; or (c) on the date five days following deposit with the
United States Mail, certified or registered:
If to RCT: If to Orphan:
- ---------- -------------
President President
Research Corporation Technologies, Inc. Orphan Medical, Inc.
101 N. Wilmot Rd., Suite 600 13911 Ridgedale Drive, Suite 475
Tucson, Arizona, 85711-3335 Minnetonka, MN 55305
Fax: 520-748-0025 Fax: 612-541-9209
Such addresses may be altered by notice so given. Payments by Orphan to RCT
under this Agreement shall be delivered to RCT at the foregoing address.
SECTION 7.3. Applicable Law. This Agreement and its effect are subject
to and shall be construed and enforced in accordance with the law of the State
of Delaware, U.S.A., without regard to the law of Delaware concerning the
conflicts of laws, except as to any issue which by the law of Delaware depends
upon the validity, scope or enforceability of any PATENT CLAIM, which issue
shall be determined in accordance with the applicable patent laws of the country
of such LICENSED PATENT.
SECTION 7.4. Mediation and Arbitration. Nothing in this SECTION 7.4
shall be construed to waive any rights or timely performance of any obligations
existing under this Agreement.
Subsection 7.4.1. DISPUTE RESOLUTION. The parties shall make
all reasonable efforts to resolve any dispute concerning this Agreement, its
construction, or its actual or alleged breach, by face-to-face negotiations
between senior executives. Should such negotiation fail to resolve the matter,
the parties shall pursue mediation in accordance with the Center for Public
Resources' Model Procedure for Mediation of Business Disputes. Should such
mediation fail to resolve the matter, the matter shall be finally decided by
arbitration by and in accordance with the Rules then in effect of the American
Arbitration Association, and judgment upon the award rendered may be entered in
the highest court of the forum, state or federal, having jurisdiction. Any
arbitration will be conducted in the Tucson, Arizona metropolitan area.
Subsection 7.4.2. EXCEPTIONS. The provisions of this SECTION
7.4 relating to mediation and arbitration shall not apply to any issue of the
patentability, enforceability or infringement of any PATENT CLAIM. If, in
mediation or arbitration, any issue shall arise concerning validity, scope,
enforceability, or infringement of any PATENT CLAIM, the PATENT CLAIM shall be
deemed to be valid, enforceable and infringed. In any event, the mediators or
arbitrators shall not delay the proceeding to obtain or permit either party to
obtain judicial resolution of such issue, unless an order staying such
arbitration proceeding shall be entered by a court of competent jurisdiction.
Neither party shall raise any issue concerning the validity, construction,
enforceability, or effect of any LICENSED PATENT in any proceeding to enforce an
arbitration award hereunder or in any proceeding otherwise arising out of such
arbitration award.
SECTION 7.5. Compliance With Law: Severability. Nothing in this
Agreement shall be construed to require the commission of any act contrary to
law. If this Agreement conflicts with any statute, law, ordinance, or treaty
concerning the legal right of the parties to contract, the latter shall prevail.
In such event, the affected provisions of this Agreement shall be curtailed and
limited only to the extent necessary to bring it within the applicable legal
requirements and the validity, legality, and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
SECTION 7.6. Representations
Subsection 7.6.1 . AUTHORITY AND BINDING AGREEMENT;
INTERFERING PATENT RIGHTS. Each party represents and warrants to the other that
this Agreement constitutes a valid and binding agreement of the representing and
warranting party, that execution, delivery and performance of this Agreement by
the representing and warranting party are within such party's corporate power,
and have been duly authorized by all necessary corporate action. RCT represents
and warrants that it has the right to grant licenses under the LICENSED PATENTS.
Orphan represents and warrants that, as of the Execution Date, it has not filed,
and has no present plans to file, a patent application, and it is not
independently possessed of an invention on which it could file a patent
application, any of which patent applications do or may claim the same
invention(s) claimed in any of the PATENT CLAIMS (as constituted on the
Execution Date) or that otherwise may be a basis for the declaration of an
interference between any such patent application and any LICENSED PATENT.
Subsection 7.6.2. LIMITATIONS. Nothing contained in this
Agreement shall be construed as a representation or warranty by RCT: (a) that
the LICENSED PATENTS or any PATENT CLAIM can be or will be used to prevent the
importation, sale or use by a third party of a product in any country of the
LICENSED PATENTS where such product is placed in commerce under circumstances
which applicable laws or treaties preclude the use of the LICENSED PATENTS or
any PATENT CLAIM to prevent such importation, sale, or use; (b) as to the scope
or validity of any LICENSED PATENT or any PATENT CLAIM; or (c) that any
performance or practice under any LICENSED PATENT or any PATENT CLAIM is not an
infringement of any patent of others. However, RCT represents and warrants that,
as of the Effective Date: (d) it has no actual knowledge of any infringement of
the PATENT CLAIMS by a third party; (e) it has not received any written notice
from a third party stating that the practice of the INVENTION(s) as claimed in
the LICENSED PATENTS infringes the patents of such third party.
SECTION 7.7. Independent Contractor. In its performance under this
Agreement, each party shall be an independent contractor and neither party (nor
its employee or agent) shall be an agent or partner of the other party.
SECTION 7.8. Headings. The headings of the various ARTICLES, SECTIONS
and Subsections of this Agreement are used solely for the convenience of the
parties, do not form a part of this Agreement, do not affect the interpretation
or meaning of this Agreement, and do not define, limit, extend, or describe its
scope or intent.
SECTION 7.9. No Third-Party Beneficiaries. Except for SECTIONS 7.13 and
7.18, which shall also be for the benefit of, and enforceable by, the
INSTITUTION and the INVENTORS, none of the provisions of this Agreement shall be
for the benefit of, or enforceable by, any third-party.
SECTION 7.10. Waiver. A party's express or implied consent or waiver of
the other party's breach hereunder shall not be deemed to be, or construed as, a
consent to, or waiver of, any other breach of the other party. A party's
failure, no matter how long, to: (a) complain of any act, or failure to act, by
the other party; (b) declare the other party in default; (c) insist upon the
strict performance of any obligation or condition of this Agreement; or (d)
exercise any right or remedy consequent upon a breach thereof; shall not
constitute a waiver by such party of its rights, such breach, or any other
obligation or condition. A party's consent in any one instance shall not limit
or waive the necessity to obtain such party's consent in any future instance. No
single or partial exercise of any right, power or privilege by a party hereunder
shall preclude any other or further exercise thereof or the exercise of any
other right, power or privilege by such party. In any event, no consent or
waiver shall be effective for any purpose hereunder unless such consent or
waiver is in writing and signed by the party granting such consent or waiver.
SECTION 7.11. Computation of Time. In computing any period of time
pursuant to this Agreement, the day or date of the act, notice, event, or
default from which the designated period of time begins to run will not be
included. The last day of the period so computed will be included, unless it is
a Saturday, Sunday, or federal holiday in which event the period runs until the
end of the next day which is not a Saturday, Sunday, or federal holiday.
SECTION 7.12. Disclaimer. It shall be the full and sole responsibility
of Orphan, its AFFILIATES and its SUBLICENSEES to use appropriate care in the
practice, manufacture or use of any product under any license granted under this
Agreement. RCT shall have no right to control the manner in which any product
licensed under this Agreement is made or practiced. RCT shall not be required to
provide any know-how or operating instructions or other information with respect
to any such product. RCT makes no representation or warranty whatsoever with
respect to any such product.
SECTION 7.13. Indemnity. Orphan AGREES TO INDEMNIFY, DEFEND AND HOLD
HARMLESS RCT, THE INVENTORS, THE INSTITUTION, AND ALL OFFICERS, DIRECTORS,
EMPLOYEES, AND AGENTS OF RCT AND INSTITUTION (COLLECTIVELY, THE "INDEMNITEES")
FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES AND LIABILITIES, INCLUDING LEGAL
COSTS AND FEES, OF OR ASSERTED BY Orphan, ITS AFFILIATES, SUBLICENSEES, ANY
SPECIAL PARTIES, AND/OR ANY THIRD PARTIES (WHETHER GOVERNMENTAL OR PRIVATE)
ARISING FROM THE MANUFACTURE, USE, SALE, OR IMPORTATION OF ANY LICENSED PRODUCT
BY OR FOR Orphan, ITS AFFILIATES, OR SUBLICENSEES, OR ARISING FROM THE USE OF
ANY SUCH LICENSED PRODUCT BY ANY THIRD PARTY INCLUDING ANY CONSUMER OR ANY
CUSTOMER OF Orphan, ITS AFFILIATES, OR SUBLICENSEES. IN NO EVENT SHALL RCT BE
LIABLE UNDER THIS AGREEMENT FOR ANY DIRECT (OTHER THAN FOR AMOUNTS PAID UNDER
THIS AGREEMENT), INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING BUT NOT LIMITED TO LOST REVENUE, LOST PROFITS, OR LOST SAVINGS), EVEN
IF RCT HAS NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING INDEMNITY
SHALL NOT BE AVAILABLE TO ANY INDEMNITEE TO THE EXTENT ANY CLAIM, DAMAGE, OR
LIABILITY ARISES SOLELY FROM GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNITEE IN THE MANUFACTURE, USE, SALE, OR IMPORTATION OF SUCH LICENSED
PRODUCT, ALTHOUGH ANY INDEMNITEE NOT GUILTY OF SUCH ACTS SHALL NOT BE SUBJECT TO
THIS LIMITATION AND SHALL CONTINUE TO BENEFIT FROM SUCH INDEMNITY.
SECTION 7.14. Insurance. On or before the date Orphan begins clinical
trials of any LICENSED PRODUCT, Orphan shall obtain and, thereafter throughout
the term of this Agreement, maintain in force products liability insurance and
other insurance coverage typically carried by entities engaged in Orphan's
business in amounts not less than Two Million U.S. Dollars (US$2,000,000). Such
insurance policies shall name the Indemnitees as an additional named insured or,
if RCT is not so named, shall contain a provision whereby the insurer waives any
rights of subrogation against the Indemnitees. The insurance policies required
to be carried by Orphan under this Agreement shall be with companies that have a
Best's Financial Rating of A+ or better. Orphan shall furnish RCT with a
certificate of such policy upon request and, whenever requested, shall satisfy
RCT that such policy is in full force and effect. Orphan shall maintain such
insurance policies for a period expiring on the date 10 years after the date of
termination or expiration of this Agreement. The requirements of the SECTION
7.14 shall survive termination of this Agreement.
SECTION 7.15. Construction. The parties agree that each party has
reviewed this Agreement and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement.
SECTION 7.16. Patent Marking. Orphan shall mark all LICENSED PRODUCTS
with a legible notice indicating that the LICENSED PRODUCTS are covered by
claims in a pending patent application or an issued LICENSED PATENT, as the case
may be.
SECTION 7.17. Assignment. This Agreement, and the license, rights, and
duties contained in this Agreement, shall not be assigned by Orphan without the
prior written consent of RCT, which consent shall not be unreasonably withheld
or delayed. RCT's consent shall not be required if this Agreement is assigned as
part of a sale or transfer pursuant to other bona fide business arrangements of
all or substantially all of Orphan's business. Orphan shall give RCT prior
written notice of such assignment and obtain Orphan's assignee's agreement to
abide by the terms of this Agreement and assume all of Orphan's obligations
under this Agreement. Upon assignment, the term "Orphan" as used in this
Agreement shall thereafter mean the assignee of Orphan.
SECTION 7.18. Non-Use of Names. Orphan shall not use the name of any
INVENTOR, the INSTITUTION, RCT, or any adaptation of any of them, in any
advertising, promotional or sales literature, without prior written consent
obtained from the INVENTOR, the INSTITUTION, or RCT, as applicable. Orphan shall
require its AFFILIATES and SUBLICENSEES to comply with the foregoing. Likewise,
RCT shall not disclose the existence of this Agreement in any news release or
public announcement without the prior written approval of Orphan. RCT shall
obtain Orphan's prior written consent to the form and content of any news
release or public announcement concerning this Agreement. RCT and Orphan shall
each fully cooperate with the other in fashioning and distributing any new
release or public announcement concerning this Agreement.
ARTICLE VIII
DEFINITIONS
When fully capitalized in this Agreement, the following terms shall have the
meanings set forth below:
SECTION 8.1. "AFFILIATE" means any entity which directly or indirectly
controls, is controlled by, or is under common control with, a party to this
Agreement. "Control" shall constitute the right to cast, or the right to direct
the casting of, at least fifty percent (50%) of the votes at a meeting of such
owners, or at a meeting of the entity's directors or governing body, or the
right to designate a majority of the entity's directors or members of the
entity's governing body, or the power to direct or cause the direction of the
management or policies of an entity.
SECTION 8.2. "FDA" means the United States Food and Drug
Administration.
SECTION 8.3. "INSTITUTION" means the City University of New York.
SECTION 8.4. "INVENTION" means the certain invention entitled
"Recombinant Alpha-Galactosidase A Therapy for Fabry Disease," which is the
subject of RCT Project No. 0331-1523.
SECTION 8.5. "INVENTORS" means Drs. David Calhoun and George Coppola.
SECTION 8.6. "LICENSED PATENTS" means:
(a) United States Patent No. 5,179,023 and United States
Patent Application No. 155,734 filed November 22, 1993;
(b) all U.S. divisional or continuation, in whole or in part,
applications based on any of the foregoing;
(c) any and all issued and unexpired patents resulting from
any of the applications described in Paragraph (a) or (b) above; and
(d) any and all U.S. issued and unexpired reissues,
reexaminations, renewals or extensions that may be based on any of the
patents described in Paragraphs (a) or (c) above.
SECTION 8.7. "LICENSED PRODUCT" means a product the manufacture, USE,
SALE, offer for SALE, or importation of which directly infringes, contributorily
infringes or induces the infringement of a PATENT CLAIM.
SECTION 8.8. "NDA" means a new drug application, a product license
application, or other similar application to the FDA seeking approval to market
and sell a new drug.
SECTION 8.9. "NET SALES VALUE" of any product means the actual billings
for the SALE or USE of a product less the deductions identified below.
Subsection 8.9.1. DETERMINING ACTUAL BILLINGS. The billings used for
calculating NET SALES VALUE of any LICENSED PRODUCT that Orphan, its AFFILIATE,
or a SUBLICENSEE SELLS:
(a) To a third party that is not a SPECIAL PARTY, actual
billings shall be Orphan's, its AFFILIATE's or SUBLICENSEE's billings,
as the case may be;
(b) To a SPECIAL PARTY for subsequent SALE by such SPECIAL
PARTY, actual billings shall be such SPECIAL PARTY's actual billings
for such subsequent SALE; or
(c) To a SPECIAL PARTY for USE by such SPECIAL PARTY, actual
billings shall be the billings that would result from a hypothetical
arm's length SALE to a third party (that is not a SPECIAL PARTY) by
Orphan, its AFFILIATE, or SUBLICENSEE as the case may be.
Subsection 8.9.2. ALLOWABLE DEDUCTIONS. When factually
applicable, the following deductions may be deducted from actual billings as
determined above:
(a) rebates, volume, quantity, trade or cash discounts,
allowed and taken, in amounts customary in the trade;
(b) sales taxes and/or use taxes and/or duties imposed upon,
and with specific reference to, particular SALES to the extent included
in the amount of actual billings;
(c) amounts allowed or credited on returns, rejections or
recalls, voluntary or otherwise (not exceeding the original billing);
and
(d) charges for freight, freight allowances, and outbound
transportation costs prepaid to the extent included in such actual
billings.
No other allowance or deduction shall be made including without limitation
allowances or deductions for any commissions or sales fees by whatever name
known.
SECTION 8.10. "PATENT CLAIM" means a valid claim in an unexpired
LICENSED PATENT. A PATENT CLAIM shall be presumed to be valid unless and until
it has been held to be invalid by a final judgment of a court of competent
jurisdiction from which no appeal can be or is taken. For the purposes of this
Agreement, and especially for purposes of royalty determination and payment
under ARTICLE II ("Financial Terms"), any claim being presented in a pending
patent application shall be deemed to be the equivalent of a valid claim of an
issued, unexpired patent and in consideration of RCT's agreement to grant a
license under any patent issuing thereon earned royalties shall be payable in
respect thereto as though it were a valid patent claim. If RCT files an
amendment to the claims in any patent application within the LICENSED PATENTS
that broadens the scope of any PATENT CLAIM as constituted on the Effective
Date, or if RCT adds any new PATENT CLAIM to any LICENSED PATENT that is broader
in scope than any PATENT CLAIM as constituted on the Effective Date, RCT shall
promptly provide Orphan with a written copy of such amendment or new PATENT
CLAIM. On or before the date sixty days after receiving such written copy,
Orphan shall notify RCT if it elects not to extend the license granted under
this Agreement to such new or amended PATENT CLAIM. If Orphan so elects, the
license granted hereunder shall not include such PATENT CLAIM, even if the
patent or patent application containing such PATENT CLAIM is designated as a
LICENSED PATENT, and Orphan shall have no obligation to pay earned royalties on
products that infringe only such PATENT CLAIM. If Orphan does not timely notify
RCT of such election, Orphan shall be deemed to have elected to extend the
license granted under this Agreement to such new or amended PATENT CLAIM.
SECTION 8.11. "PERSON" means an individual or a corporation,
partnership, trust, unincorporated organization, association, or any other
entity, or a government, or any department or agency of a government.
SECTION 8.12. "SELL" (and any noun form and conjugated verb form
thereon shall mean to sell, or otherwise part with or dispose of, for value.
SECTION 8.13. "SPECIAL PARTY" shall mean any one of Orphan, AFFILIATES
of Orphan, SUBLICENSEES, AFFILIATES OF SUBLICENSEES, or any PERSON enjoying a
special course of dealing with Orphan, AFFILIATES of Orphan, SUBLICENSEES, or
AFFILIATES OF SUBLICENSEES. By way of example but not limitation, a "special
course of dealing" includes co-marketing arrangements between Orphan and a third
party wherein the third party may SELL LICENSED PRODUCTS, distribution
arrangements with third parties in which Orphan or its AFFILIATE shares,
directly or indirectly, in the proceeds from such distributor's SALES of
LICENSED PRODUCT, supply contracts in which Orphan agrees with a third party to
supply or manufacture LICENSED PRODUCTS for SALE by the third party under such
third party's name or mark, arrangements under which a third party will SELL
LICENSED PRODUCTS under a private labeling arrangement with Orphan, or barter
arrangements in which Orphan exchanges LICENSED PRODUCTS for other products in
kind. A distributor of LICENSED PRODUCTS under Orphan's name or mark shall not
be considered a SPECIAL PARTY if neither Orphan nor its AFFILIATE shares,
directly or indirectly, in the proceeds from such distributor's SALES of such
LICENSED PRODUCT.
SECTION 8.14. "SUBLICENSE" shall mean a sublicense under the LICENSED
PATENTS granted under SECTION 1.4. "SUBLICENSEE" shall mean an third party,
unrelated to Orphan, to which rights are granted under a SUBLICENSE. If Orphan
is related to a third party to which rights granted under this Agreement are
extended, such extension of rights shall not be considered a SUBLICENSE under
SECTION 1.4 but an extension to AFFILIATES under SECTION 1.3.
SECTION 8.15. "TERMINATION DATE" shall be the date on which the U.S.
LICENSED PATENT that has the latest expiration date expires, after accounting
for any extensions of any LICENSED PATENTS. A patent shall be understood to
expire at midnight of the date of its expiration.
IN WITNESS WHEREOF, the parties hereto have each caused a duly
authorized officer to sign this Agreement to be effective the Effective Date.
ORPHAN MEDICAL INC. RESEARCH CORPORATION
By: /s/ Bert Spilker By: /s/ Gary M. Munsinger
------------------------------- --------------------------------
Bertram Spilker, President Gary M. Munsinger, President
Date: March 20, 1996 Date: March 18, 1996
----------------------------- -----------------------------
EXHIBIT 10.42
LICENSE AGREEMENT
This License Agreement (the "Agreement") is entered into and
made effective the 6th day of December, 1996, (the "Effective Date") between
UNIVERSITY OF MIAMI and its Department of Ophthalmology whose principal place of
business is at 1600 N.W. 10th Avenue, Miami Florida 33136 (hereinafter referred
to as "LICENSOR") and Orphan Medical, a Minnesota Corporation, whose principal
place of business is at 13911 Ridgedale Drive, Suite 475, Minnetonka, Minnesota
55305 (hereinafter referred to as "LICENSEE").
WITNESSETH
WHEREAS, LICENSOR is the sole owner of U.S. Patent No.
5,098,443, Japanese Patent Application Serial No. 330811/91 and Canadian Patent
Application No. 2,056,138 (the Japanese and Canadian patent applications
collectively referred to herein as the "Patent Applications"), as well as the
technology described therein and entitled Method of Implanting Intraocular and
Intraorbital Implantable Devices for the Controlled Release of Pharmacological
Agents; Parel/UM88--06; and
WHEREAS, LICENSOR wishes to maintain the United States Patent,
obtain and maintain patents from the Patent Applications, and commercially
market the Product; and
WHEREAS LICENSOR warrants that it possesses the right to
license the aforestated patent and Patent Applications and to license and market
the Product; and
WHEREAS, LICENSOR wishes the LICENSEE to maintain the subject
Patent in the United States, obtain and maintain Patents from the Patent
Applications in the respective Territories, and to market the Product and
Process included within the Patent Rights; and
WHEREAS, LICENSEE desires to acquire an exclusive license in
the Territory for the following use: Human and Animal Health, with the right to
sublicense, under the Patent Rights (as defined in Paragraph 1.3 below) for the
purposes of making, having made for its own use and sale, using and selling
products and practicing the invention disclosed and claimed in the Patent
Rights.
NOW THEREFORE, in consideration of the above premises and the
obligation and covenants set forth below, the parties agree as follows:
1. DEFINITIONS:
1.1 "Affiliate" shall mean any corporation or other business entity
controlled by, controlling or under common control with LICENSOR or LICENSEE.
For this purpose, "control" shall mean direct or indirect beneficial ownership
of at least a fifty percent (50%) of the voting stock of, or at least a fifty
percent (50%) interest in the income of such corporation or other business
entity, or such other relationship as in fact, constitutes actual control.
1.2 "Sublicensee" as used in this Agreement shall mean any third party
to whom LICENSEE has granted a license to make, have made, use and/or sell the
Product or Process under the Patent Rights, provided said third party has agreed
in writing with LICENSEE to accept the conditions and restrictions agreed to by
LICENSEE in this Agreement.
1.3 "Patent Rights" shall mean U.S. Patent No. 5,098,443, Japanese
Patent Application Serial No. 330811/91 and Canadian Patent Application No.
2,056,138, and any continuations, divisional re-examinations, reissues,
improvements or extensions thereof and any patents issuing therefrom.
1.4 "Product" shall mean any product or part thereof (a) that is
covered in whole or in part by an issued, unexpired claim or a pending claim
contained in the Patent Rights in the country in which any Licensed Product is
made, used or sold; (b) that is manufactured by using a process which is covered
in whole or in part by an issued, unexpired claim or a pending claim contained
in the Patent Rights in the country in which any Licensed Process is used or in
which such product or part thereof is made, used or sold.
1.5 "Process" shall mean any process which is covered in whole or in
part by an issued, unexpired claim or pending claim contained in the Patent
Rights.
1.6 "Net Sales" shall mean the sum of all amounts invoiced on account
of sale or use of Products by LICENSEE and its Affiliates and any Sublicensees
to non-affiliated third party purchasers or users of Products, less (if invoiced
separately) (a) cash discounts to purchasers allowed in amounts customary in the
trade, (b) amounts for transportation or shipping charges to purchasers, (c)
credits for returns, allowances or trades, and (d) taxes and duties levied on
the sale of Products, whether absorbed by Licensee or paid by the purchaser.
1.7 "Territory" shall mean United States, Canada, and Japan.
1.8 "Field of Use" shall mean Human and Animal Health.
2. GRANT:
2.1 In consideration for payment of royalties, LICENSOR hereby, grants
to LICENSEE an exclusive license in the Territory for the Field of Use, with the
right to sublicense, under the Patent Rights, to make, have made for its own use
and sale, use and sell the Product and to practice any Process claimed in the
Patent Rights.
2.2 LICENSOR grants to the LICENSEE the authority to make application
for Patents, in the name of the LICENSOR in the Territory; all expenses of
obtaining and maintaining said patents shall be paid by LICENSEE.
2.3 LICENSOR retains the right to practice such invention for its own
research and educational use, and will not intentionally use such invention for
a commercial purpose.
3. TERM:
The license granted by this Agreement shall be Exclusive in the
License Field of Use in each country in the Licensed Territory for a term
commencing as of the effective date of this Agreement and ending on the first to
occur of the following:
(a) Twenty (20) years from the effective date; or
(b) Seventeen (17) years from the date of first commercial sale of a
licensed Product(s) by LICENSEE in each country in the Licensed Territory
(LICENSEE agrees to promptly inform LICENSOR in writing of the date of first
commercial sale); or
(c) expiration of the last to expire Patent Right within the
respective country. Thereafter, said license shall be nonexclusive until
expiration of the last to expire of the Licensed Patent(s) in each country
within the Territory.
4. UNITED STATES LAWS:
It is understood that LICENSOR is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. LICENSOR neither represents that a license shall not be required nor
that, if required, it shall be issued.
5. PATENT PROTECTION AND INFRINGEMENT:
5.1 LICENSEE, during the term of this Agreement, is responsible for the
maintenance of U.S. Patent No. 5,098,443 and for the prosecution of the Patent
Applications. LICENSEE shall be responsible for all costs associated with such
maintenance and prosecution and shall have the authority to change the attorneys
responsible for such maintenance and prosecution subject to the approval of the
LICENSOR. Such approval by LICENSOR shall not be unreasonably withheld. In the
event a patent or patent(s) issue from the foregoing patent applications,
Licensee shall be responsible for the maintenance of such patents and shall be
responsible for all costs associated with such maintenance. In the event
LICENSOR desires additional patent applications to be filed in the Territory on
the invention(s) disclosed in the Patent Applications, it shall inform LICENSEE
in writing. LICENSEE must promptly notify LICENSOR of its intention to not file
additional patent applications. In such event, LICENSOR shall have the
opportunity to file additional patent applications. Any such additional patent
applications filed by LICENSEE shall fall within the definition of "Patent
Rights". Any such additional patent applications filed by LICENSOR shall not
fall within the definition of "Patent Rights".
5.2 LICENSEE shall promptly notify LICENSOR in writing of any claim of
Patent Rights infringement that it becomes aware of and that is asserted against
LICENSEE or LICENSOR, its Affiliates or any sublicensees because of the
manufacture, use, promotion and sale of Products by LICENSEE, its Affiliates or
any sublicensees.
5.3 LICENSEE will defend, indemnify and hold harmless LICENSOR, its
Trustees, officers, directors, employees and its Affiliates against any and all
judgments and damages arising from any and all third party claims of Patent
Rights infringement which may be asserted against LICENSOR or ITS Affiliates
because of the manufacture, use, promotion and sale of Products or Processes by
LICENSEE or its Affiliates or sublicensees. LICENSEE will bear all costs and
expenses incurred in connection with the defense of any such claims or as a
result of any settlement made or judgment rendered on the basis of such claims.
LICENSOR will have the right, but not the obligation, to retain counsel at its
expense in connection with any such claim. LICENSOR at its option, shall have
the right within thirty (30) days after commencement of such action, to
intervene and participate in the defense of the action and shall be responsible
for its own costs incurred in connection therewith (including attorneys fees).
LICENSEE shall not be responsible for any judgments, damages or other costs
arising from any and all third party claims of Patent Rights infringement which
may be asserted against LICENSOR and its AFFILIATES because of the manufacture,
use, promotion, and sale of Products or Processes by LICENSOR, its Affiliates or
any parties not licensed by LICENSEE. Neither party shall have any liability to
the other for any loss or damages incurred as a result of the invalidity of
LICENSOR'S Patent Rights.
5.4 Upon learning of any infringement of Patent Rights by third parties
in any country, LICENSEE and LICENSOR will promptly inform each other, as the
case may be, in writing of that fact and will supply the other with any
available evidence pertaining to the infringement. LICENSEE at its own expense
shall have the option to take whatever steps are necessary to stop the
infringement and recover damages therefor, and will be entitled to retain all
damages so recovered. In the event LICENSEE declines to bring suit, it shall so
inform LICENSOR in writing. Thereafter, LICENSOR shall have the right to take
any steps necessary (including commencement of suit) to stop the infringement.
LICENSOR shall bear all costs associated therewith and shall have the right to
recover damages therefore, and will be entitled to retain all damages so
recovered. In the event that LICENSOR and LICENSEE mutually agree to bring suit,
costs and expenses shall be shared equally and any recovery in excess of
expenses shall be shared equally. In any event, no settlement, consent, judgment
or other voluntary final disposition of the suit may be entered into without the
consent of LICENSOR, which shall not be unreasonably withheld.
5.5 LICENSOR shall have no responsibility with respect to LICENSEE'S
own trademarks and trade name, and LICENSEE in respect to the use thereof will
defend indemnify and hold harmless LICENSOR against any and all third party
claims related to such trademarks and trade names.
5.6 LICENSOR shall provide all reasonable assistance necessary for
LICENSEE to prosecute and maintain the patent(s) and patent applications
licensed hereunder.
6. INDEMNIFICATION:
6.1 LICENSEE agrees to release, indemnify and hold harmless LICENSOR,
its Affiliates, Trustees, officers, faculty, employees and students against any
and all losses, expenses, claims, actions, lawsuits and judgments thereon
(including attorney's fees through the appellate levels) which may be brought
against LICENSOR, its trustees, officers, faculty, employees or students as a
result of or arising out of any negligent act or omission of LICENSEE, its
agents, or employees, or arising out of use, production, manufacture, sale,
lease or advertisement by LICENSEE or its Affiliates or sublicensees of any
licensed Patent Right, Product or Process licensed under this Agreement.
6.2 This Agreement to reimburse and indemnify under the circumstances
set forth in Section 6.1 shall continue after the termination of this Agreement.
7. WARRANTIES AND DISCLAIMER:
7.1 LICENSOR represents and warrants to LICENSEE that:
(a) it is the sole owner of the Patent Rights licensed hereunder;
(b) that it is unaware of any claim of third party ownership of the
Patent Rights;
(c) to the best of its knowledge, U.S. Patent No. 5,098,443 is
valid and enforceable;
(d) it is unaware of any claim, asserted or unasserted, that the
Product or Process infringe any third party intellectual property rights;
(e) neither the Japanese nor Canadian patent application licensed
hereunder have been abandoned and that each application is being diligently
prosecuted; and
(f) LICENSOR has the power and authority to grant the licenses and
rights set forth in Article 2.
Article 2.
7.2 SUBJECT TO SECTION 7.1, NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS
OR IMPLIED, AND HEREBY DISCLAIMS ALL SUCH WARRANTIES, AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE CONDITION OF ANY INVENTION(S) OR
PRODUCT, WHETHER TANGIBLE OR INTANGIBLE, LICENSED UNDER THIS AGREEMENT; OR THE
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE INVENTION OR
PRODUCT; OR THAT THE USE OF THE LICENSED PRODUCT WILL NOT INFRINGE ANY PATENT,
COPYRIGHTS, TRADEMARKS, OR OTHER RIGHTS. LICENSOR SHALL NOT BE LIABLE FOR ANY
DIRECT, CONSEQUENTIAL, OR OTHER DAMAGES SUFFERED BY ANY OTHER PARTY OR ANY THIRD
PARTIES RESULTING FROM THE USE, PRODUCTION, MANUFACTURE, SALE, LEASE,
CONSUMPTION, OR ADVERTISEMENT OF THE PRODUCT.
7.3 It is expressly acknowledged and understood by LICENSOR that
LICENSEE makes no warranty or representation that it is possible to obtain a
patent based on Japanese Patent Application Serial No. 330811/91 or Canadian
Patent Application Serial No. 2056138 or, assuming patents are to issue on such
applications, that the scope of claim coverage will be satisfactory to LICENSOR.
LICENSEE shall use commercially reasonable efforts to obtain a patent from each
of the foregoing applications, with a reasonable scope of claim coverage.
7.4 The provisions of this Article 7 shall continue beyond the
termination of this Agreement.
8. ROYALTIES:
8.1 In consideration of the license herein granted, LICENSEE shall pay
royalties to LICENSOR as follows:
(a) License Issue Fee of *** said License Issue Fee shall be
deemed earned and due within 15 days of the execution of this
Agreement.
(b) Running Royalty in an amount equal to *** of the Net Sales of
the Products or Processes used, leased or sold by LICENSEE;
provided, however, that such percent shall be decreased to ***
for Net Sales in the event a patent does not issue on the
licensed Japanese and/or Canadian applications within three
years of the Effective Date of this Agreement (despite
LICENSEE'S commercially reasonable efforts to obtain a
patent); provided, however, that such decrease shall only
apply to Net Sales in the country where the patent does not
issue. Royalties from any sublicensee that manufactures the
Product or purchases it from a third party will be divided
equally between the LICENSEE and LICENSOR, and will not in any
case be below *** for the LICENSOR.
(c) Minimum Royalty of *** per year, starting three years after
first commercial sale of a Product or Process in the
Territory; provided, however, that the Minimum Royalty for a
given year shall be creditable against any Running Royalties
subsequently due during said year under subparagraph 8.1 (b)
above.
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
8.2 All payments shall be made hereunder in U.S. dollars; provided
however, that if the proceeds of the sales upon which such royalty payments are
based are received by the LICENSEE in a foreign currency or other form that is
not convertible or exportable in dollars, and the LICENSEE does not have
on-going business operations or bank accounts in the country in which the
currency is not convertible or exportable, the LICENSEE shall pay such royalties
in the currency of the country in which such sales were made by depositing such
royalties in LICENSOR'S name in a bank designated by LICENSOR in such country.
Royalties in dollars shall be computed by converting the royalty in the currency
of the country in which the sales were made at the exchange rate for dollars
prevailing at the close of the business day of the LICENSEE'S quarter for which
royalties are being calculated as published the following day in the Wall Street
Journal (or, if it ceases to be published, a comparable publication to be agreed
upon from time to time by the parties), and with respect to those countries for
which rates are not published in the Wall Street Journal, the exchange rate
fixed for such date by the appropriate United States governmental agency.
8.3 In the event the royalties set forth herein are higher than the
maximum royalties permitted by the law or regulations of a particular country,
the royalty payable for sales in such country shall be equal to the maximum
permitted royalty under such law or regulation.
8.4 In the event that any taxes, withholding or otherwise, are levied
by any taxing authority in connection with accrual or payment of any royalties
payable to LICENSOR under this Agreement, the LICENSEE shall have the right to
pay such taxes to the local tax authorities on behalf of LICENSOR and the
payment to LICENSOR of the net amount due after reduction by the amount of such
taxes, shall fully satisfy the LICENSEE'S royalty obligations under this
Agreement.
9. COMMERCIALLY REASONABLE EFFORTS:
9.1 LICENSEE shall use its commercially reasonable efforts to
manufacture, market and sell the Products in the Territory and will exert
commercially reasonable efforts to create a demand for the Products.
9.2 LICENSEE agrees to submit reports, upon LICENSOR's request, of its
efforts to develop markets for the Products. Such reports shall include
assurance by LICENSEE of its intent to actively develop commercial embodiments
of the inventions of Licensed Patents and a summary of its efforts to
commercialize the Product. Such reports may be requested by LICENSOR no more
than three (3) times per calendar year.
9.3 LICENSOR may terminate this Agreement in the event LICENSEE does
not have a Product available for commercial sale prior to***. In the event
LICENSEE discontinues sales for more than three (3) months, LICENSOR may
terminate this Agreement upon written notice.
10. REPORTS AND RECORDS:
10.1 Commencing one (1) year after the first commercial sale, the
LICENSEE shall furnish to LICENSOR a report in writing specifying during the
preceding calendar quarter (a) the number or amount of Products sold or
Processes used hereunder by LICENSEE, and/or its Affiliates or sublicensees, (b)
the total billings for all such Products and Processes, (c) deductions as
applicable in paragraph 1.6, (d) total royalties due, (e) names and addresses of
all sublicensees. Such reports shall be due within forty-five (45) days
following the last day of each calendar quarter in each year during the term of
this agreement. Each such report shall be accompanied by payment in full of the
amount due LICENSOR in United States dollars calculated in accordance with
Section 8.1 hereof.
10.2 For a period of three (3) years from the date of each report
pursuant to Paragraph 10.1, LICENSEE, shall keep records adequate to verify each
such report and accompanying payment made to LICENSOR under this Agreement, and
an independent Certified Public Accountant or Accounting Firm selected by
LICENSOR and acceptable to LICENSEE may have access, on reasonable notice during
regular business hours, not to exceed once per year, to such records to verify
such reports and payments. Such Accountant or Accounting Firm shall not disclose
to LICENSOR any information other than that information relating solely to the
accuracy of, or necessity for, the reports and payments made hereunder. The fees
and expense of the Certified Public Accountant or Accounting Firm performing
such verification shall be borne by LICENSOR unless in the event that the audit
reveals an underpayment of royalty by more than ten (10%) percent, the cost of
the audit shall be paid by LICENSEE.
- --------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
11. MARKING AND STANDARDS:
11.1 Prior to the issuance of patents on the Invention(s), LICENSEE
agrees to mark and have sublicensees mark Products (or their containers or
labels) made, sold, or otherwise disposed of by it under the license granted in
this Agreement with a proper patent notice as specified under the patent laws of
the United States.
11.2 LICENSEE further agrees to maintain satisfactory standards in
respect to the nature of the Product manufactured and/or sold by LICENSEE.
LICENSEE, agrees that all Product manufactured and/or sold by it shall be of a
quality which is appropriate to products of the type here involved. LICENSEE
agrees that similar provisions shall be included by sublicenses of all tiers.
12. ASSIGNMENT:
12.1 This Agreement is not assignable by LICENSEE or by operation of
law without the prior written consent of LICENSOR. Such consent shall not be
unreasonably withheld. In the event that substantially all of the assets of the
LICENSEE are acquired by another company, LICENSEE may assign this Agreement
without the prior consent of LICENSOR if the acquiring company agrees in
writing, prior to acquisition, to uphold all terms and conditions of this
Agreement.
12.2 This Agreement shall extend to and be binding upon the successors
and legal representatives and permitted assigns of LICENSOR and LICENSEE.
13. NOTICE:
Any notice, payment, report or other correspondence (hereinafter
collectively referred to as "correspondences') required or permitted to be given
hereunder shall be mailed by certified mail or delivered by hand to the party to
whom such correspondence is required or permitted to be given hereunder. If
mailed, any such notice shall be deemed to have been given when mailed as
evidenced by the postmark at point of mailing. If delivered by hand, any such
correspondence shall be deemed to have been given when received by the party to
whom such correspondence is given, as evidenced by written and dated receipt of
the receiving party.
All correspondence to LICENSEE shall be addressed as follows:
FOR NOTICE:
President
Orphan Medical Inc.,
13911 Ridgedale Drive - Suite 475
Minnetonka, MN 55305
All correspondence to LICENSOR shall be addressed, in duplicate, as follows:
FOR NOTICE:
University of Miami School of Medicine Research
and Graduate Studies
P.O. Box 016960
1600 N.W. 10th Avenue
Miami, FL 33101
Attention: Vice Provost for Research
Assistant Vice President
Business Affairs
327 Max Orovitz Building
1507 Levante Avenue
Coral Gables, Florida 33124- 1432
Attention: Mr. Alan J. Fish
FOR NOTICE AND PAYMENT:
Director Office of Technology Transfer
P.O. Box 016960(M811)
Miami, FL 33101
Attention: Gary Margules, Sc.D.
Either party may change the address to which correspondence to it is to be
addressed by notification as provided herein.
14. TERMINATION
14.1 LICENSOR and LICENSEE shall have the right to terminate this
Agreement if the other party commits a material breach of an obligation under
this Agreement or provides a false report and continues in default for more than
sixty (60) days after receiving written notice of such default or false report.
Such termination shall be effective upon further written notice to the breaching
party after failure by the breaching party to cure such default. If LICENSOR
commits a material breach or defaults, then LICENSEE has no duty to continue the
payment of royalties as set forth in Section 8 of this Agreement.
14.2 LICENSOR may terminate this Agreement in accordance with Section
9.3 of this Agreement.
14.3 The license and rights granted in this Agreement have been granted
on the basis of the special capability of LICENSEE to perform research and
development work leading to the manufacture and marketing of the Products.
Accordingly, LICENSEE covenants and agrees that in the event any proceedings
under the Bankruptcy Act or any amendment thereto, be commenced by or against
LICENSEE, and, if against LICENSEE, said proceedings shall not be dismissed with
prejudice before either an adjudication in bankruptcy or the confirmation of a
composition, arrangement, or plan of reorganization, or in the event LICENSEE
shall be adjudged insolvent or make an assignment for the benefit of its
creditors, or if a writ of attachment or execution be levied upon the license
hereby created and not be released or satisfied within ten (10) days thereafter,
or if a receiver be appointed in any proceeding or action to which LICENSEE is a
party with authority to exercise any of the rights or privileges granted
hereunder and such receiver be so discharged within a period of forty-five (45)
days after his appointment, any such event shall be deemed to constitute a
breach of this Agreement by LICENSEE and, LICENSOR, at the election of LICENSOR,
but not otherwise, ipso facto, and without notice or other action by LICENSOR,
shall terminate this Agreement and all rights of LICENSEE hereunder and all
rights of any and all persons claiming under LICENSEE.
14.4 LICENSEE shall have the right to terminate this Agreement upon
ninety (90) days notice.
14.5 Any termination of this Agreement shall be without prejudice to
LICENSOR's right to recover all amounts accruing to LICENSOR prior to such
termination and cancellation. Except as otherwise provided, should this
Agreement be terminated for any reason, LICENSEE shall have no rights, express
or implied, under any patent property which is the subject matter of this
Agreement, nor have the right to recover any royalties paid LICENSOR hereunder.
Upon termination, LICENSEE shall have the right to dispose of Products then in
its possession and to complete existing contracts for such Products, so long as
contracts are completed within six (6) months from the date of termination,
subject to the payment of royalties to LICENSOR as provided in Section 7 hereof.
15. CERTIFICATE OF INSURANCE:
15.1 SUBJECT TO SECTION 15.3, LICENSEE shall maintain liability
insurance coverage for the Product in the amount of three million dollars
($3,000,000) and at no expense to LICENSOR, LICENSEE shall name LICENSOR as an
additional insured. Within 15 days of the execution of this Agreement, LICENSEE
shall provide a certificate of insurance to LICENSOR.
15.2 SUBJECT TO SECTION 15.3, LICENSEE agrees to carry and keep in
force, at its expense, general liability insurance with limits not less than
$1,000,000 per person and $1,000,000 aggregate to cover liability for damages on
account of bodily or personal injury or death to any person, or damage to
property of any person; such insurance shall not be canceled for any cause
without at least 30 days prior written notice to University of Miami. Such
insurance shall contain an endorsement naming the University as an additional
insured with respect to this Agreement. Insurance Certificates should be sent to
the University of Miami attention Mr. William Coombs, 333 Max Orovitz Building,
1507 Levante Avenue, Coral Gables, Florida 33124-1437.
15.3 In the event that the technology covered by the PATENT RIGHTS as
further defined as the LICENSED PRODUCT and PROCESS, provisions 1.3, 1.4, and
1.5 respectively, is marketed in the Territory, LICENSEE shall, at its expense,
maintain liability insurance coverage for the Product in the amount of five
million dollars ($5,000,000) and general liability insurance with limits not
less than $1,000,000 per person and $3,000,000 aggregate to cover liability for
damages on account of bodily or personal injury or death to any person, or
damage to property of any person. Such insurance shall not be canceled for any
cause without at least 30 days prior written notice to University of Miami. Such
insurance shall also contain an endorsement naming the University (LICENSOR) as
an additional insured with respect to this Agreement.
16. USE OF NAME:
LICENSEE shall not use the name of the University of Miami or any
of its employees, or any adaptation thereof, in any publication, including
advertising, promotional or sales literature without the prior written consent
of Mr. Alan J. Fish, Assistant Vice President of Business Services (or any
successor of Mr. Fish), 327 Max Orovitz Bldg., 1507 Levante Avenue, Coral
Gables, FL 33124-1432.
17. GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Florida.
18. CAPTIONS:
The captions and paragraph heading of this Agreement are solely for
the convenience of reference and shall not affect its interpretation.
19. SEVERABILITY:
Should any part or provision of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in valid and enforceable manner, and
the remainder of the Agreement shall remain binding upon the parties hereto.
20. SURVIVAL:
20.1 The provisions of Articles 5, 6 and 7 shall survive the
termination or expiration of this Agreement and shall remain in full force and
effect.
20.2 The provisions of this Agreement which do not survive termination
or expiration hereof (as the case may be) shall, nonetheless, be controlling on,
and shall be used in construing and interpreting, the rights and obligations of
the parties hereto with regard to any dispute, controversy or claim which may
arise under, out of, in connection with, or relating to this Agreement.
21. AMENDMENT:
No amendment or modification of the terms of this Agreement shall
be binding on either party unless reduced to writing and signed by an authorized
officer of the party to be bound.
22. WAIVER:
No failure or delay on the part of a party in exercising any right
hereunder will operate as a waiver of, or impair, any such right. No single or
partial exercise of any such right will preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right will be
deemed a waiver of any other right hereunder.
23. CONFIDENTIALITY:
The Confidentiality Agreement signed by the parties and executed on
August 14, 1995 is hereby incorporated by reference. A copy of the Agreement is
attached hereto as Exhibit A. The term of Confidentiality Agreement shall be
extended to be coextensive with the term of this Agreement.
24. ENTIRE AGREEMENT:
This Agreement, and the Confidentiality Agreement referenced in
Section 23, constitutes the entire agreement between the parties hereto
respecting the subject matter hereof, and supersedes and terminates all prior
agreements respecting the subject matter hereof, whether written or oral, and
may be amended only by an instrument in writing executed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized to be effective
as of the Effective Date.
ORPHAN MEDICAL
By: /s/ Bert Spilker
---------------------------
Name: Bert Spilker
-------------------------
Title: President
------------------------
Date: 12-5-96
-------------------------
UNIVERSITY OF MIAMI
By: /s/ Alan J. Fish
---------------------------
Name: Mr. Alan J. Fish
-------------------------
Title: Assistant Vice President, Business Affairs
------------------------------------------
Date: 12-6-96
-------------------------
EXHIBIT A - CONFIDENTIALITY AGREEMENT
CONFIDENTIAL DISCLOSURE AGREEMENT
FOR INFORMATION EXCHANGED BETWEEN ORPHAN MEDICAL INC.
AND AN EXTERNAL SOURCE
This Agreement is made and entered into this 14th day of August, 1995 by and
between ORPHAN MEDICAL INC. which is a Minnesota corporation, located at 13911
Ridgedale Drive; Minnetonka, MN 55305 ("ORPHAN MEDICAL") and Bascom Palmer Eye
Institute, a part of University of Miami (the "POTENTIAL-COLLABORATOR") located
in Miami, FL.
A. ORPHAN MEDICAL and the "POTENTIAL-COLLABORATOR" have entered into certain
discussions the purpose of which is to explore and consider the possibilities of
a business relationship between, or other transaction involving, ORPHAN MEDICAL
and the "POTENTIAL-COLLABORATOR".
B. In this connection with and in furtherance of this possible business
relationship, it is anticipated that both of the undersigned parties (i.e.
ORPHAN MEDICAL and the POTENTIAL-COLLABORATOR) at various times will disclose
(the "DISCLOSING PARTY") and receive (the "RECEIVING PARTY") certain information
with each other which the undersigned parties consider proprietary and
confidential.
The undersigned RECEIVING PARTY in consideration for the use of certain
information, knowledge, software, data and/or know-how (hereinafter called
"INFORMATION") related to drug delivery product for 5FU made available to it by
DISCLOSING PARTY hereby agrees as follows:
1. RECEIVING PARTY agrees to keep in confidence and not to use the
INFORMATION for its commercial benefit (except for technical and
economic evaluation) for a period of five (5) years from the date
hereof.
2. RECEIVING PARTY further agrees that it shall keep in confidence and
not disclose any part of INFORMATION to a third party for a period of
five (5) years from the date hereof.
3. Obligations of RECEIVING PARTY shall not apply to any information,
knowledge, software, data and/or know-how which:
(a) is or hereafter becomes a part of the public domain through no
fault of RECEIVING PARTY;
(b) RECEIVING PARTY can demonstrate was in its possession prior to
the time of disclosure by DISCLOSING PARTY or can demonstrate was
received by it from a third party who shall not have received
same from DISCLOSING PARTY
4. RECEIVING PARTY agrees to obligate its employees who shall have access
to any portion of INFORMATION to protect the confidential and
proprietary nature of INFORMATION.
5. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Minnesota.
<TABLE>
<CAPTION>
ACCEPTED AND AGREED BY BOTH PARTIES
QUALIFIED OFFICER OF THE POTENTIAL ORPHAN MEDICAL QUALIFIED OFFICER
- ---------------------------------- --------------------------------
COLLABORATOR'S ORGANIZATION
- ---------------------------
<C> <C>
Authorized Signature: /s/ Jeannie L. McGuire Authorized Signature: /s/ Bert Spilker
Name (Print): Jeannie L. McGuire Name (Print): Bert Spilker
Title: Director Technology Transfer Title: President
Date: 8/14/95 Date: 7-31-95
</TABLE>
EXHIBIT 10.43
COLLABORATIVE DEVELOPMENT AGREEMENT
THIS COLLABORATIVE DEVELOPMENT AGREEMENT (this "Agreement") is entered
into to be effective as of the ___ day of November, 1996 ("Effective Date") by
and between Orphan Medical, Inc., a Minnesota corporation with offices at 13911
Ridgedale Dr., Suite 475, Minnetonka, Minnesota 55305 and its Affiliates
(hereinafter "Orphan") and Medtronic, Inc., a Minnesota corporation with offices
at 7000 Central Avenue, N.E., Minneapolis, Minnesota 55432 and its Affiliates
(hereinafter "Medtronic").
WHEREAS, Orphan intends to develop a formulation or formulations of
clonidine (as defined belong "Drug") and associated know-how and data related
thereto which may haze application in the treatment of chronic pain;
WHEREAS, Medtronic has developed a proprietary drug delivery system,
including drug infusion pumps, ports, catheters, programming systems and
accessories (as defined below, the "System"), and associated know-how and data
related thereto; and
WHEREAS, Orphan and Medtronic wish to collaborate in a research and
development program using the Drug and the System and the parties wish to
further collaborate in the support and/or conduct of clinical trials in order to
obtain regulatory approval for the marketing of the Drug and the System for use
in the treatment of chronic pain.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Specific Definitions. For purposes of this Agreement, the following
definitions shall apply:
1.1.1 An "Affiliate" means any corporation or other business entity
controlled by, controlling, or under common control with Orphan or Medtronic,
respectively. For this purpose, "control" means (i) direct or indirect
beneficial ownership of more than 50 percent of the voting control, or (ii) the
power to direct or cause the direction of the management and policies of such
corporation or other business entity.
1.1.2 "CDER" shall mean Center for Drug Evaluation and Research.
1.1.3 "CDRH" shall mean Center for Device and Radiological Health.
1.1.4 "Collaborative Activities" means the parties' efforts described
herein to obtain all necessary regulatory approval(s) for the marketing of the
Drug and the System worldwide.
1.1.5 "Device Master File" shall mean a device reference source
submitted to the FDA as defined by 21 CFR 814.3.
1.1.6 "Drug" means a formulation or formulations of clonidine and all
current or future analogs, modifications and improvements of clonidine intended
for direct infusion to the intrathecal space. Drug shall also include but not be
limited to "Labeled Drug" as set forth in section 1.1.19.
1.1.7 "Drug Master File" shall mean a regulatory dossier containing
proprietary drug information.
1.1.8 "Drug-System Combination" shall mean all aspects of Drug delivery
through, and interactions with, the System.
1.1.9 "Effective Date" means the date first set forth above on this
Agreement.
1.1.10 "Efficacy" means a reasonable expectation that, in a significant
proportion of the target population, the pharmacological product, when used
under adequate direction for use and warning against unsafe use, will serve a
clinically significant function.
1.1.11 "FDA" means the United States Food and Drug Administration and,
when applied in the context of foreign agencies, those foreign agencies having
regulatory jurisdiction equivalent to the FDA.
1.1.12 "GCP" means Good Clinical Practices.
1.1.13 "GLP" means Good Laboratory Practices as defined in 21 CFR Part
58.
1.1.14 "GMP" means Good Manufacturing Practices as defined in 21 CFR
Parts 210 through 226 and Parts 600 through 680.
1.1.15 "IDE" means an Investigational Device Exemption application as
defined in 21 CFR Part 812.
1.1.16 "lND" means an Investigational New Drug application as defined
in 21 CFR Part 312.
1.1.17 "Initial Regulatory Approval" means activation by the FDA of
Orphan's IND submission covering the Drug-System Combination.
1.1.18 "Intellectual Property" means U.S. and foreign patents and
patent applications, know-how, trade secrets, inventions, discoveries and
technical information including but not limited to information embodied in
drawings, designs, copyrights, copyright applications, trademarks and trademark
applications, material specifications, processing instructions, formulas,
equipment specifications, product specifications, confidential data, computer
software, electronic files, research notebooks, invention disclosures, research
and development reports and the like related thereto and all amendments,
modifications, and improvements to any of the foregoing.
1.1.19 "Labeled Drug" means a Drug approved by applicable regulatory
authorities with labeling for the Orphan Claim.
1.1.20 "Medtronic Product Intellectual Property" means all Intellectual
property of Medtronic existing of the date of this Agreement which relates
specifically to the manufacturing, use or sale of Product.
1.1.21 "Mechanical Delivery" of the Drug means the System related
components of administering the Drug, including but not limited to the design,
operation or use of any apparatus to dispense the Drug by direct infusion to a
site within the body, the design of a pump, catheter, port or other mechanism
for delivery by direct infusion to a specific site, the operation of a device to
achieve a specific dosage regimen, or the use of a device to deliver the Drug by
a specific route of administration.
1.1.22 "Medtronic" means Medtronic, Inc. and its Affiliates.
1.1.23 "NDA" means a New Drug Application as defined in 21 CFR Part
314.
1.1.24 "Net Sales of Product" by a person for a particular period means
the amounts that such person or any Affiliate or licensee or sublicensee of such
person invoices to third parties (eliminating transactions among such person,
such Affiliates and/or such licensees or sublicensees) for sales of the Product
including, but not limited to, any prepayments made by a third party against
future sales of Product during such period, and excluding sales, use, occupation
or excise tax, freight, duty or insurance included therein, returns, discounts,
and allowances, credits or repayments due to rejections, defects or returns,
provided that if such person, Affiliate or licensee or sublicensees sells at a
single price or rate a packaged combination of products, not all of which are
Product, then "Net Sales" with respect to such sales of packaged products shall
equal the number of units of Product sold as part of packaged products (less
rejections, defects, bad debt and returns) multiplied by the respective average
net selling price during such period of Product sold individually (excluding
sales, use or excise tax, freight, duty or insurance included therein).
1.1.25 "Orphan" means Orphan Medical, Inc. and its Affiliates.
1.1.26 "PMA" means a Premarket Approval Application as defined in 21
CFR Part 814.
1.1.27 "Product" means preservative-free injectable formulation or
formulations of clonidine and all current or future analogs, modifications and
improvements of clonidine intended for use in the treatment of pain.
1.1.28 "Protocol" means, with respect to any Joint Clinical Trial, the
protocol for such Joint Clinical Trial, prepared and approved by the parties in
accordance with Section 4.2.
1.1.29 "Safety" means the relative freedom from harmful effect to
persons affected, directly or indirectly, by a product when prudently
administered, taking into consideration the character of the product in relation
to the condition of the recipient at the time. This definition of "safety" is
essentially the definition of "safety" as used in 21 CFR Part 600 and/or Part
314.
1.1.30 "Sponsor" means the company responsible for the clinical
investigation as defined in 21 CFR Part 312.3.
1.1.31 "Stage" means each of the two major divisions or portions of the
Collaborative Activities as described in Articles 3 and 4.
1.1.32 "System " means an implantable infusion mechanism for the
chronic administration of Drug, which mechanism may consist of one or more of an
implantable pump, port, catheters, programming systems, and accessories or other
implantable infusion mechanisms and all modifications and improvements thereto
conceived or developed during the term of this Agreement.
1.1.33 The following terms are defined in the following Sections:
Section Term
------- ----
2.1 R&D Outline
2.1 R&D Plan
2.2 Management Team
2.2 Project Team
4.1 Joint Clinical Trials
4.1 Medtronic Claim
4.1 Orphan Claim
4.3 Centers
4.3 Clinical Investigators
4.7 Monitoring Plan
4.8 Case Report Forms
4.9 Form
4.9 Adverse Events
4.10 Grants
7.2 Confidential Information
8.1 Medtronic Data
8.1 Orphan Data
8.2 Medtronic Intellectual Property
8.2 Orphan Intellectual Property
8.2 Joint Intellectual Property
9.3 Indemnification Claims
9.3 Indemnifying Party
9.3 Indemnified Party
1.2 General Definitional Provisions.
(a) The words "hereof," "herein," and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement, including
the exhibits and schedules, as a whole and not to any particular provisions of
this Agreement.
(b) Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice-versa.
(c) References to an "Exhibit" or to a "Schedule" are, unless otherwise
specified, to one of the Exhibits or Schedules attached to or referenced in this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the Articles or Sections of this Agreement.
(d) The term "person" includes any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof.
ARTICLE 2
COLLABORATIVE ACTIVITIES; LIMITED EXCLUSIVITY
2.1 R&D Outline and R&D Plan. Attached as Exhibit A and incorporated
herein by reference is an outline (the "R&D Outline") summarizing the
Drug-System Combination studies to be carried out by the parties to obtain
regulatory approval in the U.S. for marketing the Drug and the System for
treatment of chronic pain. The R&D Outline shall define the requirements for
Drug stability and System compatibility, as well as state the proposed timetable
for the Drug for research and development, and manufacturing qualification. A
more detailed Research and Development Plan (the "R&D Plan") shall be created
for each Stage by the Project Team, with the exception of Stage 2, where an R&D
Plan will be created for each Joint Clinical Trial, subject to the approval of
each party he such party's discretion, prior to the initiation of any activities
or preparation for such Stage or Joint Clinical Trial. The R&D Plan for each
Stage or each Joint Clinical Trial shall specify the Collaborative Activities to
be carried out by each party in such Stage, including applicable tasks,
responsibilities, costs, milestones and timetables to achieve the Medtronic
Claim and the Orphan claim. The R&D Plan as amended from time to time by the
Project Team, with all such amendments subject to the prior approval of each
party in such party's discretion, shall be deemed incorporated herein and made a
part of this Agreement. The parties will, subject to each parties right to
terminate this Agreement pursuant to Article 10, use their commercially
reasonable efforts to perform their respective responsibilities described in the
R&D Plan pursuant to the terms of this Agreement.
2.2 Joint Teams.
(a) Project Team. Medtronic and Orphan shall establish a joint Project
Team (the "Project Team") comprised of two Medtronic employees and two Orphan
employees as the Management Team may appoint. The Project Team shall oversee the
day to day management of the Collaborative Activities. Actions by the Project
Team shall be taken at meetings (which may be in person or by means of
conference telephone) at such times and locations as are mutually agreed by the
parties. Summary minutes and action items of all Project Team meetings shall be
taken down in writing and submitted for approval at a subsequent meeting or by
written action in lieu of a meeting. Those Medtronic appointees on the Project
Team which are present at a meeting shall collectively be deemed to hold the
proxy of each other Medtronic appointee at any meeting from which such other
Medtronic appointee is absent, and those Orphan appointees on the Project Team
which are present at a meeting shall collectively be deemed to hold the proxy of
each other Orphan appointee at any meeting from which such other Orphan
appointee is absent. The presence of at least two (2) Medtronic appointees and
two (2) Orphan appointees, in person or by simultaneous participation via
conference telephone and not by proxy, shall constitute a quorum for Project
Team meetings. Actions by the Project Team must be approved at a meeting by a
majority vote of all members of the Project Team. Project Team actions may also
be taken without the holding of a meeting by written consent signed by all
Project Team members.
(b) Management Team. In addition, Medtronic and Orphan shall establish
a joint Management Team (the "Management Team") comprised of two Medtronic
designees and two Orphan designees or such greater or lesser number of Orphan
and Medtronic designees as Orphan and Medtronic shall agree. The Management Team
shall meet as necessary to oversee, coordinate and manage the Project Team and
the Collaborative Activities. Additional Orphan and Medtronic representatives
may, as appropriate, attend and participate in meetings of the Management Team
but only Management Team members may vote on Management Team decisions. Actions
by the Management Team must be approved by the unanimous vote of all members of
the Management Team. The parties will mutually appoint a Secretary for the
purpose of taking the brief minutes of Management Team meetings, and for such
other administrative functions as may be assigned mutually by the parties; with
such appointment of a Secretary to be made on a quarterly or other periodic
basis as agreed by the parties and with such position of Secretary alternately
being held in successive periods by a representative of Orphan and a
representative of Medtronic, respectively.
(c) Notwithstanding any contrary provision of this Agreement, all
decisions of the Project Team regarding the Collaborative Activities shall be
binding upon Medtronic and Orphan unless otherwise provided herein. In the event
the Project Team is unable to reach unanimous decision or either party does not
approve any Project Team action, and such inability or disapproval materially
impairs the Collaborative Activities, then either party may, by written notice
to the other party, have such dispute referred to the Management Team for
attempted resolution by good faith negotiations within forty-five (45) days
after such written notice is received. The parties shall not be required to
resolve such dispute. Any resolution reached by the parties under this Section
shall not be binding until reduced to writing and signed by the members of the
Management Team for Medtronic and Orphans When reduced to writing, such
settlement agreement shall supersede all other agreements, Written or oral, to
the extent such agreements specifically pertain to the matters so settled.
(d) No member of the Project Team and Management Team shall be liable
for any action taken or determination made in good faith in connection with the
administration of this Agreement.
2.3 Exclusivity. The parties shall perform the Collaborative Activities
on an exclusive basis to the extent provided for in, and pursuant to the terms
of this Section 2.3. During the term of this Agreement, as specified in Section
10.1 below, neither Medtronic or Orphan will seek to develop, or negotiate or
otherwise pursue development agreements with third parties for the development
of the Drug. Each party may, however, develop or pursue agreements with third
parties for the development of drugs other than the Drug for the treatment of
chronic pain and other disorders.
ARTICLE 3
PRE-CLINICAL RESEARCH STAGE
3.1 Stage 1. Stage 1 of the Collaborative Activities shall consist of
(i) toxicology and pharmacology studies and stability and compatibility studies
necessary to generate such data and information as is reasonably necessary to
seek and obtain, if practicable, Initial Regulatory Approval, and (ii)
modification of the Drug formulation and/or System design as may be necessary to
receive such Initial Regulatory Approval. The goal of Stage I shall be the
generation of such data and information as shall be reasonably necessary to
support those regulatory filings which are required by the FDA as a prerequisite
to commencing human clinical trials in connection with the Medtronic Claim and
the Orphan Claim. Stage I will be considered complete upon receipt of Initial
Regulatory Approval of the IND. The Project Team will endeavor to combine the
pre-clinical testing of the Drug with the pre-clinical testing of the System
where feasible and appropriate to more efficiently complete Stage 2. The parties
shall set forth appropriate tests, other specifications, and allocation of costs
in the R&D Plan, where not expressly provided for herein, subject to the
approval of each party in such party's discretion, prior to the commencement of
Stage 1.
(a) Orphan shall assume all costs and responsibility associated with
those toxicology and pharmacology studies that in Orphan's reasonable business
judgment will be required to support an NDA filing for the delivery of the Drug
by the System. Orphan may, in its discretion, modify the Drug formulation as
necessary based on such studies.
(b) Orphan may conduct those studies that in Orphan's reasonable
business judgment are necessary to determine the stability of the Drug in the
fluid reservoir and pathway of the System. Orphan may, in its discretion, modify
the Drug formulations as necessary based on such studies.
(c) Medtronic shall conduct those studies that in Medtronic's
reasonable business judgment are necessary to determine the compatibility of the
Drug with the fluid reservoir and pathway of the System. Medtronic may, in its
discretion, modify the System design or specifications as necessary based on
such studies to achieve such compatibility.
(d) Medtronic shall assume all costs and responsibility associated with
those studies that in Medtronic's reasonable business judgment will be required
to support regulatory filing(s) for delivery of the Drug by the System.
Medtronic may, in its discretion, modify the design of the System as necessary
based on such studies.
3.2 Disclosure of Results.
(a) Orphan will disclose to Medtronic all data and information
collected or generated by or on behalf of Orphan during Stage I regarding the
System or the Drug-System Combination that reasonably relates to the design,
manufacture, use, operation, or performance of the System or the Mechanical
Delivery of the Drug, or that the FDA shall require for regulatory filings. All
such information disclosed by Orphan shall be considered confidential
information of Orphan.
(b) Medtronic will disclose to Orphan all data and information
collected or generated by or on behalf of Medtronic during Stage I regarding the
Drug or the Drug-System Combination that reasonably relates to the use,
therapeutic delivery, dosage, stability, formulation, or therapeutic effects of
the Drug or that the FDA shall require for regulatory filings. All such
information disclosed by Medtronic shall be considered confidential information
of Medtronic.
3.3 Technical Support. Each party shall provide such reasonable levels-
of technical assistance and support to the other party as such other party may
reasonably request.
3.4 Costs. Each party shall be responsible for all costs and expenses
incurred by such party in Stage 1. The Project Team shall define in the R&D Plan
prepared prior to the initiation of Stage I such amounts of Drug and Systems
required to complete such Stage. Medtronic shall provide Systems to Orphan free
of charge for use by Orphan in Stage 1. Orphan shall provide the Drug to
Medtronic free of charge for use by Medtronic in Stage 1. When appropriate,
preclinical studies may be performed in collaboration to study both the Drug and
the System.
ARTICLE 4
CLINICAL RESEARCH STAGE
4.1 Stage 2. At any time during the term of this Agreement, either
party may propose to the other party that human clinical trials necessary to
obtain regulatory approvals for full clinical development and market approval of
the Drug and System be conducted jointly by the parties under the terms of this
Agreement ("Joint Clinical Trials"). Such clinical trials shall be conducted
jointly by the parties with respect to the Drug and the System. Orphan and
Medtronic agree to support a clinical strategy which will achieve a Medtronic
labeling claim in form satisfactory to Medtronic for the use of the System to
deliver the Drug into the intrathecal space at selected sites (the "Medtronic
Claim") and a Orphan labeling claim in form satisfactory to Orphan for the
delivery of the Drug into the intrathecal space at selected sites (the "Orphan
Claim"). In the event the R & D Plan for the Joint Clinical Trial must be
amended to achieve the Orphan Claim and the Medtronic Claim as previously
defined in such R & D Plan, Orphan and Medtronic agree to amend the R & D Plan
as is reasonably necessary to achieve such claims. Notwithstanding the
foregoing, neither Medtronic nor Orphan shall be obligated to conduct any Joint
Clinical Trial proposed by the other party if either Medtronic or Orphan, in its
sole business judgment, determines that such Joint Clinical Trial would not be
advantageous to the development of the System or Drug, respectively, or would
not otherwise be commercially reasonable.
4.2 Protocols. The preparation of the Protocols for the Joint Clinical
Trials will be coordinated by the Project Team and final Protocols will be
submitted to the parties for approval by the parties and must be approved by
each of the parries prior to implementation. Medtronic shall be responsible for
preparing those portions of the Protocols relating to the System, after
reasonably taking into account such input as Orphan may provide. Orphan shall be
responsible for preparing those portions of the Protocols relating to the Drug,
after reasonably taking into account such input as Medtronic may provide, and
shall have overall responsibility for the Protocol.
4.3 Center Selection. The Project Team shall determine (i) the
appropriate number and identity of the investigational sites ("Centers") at
which the Joint Clinical Trials shall be conducted and the clinical
investigators ("Clinical Investigators") who shall conduct the Joint Clinical
Trials, and (ii) the appropriate number of patients enrolled in the Joint
Clinical Trials to be implanted with the System. Such determinations shall be
made in accordance with accepted statistical practices and taking into account
that personnel at each Center will require substantial training relating to the
implantation and monitoring of the System and its use with the Drug. The Centers
for the Joint Clinical Trials shall be Centers in the United States, Canada,
Europe, and/or such other countries or regions in which each of Medtronic and
Orphan has previously established, or elects to establish, the infrastructure
necessary to provide appropriate technical support to the Joint Clinical Trials.
4.4 Clinical Agreements. Orphan shall enter into an investigational
agreement with the Clinical Investigator and/or the Center relating to the Drug
in the Joint Clinical Trials. Medtronic shall enter into an investigational
agreement with the Clinical Investigator and/or the Center relating to the
System in the Joint Clinical Trials.
4.5 Investigator's Brochures. The preparation of the investigator's
brochure on the Drug and the System for use in the Joint Clinical Trials will be
coordinated by the Project Team and the final investigator's brochure will be
submitted to the parties for approval by the parties and must be approved by
each of the parties prior to use. Medtronic shall be responsible for preparing
those sections of the investigator's brochure which relate to the System, after
reasonably taking into account such input as Orphan may provide, and Orphan
shall be responsible for preparing all other sections of the investigator's
brochure, after reasonably taking into account such input as Medtronic may
provide. Orphan will issue the investigator's brochure.
4.6 Training. Medtronic will provide to the Clinical Investigators and,
as appropriate, Orphan personnel such instruction and training as is reasonably
necessary in the use of the System, including System implantation techniques,
refill methods, and programmer parameters to achieve dosage regimens. Orphan
will provide to the Clinical Investigators and, as appropriate, Medtronic
personnel such instruction and training as is reasonably necessary in the use of
the Drug, including Drug dosage, potential adverse effects, and other relevant
Drug parameters.
4.7 Monitoring
(a) Orphan will monitor the performance of the Drug in the Joint
Clinical Trials in accordance with applicable FDA regulations. Medtronic will
monitor the performance of the System in the Joint Clinical Trials in accordance
with applicable FDA regulations, including overseeing the use of the System in
the Joint Clinical Trials, ensuring compliance with the System portion of the
Protocol, training investigators in the use of the System and evaluating and
responding to System related adverse events. The Project Team shall be
responsible for coordinating the management of Joint Clinical Trials by the
parties including a monitoring plan (the "Monitoring Plan") that is consistent
with Section 5.6 and is approved by the Project Team.
(b) The parties will make every reasonable effort to adhere to the
Monitoring Plan adopted by the Project Team.
(c) The parties acknowledge that certain Clinical Investigators may act
as advisors, consultants, or investigators for Medtronic or Orphan with respect
to development activities other than the Joint Clinical Trials. Nothing in this
Agreement shall require Medtronic or Orphan to disclose any confidential
discussions with, or confidential information provided by, such advisors,
consultants, or investigators that do not directly relate to the Joint Clinical
Trials, or to the Collaborative Activities.
4.8 Data Collection and Analysis
(a) The Project Team will be responsible for coordinating the design by
Orphan and Medtronic of the case report forms ("CRF") to be contained in the
Joint Clinical Trial data book for the Joint Clinical Trials and for final
design of the data book. Orphan will be responsible for those CRFs which record
Drug related data. Medtronic will be responsible for those CRFs which record
System related data.
(b) Orphan will be responsible for collecting all Joint Clinical Trial
data. All Joint Clinical Trial data and information which constitutes Medtronic
Data will be conveyed by Orphan to Medtronic at such times and in such form as
shall be determined by the Project Team.
(c) Orphan will be responsible for all data analysis relating to Drug
and will make such reports to the FDA relating to the Drug as shall be required
by applicable regulations. Medtronic will be responsible for all data analysis
relating to the System and will make such reports to the FDA relating to the
System as shall be required by applicable regulations. The Project Team will
coordinate data analysis relating to the Drug-System Combination and each party
will make such reports to the FDA relating to the Drug-System Combination as
shall be required by applicable regulations.
4.9 Notice of Adverse Events.
(a) All adverse and other reportable events, as deEmed by the FDA and
applicable laws and regulations, with respect to the Drug or the System (;
Adverse Events-'), shall be reported to the FDA by Orphan or Medtronic,
respectively, he a manner consistent with applicable FDA regulations and
guidelines. There shall be full and complete cooperation by the parties to
assure that all FDA requirements regarding patient safety and Adverse Event
reporting are complied with in a timely manner.
(b) The Project Team will design an Adverse Event report form approved
by each of the parties (the "Form") for the Joint Clinical Trials. The Form will
be designed to capture all Adverse Event information relating to the Drug and
the System which is required for FDA reporting or which is otherwise useful to
either party. The Project Team will appoint one representative of each party to
serve as members of a Safety Committee. All Centers and Clinical Investigators
will be instructed to report serious or unexpected Adverse Events to Orphan and
Medtronic. Upon Orphan's or Medtronic's receipt of a Form or other knowledge of
a serious or unexpected Adverse Event, Orphan or Medtronic will promptly notify
the other party of such matter and information related thereto, will make the
report required by law, and provide each member of the Safety Committee with
copies of such Form or a detailed description of the knowledge acquired. The
Safety Committee will co-ordinate the investigation, reporting and follow up
evaluation of all Adverse Events consistent with applicable legal requirements
and the guidelines set forth in subsection (c).
(c) Medtronic will investigate all Adverse Events for relationship to
System function and Orphan will investigate all Adverse Events for relationship
to Drug dosage and administration. Medtronic will be responsible for all
follow-up evaluation reports for Adverse Events attributed to the System and
Orphan will be responsible for all follow-up evaluation reports attributable to
the Drug. The Safety Committee will establish, subject to the approval of each
of the parties, a procedure for the investigation of, and the preparation and
submission of follow-up evaluation reports for, Adverse Events which are not
clearly attributable to either the Drug or the System. Where time permits,
notification to the other party will occur prior to filing reports with the FDA,
unless otherwise required by the Fl)A. Adverse Drug reactions and adverse System
events will be reviewed by the Safety Committee at regular intervals.
4.10 Costs. Each party shall be responsible for its own internal costs
and expenses incurred in the conduct of the Joint Clinical Trials including the
costs associated with supply, monitoring, data collection and management and
Adverse Event reporting by such party and its representatives. Medtronic will be
responsible for System related costs in the Trials. Orphan will be responsible
for Drug related costs in the Trials. Orphan and Medtronic agree to the
following allocation of all external and per patient costs associated with a
Joint Clinical Trial: It is understood that costs allocated to Medtronic will be
paid by Medtronic through standard grant agreements ("Grants") between Medtronic
and each Center to defer System related study costs. Medtronic will provide ***
per patient in clinical trials to cover System related study costs. The Grants
will provide for compensation for a defined number of patients enrolled in the
Joint Clinical Trials and will commit the provision of Systems at no charge for
indigent patients. Medtronic will provide such funding and no charge Systems on
a Joint Clinical Trial by Joint Clinical Trial basis for a predetermined number
of patients as set forth in the R&D Plan for each Joint Clinical Trial. In
accordance with applicable law, third party reimbursement may be pursued for
Systems and use of Systems, including surgical implant fees, its Joint Clinical
Trials which are not supplied for indigent patients pursuant to the R & D Plan.
Orphan will provide Grants to each center to defer Drug related study costs.
Orphan will supply free of charge such quantities of the Drug as shall be
necessary to conduct the Joint Clinical Trials. All payments made by Orphan and
Medtronic to the Centers shall be in compliance with applicable law.
4.11 International Studies. Without limitation of Section 5.3 hereof,
if the parties agree to collaborate in the conduct of international clinical
studies, the Project Team shall determine when, where and how such international
studies shall be conducted, and how the costs of such studies shall be
reasonably allocated between the parties subject to the approval of each party
in such party's discretion prior to the commencement of each such international
study.
4.12 Completion of Clinical Studies. Stage 2 will be considered
complete upon FDA approval of the NDA for the Orphan Claim and the PMA for the
Medtronic Claim.
ARTICLE 5
REGULATORY REQUIREMENTS
5.1 Regulatory Approvals. In the event the parties agree to conduct
Joint Clinical Trials, Orphan and Medtronic agree to support a regulatory
strategy which will achieve a Medtronic Claim and a Orphan Claim. It is assumed
that the FDA will designate the use of the Drug with the System, a combination
product with CDER designated as the lead center. As such, CDER will be
responsible for reviewing the Safety and Efficacy of the Drug delivered via the
System. The FDA will determine the System review jurisdiction based upon
intercenter agreements between CDER and CDRH and other internal FDA policies and
procedures.
5.2 Preparation and Prosecution. Each party will prepare and determine
the content of its own regulatory filings, be responsible for the cost of such
filings, including FDA user fees, and control the prosecution of its own
regulatory submissions; provided that, Medtronic shall be entitled to give
Orphan appropriate input and advice regarding those portions of Orphan's
regulatory filings which relate to the System and Orphan shall be entitled to
give Medtronic appropriate input and advice regarding those portions of
Medtronic's regulatory filings which relate to the Drug. Reasonable effort will
be made to have Medtronic and Orphan co-participate in discussions with the FDA
involving Drug-System Combination aspects of clinical trial design, interaction
between the Drug and System, or Mechanical Delivery of the Drug. Neither party
will discuss the other party's product with the FDA without the other party
present.
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
Upon request, each party agrees to support the other party, as may be
reasonably necessary to expeditiously advance the Collaborative Activities, in
any discussions with the FDA or Clinical Investigators directly related to the
Drug-System Combination or Joint Clinical Trials. Discussions with the FDA with
respect to the Drug alone or the System alone will be handled solely by the
responsible party, unless such responsible party requests the support of the
other party.
5.3 Reference to Other Party's Filings. Subject to Article 7, each of
Medtronic and Orphan will grant the other the right of reference to its
regulatory files with the FDA or other appropriate government agencies as
necessary or helpful for support of its regulatory submissions with respect to
the Drug or System, respectively. Subject to Article 7, each party will have
access to the other party's regulatory submission regarding the Collaborative
Activities as relevant to enable such party to fulfill such party's
responsibilities under the Collaborative Activities and under applicable law.
Medtronic will file a Device Master File with the FDA for the System which will
contain all relevant device data related to the use of the System with the Drug.
Orphan will file a Drug Master File with the FDA for the Drug, if it is
necessary to facilitate review or minimize the required regulatory filings of
the parties. Principles similar to those set forth in this Article 5 will apply
to any international submissions.
5.4 Ownership. Medtronic will own the PMA and any and all other
regulatory filings and approvals for the System, and Orphan will own the IND and
NDA for the Drug and any other regulatory filings or approvals for the Drug. It
is understood by the parties, however, that Orphan shall have no ownership
interest in any Medtronic Data or other data or information generated by or for
Medtronic related to the System which is included in the IND and NDA or any
Medtronic regulatory filings cross referenced ha the IND and NDA. Similarly, it
is understood by the parties that Medtronic shall have no ownership interest in
any Orphan Data or other data or information generated by or for Orphan related
to the Drug which is included in the PMA or any Orphan regulatory filings cross
referenced in the PMA.
5.5 Compliance with Laws. Each party will be responsible for ensuring
that its respective responsibilities concerning studies performed under the
Collaborative Activities are performed in compliance with applicable GMP, GLP
and GCP requirements and all regulatory requirements for the filing and
prosecution of the Initial Regulatory Approval and subsequent approvals. Both
parties will, as reasonably necessary to assure safety and regulatory
compliance, put into place and maintain in cooperation with each other
appropriate safety and regulatory compliance procedures. If the parties agree to
conduct international clinical studies or to collaborate in the pursuit of
international regulatory approvals for the Drug and System, each party will be
responsible for ensuring that its respective responsibilities are performed in
compliance with all applicable regulatory requirements.
5.6 International Regulatory Approvals. Without limitation of Section
5.4 hereof, if the parties agree to collaborate in the conduct of international
regulatory approvals for the marketing approval of the Drug and System, the
parties shall jointly determine when, where and how the international dossiers
will be prepared and submitted, subject to the approval of each party in such
party's discretion prior to the commencement of international clinical studies.
ARTICLE 6
MARKETING RIGHTS; LICENSE
6.1 Marketing Rights. Medtronic will have sole marketing rights to the
System and Orphan Medical will have sole marketing rights to the Drug, except
Medtronic will have the exclusive marketing rights to sell the Drug as part of
System refill or injection kits within the United States. Prior to NDA and PMA
approval, the Project Team will prepare a list of acceptable statements,
including FDA approved claims, which may be used by the other party for ongoing
promotion prior to commercial release of the Drug and the System. The list of
acceptable statements shall be reviewed and approved by the Management Team. Any
mention of the other's product outside of the list of acceptable statements in
Drug or System promotional materials will be subject to the prior written
consent of the other party. Distribution rights outside the United States remain
outside the scope of this Agreement.
6.2 Sales Price. Medtronic shall be solely responsible for determining
and setting the price for its System refill or injection kits, and System and
for paying any applicable statutory rebates. Orphan shall be solely responsible
for determining the price of the Drug and for paying any statutory rebates.
6.3 Grant of License. Medtronic hereby grants to Orphan an exclusive
worldwide license, with tile right to sub-license, under Medtronic Product
Intellectual Property (including patents filed jointly with the University of
Texas) to make, have made, sell, or have sold, and otherwise commercialize,
market and distribute the Product throughout the world subject to Section 6.4
below. In the event this Agreement is terminated for any reason pursuant to
Article 10 of this Agreement, the license rights granted in this Section 6.3
will thereafter terminate at Medtronic's election upon written notice to Orphan.
6.4 Royalty Payments to Medtronic
(a) With respect to Net Sales of Product, should Medtronic receive a
United States patent with one or more claims reading on the Product, Orphan
agrees to pay Medtronic a royalty of *** on all such Net Sales of Product which
are made to Medtronic or its Affiliates, and a royalty of *** on all other
worldwide Net Sales of Product which are made to any person other than Medtronic
or its Affiliates. If Medtronic has not received a United States patent with one
or more claims reading on the Product, Orphan shall pay to Medtronic a royalty
of *** on all such Net Sales of Product which are made to Medtronic or its
Affiliates, and a royalty of *** on all other worldwide Net Sales of Product
which are made to any person other than Medtronic or its Affiliates. While the
foregoing royalty payment obligations are in effect, Orphan shall provide to
Medtronic within 45 days after the end of each calendar quarter a written report
indicating the amount of Net Sales of Product sold during such quarter and the
amount of royalties due to Medtronic for such quarter. Simultaneously with
making such report, Orphan shall pay to Medtronic the amount of royalties then
due. The foregoing royalty payment obligations shall continue until the later of
(a) such time as no claim of a Medtronic patent covers any Net Sales of Product,
or (b) the twenty year anniversary of the Effective Date.
(b) Orphan shall keep, and shall cause its Affiliates and licensees and
sublicensees to keep accurate, written records sufficient in detail to enable
the royalties payable under this Agreement by Orphan to be determined and
verified. Such records for a particular quarter shall be retained by Orphan, its
Affiliates, and licensees and sublicensees, for a period of not less than five
(5) years after tile end of such quarter. Upon reasonable notice and during
regular business hours, Orphan shall, upon Medtronic's request, not more
frequently than once per year, make available in one location the records
referred to in this subsection for audit by Medtronic or its representatives, to
verify the accuracy of the reports provided to Medtronic pursuant to subsection
(a) and (b) above. The fees and expenses of Medtronic and its representatives in
performing each such audit shall be borne by Medtronic; provided, however, if
any such audit reveals underpayment of royalties by more than five percent (5%)
for any quarter, then Orphan shall promptly pay for the full cost of such audit,
including all salaries, fees, expenses and travel of Medtronic personnel and
representatives incurred in connection therewith, as well as promptly pay the
royalty deficiency.
ARTICLE 7
CONFIDENTIALITY AND NON-USE
7.1 Procedures in Place. Each party represents to the other that it
maintains policies and procedures designed to prevent unauthorized disclosure of
its own proprietary data and Formation. Each party agrees to treat Confidential
Information received from the other party With the same degree of care to avoid
disclosure and misuse as the receiving party employs with respect to its own
confidential information of like importance. All employees, consultants, agents
and subcontractors of a party performing work under this Agreement shall be
advised of and instructed to comply with the confidentiality and non-use
provisions of this Agreement prohibiting the disclosure or
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
use of Confidential Information of Orphan or Medtronic provided by one party to
any other party or generated under this Agreement except on terms permitted
under this Agreements The party receiving Confidential Information of the
disclosing party shall be responsible for such receiving party's employees',
affiliates', consultants', agents' and subcontractors' failure to observe the
terms and provisions of this Article 7.
7.2 Confidential Information Generated Hereunder. Any written
information disclosed hereunder which the disclosing party desires to have
treated as Confidential Information shall, insofar as practicable, bear a
conspicuous legend as "Confidential," "Proprietary" or words of similar import.
Any information disclosed other than in writing shall, insofar as practicable,
be preceded by an oral statement to the effect that such information is
confidential or proprietary and shall promptly be followed by a written notice
identifying such information as confidential or proprietary. Such designated
information or material shall be referred to as "Confidential Information" and
shall be subject to the policies and procedures described in this Article 7.
7.3 Not Disclose or Use. No party shall disclose any Confidential
Information disclosed by another party except to employees of the parties, its
Affiliates, consultants, agents or subcontractors who need to know the
Confidential Information in order to perform work under this Agreement. No party
shall use any Confidential Information disclosed by another party for any
purpose other than in accordance with the terms of this Agreement.
7.4 Exceptions. The confidentiality and non-use obligations under this
Agreement shall not apply to (a) information that at the time of disclosure is
in the public domain; or (b) information that is now or later becomes public
knowledge other than by breach of this Agreement; or (c) information the
receiving party can establish by reasonable proof was in its possession on a
nonconfidential basis at the time of disclosure or was subsequently and
independently developed by the receiving party without use of Confidential
Information of the disclosing party; or (d) information that the receiving party
shall receive from a third party who, to the best of the receiving party's
knowledge, has the right to disclose such information; or (e) information that
is required by law to be disclosed.
7.5 Expiration. Each party's obligations of confidentiality shall be in
force during the term of this Agreement and shall extend thereafter for five (5)
years, except (a) as may be otherwise agreed to in writing by Orphan and
Medtronic, or (b) as otherwise provided in Section 7.4.
7.6 Publication. Publication of results obtained as part of work
performed under this Agreement shall be permitted, subject to a reasonable time
for review by Orphan and Medtronic prior to submission for publication. Prior to
public disclosure or submission for publication of a manuscript describing the
results of work performed under this Agreement, the party proposing disclosure
shall send the other party, by express mail or other reputable express delivery
service, a copy of the manuscript to be submitted and shall allow the receiving
party a period of thirty (30) days from the date of mailing in which to
determine whether the manuscript discloses confidential information or
patentable inventions or discoveries owned by the other party or owned jointly
by both parties. If no notification is received during the thirty (30) day
period, the disclosing party shall be free to submit the manuscript for
publication and to publish or otherwise disclose the results described therein.
If the receiving party believes the manuscript contains confidential information
or patentable inventions or discoveries owned by the receiving party or owned
jointly by both parties, the receiving party shall so notify the disclosing
party who shall then prevent public disclosure of confidential information owned
by the receiving party or owned jointly by both parties, unless such
confidential information includes patentable inventions or disclosures in which
case the disclosing party shall then delay public disclosure of patentable
inventions or discoveries owned by the receiving party or owned jointly by both
parties disclosed in such manuscript for an additional sixty (60) days to permit
the preparation and filing of a patent application on the disclosed subject
matter by the receiving party.
ARTICLE 8
INTELLECTUAL PROPERTY AND AUTHORITY
8.1 Ownership of Data. All confidential data and information collected
by the parties which arise under this Agreement and which specifically relate to
the System, including the design, manufacture, use, Mechanical Delivery or
operation and performance thereof, shall be owned by and considered confidential
information belonging to Medtronic ("Medtronic Data"). All confidential data and
information collected by the parties which arise under this Agreement and which
specifically relate to the Drug, including the dosage, stability, or
formulation, shall be owned by and considered confidential information belonging
to Orphan ("Orphan Data"). In the event that certain information and data
developed under this Agreement cannot reasonably be categorized as above as
either Medtronic Data or Orphan Data, such information and data shall be jointly
owned by the parties and considered confidential information of both parties.
8.2 Ownership of Intellectual Property.
(a) Any Intellectual Property arising out of the Collaborative
Activities developed by Medtronic employees, or for Medtronic by its
consultants, without the use of Orphan Data ("Medtronic Intellectual Property")
shall be owned by Medtronic and Orphan hereby assigns to Medtronic all of
Orphan's right, title and interest in such Medtronic Intellectual Property.
(b) Any Intellectual Property arising out of the Collaborative
Activities developed by Orphan employees, or for Orphan by its consultants,
without the use of Medtronic Data ("Orphan Intellectual Property") shall be
owned by Orphan and Medtronic hereby assigns to Orphan all of Medtronic's right,
title and interest in such Orphan Intellectual Property.
(c) Any Intellectual Property arising out of the Collaborative
Activities which are neither Medtronic Intellectual Property nor Orphan
Intellectual Property shall be jointly owned ("Joint Intellectual Property");
provided that (i) Orphan shall assign to Medtronic all of Orphan's right, title
and interest in all Joint Intellectual Property specifically relating to design,
manufacture, use, Mechanical Delivery or operation and performance of the
System, and (ii) Medtronic shall assign to Orphan all of Medtronic's right,
title and interest in all Joint Intellectual Property specifically relating to
the dosage, stability, or formulation of the Drug.
(d) Each party shall have full right to use all Joint Intellectual
Property not assigned pursuant to subsection (c) above, and except as otherwise
provided in Article 8 above, provided, however, that neither party shall license
or sublicense such Joint Intellectual Property to a non-Affiliate without the
prior written consent of the other party.
8.3 Prosecute Patent Applications. Responsibility for filing and
prosecuting patent applications on inventions and discoveries shall be With the
owner of the invention or discovery. In the event either of Orphan or Medtronic
intends to file a patent application in any jurisdiction for any Joint
Intellectual Property, it shall give the other party prior written notice of
such intention including therewith a copy of the proposed filing, and the
opportunity to jointly cooperate in the preparation, filing and prosecution of
such patent application. The party receiving such notice shall have forty five
(45) days from the receipt thereof to indicate in writing to the notifying party
that the receiving party desires to jointly cooperate in the preparation, filing
and prosecution of such patent application. The notice procedure and any such
joint patent preparation, filing and prosecution shall be conducted in good
faith by such parties. In any such joint patent preparation, filing and
prosecution, each of Orphan and Medtronic shall pay fifty percent (50%) of all
costs and expenses of obtaining and maintaining such patent, and in the event
either such party fails to pay such fifty percent portion, the failing party
shall forthwith assign its title to such patent to the other party without
obligation of payment by the assignee for such assignment. If a party does not
elect to jointly cooperate and participate in the preparation, filing and
prosecution of a particular patent application, it shall have no right to so
participate and shall have no responsibility for paying any portion of the costs
and expenses of obtaining and maintaining such patent.
8.4 Notice of Infringement. Orphan and Medtronic agree to notify the
other in writing of infringement by any third party of patents claiming the Drug
or the System or combinations thereof, no later than thirty (30) days after it
obtains knowledge of such infringement.
8.5 Disclaimer. Except as set forth in Sections 8.6 and 8.7 below,
nothing in this Agreement shall be construed as a representation or warranty
that patents claiming the Drug or System or combinations thereof, respectively,
are valid or enforceable or that their exercise does not infringe the patent
rights of a third party.
8.6 Representations and Warranties of Orphan. Orphan represents and
warrants to Medtronic as follows:
(a) Orphan has full power and authority to enter into this Agreement
and to perform its obligations hereunder.
(b) This Agreement has been duly authorized, executed and delivered by
Orphan and constitutes a legal, valid and binding agreement of Orphan
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) Orphan is not aware of and has not received any communications
challenging the ownership, validity or effectiveness of any of its patents,
patent applications, trade secrets or other Intellectual Property required for
the performance by Orphan of its obligations under this Agreement.
(d) There are no orphan drug restrictions that prevent Orphan from
performing its respective obligations under this Agreement.
(e) Neither the execution and delivery of this Agreement nor compliance
by Orphan with this Agreement's terms and provisions will violate (i) any
provisions of the articles of incorporation or bylaws of Orphan, (ii) any
material contract, license, franchise or permit to which Orphan is a party or by
which it is bound, or (iii) to the knowledge of Orphan, any law, stable,
regulation, injunction, order or decree of any government agency or authority or
court to which Orphan is subject.
8.7 Representations and Warranties of Medtronic. Medtronic represents
and warrants to Orphan as follows:
(a) Medtronic has full corporate power and authority to enter into this
Agreement and to perform its respective obligations hereunder.
(b) This Agreement has been duly authorized, executed and delivered by
Medtronic and constitutes a legal, valid and binding agreement of said party
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) Medtronic is not aware of and has not received any communications
challenging the ownership, validity or effectiveness of any of its patents,
patent applications, trade secrets or other intellectual property required for
the performance by Orphan of its obligations under this Agreement.
(d) Neither the execution and delivery of this Agreement nor compliance
by Medtronic with this Agreement's terms and provisions will violate (i) any
provisions of the articles of incorporation or bylaws of Medtronic, (ii) any
material contract, license, franchise or permit to which Medtronic is a party or
by which it is bound, or (iii) to the knowledge of Medtronic, any law, statute,
regulation, injunction, order or decree of any government agency or authority or
court to which Medtronic is subject.
8.8 Access to Improvements. Improvements, future generations, and
modifications to the Drug or System made by Orphan or Medtronic will be promptly
communicated by the developing party and, at the other party's request, will be
made available for use in the Collaborative Activities by the developing party,
provided the use of such improved Drug or System does not significantly delay
the Collaborative Activities.
ARTICLE 9
INDEMNIFICATION
9.1 Limitation on Indemnification. Neither Medtronic nor Orphan shall
by reason of this Agreement be obligated to defend, assume the cost of defense,
hold harmless, or indemnify the other from any liability to third parties for
loss or damage to property, death or bodily injury arising out of or connected
with their respective use or sale of Drug or System, except as set forth herein.
9.2 Joint Defense of Third Party Claims. Notwithstanding Section 9.1,
and except as otherwise provided in Section 9.3, any loss, claim, damage,
expense or liability arising out of activities conducted pursuant to this
Agreement and brought against both Medtronic and Orphan under a claim of shared
liability shall be defended by such parties with each party handling its own
defense and any such loss, claim, damage, expense or liability incurred by it
(including attorney's fees, settlements and cost of litigation) until such time
as the extent and degree of each party's liability vis-a-vis the other party's
liability has been established amongst the parties. The parties agree to
indemnify each other to the extent that a party incurs such liability or costs
in excess of its established share.
9.3 Indemnification.
(a) Notwithstanding Section 9.1 and Section 9.2, any loss, claim,
damage, expense or liability incurred by Orphan (or its officers, directors,
employees or agents) or Medtronic (or its officers, directors, employees or
agents), respectively, as well as attorney's fees, settlements and costs of
litigation and defense of the indemnified party (referred to collectively as
"Indemnification Claims",) resulting from any of the following causes shall be
borne by the party or parties causing or otherwise giving rise to such
Indemnification Claim (the "Indemnifying Party"), and such Indemnifying Party
shall indemnify and hold harmless the other party or parties to this Agreement
(including officers, directors, employees or agents of the other party or
parties) (the "Indemnified Parts ") from and against any such Indemnification
Claim:
(i) the Indemnifying Party's negligence or willful misconduct in
improperly using, instruction for use, implanting, administering or
manufacturing the Drug or the System or an ingredient or component
thereof;
(ii) the Indemnifying Party's failure to properly manufacture the Drug
or the System in accordance with the applicable specifications or other
breach of warranty pertaining thereto;
(iii) the Indemnifying Party's negligence or willful misconduct in
marketing, storing, shipping, handling or distributing the Drug or the
System;
(iv) the Indemnifying Party's failure to comply with applicable law or
regulations in connection with the Drug or the System;
(v) a fraudulent or misleading statement contained in printed material
published by the Indemnifying Party or supplied by the Indemnifying
Party to the Indemnified Party expressly for publication;
(vi) an advertisement, promotional claim, or other statement made by
the Indemnifying Party concerning the Drug or the System;
(vii) the Indemnifying Party's breach of a representation, warranty or
covenant made by it in this Agreement; or
(viii) any other cause or matter for which the Indemnifying Parts has
assumed an indemnification obligation under this Agreement.
(b) In addition to the events for which the parties may seek
indemnification pursuant to subsection (a) above, (i) Orphan will indemnify
Medtronic and its officers, directors, employees and agents against any loss,
damage, expense or liability arising out of or in connection with personal
injury or property damage caused by the use of Drug in accordance with any
Protocol and (ii) Medtronic will indemnify Orphan and its officers, directors,
employees and agents against any loss, damage, expense or liability arising out
of or in connection with personal injury or property damage caused by the use of
System in accordance with any Protocol.
(c) Infringement Defense and Indemnity In the event any third party
patent rights and/or orphan drug restrictions shall be asserted against
Medtronic with respect to the Drug, Orphan shall assume the defense of such
assertion and indemnify and hold harmless Medtronic (and its officers,
directors, employees and agents) with respect thereto and Orphan shall bear all
related expenses, costs, settlements and judgments. In the event any third party
patent rights shall be asserted against Orphan with respect to the System,
Medtronic shall assume the defense of such assertion and indemnify and hold
harmless Orphan (and its officers, directors, employees and agents) with respect
thereto and Medtronic shall bear all related expenses, costs, settlements and
judgments.
9.4 Procedure for Indemnification. The obligations and liabilities of
each Indemnifying Patty hereunder with respect to claims resulting from the
assertion of liability by the other party or third parties shall be subject to
the following terms and conditions:
(a) The Indemnified Party shall give prompt written notice to the
Indemnifying Party of any Indemnification Claim by the Indemnified Party against
the Indemnifying Party based on the indemnity agreement contained in this
Article 9, stating the nature and basis of said Indemnification Claim and the
amount thereof, to the extent known.
(b) The Indemnified Party shall have the right to employ its own
counsel in any such case. The reasonable fees and expenses of such counsel shall
be considered costs subject to indemnification. The Indemnified Party shall be
kept fully informed of such action, suit or proceeding at all phases thereof
whether or not it is so represented.
(c) The Indemnified Party shall make available to the Indemnifying
Party and its attorneys all books and records of the Indemnified Party
reasonably relating to such proceedings or litigation, and the parties agree to
render to each other such assistance (excluding the retention of counsel) as
they may reasonably require of each other in order to ensure the proper and
adequate defense of any such action, suit or proceeding, including making
individuals available for giving testimony (including depositions).
Out-of-pocket costs (but not salaries or overhead attributable to individuals
then employed by a party) shall be considered costs subject to indemnification.
(d) The Indemnified Party shall not make any settlement of any
Indemnification Claim without the written consent of the Indemnifying Party. The
written consent of both parties shall be required for settlement of any
Indemnification Claim subject to the provisions of this Article 10 or otherwise
where there is contribution or shared liability.
ARTICLE 10
TERM AND TERMINATION
10.1 Term. This Agreement shall become effective on the Effective Date
and shall remain in effect unless terminated pursuant to this Article 10. The
parties respective obligations pursuant to the Collaborative Activities
hereunder shall expire upon the earlier of (i) receipt of FDA approval of the
PLA (Product License Agreement) or NDA for the Drug and the PMA for the System;
or (ii) termination of this Agreement pursuant to Section 10.2 below.
10.2 Termination. This Agreement may be terminated as follows:
(a) by written notice from either party specifying such breach,
effective 90 days thereafter, if the other party has materially breached this
Agreement and such breach has not been cured within such 90-day period; or
(b) by written notice from either party, effective immediately, if such
party reasonably believes that data reveals significant safety concerns as
defined in 21 CFR, Part 600; or
(c) by the Management Team at any time if, after considering Safety,
Efficacy, reimbursement, market factors and other relevant commercial
information and exercising prudent scientific and business judgment, the
Management Team determines that it cannot justify the continuation of the
Collaborative Activities; or
(d) by the Management Team at any time it determines that substantial
design modifications are required in the fluid pathway of the pump or catheter,
or substantial modifications are required in the R & D Outline; or
(e) by the Management Team at any time if the IND and IDE have not been
approved by a date which is outlined in the R & D Outline plus one (I) year; or
(f) by the Management Team at any time if the NDA and PMA have not been
approved by a date which is stated in the R & D Outline plus three (3) years.
10.3 Termination of this Agreement pursuant to Section 10.2 shall not
terminate any Joint Clinical Trial which is in progress. A Joint Clinical Trial
will be considered in progress for the purposes of this Section 10.3, from the
date of the first human implant herein until the earlier of (i) completion of
all Protocol-specified treatments for all patients enrolled in such Joint
Clinical Trial and collection and analysis of all data collected in connection
therewith; and (ii) termination of such Joint Clinical Trial in accordance with
Section 10.4.
10.4 Termination of Joint Clinical Trials. A Joint Clinical Trial may
be terminated by either party upon written notice to the other party in the
event:
(a) the other party or the other party's representatives have used in
an unauthorized manner the Drug or Systems supplied by such terminating party to
the Joint Clinical Trials; or
(b) information has come to such party's attention which gives such
party reason to believe there exists a significant safety concern for the
participants in the Joint Clinical Trials; or
(c) the FDA or other regulatory authority requires that the Joint
Clinical Trials be terminated.
Termination of any Joint Clinical Trial pursuant to this Section 10.4
shall not, in and of itself, serve to terminate this Agreement. Upon the
termination of a Joint Clinical Trial pursuant to this Section 10.4, Medtronic
and Orphan will take all actions as are necessary to ensure the safety of all
patients enrolled in such terminated trial. In the event the parties agree to
Joint Clinical Trials for any other indications, the provisions of this Article
10 shall apply on an indication-by-indication basis.
10.5 Survival. Notwithstanding the foregoing sections of this Article
10, the parties' respective ongoing rights and obligations under Sections 2.3,
Section 4.9, Section 4.10, Article 6, Article 7, Article 8, Article 9 and
Article 11 shall survive termination of this Agreement or a Joint Clinical Trial
hereunder. Termination of this Agreement or a Joint Clinical Trial hereunder for
any cause shall not release a party from any liability which at the time of
termination has already accrued to the other party or which thereafter may
accrue in respect to any act or omission prior to such termination.
ARTICLE 11
TRADEMARKS; TRADE NAMES
11.1 Separate Trademarks. Each party shall be responsible for selecting
and registering any trademark for its own product and shall have sole ownership
of such trademark.
11.2 No Transfer. No party shall acquire any right, title or interest
in the trade names, trademarks, or copyrights of any other party by reason of a
party's performance of under this Agreement.
11.3 Branded Products. The parties agree that the Drug and the System
will be identified as branded products. The System will be identified with
Medtronic's label and labeler code. The Drug will be identified with Orphan's
label and labeler code.
ARTICLE 12
AVAILABILITY OF COMMERCIAL PRODUCT
12.1 Availability of System. Upon FDA approval of the PMA for the
System for the Medtronic Claim, for a period of six (6) years following the
first commercial release of System in the United States, Medtronic will make
Systems available for commercial sale in quantities sufficient to satisfy market
demand as determined by sale of the Drug for use with the System in the
treatment of chronic pain.
12.2 Availability of Drum Upon FDA approval of the NDA for the Orphan
Claim, for a period of six (6) years following first commercial release of Drug
in the United States, Orphan will make the Drug available for commercial sale in
quantities sufficient to satisfy market demand as determined by sale of Systems
for use with the Drug. Alternatively, Orphan may grant to Medtronic or its
nominee an exclusive license, bearing a reasonable royalty to Orphan, under all
patents, patent applications, trade secrets and know-how necessary to make, use
and sell the Drug for use with the System.
12.3 Indemnification. In the event a license is granted by one party to
the other party or its designee under this Article 12, then the other party
shall indemnify and hold harmless the licensor in accordance with the provisions
of Article 9 hereof against any Claims made against the licensor relating to the
license granted and the exercise by the other party or its designee of rights
under such license.
ARTICLE 13
MISCELLANEOUS
13.1 Successors and Assigns. The rights or obligations of the parties
hereto may not be assigned without the prior written consent of the other party;
provided that the rights of either party may be assigned by it to a wholly owned
subsidiary of such party or to such business organization which shall succeed to
substantially all the assets and business of such party or such subsidiary or
business to which this Agreement relates. Subject to the foregoing, the
provisions of this Agreement shall inure to the benefit of, and be binding upon,
the permitted successors and assigns of the parties hereto.
13.2 Notices. All notices or other communications to a party required
or permitted hereunder shall be in writing and shall be given by hand delivery,
courier service (with acknowledgment of receipt), telecopy (with confirmation of
transmission), or by certified mail, postage prepaid with return receipt
requested, to the following person at the following address:
If to Orphan:
President
Orphan Medical, Inc.
12911 Ridgedale Drive, Suite 475
Minnetonka, MN 55305
If to Medtronic:
Medtronic, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55432
Attn: Vice President, Corporate Development and
Associate General Counsel
FAX: (612) 572-5404
With a copy to:
Medtronic, Inc.
Neurological Division
800-53rd Avenue N.E.
Minneapolis, MN 55421
Attn: Drug Delivery Business Development Department
FAX: (612) 572-5681
Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by telecopy) or on the day shown on the return receipt
(if delivered by mail).
13.3 Force Majeure. No liability to any party shall result from any
delay in performance or nonperformance directly or indirectly caused by
circumstances beyond the control of the party affected, including, but not
limited to, acts of God, fire, explosion, flood, earthquake, war, civil
commotion, destruction of production facilities, labor disturbances, or failure
of public utilities or common carrier, so long as the affected party shall use
all reasonable efforts to correct or mitigate the circumstances causing such
delay in performance or such nonperformance.
13.4 Waiver. The failure of a party to enforce, at any time, any of the
provisions of this Agreement, or to require at any time performance by the other
parties of any of the provisions hereof, shall in no way be construed to be a
waiver of such provisions, nor in any way to affect the validity of this
Agreement or any part thereof, or the right of a party to thereafter enforce
each and every such provision.
13.5 Severability. If any provision of this Agreement is held to be
unenforceable or illegal, the other provisions of this Agreement shall not be
affected by any such holding and shall remain in full force and effect. In such
event the parties shall use all reasonable efforts to replace any such
unenforceable or illegal provision with a provision reflecting as nearly as
possible the intent, purpose and economic effect of such provision.
13.6 Independent Contractor. Each party shall act solely as an
independent contractor. Nothing in this Agreement shall be construed to give
either party the power or authority to act for, bind, or commit the other party.
13.7 Headings and Numbering. The headings and numbering are inserted
and INCLUDED solely for convenience and reference and shall not be considered or
given any effect in construing this Agreement or any part hereof. This Agreement
shall be interpreted without regard to any rule or presumption favoring
interpretation hereof against the party causing this Agreement to be drafted.
13.8 Entire Agreement. This Agreement represents the entire agreements
between the parties and supersedes all prior or contemporaneous oral or written
agreements of the parties with respect to the subject mater hereof. This
Agreement may be modified, amended or changed only by a written instrument
signed by the parties.
13.9 Survival. All of the representations, warranties, and
indemnifications made in this Agreement, and all terms and provisions hereof
intended to be observed and performed by the parties after the termination
hereof, shall survive such termination and continue thereafter in full force and
effect, subject to applicable statute of limitations.
13.10 Governing Law. The legality, validity, enforceability and
interpretation of this Agreement shall be governed by the laws of the State of
Minnesota, without giving effect to the principles of conflict of laws.
13.11 Expenses. Except as expressly provided herein, Medtronic and
Orphan shall each bear its own expenses incurred on its behalf with respect to
this Agreement and the transactions contemplated herein and therein.
13.12 Benefit. Nothing in this Agreement or the agreements referred to
herein, expressed or implied, shall confer on any person other than the parties
hereto or thereto, or their respective permitted successors or assigns, any
rights remedies, obligations or liabilities under or by reason of this
Agreement, the agreements referred to herein, or the transactions contemplated
herein or therein.
13.13 Announcements. Neither party shall publicly or privately disclose
the terms, provisions or existence of this Agreement or the transactions
contemplated hereby, except as required by law or applicable stock exchange
rules and except to such party's employees and representatives. In the event
that either party proposes to issue a press release or otherwise publicly or
privately disclose the tends, provisions or existence of this Agreement or the
transactions contemplated hereby, such party shall submit its proposed
disclosure to the other and the parties shall thereafter use their reasonable
efforts to cause a mutually agreeable disclosure to be issued.
13.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall be considered one and the same instrument.
ARTICLE 14
EXECUTION
14.1 In winless whereof the parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first
written above.
MEDTRONIC, INC. ORPHAN MEDICAL, INC.
By: /s/ John A. Meslow By: /s/ Bert Spilker
-------------------------------- ------------------------------
John A. Meslow
President Name: Bert Spilker
Medtronic, Inc.
Neurological Division Title: President
Date: 11/27/96 Date: December 5, 1996
--------
ATTACHMENTS:
Appendix A
EXHIBIT A
R&D OUTLINE
A detailed R&D Plan will be adopted by the Management Team prior to entering
each of the following generally described stages.
Development Stage 1: Pre-Clinical Research
Definition: The stage of development during which the Drug formulation is
developed and tested for stability within the system. The compatibility of the
Drug with the fluid pathway of the functioning system will be demonstrated
during this stage. Toxicology and pharmacology tests necessary to file an IND
will be completed. An IND will be filed for the Drug/System combination.
Requirements to complete Stage 1:
* Demonstration of sufficient stability of the formulated Drug (12 weeks)
within the System at 37(degree)C.
* Demonstration that the formulated Drug does not adversely affect the
functioning life of the system for 16 weeks at 37(degree) C.
* Acceptance by the FDA of an IND for the use of the Drug delivered into
the intrathecal space from the implanted System for the treatment of
chronic pain.
Time line to complete Stage 1: Stage 1 will be completed within 12 months of the
Agreement date.
Development Stage 2:
Definition: The stage of development during which Joint Clinical Trials will be
conducted demonstrating the long-term safety and efficacy of the Drug-Device
combination.
Requirements to Complete Stage 2
* Completion of adequate controlled clinical safety/efficacy trials to
enable the approval of the NDA and PMA by the FDA.
* Demonstration that the formulated Drug does not adversely affect the
functioning life of the Device.
* Filing of the NDA.
* Approval of the NDA and PMA by the FDA.
Timeline to complete Stage 2: Stage 2 will be completed within 24 months of the
completion of Stage 1.
EXHIBIT 10.44
Distribution Agreement
Orphan Medical, Inc.
AGREEMENT made this 26th day of November, 1996, by and between ORPHAN
MEDICAL, INC. (hereinafter "ORPHAN") located at 13911 Ridgedale Drive,
Minnetonka, MN 55305 and W.A. BUTLER COMPANY (hereinafter "DISTRIBUTOR") located
at 5000 Bradenton Avenue, Dublin, OH 43017. WHEREAS, ORPHAN is a developer and
marketer of pharmaceutical products and DISTRIBUTOR is a distributor of
veterinary products; THEREFORE in consideration of the mutual representations
and covenants contained herein, the parties agree as follows:
DEFINITIONS
The following terms shall have the following meanings in this
Agreement:
"INITIAL TERM" of this Agreement shall be defined as the time from the
date of execution of this Agreement by both parties through and including
December 31, 1999.
"PRODUCT" means the pharmaceutical product Antizol-Vet(TM) (fomepizole)
kit.
"FDA" means the United States Food and Drug Administration.
"GMPs" means the FDA-required current Good Manufacturing Practices.
"TERRITORY" means the fifty (50) states of the United States of
America.
"PROPRIETARY INFORMATION" means all non-public information or data
relating to the subject matter hereof first communicated by or for one party to
the other, in writing or orally, including without limitation, all scientific,
clinical, commercial, financial and business information and data, know-how,
compilations, formulae, processes, plans, technical information, new product
information, compounds, formulations, methods of product delivery, test
procedures, product samples, customer and sales information, specifications, and
data, including the fact of this Agreement.
"SOP" shall mean Standard Operating Procedure which may be in effect
and which shall conform in all respects and requirements of the FDA and any
other applicable laws and regulations of the United States and its agencies.
"AFFILIATE" means any corporation or non-corporate business entity
which controls, is controlled by, or is under common control with a party to
this Agreement, such control defined as ownership, direct, or indirect control
of at least forty percent (40%) of the voting stock of another corporation, or
(a) in the absence of the ownership of at least forty percent (40%) of the
voting stock of a corporation, or (b) in the case of a non-corporate business
entity, if it possesses, directly or indirectly, the power to direct the
management and policies of the business entity.
1. PURPOSE
Under this Agreement ORPHAN will consign to DISTRIBUTOR the product
Antizol-Vet(TM) (fomepizole) for injection (Product) for sale and distribution
solely within the TERRITORY described in Section 2.
2. TERRITORY/RIGHTS
2.1 DISTRIBUTOR agrees to sell or distribute the PRODUCT only
within the United States (TERRITORY) and only to the
veterinary market.
2.2 ORPHAN grants DISTRIBUTOR exclusive rights to distribute, and
sell the PRODUCT in the TERRITORY, providing the DISTRIBUTOR
meets or exceeds the minimum annual sales volumes described in
section 3.1.b and is not otherwise in breach of any of the
terms of this Agreement (after the expiration of any
applicable cure periods provided herein). In the event
DISTRIBUTOR fails to achieve the minimum sales volume for any
performance period and such failure is not due to ORPHAN'S
breach of any of the terms of this Agreement, ORPHAN may
terminate the Agreement in whole or in part or convert
DISTRIBUTOR rights to nonexclusive in all or some part of the
TERRITORY after first giving DISTRIBUTOR thirty (30) days
prior written notice of such failure and DISTRIBUTOR'S
inability to cure the same within such period of time.
3. DUTY TO PROMOTE PRODUCT
3.1 Within the TERRITORY the DISTRIBUTOR will;
3.1.a Use its reasonable best efforts to promote the use of
the PRODUCT and will maintain an adequate number of well trained and
well managed sales personnel capable of in-service efforts and
committed to maximizing the demand for the PRODUCT.
3.1.b DISTRIBUTOR and ORPHAN have discussed and have agreed
upon yearly performance standards as outlined in Appendix A. Even
though this Agreement shall commence on the date of the signing of this
Agreement by both parties, year one of this Agreement shall begin on
January 1, 1997 and end on December 31, 1997. Year two is defined as
January 1, 1998 to and including December 31, 1998. DISTRIBUTOR will
use its best efforts to meet agreed upon standards yearly.
3.1.c DISTRIBUTOR agrees to meet with the ORPHAN Sales Manager
on at least a quarterly basis for the purpose of reviewing DISTRIBUTOR
performance. DISTRIBUTOR agrees to hold sales training meetings for
it's sales representatives on a semi-annual basis or more often in the
case of a product introduction. ORPHAN will assist in the preparation
and presentation of these meetings and DISTRIBUTOR agrees that training
be followed by competency testing, with only those sales personnel
passing competency testing as those allowed to promote the PRODUCT in
the TERRITORY. DISTRIBUTOR agrees to allow ORPHAN Sales Manager to meet
with DISTRIBUTOR sales personnel and make joint calls on veterinary
clinics with DISTRIBUTOR sales personnel.
3.1.d DISTRIBUTOR agrees to actively promote materials ("sell
sheets") and promotions offered by ORPHAN "as-is", (provided that such
materials comply with applicable law) and not to revise ORPHAN
materials in any way. DISTRIBUTOR will make no representation with
respect to the PRODUCT, including oral representations, which are not
approved in advance by ORPHAN and are otherwise provided by ORPHAN to
DISTRIBUTOR in product inserts, labels or other ORPHAN promotional
materials. DISTRIBUTOR representations made with regard to the PRODUCT
will be consistent with the training material provided by ORPHAN. Any
representations made or promotion by DISTRIBUTOR will be in compliance
with all Food and Drug Administration (FDA) regulations governing
marketing and promotion of prescription products. DISTRIBUTOR's use of
ORPHAN trademarks or referencing ORPHAN in any way is subject to ORPHAN
approval. Distributor agrees to provide an ORPHAN sell sheet to all
customers in it's "Butler Review" on a basis which DISTRIBUTOR deems
appropriate, at launch during January and February, ***
3.1.e DISTRIBUTOR agrees to promote the PRODUCT at all
conventions and trade shows at which DISTRIBUTOR attends.
3.1.f DISTRIBUTOR agrees not to distribute samples, provide
rebates or promotional allowances without the prior written consent of
ORPHAN.
- ---------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
3.2 DISTRIBUTOR will not knowingly disparage the PRODUCT and will not
knowingly misrepresent either directly or by omission the capabilities,
qualities, and characteristics of the PRODUCT. DISTRIBUTOR will insure that
sales representatives present the PRODUCT consistent with the labeling of the
PRODUCT and not make claim to any characteristic or result which is not
supported by labeling, product inserts or other promotional materials provided
by ORPHAN.
3.3 Provided ORPHAN performs its obligations under this Agreement,
DISTRIBUTOR will not market or promote any product of another company which
shall compete with the PRODUCT in the TERRITORY.
4. DISTRIBUTOR'S OBLIGATION TO ORPHAN
4.1 DISTRIBUTOR represents that from its place of business it is
equipped to extend the following services to ORPHAN as a DISTRIBUTOR of ORPHAN
PRODUCT and DISTRIBUTOR acknowledges that the following obligations are material
to proper performance thereunder and the breach of any one (after the expiration
of any applicable cure periods provided herein) shall constitute grounds for
termination by ORPHAN.
4.1.a Maintain a satisfactory credit relationship with ORPHAN
by respect to amounts owing to ORPHAN by DISTRIBUTOR after sale by
DISTRIBUTOR of any PRODUCT hereunder as provided in this agreement
within ninety (90) days of product sale.
4.1.b Maintain warehouse facilities, and any other storage or
transportation sites, suitable for the storage as contained in the
prescribing information of the PRODUCT and conforming to Good
Manufacturing Practices (GMP), delivery facilities and stock of ORPHAN
PRODUCT adequate to completely fill within *** of the orders of all
customers. No charge will be levied to ORPHAN for warehousing services.
If any special storage or shipping requirements apply with respect to
the PRODUCT, ORPHAN shall give DISTRIBUTOR thirty (30) days prior
written notice of the same. Upon execution of this Agreement,
DISTRIBUTOR shall provide to ORPHAN a copy of SOPs applicable to
storage of drug product held in DISTRIBUTOR'S facilities.
4.1.c Properly dispose of any outdated PRODUCT or PRODUCT
returned to DISTRIBUTOR per ORPHAN standard operating procedures (SOPs)
outlined in Appendix C. In the event of any complaint or quality issue,
DISTRIBUTOR agrees to forward the product to ORPHAN for analysis and
disposal per ORPHAN SOP outlined in Appendix D. In all cases of the
return of PRODUCT to ORPHAN, the freight and insurance charges incurred
in connection with such return shall be paid by ORPHAN.
4.1.d Forward any medically related inquiry or report of
adverse event to ORPHAN, at 1-888-80RPHAN, within 24 hours of receipt,
per ORPHAN SOP outlined in Appendix D.
5. TERM/TERMINATION
5.1 The term of this Agreement shall be to and including December 31,
1999, which shall be the INITIAL TERM of the Agreement. The Agreement shall
automatically renew for successive two (2) year terms on the same terms and
conditions, unless either party in their sole discretion gives one hundred and
twenty (120) days prior written notice to the other of its desire not to renew.
ORPHAN may terminate this Agreement for any reason within its sole discretion
upon six (6) months prior notice of DISTRIBUTOR. In such event, the parties will
discuss any further actions needed to minimize further costs and work by
DISTRIBUTOR.
5.2 Either party may terminate this Agreement in the event of a
material breach by the other party of any of the terms of this Agreement. In the
event of such breach, the affected party shall give notice to the other of the
breach no later than sixty (60) days prior to the date of termination, and
provide the other party with the
- ---------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST,
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
opportunity to cure its breach. Termination will occur only in the event the
breaching party has not cured its breach within such sixty (60) day period.
5.3 In the event of any termination or expiration of this Agreement as
provided herein:
5.3.a. DISTRIBUTOR shall return to ORPHAN or its designee, at
ORPHAN's cost and expense, all of Distributor stock of the PRODUCTS,
including samples, held on consignment by DISTRIBUTOR, which
DISTRIBUTOR has not sold to its customers as of the date of such
termination; and
5.3.b. Such termination or expiration shall terminate only the
rights and obligations of the parties with respect to the sale and
purchase of PRODUCTS hereunder and shall not affect, or release either
party from, any rights, liabilities or obligations that may have
accrued, or been based upon facts or circumstances arising, under the
laws or the terms of the Agreement prior to the date of such
termination or expiration, including without limitation the
indemnification provisions contained herein.
6. NOT A REQUIREMENTS CONTRACT
ORPHAN will use reasonable best efforts to fill Distributor proper
orders. If ORPHAN faces a back-order situation in the PRODUCT, ORPHAN will
handle purchase orders pursuant to Section 2-61 5(b) of the Uniform Commercial
Code. ORPHAN may discontinue production or sale of any PRODUCT, or change the
design or specifications of any PRODUCT, at any time during of after the INITIAL
TERM by giving DISTRIBUTOR not less than sixty (60) days prior written notice of
any of the foregoing. ORPHAN is not liable for delays in production, shipping or
delivery due to any cause beyond it's control.
7. OTHER TERMS AND CONDITIONS
Other terms and conditions of the sales (prices, invoicing, payment
terms, risk of loss, returned goods policy, and warranties) are stated in
Appendix B. ORPHAN may change any provision of that appendix upon sixty (60)
days prior written notice during or after INITIAL TERM, (a) but the change will
not affect any order properly placed before the effective date of the change,
(b) unless otherwise provided in Appendix B, and (c) except in no event shall
may change in pricing by ORPHAN adversely affect the percentage margin to be
retained by DISTRIBUTOR from the sale of PRODUCT as provided in Appendix B.
8. WARRANTY
ORPHAN warrants the PRODUCT against any defects as of the time shipped
to DISTRIBUTOR, and further guarantees that as of such shipment, the PRODUCT (a)
is not adulterated or misbranded within the meaning of the Federal Food, Drug,
and Cosmetic Act, (b) is not an article which may not, under the provisions of
section 404, 505, or 512 of the act, be introduced into interstate commerce, (c)
has been manufactured in substantial accordance with applicable GMPs, and (d)
will have remaining shelf life of not less than six (6) months. If any PRODUCT
is found to be defective in material or manufacture during the above-mentioned
warranty period, ORPHAN'S only obligation, and DISTRIBUTOR'S exclusive remedy,
is replacement of PRODUCT by ORPHAN within a reasonable time after written
notification to ORPHAN thereof, except the foregoing limitation on DISTRIBUTOR'S
remedies shall not apply to ORPHAN'S indemnification obligations under Article 9
with respect to any third party claims concerning the PRODUCTS. In addition,
ORPHAN represents to DISTRIBUTOR that (a) nothing in this Agreement is intended
to shift liability from ORPHAN to DISTRIBUTOR for the manufacture or sale of
defective PRODUCTS by ORPHAN, and (b) applicable law does not require a Material
Safety Data Sheet ("MSDS") to be disseminated in connection with the sale of
PRODUCTS, and if applicable law does so require, ORPHAN shall provide to
DISTRIBUTOR prior to any shipment of PRODUCTS hereunder a complete and accurate
copy of the MSDS applicable to the PRODUCTS so that DISTRIBUTOR can provide a
copy of the same to its customers.
DISTRIBUTOR shall take all necessary and customary measures to ensure
security and storage under appropriate conditions as described in 4.1.b. of the
PRODUCT while PRODUCT is in its possession or under its control and during
shipment from DISTRIBUTOR FOB destination.
9. INDEMNIFICATION
9.1 Subject to ORPHAN'S compliance with its obligations set forth in
this Agreement, DISTRIBUTOR shall indemnify, defend, and hold ORPHAN and its
directors, officers, employees, agents, and AFFILIATES harmless against any and
all losses, damages, expenses, reasonable attorneys' fees (regardless of outcome
and including fees expended to successfully enforce its right to indemnification
hereunder), settlement costs and judgments resulting from DISTRIBUTOR'S breach
of any of its obligations or warranties under this Agreement, including, but not
limited to, any intentional misconduct in storage, handling, distributing or
promoting the PRODUCT.
9.2 Except as provided in Section 9.1 above, and subject to
DISTRIBUTOR'S compliance with its obligations set forth in this Agreement,
ORPHAN shall indemnify, defend, and hold DISTRIBUTOR and its directors,
officers, employees, agents, and AFFILIATES harmless against any and all losses,
damages, expenses, reasonable attorneys' fees (regardless of outcome and
including fees expended to successfully enforce its right to indemnification
hereunder), settlement costs, and judgments resulting from (a) ORPHAN'S breach
of any of its obligations or warranties under this Agreement, or (b) allegations
which relate to or pertain to the PRODUCTS sold by ORPHAN to DISTRIBUTOR
pursuant to this Agreement.
9.3 A party which intends to claim indemnification under this Article 9
(the "Indemnitee") shall promptly notify the other party (the "Indemnitor") in
writing of any action, claim, or other matter in respect of which the Indemnitee
or any of its directors, officers, employees, agents, and AFFILIATES intend to
claim such indemnification. The Indemnitee shall permit, and shall cause its
directors, officers, employees, agents, and AFFILIATES to permit, the
Indemnitor, at its discretion, upon providing the Indemnitee with a written
acknowledgment of full and complete responsibility for the indemnification of
the Indemnitee with respect to any such action, claim, or other matter, to
settle any such action, claim, or other matter; and agrees to complete control
of such defense or settlement by the Indemnitor; provided, however, that such
settlement does not adversely affect the Indemnitee's rights hereunder or impose
any obligations on the Indemnitee in addition to those set forth herein in order
for it to exercise such rights. No such action, claim, or other matter shall be
settled without the prior written consent of the Indemnitor (unless the
Indemnitor fails to actively investigate and defend any such action, claim or
other matter hereunder), and the Indemnitor shall not be responsible for any
legal fees or other costs incurred other than as provided herein. The
Indemnitee, its directors, officers, employees, agents, and AFFILIATES shall
cooperate with the Indemnitor and its legal representatives in the investigation
and defense of any action, claim, or other matter covered by this
indemnification, and the Indemnitor shall keep the Indemnitee apprised as to the
status and progress of any such action, claim, or other matter. The Indemnitee
shall have the right, but not the obligation, to be represented by counsel of
its own selection, at its own expense, unless the Indemnitor fails to actively
investigate and defend any such action, claim or other matter hereunder, in
which event the cost of Indemnitee's counsel shall be paid by the Indemnitor.
10. CONFIDENTIALITY
10.1 During the term hereof, and for a period of five (5) years
thereafter, any PROPRIETARY INFORMATION disclosed by the one party (the
"Disclosing Party"), directly or indirectly, to the other party (the "Receiving
Party") under this Agreement shall be deemed confidential and trade secret
information, whether so designated or not, and shall not be used or disclosed by
the Receiving Party to any Third Party, except as set forth below. Access to
such PROPRIETARY INFORMATION will be limited to employees, agents, consultants,
or other contractors of the Receiving Party who reasonably require such
Proprietary Information for purposes of performing the Receiving Party's
obligations hereunder and who are bound to the Receiving Party by similar
obligations in respect of confidentiality and use. Such employees, agents,
consultants, or contractors will be advised of the nature and existence of the
undertakings in respect of such PROPRIETARY INFORMATION pursuant to this
Agreement and of the applicability of such undertakings to them. The Receiving
Party will use such PROPRIETARY INFORMATION only to carry out its obligations or
to exercise its rights hereunder and will not use such PROPRIETARY INFORMATION
for its own benefit or for the benefit of others or in any way inconsistent with
this Agreement. Without limiting the generality of the foregoing, ORPHAN shall
not be entitled to use any of DISTRIBUTOR'S confidential customer information
for ORPHAN'S direct sales of PRODUCTS, without DISTRIBUTOR'S prior written
consent.
10.2 Exceptions. Information shall not be deemed PROPRIETARY
INFORMATION which:
10.2.a at the time of disclosure, is already in the public
domain or thereafter becomes part of the public domain by publication
or otherwise through no fault or act of the Receiving Party;
10.2.b was demonstrably in the possession of the Receiving
Party prior to the time of the disclosure to it and was not acquired,
directly or indirectly, from the Disclosing Party;
10.2.c is independently disclosed to the Receiving Party by a
third party who has not violated any confidential obligation owed to
the Disclosing Party;
10.2.d was independently developed by the Receiving Party
without use of or reliance on any PROPRIETARY INFORMATION of the
disclosing Party;
10.2.e is required to be disclosed by legal process; provided,
in each case the party so disclosing information timely informs the
other and uses its best efforts to limit the disclosure and maintain
confidentiality to the extent possible and permits the other party to
attempt by appropriate legal means to limit such disclosure;
10.2.f is information which is required to be provided to the
FDA or any other regulatory authority in the TERRITORY in order for
ORPHAN to obtain Registrations or approval for the PRODUCT or otherwise
comply with applicable regulatory requirements; provided, however, that
no PROPRIETARY INFORMATION of ORPHAN or DISTRIBUTOR will be disclosed
in any such manner without the written consent of the Disclosing Party,
which consent will not be unreasonably withheld, or
10.2.g is information which is required to be disclosed to
customers, users, and prescribers of the PRODUCT or which is reasonably
necessary to disclose in connection with the ethical marketing of the
PRODUCT, if applicable.
10.3 Disclosure by the Receiving Party to a Third Party shall be made
only to the extent necessary to enable the Receiving Party to comply with its
contractual obligations to the Disclosing Party.
10.4 Each Third Party to which PROPRIETARY INFORMATION is disclosed
agrees in writing to such disclosure to keep the PROPRIETARY INFORMATION in
strict confidence and to comply with the terms of this Agreement.
10.5 Both Parties agree to limit access of PROPRIETARY INFORMATION to
those of its officers, directors, or employees, or any Third Party who must have
PROPRIETARY INFORMATION to carry out the terms of any agreement made between the
Parties.
10.6 Neither party shall utilize the PROPRIETARY INFORMATION disclosed
to it by the Other Party after the completion of the Agreement between the
Parties, either in its own business endeavors or for commercial purposes,
without advance written consent of the Other Party.
10.7 Except as otherwise required by law, applicable regulations or the
terms of this Agreement or mutually agreed upon by the Parties hereto, each
Party shall treat as confidential the terms and conditions of this Agreement.
11. RELATIONSHIP
DISTRIBUTOR makes this Agreement, and buys and sells PRODUCT, as an
independent contractor. DISTRIBUTOR is not an agent or a franchisee of ORPHAN.
DISTRIBUTOR will not state or imply the contrary to anyone. The employees and
agents of DISTRIBUTOR are not for any purpose the agents or employees of ORPHAN.
DISTRIBUTOR may not assign its rights or delegate its duties under this
Agreement without the prior written consent of ORPHAN.
12. ENTIRE AGREEMENT
12.1 This Agreement, together with the most current issue of the price
page(s) identified in Attachment 1, states the complete understanding between
ORPHAN and DISTRIBUTOR on this subject and replaces any previous statement,
communication, or understanding, whether oral or written.
12.2 This Agreement cannot be modified except by in writing signed by
the party to be bound, or through ORPHAN'S unilateral revision of the price
pages as provided in Article 7 hereof, DISTRIBUTOR may place orders under this
Agreement using DISTRIBUTOR'S regular purchase order form. However, any
provision of that form, or of any other document or form of DISTRIBUTOR or
ORPHAN, which conflicts with or differs from the provisions or intent of this
Agreement, is void.
13. NO WAIVER
A course of dealing or of performance does not effect a waiver or
modification unless ratified in writing. A party's failure to exercise a right
in one of many instances does not waive that party's right to later exercise
that right.
14. GOVERNING LAW
Any questions, claims, disputes, or litigation concerning this
Agreement are governed by the laws of Minnesota.
15. USE OF ORPHAN NAME
15.1 During the term of this agreement, DISTRIBUTOR may refer to itself
as "An Authorized Distributor of Orphan Medical veterinary products" and may use
the term "Orphan Medical". DISTRIBUTOR may not refer to itself as an "agent" of
ORPHAN. DISTRIBUTOR will make no other use of any name or trademark of ORPHAN
without ORPHAN'S prior written permission. The decision to grant or withhold
permission is at ORPHAN'S sole discretion.
15.2 When this Agreement terminates, DISTRIBUTOR will immediately (a)
cease all use of any name or trademark of ORPHAN, and (b) take all action
possible to cause the removal of any ORPHAN name or trademark from any
advertisement, directory or other listing or description of DISTRIBUTOR'S
business.
16. DISPUTE RESOLUTION
16.1 The parties shall attempt in good faith to resolve any dispute
arising out of the making or performance of or otherwise relating to this
Agreement promptly by negotiations between executives who have authority to
settle the controversy. Any party may give the other party written notice of
dispute not resolved in the normal course of business. Within twenty (20) days
after delivery of said notice, executives of the disputing parties shall meet at
a mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to exchange relevant information and to attempt to resolve the
dispute. If the matter has not been resolved within thirty (30) days of the
disputing party's notice, or if the parties fail to meet within twenty (20)
days, a party may initiate mediation of the controversy or claim as provided
hereinafter. If a negotiator intends to be accompanied at a meeting by an
attorney, the other negotiators shall be given at least seven (7) days notice of
such intention and may also be accompanied by an attorney.
16.2 All negotiations pursuant to this Article 16 and any mediation
proceeding pursuant to Article 17 hereof will constitute settlement negotiations
for purposes of the federal and state rules of evidence (including without
limitation Federal Rules of Evidence 408) and will be treated as
non-discoverable, confidential, and privileged communication by the parties and
the mediator. No stenographic, visual, or audio record will be made of any such
negotiations or mediation proceeding. All conduct, statements, promises, offers,
and opinions made in the course of negotiations or mediation by any party, its
agents, employees, representatives, or other invitees and by the mediator will
not be discoverable nor admissible for any purposes in any litigation or other
proceeding involving the parties and will not be disclosed to any party.
17. MEDIATION
17.1 If the dispute has not been resolved by negotiation as stated
above, the parties shall endeavor to settle the dispute by mediation. Either
party may initiate mediation by a request in writing to the other party.
Thereupon, both parties will be obligated to engage in mediation with a mutually
acceptable mediator. The parties regard the aforesaid obligation to mediate an
essential provision of this Agreement and one that is legally binding on them.
In case of a violation of such obligation by either party, the other may bring
an action to seek enforcement of such obligation in any court of law having
jurisdiction thereof.
17.2 Within ten (10) days following a party's notice to initiate
mediation hereunder, the parties will submit to each other a written list of
acceptable qualified mediators not affiliated with any of the parties. Within
ten (10) days from the date of receipt of such list, the parties to this
Agreement will rank the mediators in numerical order of preference and exchange
such rankings. If one or more names appear on both lists, the person whose name
appears on both lists and who receives the highest combined ranking will be
chosen as the mediator. If no mediator has been selected under this procedure,
the parties agree jointly to request a mutually agreeable State or Federal
District Judge in Hennepin County, Minnesota, to supply within ten (10) business
days a list of qualified mediators within numerical order of preference and will
simultaneously exchange such list and will select as the mediator the individual
receiving the highest combined ranking. If such mediator is not available to
serve, they will proceed to contact the mediator who was next highest in ranking
until they are able to select a mediator.
17.3 The parties' efforts to reach a settlement of any dispute will
continue until the conclusion of the mediation proceeding. The mediation
proceeding will be concluded when: (a) a written settlement agreement is
executed by the parties, or (b) the mediator concludes and informs the parties
in writing that further efforts to mediate the dispute would not be useful, or
(c) the parties agree in writing that an impasse has been reached.
Notwithstanding the foregoing, either party may withdraw from the mediation
proceeding without liability therefore in the event such proceeding continues
for more than thirty (30) days from the commencement of such proceeding. For
purposes of the preceding sentence, the proceeding will be deemed to have
commenced following the completion of the selection of a mediator as provided in
Paragraph 17.2.
17.4 The procedures specified in Articles 16 and 17 shall be the sole
and exclusive procedures for the resolution of disputes between the parties
arising out of or relating to this Agreement; provided, however, that a party,
without prejudice to the above procedures, may file a complaint to seek a
preliminary injunction or other provisional judicial relief, if in its sole
discretion such action is necessary to avoid irreparable damage or to preserve
the status quo. Despite such action, the parties will continue to participate in
good faith in the procedures specified in Articles 16 and 17 hereof.
17.5 All applicable statues of limitation and defenses based upon
passage of time shall be tolled while the procedures specified in Articles 16
and 17 are pending. The parties will take such action, if any, required to
effectuate such tolling.
17.6 Each party will bear its own cost of mediation; provided, however,
the cost charged by any independent third party mediator will be borne equally
by the parties.
18. ASSIGNABILITY
DISTRIBUTOR may not assign this Agreement or any of its obligations
hereunder to any other person, company, or party absent the prior written
consent of ORPHAN, which consent shall be at ORPHAN'S sole and absolute
discretion.
19. AFFILIATES
Any reference in this Agreement to ORPHAN, or DISTRIBUTOR, shall
include the AFFILIATES of those entities.
20. FORCE MAJEURE
Neither party shall be liable for delays or failure of performance of
any obligation hereunder by reason of Act of God, fire, flood, war, public
disaster, strike, or labor difference, governmental enactment, rule, or
regulation, or any other cause beyond such party's control, provided that
diligent continuing efforts are made to resume performance hereunder if such
resumption is a commercially reasonable option. Written notice must be given to
the other party for any cause made under this Article 20.
21. PRODUCT LIABILITY INSURANCE
21.1 During the term of this Agreement, ORPHAN shall maintain, at its
own cost and expense, Product Liability insurance, with limits of not less than
three million ($3,000,000) United States dollars. ORPHAN'S obligation to
DISTRIBUTOR, under Paragraph 9.2, shall not be limited to the minimum amount of
insurance required or the amount of insurance actually carried by ORPHAN. ORPHAN
shall, upon execution of this Agreement, furnish DISTRIBUTOR with a certificate
of insurance evidencing compliance with the requirements of this Article 21.
Such certificate shall provide that DISTRIBUTOR be given not less than thirty
(30) days written notice in the event of cancellation or material change in such
insurance.
21.2 During the term of this Agreement, DISTRIBUTOR shall maintain, at
its own cost and expense, Workers Compensation insurance, and General Business
Liability insurance, with limits of not less than one million ($1,000,000)
United States dollars. DISTRIBUTOR'S obligation to ORPHAN, under Paragraph 9.1,
shall not be limited to the minimum amount of insurance required or the amount
of insurance actually carried by DISTRIBUTOR. DISTRIBUTOR shall, upon execution
of this Agreement, furnish ORPHAN with a certificate of insurance evidencing
compliance with the requirements of this Article 21. Such certificate shall
provide that ORPHAN be given not less than thirty (30) days written notice in
the event of cancellation or material change in the insurance.
ACCEPTED AND AGREED TO:
W. A. BUTLER CO. ORPHAN MEDICAL, INC.
By: /s/ Thomas G. Gilbert By: /s/ John Howell Bullion
--------------------- -----------------------
Print Name: Thomas G. Gilbert Print Name: John Howell Bullion
----------------- -------------------
Title: Sr.V.P Marketing and Operations Title: Chief Executive Officer
------------------------------- -----------------------
Date: 11-27-96 Date: 11-26-96
-------- --------
Valid only if signed by the identified ORPHAN personnel. No other method of
acceptance (including other signature or processing of purchase orders) is
possible.
Distribution Agreement
Appendix A
November 26th, 1996
Yearly Performance Standards(1)
Year One(2) Year Two(3)
# of Kits **** ****
**** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
- --------------------------
(1)GIVEN THE SHORT STUB PERIOD, NO PERFORMANCE STANDARDS SHALL APPLY FOR THE
BALANCE OF 1996. PERFORMANCE STANDARDS FOR 1999 SHALL BE MUTUALLY AGREED TO BY
THE PARTIES NINETY (90) DAYS PRIOR TO THE COMMENCEMENT OF SUCH YEAR.
(2)YEAR ONE DEFINED AS JANUARY 1, 1997 THROUGH AND INCLUDING DECEMBER 31, 1997.
(3)YEAR TWO DEFINED AS JANUARY 1, 1998 THROUGH AND INCLUDING DECEMBER 31, 1998.
Distribution Agreement
Appendix B
November 26, 1996
PRICING AND TERMS
A. ***
ORPHAN will*** to DISTRIBUTOR a predetermined number of units (kits) of
Antizol-Vet(TM). For each kit sold, ORPHAN will be paid by DISTRIBUTOR an amount
equal to*** of the price to the veterinarian customer (irrespective of any
changes made by ORPHAN to the selling price to the customer), so that
DISTRIBUTOR will receive a*** commission on the sale of any PRODUCT. The selling
price of Antizol-Vet(TM) will be printed on all promotional materials provided
to DISTRIBUTOR by ORPHAN. The selling prices to customers will be reviewed by
ORPHAN on a periodic basis, no less than once per year, to consider price
adjustments, but in no event shall any price adjustment adversely affect
DISTRIBUTOR'S*** commission on the sale of any PRODUCT. Any adjustment in price
will require the prior written agreement of ORPHAN.
B. Purchase Orders/ Sales Reporting/ Invoicing
ORPHAN will ship a predetermined number of units to DISTRIBUTOR as
denoted on the standard DISTRIBUTOR purchase order, modified to reflect the
consignment relationship hereunder. On a weekly basis at launch (defined by the
first three months of sales), and on a monthly basis thereafter, DISTRIBUTOR
will provide to ORPHAN a report of sales, including: number of units, sale date,
and address of ordering customer. Based on DISTRIBUTOR'S monthly sales,
DISTRIBUTOR will accrue its obligations on a monthly basis as outlined in
Paragraph A and pay ORPHAN no later than forty five (45) days later, following
the month of accrual.***
Inventory will be justified between ORPHAN and DISTRIBUTOR on a
quarterly basis, Any inventory discrepancies will be resolved by the parties. In
the event the parties can not agree on inventory resolution, the DISTRIBUTOR and
ORPHAN will share equally in responsibility for the sales revenue lost from
unaccounted for Product.
C. Terms
For accruals due past forty-five (45) days a*** charge on net will be
due ORPHAN. An additional*** will be due for each additional forty-five (45)
days from date of invoice.
D. Returned Goods Policy--Returns from Customer
Antizol-Vet(TM) kits returned due to quality problems will be exchanged
by ORPHAN per Section 8 of the Agreement. Antizol-Vet(TM) kits returned from the
customer due to outdating will be exchanged for the then current price of the
product less a*** restocking allowance to the customer. Outdated units must be
returned within six (6) months of expiration and DISTRIBUTOR agrees to remit to
ORPHAN*** of the amount paid by the customer and retain a*** commission as noted
above.
E. Warranties
All warranties are as represented in Section 8 of the Agreement.
- ---------------------
*** DENOTES CONFIDENTIAL INFORMATION THAT HAS BEEN OMITTED FROM THE EXHIBIT
AND FILED SEPARATELY, ACCOMPANIED BY A CONFIDENTIAL TREATMENT REQUEST
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF
THE SECURITIES EXCHANGE ACT OF 1934.
Appendix C
Policy for Handling and Disposition of Returned Drug Products
Between Orphan Medical, Inc. and the W.A. Butler Company
November 26, 1996
1.0 Objective
To establish a policy for proper receipt and disposition of returned
product from the W.A. Butler Company to Orphan Medical, Inc.
2.0 Scope
2.1 This policy covers all product returned to Orphan Medical,
Inc. through the W.A. Butler Company.
2.2 Conditions under which Orphan Medical, Inc. will accept
returned product.
2.3 Product damaged during shipment between Orphan Medical, Inc.,
or it's agent (manufacturer) and W.A. Butler Company.
2.4 Complaints concerning product quality from a customer or from
W.A. Butler Company, where it is clear that the problem did
not result from an action of W.A. Butler Company.
2.5 For any product which is more than six (6) months past its
expiration date, the President of Orphan Medical, Inc. will
decide if product may be accepted from the customer for
return.
3.0 Responsibilities
3.1 Orphan Medical Quality Assurance Department is responsible for
handling all product returned for quality reasons, determining
the disposition of product, supervising the process of the
returns, and maintaining records on returns due to quality
reasons.
3.2 The W.A. Butler Company is responsible for taking returns from
veterinary customers, separating them in order that they not
be returned to inventory, and returning them to Orphan Medical
for destruction.
3.3 Orphan Medical Quality Assurance Department is responsible for
the destruction of product returned from the W.A. Butler
Company for reasons other than quality related issues.
3.4 Orphan Medical is responsible for paying for the shipment of
product returned from the W.A. Butler company for purposes of
destruction.
4.0 Procedure
4.1 Returned product is received by the W.A. Butler Company and is
immediately physically isolated in a designated area of the
warehouse to insure it is not returned to inventory.
4.2 A visual examination is performed and the following
information is recorded in the Returned Goods Log; lot number,
reason for return, quantity returned, date of return to Orphan
Medical, and initials of responsible person for shipping to
Orphan Medical.
4.3 If the reason for return is quality related, the W.A. Butler
Company will call the Orphan Medical Quality Assurance
Department immediately for shipment of the product to Orphan
Medical, and product testing.
4.4 If the reason for return is not quality related, and is within
the bounds of the Orphan Medical returned goods policy
parameters, the W.A. Butler Company will physically isolate
product and ship to Orphan Medical at such time it deems
sufficient quantities to warrant shipment.
4.5 Orphan Medical will supervise destruction of product via a
contract destruction vendor.
APPENDIX D
SOP TITLES COMPLAINT HANDLING PROCEDURE FOR MARKETED PRODUCTS
ORPHAN MEDICAL, INC. QA-006 REV 0
STANDARD OPERATING PROCEDURE PAGE 1 OF 3
1.0 OBJECTIVE/SCOPE
1.1 To provide a procedure and description of responsibilities for
effective action in the event of a customer complaint.
1.2 To minimize both the customer's risk and Orphan Medical's
liabilities associated with the complaint.
1.3 To provide communication of responsibilities between all
individuals associated with the complaint.
1.4 To maintain high ethical standards and integrity of Orphan
Medical and achieve customer satisfaction through continued
good service and communication.
2.0 RESPONSIBILITIES
2.1 It is the responsibility of Orphan Medical's staff and
Contract Vendors to report all customer complaints to the
Quality Assurance Department of Orphan Medical.
2.2 The Marketing Department has the responsibility of
acknowledging receipt of a customer complaint and issuing the
final written response to the customer.
3.0 PROCEDURE
3.1 Receipt of Complaints
3.1.1 Complaints received by phone should be forwarded to
the Quality Assurance Department for processing. In
the event of the Quality Assurance Department not
being available, record the caller's name and
telephone number so that the Quality Assurance
Department can return the call and complete the
Complaint Information Form (Attachment l).
3.1.2 Written complaints must be forwarded to the Quality
Assurance Department for processing.
3.1.3 Complaints received by Orphan Medical contract
vendor's or distributor must be forwarded to Orphan
Medical Quality Assurance Department for processing.
3.2 All complaints regardless of the route of communication to
Orphan Medical are recorded on the Complaint Information Form
(Attachment l) by Orphan Medical Quality Assurance Department.
At this time the complaint 16 reviewed by Quality Assurance
and Regulatory Affairs and determined whether or not the
complaint is an Adverse Drug Reaction.
3.3 The Quality Assurance Department will assign a Complaint
Number consisting of a eight digit number. The first three
numbers will be sequential starting with 00l and the remaining
five numbers signifying the product and package size.
3.4 The Quality Assurance Department will log the information in
the Product Complaint Log Attachment 2).
3.5 The Director of Quality Assurance or designee will initiate an
investigation and complete the Complaint Investigation Plan
(Attachment 3) and forward a copy to the Contract
Manufacturer, Packager or Distributor responsible for
investigation of the complaint.
3.6 Coordination of complaint sample retrieval is the
responsibility of the Quality Assurance Department.
3.7 The Quality Assurance Department notifies the Marketing
Department by sending a copy of the completed Complaint
Information Form. The Marketing Department will send a form
letter (Attachment 4) acknowledging receipt of the complaint
with a copy of the letter forwarded to the Quality Assurance
Department for filing.
3.6 Upon completion of the investigation the Director of Quality
Assurance or designee will complete the Complaint
Investigation Report (Attachment 5). Copies of this report are
forwarded to all relevant parties, including the Product
Manager, Director of New Product Development, Regulatory
Affairs Department and the President. The original is filed in
the complaint file.
3.9 The Marketing Department is responsible for writing the final
response to the customer.
3.10 File retention: Complaint files are kept for one year past
expiration date of the product or one year after the date the
complaint was received, whichever is longer.
3.11 Retention of Complaint samples is determined by the Quality
Assurance Department.
4.0 DOCUMENT APPROVAL
---------------------------------- ------------
Quality Assurance Date
---------------------------------- ------------
Director of Regulatory Affairs Date
---------------------------------- ------------
Vice President of Date
Regulatory Affairs
---------------------------------- ------------
President Date
Effective Date:__________________
COMPLAINT INFORMATION FORM QA-006 REV 0
ATTACHMENT 1
l. Complaint Number Assigned by QA):___________________Date Rec'd:___________
2. Product Name:_____________________________________________________________
3. Nature of complaint:________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
4. Name of caller:___________________________________________________________
5. Title of caller(if healthcare professional):______________________________
6. Company name:_____________________________________________________________
7. Company or caller' s address:_______________________
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
8. Phone number:_____________________________________________________________
9. Product NDC#:_____________________________________________________________
10. Lot number:_______________________________________________________________
11. Expiration Date:__________________________________________________________
12. Is there a sample of the product available?: (yes) (no)
13. Amount of product to be returned:_________________________________________
Signature of person completing this form:______________________________________
- -------------------------------------------------------------------------------
Numbers 14 and 15 to be completed by Quality Assurance and Regulatory Affairs
Jointly.
14. Is the complaint an Adverse Drug Reactions (yes) (no)
15. If yes, what type: ___________Expected ___________Unexpected
___________Non-serious ___________Serious
Determined by:__________________________ Date:_____________________________
Copies of this form sent to: Regulatory Affairs, Product Director, Director of
New Product Development and President
Product Complaint Log
QA-006 Rev 0
Attachment 2
Product name;____________________________________
Your complaint received:____________________________
<TABLE>
<CAPTION>
=========================================================================================================================
Complaint Date Complaint Description Customer Name and Address NDC Lot Date CIR
Number Rec'd Number Number Approved
<S> <C> <C> <C> <C> <C> <C>
- ------------- --------- -------------------------------- ----------------------------- ---------- ------- ---------------
- ------------- --------- -------------------------------- ----------------------------- ---------- ------- ---------------
- ------------- --------- -------------------------------- ----------------------------- ---------- ------- ---------------
- ------------- --------- -------------------------------- ----------------------------- ---------- ------- ---------------
- ------------- --------- -------------------------------- ----------------------------- ---------- ------- ---------------
- ------------- --------- -------------------------------- ----------------------------- ---------- ------- ---------------
=========================================================================================================================
</TABLE>
COMPLAINT INVESTIGATION PLAN
QA-006 REV 0
ATTACHMENT 3
Complaint number:______________________________________________________________
Product name:__________________________________________________________________
Product strength:____________________________
Lot number:__________________________________Expiration date___________________
NDC number:__________________________________Package size:_____________________
Complaint summary:_____________________________________________________________
QA-006 REV 0
ATTACHMENT 4
Form Letter Example
Date
Name
Health Care Institute
Street Address
City and State
Dear________________
Regarding: (Product or the problem)
Thank you for taking the time for calling/writing to express your concern about
the quality of our name of product product.
We are presently investigating the situation you have described and will
communicate the results to you at the earliest opportunity.
Thank you again for your concern. Maintaining the highest standards of product
quality is extremely important to us. We will do whatever is needed to assure
satisfaction of our customers.
Sincerely yours,
(To be completed by the Marketing Department)
AVRECO Inc.
10 S LASALLE ST. - 12TH FLOOR - CHICAGO, 11 60003-7099 - (312)346-6161 -
1-800-PRO-RISK - FAX: (312) 580-0106
EVIDENCE OF INSURANCE
ISSUED TO: Levy & Associates
5851 Cedar Lake Road
Minneapolis, MN 55415
THIS IS TO CERTIFY that the undersigned Insurance Brokers have procured
insurance as hereinafter specified from certain Underwriters and/or Companies.
ASSURED: Orphan Medical Inc.
13911 Ridgedale Drive
Suite 474
Minnetonka, MN 55305
AMOUNT OF LIMITS:
$3,000,000 Each Occ./$3,000,000 Aggregate
SUBJECT TO: $50,000/$250,000. Deductible
Each Claim including Claim Expense
Defense Costs are including in the Limit.
COVERAGE.: Product/Completed Operations including Contractual. B.F.
Vendors, Coverage Afforded For Products as Used in Clinical
Trail as Specified,
CARRIER: Steadfast Insurance Company
#SPC3655560-00
REMARKS: TERMS & CONDITIONS: EXCLUDE - Absolute Pollution, Asbestos,
Accutane, Birth Control Pill, Drug or Devices, DES,
LTryptophan, Swine Flu Vaccine, Non-FDA Approved Products.
Silent on Punitive Damages.
METRO DATE: 3/1/95
Extended Reporting Period:
Basic: Standard ISO, Supplemental - Seven Year ERP, No
Reinstatement of Aggregate at Maximum 200% of Premium.
TERM OF COVERAGE: From: 03-01-96 To: 03-01-97
THE ABOVE INSURANCE IS SUBJECT TO THE CONDITIONS AND TERMS OF THE CURRENT
POLICY(IES) NOW IN FORCE.
IT IS AGREED THAT SHOULD THE ABOVE DESCRIBED INSURANCE BE CANCELED OR MATERIALLY
CHANGES, WE THE UNDERSIGNED WILL ENDEAVOR TO GIVE TEN (1O) DAYS PRIOR NOTICE, IN
WRITING, TO THE ENTITY TO WHOM THIS FORM IS ISSUED BUT FAILURE TO GIVE SUCH
NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY UPON THE UNDERSIGNED OR THE
INSURERS.
DATE: March 6, 1996 By: _______________________________________
Attn: Chris Levy
*THIS INSURANCE IS ISSUED PURSUANT TO THE
MINNESOTA SURPLUS LINES INSURANCE ACT. THE
INSURER IS AN ELIGIBLE SURPLUS LINES INSURER
BUT IS NOT OTHERWISE LICENSED BY THE STATE
OF MINNESOTA. IN CASE OF INSOLVENCY, PAYMENT
OF CLAIMS IS NOT GUARANTEED.*
EXHIBIT 23.1
ORPHAN MEDICAL, INC.
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Orphan Medical, Inc. 1994 Stock Option Plan of our report
dated January 31, 1997, with respect to the financial statements of Orphan
Medical, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1996.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 12, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature
appears below hereby constitutes and appoints John Howell Bullion , his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Orphan Medical, Inc. for
the twelve months ended December 31, 1996, and all amendments to such Annual
Report on Form 10-K and to file same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes he might or could do in person, hereby ratifying and confirming all
said attorneys-in-fact and agents or any of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Signature Date
/s/ John Howell Bullion February 27, 1997
John Howell Bullion
Chief Executive Officer & Secretary
(Principal Executive Officer) and Director
/s/ William B. Adams February 27, 1997
William B. Adams
Chairman of the Board and Director
/s/ Bertram A. Spilker February 27, 1997
Bertram A. Spilker
President and Director
/s/ Maurice R. Taylor, III February 27, 1997
Maurice R. Taylor, II
Director
/s/ W. Leigh Thompson February 27, 1997
W. Leigh Thompson
Director
/s/ William M. Wardell February 27, 1997
William M. Wardell
Director
/s/ Lawrence C. Weaver February 27, 1997
Lawrence C. Weaver
Director
EXHIBIT 99
ORPHAN MEDICAL, INC.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information without fear of litigation so long as statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected. The Company desires to take advantage of these
"safe harbor" provisions and is filing this Exhibit 99 in order to do so.
Accordingly, when used in this Annual Report on Form 10-K and in future filings
by the Company with the Securities and Exchange Commission, quarterly reports,
press releases and in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result", "look for", "may
result", "will continue", "is anticipated", "expect", "project", or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical earnings and those presently anticipated or
projected. The Company hereby cautions readers that the following important
factors, among others, could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any forward-looking statements made by or on behalf of the Company.
LACK OF REVENUES AND PROFITABLE OPERATIONS; UNCERTAINTY OF FUTURE FINANCIAL
RESULTS.
The Company has been unprofitable since its inception in January 1993 and had an
accumulated deficit of $14,808,669 as of December 31, 1996. In December 1996,
the Company reported sales of $36,681 on the first commercial sales of Elliotts
B Solution and Cystadane, but the sales of these two products are not expected
to be material in subsequent periods. The Company expects to continue to incur
operating losses at least through 1998 as it expends additional funds on product
development. The amount of these losses may vary significantly from year-to-year
and quarter-to-quarter and will depend on, among other factors, the timing of
product development and regulatory approval. There can be no assurance that the
Company will ever generate material product revenues or achieve profitability.
DEVELOPMENT STAGE COMPANY.
The Company is in the development stage and its operations and the development
of its proposed products are subject to all of the risks inherent in the
establishment of a new business enterprise, including reliance on key personnel,
the lack of fully-developed products, insufficient capital, a competitive
environment characterized by numerous well-established and well-capitalized
competitors, expected losses at least through 1998, a market subject to
extensive regulatory oversight, and reliance on outside contractors for the
manufacture of its proposed products. The likelihood of the success of the
Company must be considered in light of the problems, expenses and delays
frequently encountered in connection with the development of new pharmaceutical
products or medical products and the competitive and regulatory environment in
which the Company operates.
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE.
The Company's current cash, cash equivalents, and short-term investments are
expected to be sufficient to fund the Company's operations at least through the
first half of 1998. Thereafter, to fully implement the Company's current
business plan through 1999, the Company believes it will need to raise at least
$15,000,000 of additional capital, assuming no internally generated funding is
available. Adequate funds for the Company's operations, whether from financial
markets or from other sources, may not be available when needed on terms
attractive to the Company, or at all. Lack of funding could cause the Company to
delay, scale back or eliminate some or all of its products currently under
development, including acquisition and licensing programs, or prevent the
commercial introduction of some or all of its products altogether.
DEPENDENCE ON LICENSE AND ACQUISITION STRATEGY.
The Company has adopted a license and acquisition strategy to build its product
portfolio. The Company's strategy for growth is dependent upon its continued
ability to identify and acquire new pharmaceutical products targeted at niche
markets which can be promoted through the Company's existing marketing and
distribution channels. Because the Company does not engage in proprietary
research and development of new pharmaceutical products, it must rely upon the
willingness of others to sell or license pharmaceutical product opportunities to
the Company. Other companies, including those with substantially greater
resources, are competing with the Company to acquire such products. There can be
no assurance that the Company will be able to acquire rights to additional
products on acceptable terms, if at all. The failure of the Company to acquire
or license new pharmaceutical products or to promote or market commercially
successful products would have a material adverse effect on the Company's
business and its prospects. Further, the marketing strategy, distribution
channels and levels and bases of competition with respect to newly acquired or
licensed products may be different than those of the Company's Current Products
and there can be no assurance that the Company will be able to compete favorably
in marketing any product.
The Company has contractual production rights to certain compounds through
various license agreements. These agreements are generally terminable by the
licensor for cause upon short notice or in the event the Company is insolvent or
bankrupt, does not apply minimum resources and efforts to develop the compound
under license or does not achieve certain minimum royalty payments. There can be
no assurance that the agreements will not be so terminated and, if terminated,
that the Company will be able to enter into similar agreements on terms as
favorable to the Company as those contained in its existing license agreements.
FOREIGN MARKETING ALLIANCES; NO ASSURANCE OF FOREIGN LICENSEES.
The Company's strategy for the exploitation of foreign markets for its products
is to enter into marketing alliances with various multinational and foreign
pharmaceutical companies. The Company has licensed to an unrelated Australian
company the rights to sell Cystadane in Australia and New Zealand. Revenues from
the Cystadane license for Australia and New Zealand are not expected to be
material. Revenues from such alliances typically consist of milestone payments
and royalty payments. However, there can be no assurance that the Company will
be able to negotiate additional alliances on acceptable terms, if at all, or
that such alliances will be successful.
GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVALS.
Government regulation in the United States and abroad will be a significant
factor in the production, testing and marketing of the Company's current and
future products. Prior to marketing, each of the Company's products must undergo
an extensive regulatory approval process conducted by the United States Food and
Drug Administration (the "FDA") and by comparable agencies in other countries.
The approval process can take many years and require the expenditure of
substantial resources, and there can be no assurance that any product that the
Company may develop will be approved by the FDA or any foreign regulatory
authority in a timely manner, or at all. Generally, only a very small percentage
of newly discovered pharmaceutical compounds that enter pre-clinical development
are approved for sale. The Company will not be permitted to market any medicine
it may develop as a prescription product in any jurisdiction in which the
product does not receive regulatory approval. Once approved, the Division of
Drug Marketing, Advertising and Communication ("DDMAC"), the FDA's marketing
surveillance department within the Center for Drugs, must approve marketing
claims, which are the basis for a product's labeling, advertising and promotion.
There can be no assurance that the claims the Company is seeking will be
approved by DDMAC. The failure to obtain acceptable marketing claims on a
product from DDMAC could have a material adverse effect on the Company and its
prospects.
The Company depends on external laboratories and medical institutions to conduct
its pre-clinical and clinical testing in compliance with clinical and laboratory
practices established by the FDA. The data obtained from pre-clinical and
clinical testing are subject to varying interpretations that could delay, limit
or prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in FDA policy for drug approval during the period
of development and by the requirements for regulatory review of each submitted
New Drug Application ("NDA"). Moreover, even if the FDA approves a product, such
approval may entail commercially unacceptable limitations on the uses, or
"indications," for which a product may be marketed, and further studies may be
required to provide additional data on safety or effectiveness. The FDA also
requires post-marketing adverse event surveillance programs to monitor the
product's side effects.
An approved FDA product and the product's manufacturer are subject to continual
regulatory review and the later discovery of previously unknown problems with a
product or manufacturer may result in restrictions or sanctions on such products
or manufacturer, including the withdrawal of such product from the market. Most
changes in the manufacturing procedures for any of the Company's approved
products and any change in manufacturers will require the approval of the FDA
prior to their implementation Obtaining the FDA's approval for a change in
manufacturing procedures or change in manufacturers could cause production
delays and loss of sales, which would have a material adverse effect the
Company's business and its prospects.
In certain countries, the sales price of a product must also be approved after
marketing approval is granted. No assurance can be given that satisfactory
prices can be obtained in foreign markets even if marketing approval is granted
by foreign regulatory authorities.
ORPHAN DRUG STATUS.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a "rare disease or condition," which generally is a disease or
condition that affects populations of fewer than 200,000 people in the United
States. Orphan drug designation must be requested before submitting an NDA, and
after the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are publicized by the FDA. Under
current law, orphan drug designation confers United States marketing exclusivity
upon the first company to receive FDA approval to market the designated drug for
the designated indication for a period of seven years following approval of the
NDA, subject to certain limitations. Orphan drug designation does not convey any
advantage in, or shorten the duration of, the regulatory approval process.
Moreover, although obtaining FDA approval to market a product with an orphan
drug designation can be advantageous, there can be no assurance that the scope
of protection or the level of marketing exclusivity that is currently afforded
by orphan drug designation and marketing approval will remain in effect in the
future. Most of the Company's Current Products have received orphan drug
designations and the Company intends to seek such designations for appropriate
product candidates in the future. There can be no assurance, however, that any
product candidates will receive an orphan drug designation or that any of the
Company's products with such a designation will be the first to be approved by
the FDA for the designated indication, thereby obtaining orphan drug marketing
exclusivity. Orphan drug designation does not prevent other manufacturers from
attempting to develop the same drug for the designated indication or from
obtaining the approval of an NDA for their drug prior to the approval of the
Company's NDA. If another sponsor's NDA for the same drug and the same
indication is approved first, that sponsor is entitled to exclusive marketing
rights if that sponsor has received orphan drug designation for its drug. In
that case, the FDA would refrain from approving an application by the Company to
market its competing product for seven years, subject to certain limitations.
There can be no assurance that competing products will not receive orphan drug
designations and FDA marketing approval before the Company's products.
NDA approval of a drug with an orphan drug designation does not prevent the FDA
from approving the same drug for a different indication, or a molecular
variation of the same drug for the same indication. Because doctors are not
restricted by the FDA from prescribing an approved drug for uses not approved by
the FDA, it is also possible that another company's drug could be prescribed for
indications for which the Company's product has received orphan drug designation
and NDA approval. Such prescribing of approved drugs for unapproved uses
(commonly referred to as "off label" use) could adversely affect the marketing
potential of products that have received orphan drug designation and NDA
approval. In addition, NDA approval of a drug with an orphan drug designation
does not provide any marketing exclusivity in foreign markets.
The possible amendment of the Orphan Drug Act by the United States Congress has
been the subject of frequent discussion. Although no significant changes to the
Orphan Drug Act have been made for a number of years, members of Congress have
from time to time proposed legislation that would limit the application of the
Orphan Drug Act. There can be no assurance as to the precise scope of protection
that may be afforded by orphan drug designation and marketing approval in the
future or that the current level of exclusivity will remain in effect.
RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS.
The pharmaceutical industry places considerable importance on obtaining patent
and trade secret protection for new technologies, products and processes. The
Company's success will depend, in part, on its ability to enjoy, obtain and
enforce protection for its products under United States and foreign patent laws
and other intellectual property laws, preserve the confidentiality of its trade
secrets and operate without infringing the proprietary rights of third parties.
The patent position of pharmaceutical firms is often highly uncertain and
generally involves complex legal and factual questions. The use of four of the
Current Products or treatment methods that the Company has licensed are covered
by United States patents, and applications for additional United States patents
covering the use of certain of its other Current Products have been or are
expected to be filed. The Company evaluates the desirability of seeking patent
or other forms of protection for its products in foreign markets based on the
expected costs and relative benefits of attaining such protection. There can be
no assurance that any patents will be issued from any applications or that any
issued patents will afford adequate protection to the Company. Further, there
can be no assurance that any issued patents will not be challenged, invalidated,
infringed or circumvented or that any rights granted thereunder will provide
competitive advantages to the Company. Parties not affiliated with the Company
have obtained or may obtain United States or foreign patents or possess or may
possess proprietary rights relating to the Company's Current Products. There can
be no assurance that patents now in existence or hereafter issued to others will
not adversely affect the development or commercialization of the Company's
Current Products or that the Company's planned activities will not infringe
patents owned by others.
The Company could incur substantial costs in defending itself in infringement
suits brought against it or any of its licensors or in asserting any
infringement claims that the Company may have against others. The Company could
also incur substantial costs in connection with any suits relating to matters
for which the Company has agreed to indemnify its licensors or distributors. An
adverse outcome in any such litigation could have a material adverse effect on
the Company's business and prospects. In addition, the Company could be required
to obtain licenses under patents or other proprietary rights of third parties.
No assurance can be given that any such licenses would be made available on
terms acceptable to the Company, or at all. If the Company is required to, and
does not obtain any such required licenses, it could be prevented from, or
encounter delays in, developing, manufacturing or marketing one or more of its
products.
All of the Company's Current Products, except for Cystadane, Elliotts B
Solution, and Antizol-Vet, are in the development stage. Even if the development
of such products is successful and approval for sale is obtained, there can be
no assurance that applicable patent coverage, if any, will not have expired or
will not expire shortly after such approval. Any such expiration could have a
material adverse effect on the sales and profitability of such product. Further,
some of the compounds the Company has developed or intends to develop
(Cystadane, Elliotts B Solution, Antizol, Antizol-Vet, Repliderm, Xyrem and
Sucraid) are believed to be in the public domain or not presently subject to
patent protection in the United States.
The Company also seeks to protect its proprietary information and technology in
part by confidentiality agreements and inventors' rights agreements with its
employees. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach or that the
Company's trade secrets will not otherwise be disclosed to or discovered by its
competitors.
COMPETITION; RAPID TECHNOLOGICAL CHANGE.
Competition in the pharmaceutical industry is intense. Potential competitors in
the United States are numerous and include pharmaceutical, chemical and
biotechnology companies, most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than the Company. Although the Company seeks to limit potential sources of
competition by developing products that are eligible for orphan drug designation
and NDA approval or other forms of protection, there can be no assurance that
the Company's competitors will not succeed in developing similar technologies
and products more rapidly than the Company or that these competing technologies
and products will not be more effective than any of those that are being or will
be developed by the Company.
The Company is aware of products being developed by potential competitors that
have received orphan drug designations for the same respective indications as
three of the Company's Current Products. If these drugs are approved for
marketing before the Company's products, the Company would be required to obtain
a license from these entities before its own competing products could be
marketed. There can be no assurance that any required license would be available
on commercially acceptable terms, or at all.
The pharmaceutical industry has experienced rapid and significant technological
change. The Company expects that pharmaceutical technology will continue to
develop rapidly, and the Company's future success will depend, in large part, on
its ability to develop and maintain a competitive position. Technological
development by others may result in the Company's products becoming obsolete
before they are marketed or before the Company recovers a significant portion of
the development and commercialization expenses incurred with respect to such
products. In addition, alternative therapies or new medical treatments could
alter existing treatment regimes, and thereby reduce the need for one or more of
the Company's products, which would adversely affect the Company's business and
its prospects.
RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY.
Only three of the Company's Current Products have been approved for marketing by
regulatory authorities in the United States or elsewhere. Even if the balance of
the Company's Current Products are approved for sale, there can be no assurance
that they will be commercially successful or that they will obtain the results
expected. The Company may encounter unanticipated problems relating to the
development, manufacturing, distribution and marketing of its products, some of
which may be beyond the Company's financial and technical capacity to solve. The
failure to adequately address any such problems could have a material adverse
effect on the Company's business and its prospects.
No drug development portfolio can be completely insulated from potential
failures, and it is likely that some products selected for development by the
Company will not produce the results expected during clinical studies, not
receive FDA approval or fail generate product sales of an acceptable level. The
Company has terminated the development of two products from its portfolio since
inception: L-Cycloserine in 1994 and Glucaric Acid in 1996. Five of the
Company's Current Products under development are being evaluated in small scale
pilot clinical trials, which, if successful, may be developed further. Although
the Company seeks to minimize its product development risk by spreading its
product development efforts and resources over a number of products, the
termination of the development of any one or more of the Company's Current
Products could have a material adverse effect on the Company and its prospects.
Most orphan drugs have a potential United States market of less than $10 million
annually and many address annual markets of less than $1 million. There can be
no assurance that the Company's sales of its products will be profitable even if
accepted and used by patients and medical specialists.
DEPENDENCE UPON OTHERS FOR CLINICAL TESTING, MANUFACTURING AND DISTRIBUTION.
The Company does not have and does not intend to establish any internal product
testing, manufacturing or distribution capabilities. Accordingly, the Company
will be required to enter into arrangements with other companies for the
clinical testing, manufacture and distribution of its products. The inability of
the Company to retain third-parties for these purposes on acceptable terms could
adversely affect the Company's ability to develop and market its products. Any
failures by third-parties to adequately perform their responsibilities may delay
the submission of products for regulatory approval, impair the Company's ability
to deliver its products on a timely basis or otherwise impair the Company's
competitive position. In addition, the Company's dependence on third-parties for
the development, manufacture and distribution of its products may adversely
affect its potential profit margins and its ability to develop and deliver its
products on a timely basis.
The manufacture of drugs can be an expensive, time consuming and complex process
and may require the use of materials with limited availability or a dependence
on sole suppliers. In addition, most of the Current Products have not yet been
manufactured in commercial quantities, and there can be no assurance that such
products can be so manufactured in a cost-effective manner. Manufacturers of the
Company's products will be subject to applicable good manufacturing practices
("GMP") prescribed by the FDA or other rules and regulations prescribed by
foreign regulatory authorities. There can be no assurance that the Company will
be able to enter into or maintain relationships either domestically or abroad
with manufacturers whose facilities and procedures comply or will continue to
comply with GMP or applicable foreign requirements. Should manufacturing
agreements be entered into, the Company will be dependent on such manufacturers
for continued compliance with GMP and applicable foreign standards. Failure by a
manufacturer of the Company's products to comply with GMP or applicable foreign
requirements could result in significant time delays or the inability of the
Company to commercialize or continue to market a product and could have a
material adverse effect on the Company and its prospects. In the United States,
failure to comply with GMP or other applicable legal requirements can lead to
federal seizure of violative products, injunctive actions brought by the federal
government, and potential criminal and civil liability on the part of a company
and its officers and employees.
Chronimed Inc. ("Chronimed") has the exclusive right to distribute Caprogel,
Busulfex, Antizol and Colomed (collectively, the "Exclusive Products") for a
period of at least three years following the date of first delivery of a
commercial shipment of any such product. In addition, Cystadane is currently
distributed in the U.S. by Chronimed, who distributes this product directly to
patients through its mail order pharmacy. The Company will, therefore, be
substantially dependent upon Chronimed's ability to successfully distribute the
Exclusive Products and Cystadane. Although, if Chronimed elects not to
distribute an Exclusive Product or discontinues distributing Cystadane, the
Company has identified other companies with the capabilities to distribute the
Company's products. The Company currently distributes Elliotts B Solution and
Antizol-Vet through other distribution companies. However, there can be no
assurance that other distribution companies would be available or continue to be
available on commercially acceptable terms, if at all. The loss of a distributor
or failure to come to terms with an existing distributor could have a material
adverse effect on the Company and its prospects.
UNCERTAIN EXTENT OF PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT.
The Company's ability to commercialize its Current Products successfully will
depend in part on the price it may be able to charge for its products and on the
extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities,
private health insurers and other third-party payors. Government officials and
private health insurers are increasingly challenging the price of medical
products and services. Significant uncertainty exists as to the pricing
flexibility suppliers will have with respect to, and the reimbursement status
of, newly approved health care products.
In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement government control of pricing
and profitability of prescription pharmaceuticals. Cost controls, if mandated by
a government agency, could decrease the price the Company receives for its
Current Products or products it may develop in the future and, by preventing the
recovery of development costs, which could be substantial, and an appropriate
profit margin, could have a material adverse effect on the Company. Furthermore,
federal and state regulations govern or influence the reimbursement to health
care providers in connection with medical treatment of certain patients. If any
actions are taken by federal and/or state governments, such actions could
adversely affect the prospects for sales of the Company's products. There can be
no assurance that actions taken by federal and/or state governments, if any,
with regard to health care reform will not have a material adverse effect on the
Company and its prospects.
Certain third-party payors may attempt to further control costs by selecting
exclusive providers of their pharmaceutical products. If such arrangements were
made with competitors of the Company, such payors would not reimburse patients
for purchases of the Company's competing products. This lack of reimbursement
would diminish the market for the Company's products and could have a material
adverse effect the Company and its prospects.
RISK OF PRODUCT RECALL
Product recalls may be issued at the discretion of the Company, the FDA, the
U.S. Federal Trade Commission, or other government agencies having regulatory
authority for product sales, and may occur due to disputed labeling claims,
manufacturing issues, quality defects, or other reasons. No assurance can be
given that product recalls will not occur. The Company does not carry any
insurance to cover the risk of a potential product recall. Any product recall
could have a material adverse effect on the Company and its prospects.
PRODUCT LIABILITY AND INSURANCE RISKS.
The testing and sale of human health care products by the Company entails an
inherent risk that product liability claims may be asserted against the Company.
As the Company expands the scope of its clinical testing, the Company will be
exposed to increasing potential liabilities. The pharmaceutical industry has
experienced increasing difficulty in maintaining product liability insurance
coverage at reasonable levels, and substantial increases in insurance premium
costs in many cases have rendered coverage economically impractical. The Company
currently carries product liability coverage in the aggregate amount of $5
million for all claims made in any policy year. Although to date the Company has
not been the subject of any product liability or other claims, there can be no
assurance that the Company will be able to maintain product liability insurance
on acceptable terms or that its insurance will provide adequate coverage against
potential claims. The successful assertion of any uninsured product liability or
other claim against the Company could have a material adverse effect on the
Company's business and prospects.
DEPENDENCE ON CERTAIN OFFICERS AND KEY MANAGEMENT PERSONNEL.
The Company's success will be largely dependent upon the efforts of John Howell
Bullion, its Chief Executive Officer, and Bertram A. Spilker, Ph.D., M.D., its
President. The loss of the services of either Mr. Bullion or Dr. Spilker could
have a material adverse effect on the Company's strategic direction and its
prospects. The Company is also dependent upon several other key management
personnel. The loss of the services of one or more key employees, or the
inability of the Company to attract and retain skilled management and marketing
personnel in the future, could have a material adverse effect on the Company and
its prospects. The Company has a $1 million key-man life insurance policy for
Dr. Spilker, and has no life insurance for Mr. Bullion or any other key
employee.
RELATIONSHIP WITH CHRONIMED.
Although the Company believes its agreements with Chronimed are commercially
reasonable, such agreements were not the product of arms-length negotiations.
Several of the Company's directors and executive officers are current or former
employees, shareholders and/or directors of Chronimed. All future material
affiliated transactions and loans will be made or entered into on terms that are
no less favorable to the Company than those that can be obtained from
unaffiliated third parties. In addition, all future material affiliated
transactions and loans, and any forgiveness of loans, will be approved by a
majority of independent outside members of the Company's Board of Directors who
do not have an interest in the transactions.
POSSIBLE VOLATILITY OF STOCK PRICE.
There is generally significant volatility in the market prices of securities of
early stage pharmaceutical companies. Contributing to this volatility are
various factors and events, such as the announcements by the Company or its
competitors of new product developments, clinical testing results, governmental
approvals, regulations or actions, developments or disputes relating to patents
or proprietary rights, public concern over the safety of therapies and
fluctuations in financial performance from period to period. These and other
factors and events may have a significant impact on the Company's business and
on the market price of the Common Stock.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING BALANCE SHEETS OF ORPHAN MEDICAL, INC. AS OF DECEMBER 31, 1996, AND
THE RELATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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0
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