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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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 33-90516
NEOPHARM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0327886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 CORPORATE NORTH
SUITE 215
BANNOCKBURN, ILLINOIS 60015
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(847) 295-8678
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.0002145 PAR VALUE
---------------------------------
(Title of class)
WARRANTS TO PURCHASE SHARES OF COMMON STOCK, $.0002145 PAR VALUE
----------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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 [ ].
The aggregate market value of the Registrant's common stock held by
non-affiliates (affiliates being, for these purposes only, directors, executive
officers and holders of 5% of the registrant's stock) of the registrant, par
value $.0002145 per share, (based on the closing price of such shares on the
American Stock Exchange on March
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16, 1998) was $16,178,211. As of March 16, 1998 there were 8,195,810 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement (the "Proxy Statement") to be used
in connection with the Registrant's 1998 Annual Meeting of Stockholders, which
Proxy Statement will be filed under the Securities Exchange Act of 1934 within
120 days of the Registrant's fiscal year ended December 31, 1997, are
incorporated by reference to Part III of this Annual Report on Form 10-K.
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FORM 10-K TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business 4
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 8. Financial Statements and Supplemental Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and Management 21
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits and Financial Statement Schedules. 22
Signatures 24
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PART I
ITEM 1. BUSINESS
THE COMPANY
NeoPharm is a pharmaceutical company engaged in the research and
development of drugs for the diagnosis and treatment of various forms of
cancer. Presently the Company has several drugs which are in varying stages of
development: BUdR (Broxuridine), liposome encapsulated doxorubicin ("LED"),
liposome encapsulated paclitaxel ("LEP"), liposome encapsulated vincristine
("LEVCR"), liposome encapsulated antisense oligodeoxynucleotides ("LE-AON" and
with LED, LEP and LEVCR the "Liposome Products") and IL-13 chimeric protein
(IL13-PE38QQR) ("IL-13"). See "Products" below.
The Company's BUdR development stage product is the subject of a
Cooperative Research and Development Agreement ("CRADA") with the National
Cancer Institute ("NCI"), the Company's IL-13 development stage product is the
subject of a CRADA with the Food and Drug Administration ("FDA") and the
Company's development stage Liposome Products are subject to a license and
sponsored research agreement with Georgetown University. See "Research and
Development, Collaborative Relationships and Licenses" below.
To date, the Company has been engaged primarily in research and
development of its developmental stage products. The Company has developed
relationships with established pharmaceutical manufacturers for production of
BUdR. The Company currently has no marketing or sales staff and has conducted
its activities through consultants and at university research facilities. The
Company will need to hire additional personnel and gain access to marketing and
sales resources in order to continue the development and commercialization of
its products. See "Marketing and Sales" below.
NeoPharm, Inc. was incorporated in Delaware under the name OncoMed, Inc.
in June 1990, and changed its name to NeoPharm, Inc. in March, 1995. The
Company's principal offices are located at 100 Corporate North, Suite 215,
Bannockburn, Illinois 60015, and its telephone number is (847) 295-8678.
NEOPHARM PRODUCTS
General. The Company's primary area of product development is in the
prognosis of cancer with the emphasis on BUdR and with cancer treatment using
its proprietary Liposome Products and the IL-13 chimeric protein. The Company
is developing liposome encapsulated chemotherapeutic agents, including LED,
LEP, LEVCR and LE-AON. Recently, the Company announced collaboration regarding
IL-13 with the FDA and the NIH to develop these molecules as cancer therapeutic
agents for a variety of indications. All of the drugs currently being
developed by the Company will require approval by the FDA, and possibly other
regulatory approvals, before they can be sold commercially in the United
States. See "Government Regulation" below.
The table below sets forth the Company's principal drugs under
development, the primary indications for these drugs and the development status
for each drug.
NEOPHARM DRUG DEVELOPMENT SUMMARY
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PRODUCTS POTENTIAL CANCER INDICATION CLINICAL STATUS
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LIPOSOME PRODUCTS
LED Varied Indications Phase I
LED Prostate Phase I
LED Kaposi's Sarcoma Preclinical
LED Hematological Preclinical
LEVCR Hematological, Colon Preclinical
LEP Breast, Ovary, Lung Preclinical
LE-AON Lung, Head and Neck Preclinical
IL-13 CHIMERIC PROTEIN Renal Cell Preclinical
Glioblastoma Preclinical
BUdR PROGNOSTIC PRODUCT Prognostic NDA Submitted
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There can be no assurance that any of the Company's products will receive
necessary regulatory approvals, be successfully commercialized and achieve
market acceptance, or that any products commercialized by the Company will not
be rendered obsolete by other developments in the field of cancer treatment. In
addition, continued development of the Company's products will require the
Company to obtain additional sources of capital and there can be no assurance
that such capital will be available when needed or on terms acceptable to the
Company.
Liposome Products. The Company's Liposome Products consist of spheres of
subcellular size composed primarily of phospholids, certain of which are the
primary components of living cell membranes, and can be made to contain and
deliver drugs. This membrane encapsulation feature of liposomes enables the
entrapped drug to be circulated in the bloodstream in higher concentrations for
longer periods of time than the free drug. When certain drugs, including
chemotherapeutic agents, are administered in conjunction with liposomes, they
have been shown to produce fewer and less severe local and systemic side
effects. Although liposomes have been investigated and used for many years as
drug delivery systems, the difficulty in producing liposomes on a large scale,
as well as the limited shelf life of many liposomes, have limited their use in
clinical settings.
The Company's LED is currently under two Phase I trials. The Company
expects to start Phase II trials in hormone refractory prostate cancer patients
during 1998. These Phase II trials will be conducted in several cancer centers
in the United States. In addition, the Company is planning a multi-center
Phase II trial of LED in breast cancer patients who have failed most of the
chemotherapy protocols and to appreciate the capacity of LED in overcoming MDR
in those patients. The Company has also completed preclinical studies on LEP
and is in the process of conducting the preliminary work needed for product
scale-up to start the clinical evaluation. It is expected that the Phase I
trials of LED will start in the second quarter of 1998. See "Government
Regulation", below.
IL-13 Chimeric Protein. In October 1997, the Company entered into an
exclusive worldwide licensing agreement with the FDA and the NIH to develop and
commercialize a chimeric human protein known as "IL13-PE38QQR." This is the
fusion of receptor-binding with a derivative of Pseudomonas exotoxin (PE38QQR).
The Company also entered into a CRADA with the FDA for the clinical and
commercial development of the IL-13 chimeric protein as an anticancer agent.
See "Research and Development, Collaborative Relationships and Licenses" below.
Extensive research by the scientists at FDA and NCI have demonstrated that
some solid human tumors such as kidney cancer (renal cell carcinoma), brain
cancer
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(glioblastoma), Kaposi's sarcoma and breast carcinoma express high numbers
of IL-13 receptors on their cell surfaces. These receptors sites become a
specific target for the IL-13 chimeric protein for inducing cytotoxicity at
nanogram concentration. On the other hand, normal organs of the body are shown
to exhibit minimal receptors sites thereby sparing these organs from any toxic
effect. The Company expects to scale up the production of this chimeric
protein to complete preclinical studies in the second quarter of 1998 to be
followed later in the year by Phase I clinical program in humans with renal
cell carcinoma and glioblastoma.
BUdR product. Clinical trials involving prognostic use of BUdR have
indicated that the information regarding tumor cell behavior provided by BUdR
can assist the oncologist in selecting appropriate therapeutic regimens for the
patients and enable better monitoring of the effectiveness of the chosen
therapy.
In December 1996, the Company filed an NDA with the FDA for BUdR as a
prognostic agent in the treatment of breast cancer. The Company's NDA as it
relates to BUdR as a prognostic indication in the treatment of breast cancer
was accepted for review by the FDA and was reviewed by the FDA's Oncology
Advisory Committee ("ODAC") on December 19, 1997, at which time ODAC voted not
to recommend this indication to the FDA for approval. Since the ODAC action,
the Company has met with the FDA to respond to concerns raised by ODAC for the
purpose of continuing to pursue FDA approval. Based on these discussions the
Company is gathering additional data and reanalyzing the existing data in order
to obtain the FDA's approval of the Company's NDA. The original NDA was filed
in December, 1996. The application has already been extended once and the
Company anticipates being notified on or after March 31, 1998 that the time for
processing the original application has expired. In order for the Company to
continue to pursue approval of its NDA for use of BUdR as a prognostic
indicator, it will be necessary to submit additional information to support the
NDA.
In May 1997, the Company entered into a collaboration agreement with
BioChem Therapeutics, Inc., the wholly owned subsidiary of BioChem Pharma,
under which BioChem Pharma will develop, market and distribute BUdR in Canada
after receipt of approval from the Canadian Health Protection Branch ("HPB") of
BUdR for certain specific uses, the applications for which will be submitted by
BioChem Pharma.
RESEARCH AND DEVELOPMENT, COLLABORATIVE RELATIONSHIPS AND LICENSES
Research and Development. During the three year period ended December 31,
1997, the Company has expended the following amounts on research and
development: $1,412,000 for the fiscal year ended December 31, 1997,
$1,100,000 for the fiscal year ended December 31, 1996 and $1,069,000 for the
fiscal year ended December 31, 1995. It is anticipated that additional
research and development will be required beyond 1998 and will necessitate the
Company's obtaining additional capital.
Collaborative Relationships and Licenses. The Company has entered into a
CRADA with the NCI, a CRADA with the FDA, a licensing agreement with the NIH
and has licensed certain technology relating to its Liposome Products from
Georgetown University. The principal terms of the foregoing agreements and the
license are as follows:
NCI CRADA. In 1992 the Company entered into a CRADA with the NCI. Under
the terms of the NCI CRADA, the Company has exclusive right to the data
generated with respect to BUdR and IUdR (Idoxuridine) by NCI for certain
indications contained in the CRADA including tumors mestastic to the brain,
astrocytomas, gastrointestinal cancers, colon cancer, pancreatic cancer, lung
cancer, soft tissue sarcomas, head and neck cancer and leukemia. The CRADA
provides that the Company may sponsor and help support clinical studies, pay
for the cost of producing BUdR and IUdR used in clinical trials and, to the
extent supported by clinical results, file appropriate NDAs with the FDA. By
mutual agreement, the term of the CRADA has been extended
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through September 14, 1998, although the CRADA may be terminated by either
party without cause upon 60 days notice; provided that in the event of such
termination all clinical trials and protocols that have been scheduled,
initiated, or otherwise included under the CRADA prior to the notification of
termination are to be completed unless otherwise mutually agreed and all
provisions of the CRADA would continue in effect for such clinical trials and
protocols. Although BUdR and IUdR are not covered by patents or patent
applications, the Company believes that its exclusive access to the clinical
data collected by NCI and its investigators and its other rights under the
CRADA represent a significant competitive advantage for the Company in the
development and eventual commercialization of BUdR and IUdR. There can be no
assurance that the CRADA will remain in effect or that the collaboration
provided for in the CRADA will be successfully completed.
FDA CRADA. The Company entered into a CRADA with the FDA in October 1997
covering IL-13. Pursuant to the CRADA, the Company has committed to
commercialize the IL-13 chimeric protein product which it licensed from the NIH
and FDA. The FDA has agreed to collaborate on the clinical development and
commercialization of the licensed product.
The Company is committed to pay $100,000 per year for the reasonable and
necessary expenses incurred by the FDA in carrying out the FDA's
responsibilities under the CRADA. The CRADA has a term of four years. During
1997, the Company expensed $100,000 on research and development costs. The
term of the FDA CRADA runs to August 27, 1997.
NIH Licensing Agreement. The Company has entered into an exclusive
worldwide licensing agreement with the NIH and the FDA to develop and
commercialize an IL-13 chimeric protein therapy. The NIH License required a
$75,000 non-refundable license issue payment and minimum annual royalty
payments of $10,000, which increase to $25,000 after the first commercial sale.
The license agreement also provides for milestone payments and royalties based
on future product sales. The Company is required to pay the costs of filing
and maintaining product patents on the licensed products.
Georgetown University Agreements. The Company previously entered into
license and sponsored research agreements with Georgetown University relating
to LED, LEP, LEVCR and LE-AON. Under the agreements with Georgetown, and in
return for the sponsorship of supportive research, the Company has exclusive
licenses to manufacture and sell LED, LEP, LEVCR and LE-AON. The Company will
also be obligated to pay Georgetown royalties on commercial sales of the
Liposome Products. In addition, the Company will be obligated to make certain
advance royalty payments to Georgetown, which payments will be credited against
future royalties payable under the Company's agreements with Georgetown. The
licenses are generally not terminable by Georgetown, except in the event of a
default by the Company. Any such default and resulting termination of the
licenses would be materially adverse to the Company's liposome program, could
require curtailment or termination of such program and could therefore have a
material adverse effect on the Company's business, financial condition and
results of operations. Dr. Aquilur Rahman, Chief Scientific Officer of the
Company, is an Adjunct Professor of Radiology at Georgetown.
MARKETING AND SALES
The treatment of cancer is a highly specialized activity in which the
treating oncologists tend to be concentrated in major medical centers. The
Company's marketing strategy is designed to enable the Company to operate with
a relatively small direct sales force in the United States. As products receive
regulatory approval, the Company plans to develop a sales force of modest size
to service the over 3,500 practicing oncologists in the United States.
In May 1997, Neopharm entered into a collaboration agreement with BioChem
Pharma, under which BioChem Pharma will develop, market and distribute BUdR in
Canada after receipt of approval from the Canadian Health Protection Branch
("HPB")
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of BUdR for certain specific uses, the applications for which will be
submitted by BioChem Pharma. The Company intends to continue to seek
collaborative agreements with other companies to market its products elsewhere
in the world.
The marketing and sale of the Company's BUdR product will be subject to
certain requirements imposed pursuant to the CRADA. These include requirements
that the products not be sold at prices that may be deemed to be excessive.
MANUFACTURING
The Company does not intend to acquire or establish its own dedicated
manufacturing facilities for the foreseeable future. Rather, the Company's
manufacturing strategy will be to develop manufacturing relationships with
established pharmaceutical manufacturers for production of BUdR, its Liposome
Products and the IL-13 chimeric protein.
There are a number of FDA approved suppliers of raw materials used in the
Company's products in existence. There are also a number of facilities with FDA
Good Manufacturing Practice approval for contract manufacturing of the
Company's proposed products. The Company has a source for the manufacture of
BUdR and is in the process of arranging for sources for the manufacture of
certain of its planned Liposome Products and the IL-13 chimeric protein. The
Company believes that, in the event of the termination of its existing sources
for product supplies and manufacture, the Company will be able to enter into
agreements with other suppliers and/or manufacturers on similar terms. There
can be no assurance that there will be manufacturing capacity available to the
Company at the time the Company is ready to manufacture its products.
PATENTS AND PROPRIETARY RIGHTS
It will be the Company's policy to, where possible, file patent
applications to protect technology, inventions and improvements that are
important to the development of its business. Under its agreements with
Georgetown University, the Company has licensed rights to five United States
patents and one pending United States patent application relating to its
Liposome Products under development. Under its agreements with the NIH,
the Company has licensed rights to one United States patent relating to the
IL-13 chimeric protein under development. BUdR is not currently the subject of
patents or patent applications, and the Company does not expect to obtain
patent protection for its BUdR product. The Company's principal advantage with
respect to the development and planned commercialization of BUdR is its
exclusive access under the CRADA to NCI's clinical data regarding the compound.
The patent position of participants in the pharmaceutical field generally
is highly uncertain, involves complex legal and factual questions, and has
recently been the subject of much litigation. There can be no assurance that
any patent applications relating to the Company's potential products or
processes will result in patents being issued, or that the resulting patents,
if any, will provide protection against competitors who successfully challenge
the Company's patents, obtain patents that may have an adverse effect on the
Company's ability to conduct business, or are able to circumvent the Company's
patent position. It is possible that other parties have conducted or are
conducting research and could make discoveries of compounds or processes that
would precede any discoveries made by the Company, which could prevent the
Company from obtaining patent protection for these discoveries. Finally, there
can be no assurance that others will not independently develop pharmaceutical
products similar to or obsoleting those that the Company is planning to
develop, or duplicate any of the Company's products.
The Company's competitive position is also dependent upon unpatented trade
secrets. In an effort to protect its trade secrets, the Company has a policy of
requiring its employees, Scientific Advisory Board members, consultants and
advisors to execute proprietary information and invention assignment agreements
upon commencement of employment or consulting relationships with the Company.
These agreements provide that all confidential information of the Company
developed or made known to the individual during the course of their
relationship with the Company must
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be kept confidential, except in specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection
for the Company's trade secrets or other proprietary information in the event
of unauthorized use or disclosure of confidential information. Invention
assignment agreements executed by Scientific Advisory Board members,
consultants and advisors may conflict with, or be subject to, the rights of
third parties with whom such individuals have employment or consulting
relationships. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets, that such
trade secrets will not be disclosed or that the Company can effectively protect
its rights to unpatented trade secrets.
The Company may be required to obtain licenses to patents or proprietary
rights of others. No assurance can be given that any licenses required under
any such patents or proprietary rights would be made available on terms
acceptable to the Company, or at all. If the Company does not obtain such
licenses, it could encounter delays in product market introductions while it
attempts to design around such patents, or could find that the development,
manufacture or sale of products requiring such licenses could be foreclosed.
Litigation may be necessary to defend against or assert such claims of
infringement, to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company, or to determine the scope and
validity of the proprietary rights of others. In addition, interference
proceedings declared by the United States Patent and Trademark Office may be
necessary to determine the priority of inventions with respect to patent
applications of the Company or its licensors. Litigation or interference
proceedings could result in substantial costs to and diversion of effort by,
and may have a material adverse impact on, the Company. In addition, there can
be no assurance that these efforts by the Company will be successful.
GOVERNMENT REGULATION
Introduction. Regulation by governmental authorities in the United States
and foreign countries is a significant factor in the development, manufacture
and marketing of the Company's proposed products and in its ongoing research
and product development activities. The nature and extent to which such
regulation will apply to the Company will vary depending on the nature
of any products which may be developed by the Company. It is anticipated that
all of the Company's products will require regulatory approval by governmental
agencies prior to commercialization. In particular, human therapeutic and some
diagnostic products are subject to rigorous preclinical and clinical testing
and other approval procedures of the FDA and similar regulatory authorities in
foreign countries. Various Federal statutes and regulations also govern or
influence testing, manufacturing, safety, labeling, storage and record-keeping
related to such products and their marketing. The process of obtaining these
approvals and the subsequent compliance with appropriate Federal statutes and
regulations require the expenditure of substantial time and financial
resources. Any failure by the Company or its collaborators to obtain, or any
delay in obtaining, regulatory approval could adversely affect the marketing of
any products developed by the Company, its ability to receive product revenues
and its liquidity and capital resources.
FDA Approval Process. Prior to commencement of clinical studies involving
human beings, preclinical testing of new pharmaceutical products is generally
conducted on animals in the laboratory to evaluate the potential efficacy and
the safety of the product. The results of these studies are submitted to the
FDA as a part of an investigational new drug ("IND") application, which must
become effective before clinical testing in humans can begin. Typically,
clinical evaluation involves a time consuming and costly three-phase process.
In Phase I, clinical trials are conducted with a small number of subjects to
determine the early safety profile, the pattern of drug distribution and
metabolism. In Phase II, clinical trials are conducted with groups of patients
afflicted with a specific disease in order to determine preliminary efficacy,
optimal dosages and expanded evidence of safety. In Phase III, large-scale,
multi-center, comparative trials are conducted with patients afflicted with a
target disease in order to provide enough data to demonstrate the efficacy and
safety required by the FDA. The FDA closely monitors the progress of each of the
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three phases of clinical testing and may, at its discretion, re-evaluate,
alter, suspend or terminate the testing based upon the data which have been
accumulated to that point and its assessment of the risk/benefit ratio to the
patient.
The results of the preclinical and clinical testing on a nonbiologic drug
and certain diagnostic drugs are submitted to the FDA in the form of a new drug
application ("NDA") for approval to commence commercial sales. In responding to
an NDA, the FDA may grant marketing approval, request additional information or
deny the application if the FDA determines that the application does not
satisfy its regulatory approval criteria. There can be no assurance that
approvals will be granted on a timely basis, if at all. Similar procedures are
in place in countries outside the United States.
In 1988, the FDA issued "fast-track" regulations intended to accelerate
the approval process for the development, evaluation and marketing of new
therapeutic and diagnostic products used to treat life-threatening and severely
debilitating illnesses, especially those for which no satisfactory alternative
therapies exist. "Fast-track" designation affords the Company early interaction
with the FDA in terms of protocol design and permits, although it does not
require the FDA to grant approval after completion of Phase II clinical trials
(although the FDA may require subsequent Phase III clinical trials or even
post-approval Phase IV efficacy studies). The Company believes that a number of
its product candidates may fall under these regulations, but there can be no
assurance that any of the Company's products will receive this or other similar
regulatory treatment.
In late 1992, legislation imposing FDA user fees on drug manufacturers was
enacted. Such fees will be required for each commercial marketing drug
application submitted by the Company for FDA approval, and annual product and
establishment fees will also be imposed upon approval. The revenues raised from
these fees are earmarked specifically to increase the resources of the FDA, and
by doing so, to increase the speed with which the FDA reviews and approves drug
marketing applications. Currently, the user fee for an NDA is approximately
$260,000, and the statute provides for periodic fee increases. The statute
currently provides small companies (defined as companies with less than 500
employees that are not marketing a prescription drug product) with a reduction
in the initial application fee and contains limited provisions for fee waivers.
During 1996, the Company was granted a waiver of the user fee required with
the filing of the NDA for BUdR.
Waxman-Hatch Act. The Drug Price Competition and Patent Restoration Act
of 1984, also known as the Waxman-Hatch Act, contains provisions pertaining to
marketing exclusivity from generic competition for most non-biological drugs
and patent restoration for most pharmaceutical products. These patent
provisions will not be applicable to BUdR because the compound is not patented.
A five-year marketing exclusivity period is provided for new chemical entities,
and a three-year marketing exclusivity period is provided for approved drugs
for which new clinical investigations are essential to the receipt of FDA
approval to market the product. For purposes of the Waxman-Hatch Act, a new
chemical entity is defined as a drug product that contains an active moiety not
previously approved by the FDA for marketing. Accordingly, the Company believes
that BUdR would qualify as a new chemical entity under the Waxman-Hatch Act. If
the Company were to obtain FDA approval to market BUdR, for a period of five
years after such approval, no company could copy the approved product and
obtain approval of a competitive version. The five year exclusivity period
would not prevent a competitive product from being marketed based upon new
preclinical and clinical studies conducted by the competitor. In the event that
the Company receives approval of an NDA for BUdR, there can be no assurance
that the Company would receive any or all of the benefits provided by the
Waxman-Hatch Act as currently in effect.
Orphan Drug Act. Under the Orphan Drug Act, the FDA may designate drug
products as orphan drugs if there is no reasonable expectation of recovery of
the costs of research and development from sales in the United States or if
such drugs are intended to treat a rare disease or condition, which is defined
as a disease or condition that affects less than 200,000 persons in the United
States. If certain conditions are met, designation as an orphan drug confers
upon the sponsor marketing
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exclusivity for seven years following FDA approval of the product, meaning
that the FDA cannot approve another version of the "same" product for the same
use during such seven year period. The market exclusivity provision does not,
however, prevent the FDA from approving a different orphan drug for the same
use or the same orphan drug for a different use. Although the Company received
letters from the FDA stating that BUdR qualifies for orphan drug designation as
a radiation sensitizer in the treatment of primary brain tumors, there is no
assurance that any of the Company's products will ultimately receive orphan
drug designation or approval, or that the benefits currently provided by such
designations or approvals will not hereafter be amended or eliminated. The
Orphan Drug Act has been controversial, and many legislative proposals have
from time to time been introduced in Congress to modify various aspects of the
Orphan Drug Act, particularly the market exclusivity provisions. There can be
no assurance that new legislation will not be introduced in the future that may
adversely impact the availability or attractiveness of orphan drug status for
any of the Company's products.
Other Regulations. The Company is also subject to various Federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with the Company's research
work. The extent of government regulation which might result from future
legislation or administrative action cannot be predicted accurately. The
Company has not made and does not anticipate making material capital
expenditures with respect to the protection of the environment.
COMPETITION
Competition in the discovery and development of methods for treating
cancer is intense. Numerous pharmaceutical, biotechnology and medical companies
and academic and research institutions in the United States and elsewhere are
engaged in the discovery, development, marketing and sale of products for the
treatment of cancer. These include surgical approaches, new pharmaceutical
products and new biologically derived products. The Company expects to
encounter significant competition for the principal pharmaceutical products it
plans to develop. Companies that complete clinical trials, obtain
regulatory approvals and commence commercial sales of their products before
their competitors may achieve a significant competitive advantage. A number of
pharmaceutical companies are developing new products for the treatment of the
same diseases being targeted by the Company. In some instances, the Company's
competitors already have products in clinical trials. In addition, certain
pharmaceutical companies are currently marketing drugs for the treatment of the
same diseases being targeted by the Company, and may also be developing new
drugs to address these disorders.
Because BUdR is not covered by patents or patent applications, the
Company's exclusive access to the clinical data collected by NCI and its
investigators and its other rights under the CRADA represent the principal
competitive advantage for the Company in the development and eventual
commercialization of BUdR. The NCI may publish summary data from the clinical
trials under the CRADA in its annual reports, which do not include individual
patient data. Furthermore, the collaborative nature of the Company's
relationship with the NCI is of significant importance for conduct of clinical
trials and to assist the Company in gaining acceptance of its products among
oncologists. During 1996, the Company received notice that BUdR has been
designated an orphan drug by the FDA for use in the treatment of malignant
gliomas. Upon approval by the FDA the Company will receive seven years of
marketing exclusivity.
The Company believes that its competitive success will be based on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals, obtain
orphan drug status for certain products and manufacture and successfully market
its products either independently or through outside parties. Many of the
Company's competitors have substantially greater financial, clinical testing,
regulatory compliance,
11
<PAGE> 12
manufacturing, marketing, human and other resources. In addition, the Company
will continue to seek licenses with respect to key technologies related to its
fields of interest and may face competition with respect to such efforts.
HUMAN RESOURCES
As of March 16, 1998, the Company had three full time employees, and one
part-time employee. The Company currently has consulting agreements with eight
consultants. None of the Company's consultants are represented by a collective
bargaining arrangement, and the Company believes its relationship with its
consultants is satisfactory. The Company intends to continue to retain
consultants and to add personnel in as the business strategy is implemented.
SCIENTIFIC ADVISORY BOARD
The Company has assembled a six-member Scientific Advisory Board. The
members of the Scientific Advisory Board together provide expertise in areas of
scientific and medical interest to the Company. The Company has entered into
agreements with the Scientific Advisors providing that all inventions made by
the Advisors when working for the Company will belong to the Company; however,
most of the members of the Company's Scientific Advisory Board are employed on
a full-time basis by academic or research institutions. The members of the
Scientific Advisory Board are permitted to share information among themselves
regarding the projects that they are working on with the Company. As of March
16, 1998, the Company had granted options to acquire an aggregate of 63,324
shares its Common Stock to members of the Scientific Advisory Board, and pays a
retainer to compensate its Scientific Advisory Board members.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the caption "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements. Such factors include, among
others, the following:
Uncertainty of Product Development. Substantially all of the Company's
resources have been, and for the foreseeable future will continue to be,
dedicated to the Company's research and development programs and the
development of potential products. There can be no assurance that the
Company's research will lead to the discovery of any products or that the
Company will be successful in acquiring rights to products or in developing
products that could be licensed to others.
Regulatory and Technology Uncertainty. The Company is engaged in the
biopharmaceuticals field, which is characterized by extensive research and
rapid technological change. There can be no assurance that research and
discoveries by others will not render some or all of the Company's programs or
products non-competitive or obsolete. In addition, the Company's business
strategy is based, in part, upon the application of emerging technologies to
the discovery and development of biopharmaceutical products. The Company's
potential products are subject to the risks of failure inherent in the
development of therapeutic agents based on new technologies.
Future Capital Needs. The Company will require substantial additional
funding in order to continue its research and product development programs. No
assurance can be given that additional funds will be available when needed or
on terms acceptable to the Company. Insufficient funds could require the
Company to delay, scale back or eliminate one or more of its research and
development programs or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop without
relinquishing its rights thereto.
12
<PAGE> 13
History of Losses. The Company has incurred significant operating losses
since its inception. The Company currently has no product revenue, and there
can be no assurance that it will be able to earn such revenue or that its
operations will become profitable, even if it is able to commercialize any
products.
Dependence on Others. The Company's strategy for research, development
and commercialization of its products is to rely, in part, on various
arrangements with academic collaborators, licensors, licensees and others and,
therefore, is dependent upon the success of these outside parties in the
performance of their duties. There can be no assurance that the Company will
be able to negotiate acceptable collaborative arrangements, that arrangements
or other collaborations will be completed or will be successful or that any
revenues or profits will be derived from such arrangements.
No Manufacturing, Marketing or Sales. The Company has no experience in
manufacturing, marketing or product sales and has not invested in
manufacturing, marketing or product sales resources. If the Company is unable
to manufacture or contract for a sufficient supply of its potential therapeutic
agents on acceptable terms, the Company's product development, clinical
investigation activities and regulatory approval applications may be delayed.
Uncertain Ability to Protect Patents and Proprietary Information. Because
of the substantial length of time and expense associated with bringing new
products through development and regulatory approval to the marketplace, the
pharmaceutical industry places considerable importance on patent and trade
secret protection for new technologies, products and processes. BUdR however,
is not currently the subject of patents or patent applications, and the Company
does not expect to obtain patent protection for its BUdR product. The lack of
patent protection could have a material adverse effect on the Company's
operations. The Company has obtained licenses to six United States patents and
one United States patent application. These patents and patent applications
relate primarily to the Company's proposed Liposome Products and the IL-13
chimeric protein. No assurance can be given that any patents under pending
applications or any future patent applications will be issued. Furthermore,
there can be no assurance that the scope of any patent protection will exclude
competitors or provide competitive advantages to the Company, that any of
the Company's patents that may be issued will be held valid if subsequently
challenged or that others, including competitors or current or former employers
of the Company's employees, advisors and consultants, will not claim rights in
or ownership to the patents and other proprietary rights held by the Company.
In addition, there can be no assurance that others will not independently,
develop substantially equivalent proprietary information or otherwise obtain
access to the Company's know-how or that others may not be issued patents that
may require licensing and the payment of significant fees or royalties by the
Company for the pursuit of its proposed business. The Company also relies on
trade secrets, know-how and technological advantage to maintain its competitive
position. Although the Company uses confidentiality agreements and employee
proprietary information and invention assignment agreements to protect its
trade secrets and other unpatented know-how, these agreements may be breached
by the party thereto or may otherwise be of limited effectiveness or
enforceability.
Substantial Competition and Technological Change. Many companies engage
in developing pharmaceutical and bio-pharmaceutical products for human
therapeutic applications. Many of these companies have substantially greater
capital, research and development and human resources and experience than the
Company and represent significant long-term competition for the Company. In
addition, many of these competitors have a significantly greater experience
than the Company in undertaking the development of new pharmaceutical products
and in obtaining regulatory approval. Other companies may succeed in developing
products that are more effective or less costly than any that may be developed
by the Company and may also prove to be more successful than the Company in
production and marketing.
Dependence on Qualified Personnel. The Company's success is highly
dependent upon its ability to attract and retain qualified scientific and
technical personnel.
13
<PAGE> 14
The loss of key personnel would be detrimental to the Company and there can
be no assurance that these employees will remain with the Company.
Uncertain Availability of Health Care Reimbursement. The Company may be
materially adversely affected by the continuing efforts of government and third
party payers to contain or reduce the cost of health care through various
means.
ITEM 2. PROPERTIES
The Company's administrative offices are located in approximately 4,000
square feet of subleased office space in Bannockburn, Illinois. This subleased
space is provided to the Company by OptionCare, Inc, an affiliate of the
Company's Chairman and principal shareholder, John N. Kapoor. Until moving to
the Bannockburn location in November of 1997, the Company occupied office space
in Lake Forest, Illinois. This space was provided as part of a consulting
agreement with EJ Financial. (See Note 7 - "Transactions with Related Parties"
in Notes to Financial Statements)
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or other legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1997.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
From January 25, 1996 until December 2, 1996 the Common Stock was quoted
on The NASDAQ Stock Market's Small Cap Issues under the trading symbol NPRM.
Beginning on December 2, 1996, and continuing through the date of this report,
the Common Stock has been traded on the American Stock Exchange ("AMEX") under
the symbol NEO.
On August 15, 1996, the Company effected a two-for-one stock split.
Information on the trading prices of the Company's Common Stock has been
restated to reflect this stock split.
<TABLE>
<CAPTION>
High Low
------------------------
<S> <C> <C>
1996 (January 25 - December 31)
First Quarter 5 15/16 2 1/4
Second Quarter 8 1/2 5 3/4
Third Quarter 7 3/4 5 3/4
Fourth Quarter 10 1/2 6
High Low
------------------------
<S> <C> <C>
1997
First Quarter 9 5/8 6 3/8
Second Quarter 7 1/2 3 1/16
Third Quarter 5 1/2 3 5/8
Fourth Quarter 9 3 3/4
</TABLE>
As of March 16, 1998, there were 63 holders of record of the Common Stock,
and the Company estimates that as of such date there were more than 400
beneficial holders of the Common Stock. The Company has never paid a cash
dividend on its Common Stock and has no present intention of paying cash
dividends in the foreseeable future. Any determination in the future to pay
dividends will depend on the Company's financial condition, capital
requirements, results of operations, contractual limitations and other factors
deemed relevant by the Board of Directors.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 15,1990
YEAR ENDED DECEMBER 31, (INCEPTION) TO
----------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues $ -- $ -- $ -- $ -- $ 550,000 $ 550,000
Operating expenses:
Research and
development 232,736 813,761 1,068,683 1,099,631 1,411,692 5,474,531
General and
administrative 174,598 107,286 244,901 956,924 1,370,486 3,146,852
---------- ----------- ----------- ----------- ----------- -----------
Loss from operations (407,334) (921,047) (1,313,584) (2,056,555) (2,232,178) (8,071,383)
Interest income $ -- $ -- $ -- $ 238,275 $ 210,501 $ 448,776
Interest expense (85,089) (162,620) (356,043) (47,365) -- (735,606)
---------- ----------- ----------- ----------- ----------- -----------
Interest income
(expense) - net (85,089) (162,620) (356,043) 190,910 210,501 (286,830)
---------- ----------- ----------- ----------- ----------- -----------
Net loss $ (492,423) $(1,083,667) $(1,669,627) $(1,865,645) $(2,021,677) $(8,358,213)
========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash $ 3,514 $ 9,205 $ 671 $ 4,479,041 $ 2,776,697
Working capital
(deficit) (768,423) (2,137,037) (4,553,057) 4,013,010 2,348,904
Total assets 13,175 112,988 495,891 4,492,208 2,854,499
Line of credit with
bank -- 656,452 2,007,652 -- --
Loan payable to
principal
stockholder 1,312,568 1,500,000 1,500,000 -- --
Deficit accumulated
during the
development stage (1,717,597) (2,801,264) -- (1,865,645) (3,887,322)
Total stockholders'
equity (deficit) (1,628,355) (2,691,773) (4,361,392) 4,026,177 2,374,072
</TABLE>
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since the Company's inception in June 1990, NeoPharm has devoted its
resources primarily to fund research and product development programs. The
Company has been unprofitable since inception, has had no revenues from the
sale of products. The Company expects to continue to incur losses as it expands
its research and development activities and sponsorship of clinical trials. As
of December 31, 1997, the Company's accumulated deficit was approximately $3.9
million.
RESULTS OF OPERATIONS
Years Ended December 31, 1997, 1996 and 1995
The Company had no operating revenues during the three fiscal years ended
December 31, 1997 except for a $550,000 payment received from BioChem Pharma in
1997 as part of a licensing and distribution agreement. Interest income for
1997 totaled $210,501. The Company completed its initial public offering in
January 1996. Cash in excess of funds needed to retire debt, pay for issuance
costs or pay outstanding payables was invested in short term investments.
The Company incurred research and development expenses of approximately
$1,412,000 in 1997 as compared to approximately $1,100,000 in 1996 and
$1,069,000 in 1995. The increase in 1997 research and development expenses is
primarily due to the initiation of studies related to the Company's Liposome
Products. 1997, 1996 and 1995 expenses include payments made by the Company to
Georgetown and the NCI pursuant to the Company's license and sponsored research
agreements with Georgetown and its CRADA with the NCI. The Company expects
research and development spending to increase over the next several years. See
"Item 1- Business - Collaborative Relationships, Licenses and Commercialization
Strategy."
General and administrative expenses increased to approximately $1,370,000
in 1997 from approximately $957,000 in 1996. The increase was primarily the
result of increased costs related to corporate public filings, increased
personnel costs, compensation expense related to non-employee stock options and
executive relocation expenses. General and administrative expenses for 1996
compared to 1995 increased approximately $712,000. Prior to 1996, the Company
did not have any compensation expense nor did it need to incur the costs
related to operating as a public company. Following the initial public
offering, the Company began compensating personnel and retaining professional
service firms to assist with general corporate activities and reporting
requirements.
Interest expense decreased to zero in 1997 from approximately $47,000 in
1996 as a result of the initial public offering completed in January of 1996.
Proceeds from the offering were used to retire both the debt owed to the
principal shareholder and the line of credit provided by Harris Bank and Trust
N.A. The principal stockholder converted the principal of and accrued interest
on the loan into shares of Common Stock and Warrants at the initial public
offering price. Interest expense totaled approximately $356,000 in 1995. The
proceeds of borrowings were used to fund the Company's operations during the
period from 1994 to 1996. See "Item 13-Certain Relationships and Related
Transactions" and Note 3 of Notes to the Financial Statements.
Inception to December 31, 1997
The Company was taxed as an S Corporation from inception through October
11, 1995 when the S Corporation status was voluntarily terminated. Because the
Company was taxed as an S Corporation, all of its net losses from inception
through October 11, 1995 were passed through to its stockholders. Accordingly,
the Company did not accumulate operating loss carryforwards prior to October
11, 1995. The deficit accumulated while under S Corporation status was
reclassified to Additional Paid-In Capital in 1995. The Company has begun
accruing net operating loss carryforwards.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company has approximately $2.8 million dollars
in cash and cash equivalents and net working capital of approximately $2.3
million. Up until the initial public offering in January of 1996, the Company
funded operations through borrowings from its principal stockholder and through
a bank line of credit, which was guaranteed by the Company's principal
stockholder. At December 31, 1995, the Company had an outstanding principal
balance of approximately $3.5 million under its debt financing arrangements. Of
this amount, $1.5 million consisted of borrowings from the Company's principal
stockholder and the remainder consisted of borrowings under the Company's bank
line of credit. Borrowings from the stockholder loan bore interest at a rate
equal to the lesser of 10% or the prime rate of Northern Trust Bank. Principal
payments not paid when due were subject to additional interest at the rate of
15%. Approximately $193,000 of additional interest was accrued through December
31, 1995. Borrowings under the bank line of credit accrued interest at the
prime rate of Harris Bank & Trust N.A. As noted above, the Company retired
both of these debts in January of 1996.
The Company's assets at December 31, 1997 decreased to approximately
$2,854,000 from $4,492,000 at December 31, 1996, principally due to the net
loss from operations.
The Company's liabilities at December 31, 1997 increased to approximately
$480,000 from approximately $466,000 at December 31, 1996.
The Company expects its cash requirements to increase significantly in
future periods. Under the NCI CRADA the Company is committed to pay NCI
clinical trial costs of $120,000 per year as well as the cost to supply the
BUdR and IUdR to be used in clinical trials. The Company may incur additional
costs in supporting its agreements with NCI, as well as the continuation of its
own research and development efforts. In the future, the Company will require
funds for building a sales and marketing organization and development of
distribution channels.
Based on its currently planned research and product development programs,
the Company anticipates that the remaining net proceeds (approximately $2.8
million at December 31, 1997) of the initial public offering and interest
income earned thereon will be adequate to satisfy its capital and operational
requirements at least through 1998. The net proceeds from the initial public
offering were $8,585,438, including exercise of the Underwriters'
over-allotment option. The Company's cash requirements may vary materially from
those now planned because of results of research and development, results of
clinical testing, relationships with possible strategic partners, changes in
the focus and direction of the Company's research and development programs,
competitive and technological advances, the FDA regulatory process and other
factors.
All of the products currently being developed by the Company will require
approval by the FDA before they can be sold commercially in the United States.
The results of the preclinical and clinical testing on a nonbiologic drug and
certain diagnostic drugs are submitted to the FDA in the form of an NDA for
approval to commence commercial sales. In responding to an NDA, the FDA may
grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria.
The Company may seek to satisfy its future funding requirements through
public or private offerings of securities, with collaborative or other
arrangements with corporate partners or from other sources. Additional
financing may not be available when needed or on terms acceptable to the
Company. If adequate financing is not available, the Company may be required to
delay, scale back or eliminate certain of its research and development
programs, to relinquish rights to certain of its technologies, therapeutic and
diagnostic agents, product candidates or products, or to license third parties
to commercialize products or technologies that the Company would otherwise seek
to develop itself.
18
<PAGE> 19
THE YEAR 2000 ISSUE
The year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations. The Company has conducted a review of its
computer systems and has determined that it will not be materially impacted by
the Year 2000 issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements and Supplementary Data are incorporated herein by
reference to the Company's Financial Statements included as Exhibit 1. The
information is contained as follows:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants 26
Balance Sheets 27
Statements of Operations 28
Statements of Stockholders' Equity (Deficit) 29
Statements of Cash Flows 31
Notes to Financial Statements 33
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
POSITION
NAME AGE POSITION HELD SINCE
- ---- --- -------- ----------
<S> <C> <C> <C>
John N. Kapoor, Ph.D.(2) 54 Director, Chairman of the Board 1990
Aquilur Rahman, Ph.D. 55 Director, Chief Scientific Officer 1990
Anatoly Dritschilo, M.D.(1)(2) 53 Director 1990
James M. Hussey (3) 38 President, Chief Executive Officer, and 1998
Director
Erick E. Hanson(1) 51 Director 1997
Mahendra G. Shah, Ph.D. 53 Vice President, Corporate and Business 1991
Development
David E. Riggs 46 Chief Financial Officer 1995
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Mr. Hussey assumed the positions of President, Chief Executive Officer
and Director of the Company on March 16, 1998. He replaced Dr. William C.
Govier who served as President, Chief Executive Officer and Director of
the Company until retiring on January 16, 1998.
All directors hold office until the next annual meeting of the
stockholders and until their successors are duly elected. Officers are
appointed to serve, subject to the discretion of the Board of Directors, until
their successors are appointed.
John N. Kapoor, Ph.D., Chairman of the Board of Directors, has been a
director of the Company since July 1990. Prior to forming the Company, Dr.
Kapoor formed EJ Financial Enterprises, Inc., a health care consulting and
investment company, in March 1990, of which Dr. Kapoor is currently President.
Dr. Kapoor is presently Chairman of Option Care, Inc., a provider of home
healthcare services; Chairman of Unimed Pharmaceuticals, Inc., a developer and
marketer of pharmaceuticals for cancer, endocrine disorders and infectious
diseases; and Chairman of Akorn, Inc., a manufacturer, distributor, and
marketer of generic ophthalmic products. Dr. Kapoor received his Ph.D. in
medicinal chemistry from the State University of New York in 1970 and a B.S. in
pharmacy from Bombay University in India.
Aquilur Rahman, Ph.D., joined the Company as Chief Scientific Officer and
as a member of the Board of Directors in July 1990. Dr. Rahman joined the
Company on a full time basis in March 1996. Dr. Rahman is currently adjunct
professor of radiology and was an adjunct professor of pathology and
pharmacology at Georgetown University until March 1996. Dr. Rahman has more
than 15 years of research experience in developing methods of chemotherapy
treatment for cancer. Dr. Rahman received his Masters of Science in
Biochemistry from the University of Dacca (Bangladesh) in 1964 and his Ph.D. in
Pharmaceutics from the University of Strathclyde (Glasgow, U.K.) in 1972.
Anatoly Dritschilo, M.D., joined the Company as a Member of the Board of
Directors in July 1990. Since August 1979, Dr. Dritschilo has been Chairman of
the Department of Radiation Medicine and Medical Director of the Georgetown
University Medical Center in Washington, D.C. Dr. Dritschilo received his B.S.
in Chemical Engineering from the University of Pennsylvania, his M.S. in
Engineering in 1969 from Newark College of Engineering, and his M.D. in 1973
from the College of Medicine of New Jersey.
James M. Hussey joined the Company in March 1998 as its President, Chief
Executive Officer, and a member of the Board of Directors. Mr. Hussey was
previously the Chief Executive Officer of Physicians Quality Care, a managed
care organization. Previous to that, Mr. Hussey held several positions with
Bristol-Myers Squibb from
20
<PAGE> 21
1986 to 1994, most recently as the General Manager Midwest Integrated Regional
Business Unit. Mr. Hussey received a B.S. from the College of Pharmacy at
Butler University and an M.B.A. from the University of Illinois.
Erick E. Hanson, joined the Company as a Director in April 1997. Since
April 1995, Mr. Hanson has been associated with OptionCare, Inc., a provider of
home healthcare services where he currently holds the positions of Director,
President and Chief Executive Office. Prior to joining OptionCare, Inc. Mr.
Hanson held a variety of positions with Caremark, Inc., including from
1991-1995, Vice President Sales and Marketing. Mr. Hanson served as President
and Chief Operating Officer of Clinical Partners, Inc. in Boston, MA, from
1989-1991 and prior to 1989 was associated with Blue Cross and Blue Shield of
Indiana for over twenty years. Mr. Hanson presently serves on the Board of
Directors for Condell Medical Centers.
Mahendra G. Shah, Ph.D., has served as Vice President of Corporate and
Business Development since October 1991. Dr. Shah is also a Vice President of
EJ Financial Enterprises, Inc., a position he has held since October 1991.
Prior to joining the Company, Dr. Shah was the Senior Director of New Business
Development with Fujisawa USA from January 1987 to October 1991. Dr. Shah
received his M.S. in 1978 and Ph.D. in 1984 in Industrial Pharmacy from St.
John's University and an M.S. in 1969 and a B.S. in 1967 in Pharmaceutical
Chemistry from Gujarat University in India.
David E. Riggs has served as Chief Financial Officer and Secretary since
November 1995. Mr. Riggs is also Senior Vice President, Chief Financial
Officer, Secretary and Treasurer of Unimed Pharmaceutical, Inc., a developer
and marketer of pharmaceuticals for cancer, endocrine disorders and infectious
diseases, a position he has held since May 1992. Prior to joining Unimed, Mr.
Riggs was Chief Financial Officer of VideoCart, Inc., a micro-marketing media
company, from April 1990 to August 1991. Prior to working for VideoCart, Mr.
Riggs held various positions from April 1986 until April 1990 with Fujisawa
USA, serving finally as Treasurer. Mr. Riggs received a B.S. in accounting from
the University of Illinois in 1979 and an M.B.A. from DePaul University in
1984. Mr. Riggs is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item as to executive compensation is
hereby incorporated by reference from the information appearing under the
captions "Executive Compensation", "Compensation of Directors", "Election of
Directors - Compensation Committee Interlocks and Insider Participation", and
"Compensation Committee Report" in the Company's definitive Proxy Statement
which is to be filed with the Securities and Exchange Commission (the
"commission") within 120 days of the Company's fiscal year ended December 31,
1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item as to the ownership of management
and others of securities of the Company is hereby incorporated by reference
from the information appearing under the caption "Security Ownership" in the
Company's definitive Proxy Statement which is to be filed with the Commission
within 120 days of the Company's fiscal year ended December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item as to certain business relationships
and transactions with management and other related parties of the Company is
hereby incorporated by reference from the information appearing under the
caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement which is to be filed with the Commission within 120
days of the Company's fiscal year ended December 31, 1997.
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation, as amended filed with the Commission as
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No.
33-90516), is incorporated by reference.
3.2 Bylaws of the Registrant, as amended filed with the Commission as Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No. 33-
90516), is incorporated by reference.
4.1 Specimen Common Stock Certificate filed with the Commission as Exhibit
4.1 to the Company's Registration Statement on Form S-1 (File No. 33-
90516), is incorporated by reference.
4.2 Specimen Warrant Certificate filed with the Commission as Exhibit 4.2 to
the Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
4.3 Form of Representative's Warrant Agreement between the Registrant and the
Representative, including form of Representative's Warrant filed with the
Commission as Exhibit 4.3 to the Company's Registration Statement on Form
S-1 (File No. 33-90516), is incorporated by reference.
4.4 Form of Warrant Agreement between the Registrant, the Representative and
Harris Trust and Savings Bank, including form of Warrant filed with the
Commission as Exhibit 4.4 to the Company's Registration Statement on Form
S-1 (File No. 33-90516), is incorporated by reference.
10.1 1995 Stock Option Plan, with forms of Incentive and Nonstatutory Stock
Option Agreements filed with the Commission as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
10.2 1995 Director Option Plan, with form of Director Stock Option Agreement
filed with the Commission as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (File No. 33-90516), is incorporated by reference.
10.3 Form of Director and Officer Indemnification Agreement. filed with the
Commission as Exhibit 10.3to the Company's Registration Statement on Form
S-1 (File No. 33-90516), is incorporated by reference.
10.4 Cooperative Research and Development Agreement between the Company and
the National Cancer Institute dated September 13, 1993 filed with the
Commission as Exhibit 10.4 to the Company's Registration Statement on Form
S-1 (File No. 33-90516), is incorporated by reference.
10.5 License Agreement between the Company and Georgetown University dated
July, 1990 filed with the Commission as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (File No. 33-90516), is incorporated by
reference.
10.6 License Agreement between the Company and Georgetown University dated
April 18, 1994 filed with the Commission as Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (File No. 33-90516), is incorporated by
reference.
10.7 Loan Repayment Note, dated June 18, 1990, by and between the Company and
the John N. Kapoor Trust filed with the Commission as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
10.8 Consulting Agreement, dated July 1, 1994, by and between the Company and
EJ Financial Services, Inc. filed with the Commission as Exhibit 10.8 to
the Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
10.10 Harris Bank and Trust Company Loan Agreement dated March 16, 1995, as
amended on October 5, 1995. filed with the Commission as Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
10.11 Option Agreement, dated as of August 13, 1996, between the Company and
John N. Kapoor and Anatoly Dritschilo, incorporated by reference to
Exhibit 10.11 of the Company's report on Form 10-K for the fiscal year
ended December 31, 1996.
10.12 Cooperative Research and Development Agreement between the Company and
the Food and Drug Administration dated August 27, 1997.
10.13 License Agreement between the Company and the National Institute of
Health dated September 23, 1997.
10.14 Employment agreement between James M. Hussey and the Company dated March
16, 1998.
11.1 Calculation of Earnings Per Share.
27 Financial Data Schedule
</TABLE>
- ------------
(b) Financial Statements
(1) Financial Statements
The financial statements filed as part of this Registration Statement are
listed in the Index to Financial Statements of the Company on Page 28.
23
<PAGE> 24
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 25TH DAY OF
APRIL, 1996.
NEOPHARM, INC.
By: /s/ JAMES M. HUSSEY
-----------------------------
James M. Hussey,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN N. KAPOOR Director, Chairman of the March 26, 1998
- ------------------------ Board
John N. Kapoor
/s/ AQUILUR RAHMAN Director, Chief March 26, 1998
- ------------------------ Scientific Officer
Aquilur Rahman
/s/ ANATOLY DRITSCHILO Director March 26, 1998
- ------------------------
Anatoly Dritschilo
/s/ JAMES M. HUSSEY Director, President, and March 26, 1998
- ------------------------ Chief Executive Officer
James M. Hussey (Principal Executive
Officer)
/s/ ERICK E. HANSON Director March 26, 1998
- ------------------------
Erick E. Hanson
/s/ DAVID E. RIGGS Chief Financial Officer March 26, 1998
- ------------------------ (Principal Financial
David E. Riggs Officer and Principal
Accounting Officer)
</TABLE>
24
<PAGE> 25
INDEX TO FINANCIAL STATEMENTS
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants 26
Balance Sheets 27
Statements of Operations 28
Statements of Stockholders' Equity (Deficit) 29
Statements of Cash Flows 31
Notes to Financial Statements 33
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Stockholders of NeoPharm, Inc.:
We have audited the accompanying balance sheets of NeoPharm, Inc. (a
Delaware corporation in the development stage) as of December 31, 1996 and
1997, and the related statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1997 and for the period from inception (June 15, 1990) to December 31, 1997.
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 NeoPharm, Inc. as of
December 31, 1996 and 1997, and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1997 and for the
period from inception (June 15, 1990) to December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 2, 1998
26
<PAGE> 27
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash Equivalents $ 4,479,041 $ 2,776,697
Notes Receivable - Shareholder -- 52,634
----------- -----------
Total current assets 4,479,041 2,829,331
Equipment and Furniture:
Equipment 27,007 32,492
Furniture 12,988 26,231
Less accumulated depreciation (26,828) (33,555)
----------- -----------
Total equipment and furniture, net 13,167 25,168
----------- -----------
Total assets $ 4,492,208 $ 2,854,499
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under research agreements 80,000 150,000
Due to related parties 43,239 --
Accounts payable 232,792 275,427
Accrued compensation 110,000 55,000
----------- -----------
Total current liabilities 466,031 480,427
----------- -----------
Commitments and contingencies (Notes 6 and 7) -- --
Stockholders' equity:
Common stock, $.0002145 par value;
15,000,000 shares authorized:
8,130,268 and 8,195,810 shares issued
and outstanding as of December 31,
1996 and 1997, respectively 1,744 1,758
Additional paid-in capital 5,890,078 6,259,636
Deficit accumulated during the
development stage (1,865,645) (3,887,322)
----------- -----------
Total stockholders' equity 4,026,177 2,374,072
----------- -----------
Total liabilities and stockholders'
equity $ 4,492,208 $ 2,854,499
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
27
<PAGE> 28
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(JUNE 15, 1990)
FOR THE YEARS ENDED THROUGH
DECEMBER 31, DECEMBER 31,
------------
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ 550,000 $ 550,000
Expenses:
Research and development 1,068,683 1,099,631 1,411,692 5,474,531
General and administrative 244,901 956,924 1,370,486 3,146,852
------------ ------------ ------------ ---------------
Total Expenses 1,313,584 2,056,555 2,782,178 8,621,383
Loss from Operations (1,313,584) (2,056,555) (2,232,178) (8,071,383)
Interest income -- 238,275 210,501 448,776
Interest expense (356,043) (47,365) -- (735,606)
------------ ------------ ------------ ---------------
Interest income(expense) - net (356,043) 190,910 210,501 (286,830)
Net loss $ (1,669,627) $ (1,865,645) $ (2,021,677) $ (8,358,213)
============ ============ ============ ===============
Net loss per share $ (.36) $ (.24) $ (.25)
============ ============ ============
Weighted average shares used in
computing net loss per share 4,698,446 7,803,412 8,146,746
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JUNE 15, 1990)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
------------ ADDITIONAL DURING STOCKHOLDERS'
PAR PAID-IN DEVELOPMENT EQUITY
SHARES VALUE CAPITAL STAGE (DEFICIT)
------ ----- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
Balance at inception, June 15,
1990 -- $ -- $ -- $ -- $ --
Initial issuance of stock for
cash on June 21, 1990
($.0002145 per share) 3,263,888 700 -- -- 700
Services contributed to Company
by related party -- -- 13,542 -- 13,542
Net loss -- -- -- (188,441) (188,441)
--------- ------ ----------- ----------- -------------
Balance at December 31, 1990 3,263,888 700 13,542 (188,441) (174,199)
--------- ------ ----------- ----------- -------------
Services contributed to Company
by related party -- -- 25,000 -- 25,000
Net loss -- -- -- (468,771) (468,771)
--------- ------ ----------- ----------- -------------
Balance at December 31, 1991 3,263,888 700 38,542 (657,212) (617,970)
--------- ------ ----------- ----------- -------------
Services contributed to Company
by related party -- -- 25,000 -- 25,000
Net loss -- -- -- (567,962) (567,962)
--------- ------ ----------- ----------- -------------
Balance at December 31, 1992 3,263,888 700 63,542 (1,225,174) (1,160,932)
--------- ------ ----------- ----------- -------------
Services contributed to Company
by related party -- -- 25,000 -- 25,000
Net loss -- -- -- (492,423) (492,423)
--------- ------ ----------- ----------- -------------
Balance at December 31, 1993 3,263,888 700 88,542 (1,717,597) (1,628,355)
--------- ------ ----------- ----------- -------------
Issuance of stock pursuant to
exercise of stock options 1,398,810 300 7,449 -- 7,749
Services contributed to Company
by related party -- -- 12,500 -- 12,500
Net loss -- -- -- (1,083,667) (1,083,667)
--------- ------ ----------- ----------- -------------
Balance at December 31, 1994 4,662,698 1,000 108,491 (2,801,264) (2,691,773)
--------- ------ ----------- ----------- -------------
Issuance of stock pursuant to
exercise of stock options 37,302 8 -- -- 8
Net loss -- -- -- (1,669,627) (1,669,627)
Reclassification of the
deficit accumulated as
the result of the termination
of the Company's S Corporation
status -- -- (4,470,891) 4,470,891 --
--------- ------ ----------- ----------- -------------
Balance at December 31, 1995 4,700,000 1,008 (4,362,400) -- (4,361,392)
--------- ------ ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JUNE 15, 1990)
THROUGH DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
------------ ADDITIONAL DURING STOCKHOLDERS'
PAR PAID-IN DEVELOPMENT EQUITY
SHARES VALUE CAPITAL STAGE (DEFICIT)
------ ----- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,700,000 1,008 (4,362,400) -- (4,361,392)
--------- ------ ----------- ----------- -------------
Conversion of interest and
loan payable to principal
stockholder into common
stock ($3.525 per share) 574,008 123 2,023,262 -- 2,023,385
Issuance of stock pursuant to the
Company's public offering net
of costs incurred 2,772,260 595 7,896,521 -- 7,897,116
Issuance of stock pursuant to
exercise of stock options 84,000 18 259,304 -- 259,322
Net Loss -- -- -- (1,865,645) (1,865,645)
Issuance of options
to non-employees -- -- 73,391 -- 73,391
--------- ------ ----------- ----------- -------------
Balance at December 31, 1996 8,130,268 $1,744 $ 5,890,078 $(1,865,645) $ 4,026,177
========= ====== =========== =========== =============
Issuance of stock pursuant to
exercise of stock options 55,542 12 175,166 -- 175,178
Issuance of stock pursuant to
Restricted stock grants 10,000 2 48,748 -- 48,750
Net Loss -- -- -- (2,021,677) (2,021,677)
Issuance of options
to non-employees -- -- 145,644 -- 145,644
--------- ------ ----------- ----------- -------------
Balance at December 31, 1997 8,195,810 $1,758 $ 6,259,636 $(3,887,322) $ 2,374,072
========= ====== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
FOR THE YEARS ENDED (JUNE 15,1990)
DECEMBER 31, THROUGH
------------ DECEMBER 31,
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows used in operating activities:
Net loss $ (1,669,627) $ (1,865,645) $(2,021,677) $ (8,358,213)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 6,892 6,279 6,727 45,354
Gain on disposal of equipment -- -- -- (408)
Services contributed (non-cash)
by related party -- -- -- 101,042
Interest payable to principal
shareholder converted to stock -- 523,385 -- 523,385
Compensation expense from non-employee
stock options -- 73,391 145,644 219,035
Restricted stock grants in lieu
of cash compensation -- -- 48,750 48,750
Changes in operating assets and liabilities:
Other assets -- -- (52,634) (63,734)
Accounts payable and accrued liabilities 701,322 (883,600) 14,396 480,427
------------ ------------ ----------- ------------
Net cash and cash equivalents used
in operating activities (961,413) (2,146,190) (1,858,794) (7,004,362)
------------ ------------ ----------- ------------
Cash flows used in investing activities:
Purchase of equipment and furniture (583) (10,663) (18,728) (59,825)
Proceeds from disposal of equipment -- -- -- 810
------------ ------------ ----------- ------------
Net cash and cash equivalents used
in investing activities (583) (10,663) (18,728) (59,015)
------------ ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from loan payable to
principal stockholder -- -- -- 1,500,000
Advance on line of credit 1,351,200 107,000 -- 2,114,652
Reduction in line of credit -- (2,114,652) -- (2,114,652)
Costs incurred related to the
initial public offering (397,746) (201,885) -- (688,321)
Proceeds from initial public offering -- 8,585,438 -- 8,585,438
Proceeds from issuance of common stock 8 259,322 175,178 442,957
------------ ------------ ----------- ------------
Net cash and cash equivalents
provided by financing activities 953,462 6,635,223 175,178 9,840,074
------------ ------------ ----------- ------------
Net increase (decrease) in cash (8,534) 4,478,370 (1,702,344) 2,776,697
Cash and cash equivalents,
beginning of period 9,205 671 4,479,041 --
------------ ------------ ----------- ------------
Cash and cash equivalents, end of period $ 671 $ 4,479,041 $ 2,776,697 $ 2,776,697
============ ============ =========== ============
Supplemental disclosure of cash paid for:
Interest $ 113,846 $ 84,585 $ -- $ 212,222
Income taxes -- -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(CONTINUED)
Supplemental disclosure of non-cash transactions:
In 1996, the Company converted the $1,500,000 loan and $523,385 of accrued
interest expense owed to the principal shareholder into 574,008 shares of
common stock and 143,502 warrants to purchase common stock. The loan and
accrued interest were converted at the initial public offering price
In 1997, two consultants to the company each received 5,000 shares of
restricted common stock as compensation. These grants were valued at the
closing price of the traded common shares on the date of the grants.
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS:
NeoPharm, Inc. (the "Company"), a Delaware corporation in the development
stage, was incorporated on June 15, 1990, under the name of OncoMed, Inc. In
March 1995, the Company changed its name to NeoPharm, Inc. The Company is
developing products to provide therapeutic and prognostic benefits in the
treatment of various forms of cancer. The Company has one product which is the
subject of a Cooperative Research and Development Agreement ("CRADA") with the
National Cancer Institute ("NCI"), a unit of the National Institutes of Health
("NIH") and a product, licensed from the NIH, that is the subject of a CRADA
with the Food and Drug Administration ("FDA"). The Company also has rights to
products developed under license and sponsored research agreements with
Georgetown University ("Georgetown").
The Company is in the development stage which requires substantial capital
for research, product development and market development activities. The
Company has not yet initiated marketing of a commercial product. The Company
has filed one New Drug Application ("NDA") with the United States Food and Drug
Administration ("FDA") for BUdR (Broxuridine) in a prognostic application. This
and other proposed products will require clinical testing, regulatory approval
and substantial additional investment prior to commercialization. The future
success of the Company is dependent on its ability to obtain additional working
capital to develop, manufacture and market its products and, ultimately, upon
its ability to attain future profitable operations. There can be no assurance
that the Company will be able to obtain necessary financing or regulatory
approvals to be able to successfully develop, manufacture and market its
products, or attain successful future operations. Insufficient funds could
require the Company to delay, scale back or eliminate one or more of its
research and development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop
without relinquishing its rights thereto. Accordingly, the predictability of
the Company's future success is uncertain.
The Company's rights to its products are subject to the terms of its
agreements with NCI, NIH, FDA and Georgetown. Termination of any, or all, of
these agreements would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition,
uncertainty exists as to the Company's ability to protect its rights to patents
and its proprietary information. There can also be no assurance that research
and discoveries by others will not render some or all of the Company's programs
or products noncompetitive or obsolete. Nor can there be any assurance that
unforeseen problems will not develop with the Company's technologies or
applications, or that the Company will be able to address successfully
technological challenges it encounters in its research and development
programs. Although the Company plans to obtain product liability insurance, it
currently does not have any nor is there any assurance that it will be able to
attain or maintain such insurance on acceptable terms or with adequate coverage
against potential liabilities.
2. SIGNIFICANT ACCOUNTING POLICIES:
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. These costs
include, among other things, consulting fees and costs reimbursed to Georgetown
pursuant to the agreements as described in Note 6. Payments related to the
acquisition of technology rights, for which development work is in process, are
expensed and considered a component of research and development costs. The
Company also allocates indirect costs, consisting primarily of operational
costs for administering research and development activities, to research and
development expenses.
CASH AND CASH EQUIVALENTS
33
<PAGE> 34
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost and are depreciated using an
accelerated method over the estimated useful economic lives of the assets
involved. The estimated useful lives employed in computing depreciation are
five years for computer equipment and seven years for furniture. Maintenance
and repairs that do not extend the life of assets are charged to expense when
incurred.
INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share, which establishes standards for
computing and presenting earnings per share for publicly held common stock or
potential common stock. Effective December 31, 1997, the Company adopted the
principals of Statement No. 128 in calculating and presenting its earnings per
share. The computation of net earnings (loss) per share is based on the
weighted average common shares outstanding during the periods, and includes,
when dilutive, common stock equivalents consisting of warrants and stock
options.
MANAGEMENT'S 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). As provided by SFAS 123, the Company has elected to continue to account
for its stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, compensation expense has been recognized to the extent
of employee or director services rendered based on the intrinsic value of
compensatory options or shares granted under the plans. The Company has
adopted the disclosure provisions required by SFAS 123 (see "Note 4 - Stock
Options" in Notes to Financial Statements).
RECLASSIFICATION
Certain amounts in previously issued financial statements have been
reclassified to conform to 1997 classifications.
3. DEBT:
On June 18, 1990, the Company executed a loan agreement with Dr. John N.
Kapoor, a principal stockholder. The loan agreement allowed the Company to
borrow up to $1,500,000. Funds borrowed under the agreement incurred interest
at the lesser of 10% or the prime rate as determined by the Northern Trust
Bank. The Company had borrowed funds up to the maximum of $1,500,000 at
December 31, 1995.
Interest on borrowed funds accrued until the second anniversary of the
funding. Thereafter, principal and interest were to be repaid in 12 quarterly
installments. Any principal payment not paid within 5 days of the date when due
was subject to additional interest of 15% per annum.
From June 1990 through April 1994, the Company financed its operations by
borrowing under this loan agreement. No payments of interest or principal were
made
34
<PAGE> 35
during this period. In January of 1996, in accordance with the agreement
between the principal stockholder and the Company, with the completion of the
initial public offering, the principal stockholder converted the outstanding
loan balance, plus accrued interest through November 30, 1995, into shares of
the Company's common stock and common stock purchase warrants at a per share
conversion price equal to the offering price, $3.50 per share, $.10 per
warrant. The Company issued 574,008 shares and 143,502 warrants.
During 1995 and early 1996, the Company maintained a line of credit with
Harris Bank with maximum borrowings of $2,500,000. The line of credit was
personally guaranteed by the principal stockholder. In early 1996, the Company
paid all outstanding balances and closed the line of credit.
4. STOCK OPTIONS
OPTION AGREEMENTS
The Company adopted a stock plan in 1990. The Company granted options
under the plan to purchase 1,460,978 shares. The options have an exercise price
of $.0002145 per share with the exception of options to purchase 248,676 shares
issued in December 1993, which have an exercise price of $.03217 per share.
Effective January 1995, this plan has been terminated. No additional grants
will be made under this plan.
On January 25, 1995, the board of directors approved the NeoPharm, Inc.
1995 Stock Option Plan (the "Plan"), which provided for the grant of up to
900,000 options to acquire the Company's common stock. The board of directors
amended the Plan on May 16, 1997, increasing the number of options to
1,400,000. The option prices shall be not less than 85 percent of the fair
market value of the stock as determined by the Administrator pursuant to the
Plan. The board also approved the NeoPharm, Inc. 1995 Director Option Plan,
which provides for the grant of up to 100,000 options to acquire the Company's
common stock. The option prices shall be the fair market value on the date of
grant. Vesting under these plans range from 0 to 4 years and all options
expire after 10 years.
The Company accounts for the plans under APB Opinion No. 25, under which
no compensation cost has been recognized for stock option awards to employees.
Had compensation cost for such stock option awards under the plans been
determined consistent with FASB Statement No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net Loss: As Reported (1,669,627) (1,865,645) (2,021,677)
Pro Forma (1,840,545) (2,061,099) (2,379,751)
Loss per Share: As Reported (.36) (.24) (.25)
Pro Forma (.39) (.26) (.29)
</TABLE>
Included in the grants described above are options to purchase 323,324
shares granted to non-employees. The Company accounts for these options using a
fair value method with the fair value of these options determined at the date
of grant. From inception through December 31, 1995, the Company deemed the fair
value of these options on the date of grant to be nominal, and no expense was
recorded. For the year ended December 31, 1996, the fair value was calculated
using the Black-Scholes pricing model, and an expense of $73,391 was recorded.
For the year ended December 31, 1997, the fair value was calculated using the
Black-Scholes pricing model, and an expense of $145,644 was recorded.
A summary of stock option activity is as follows:
35
<PAGE> 36
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
NUMBER OF EXERCISE PRICE
GRANT/EXERCISE DATE SHARES PER SHARE
- ------------------- ------ ---------
<S> <C> <C>
Grants:
1990 1,184,324 $.0002145
1992 27,978 .0002145
1993 248,676 .03217
---------- ----------------------
Balance at December 31, 1993 1,460,978 $.0002145-$.03217
---------- ----------------------
Exercises:
November 17, 1994 - issued Jan. 1995. (1,398,810) $.0002145-$.03217
November 17, 1994 - issued Jan. 1995. (37,302) $.0002145
---------- ----------------------
Balance at December 31, 1994 24,866 $.03217
---------- ----------------------
Grants:
February, 1995 308,000 $3.50
May, 1995 10,000 3.50
September, 1995 100,000 3.50
November, 1995 100,000 3.50
---------- ----------------------
Balance at December 31, 1995 542,866 $.03217-$3.50
---------- ----------------------
Grants:
May, 1996 30,000 $6.00
August, 1996 260,000 $7.00
Exercises:
June, 1996 (19,000) $3.50
July, 1996 (43,000) 3.50
August, 1996 (10,000) 3.50
September, 1996 (2,000) 3.50
December, 1996 (10,000) .03217
---------- ----------------------
Balance at December 31, 1996 748,866 $.03217,3.50,6.00,7.00
========== ======================
Grants:
January, 1997 1,000 $7.38
April, 1997 2,000 7.00
May, 1997 5,000 4.88
August, 1997 5,000 4.94
Exercises:
June, 1997 (7,000) $3.50
July, 1997 (15,000) 3.50
October, 1997 (9,042) 3.50, .03217
November, 1997 (1,500) 3.50
December, 1997 (23,000) 3.50
---------- ----------------------
Balance at December 31, 1997 706,324 $.03217 - 7.38
========== ======================
</TABLE>
Options eligible for exercise on December 31, 1993 included 1,212,302
options at an exercise price of $.0002145 and 248,676 options at an exercise
price of $.03217. Options eligible for exercise on December 31, 1994 included
24,866 options at an exercise price of $.03217. Options eligible for exercise
on December 31, 1995 included 24,866 options at an exercise price of $.03217
and 518,000 options at an exercise price of $3.50. Options eligible for
exercise on December 31, 1996 included 14,866 at an exercise price of $.03217
and 444,000 options at an exercise price of $3.50. Options eligible for
exercise on December 31, 1997 included 9,324 at an exercise price of $.03217,
394,000 options at an exercise price of $3.50, 7,500 options at an exercise
price of $6.00 and 97,500 options at an exercise price of $7.00.
36
<PAGE> 37
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for the option grants in 1996 and 1997 respectively:
risk-free interest rates of 6.45 percent and 6.58 percent; expected dividend
yields of 0.00 percent; expected life of 5 years; expected volatility of 76.21
percent and 79.93 percent for 1996 and 1997, respectively.
5. FEDERAL INCOME TAXES:
From inception through October 11, 1995, the Company operated as an S
Corporation for income tax purposes. Losses incurred during this period are
reported on the stockholders' tax return, and are not available to the Company
as a net operating loss carryforward.
On October 11, 1995, the Company voluntarily terminated its S Corporation
election. Since that time, losses incurred represent net operating loss
carryforwards which can be used to offset future taxable income. Total net
operating loss carryforwards were approximately $3,173,000 and approximately
$5,195,000 as of December 31, 1996 and 1997, respectively. In accordance with
the provisions of Statement of Financial Accounting Standard No. 109, a 100%
valuation allowance has been established on the net operating loss tax asset
due to the uncertainty of its realization.
6. COMMITMENTS:
LICENSE AND RESEARCH AGREEMENTS
From time to time the Company enters into license and research agreements
with third parties. At December 31, 1997, the Company had five agreements in
effect as described below.
NATIONAL CANCER INSTITUTE
The Company has entered into an agreement ("CRADA") with NCI. Pursuant to
the agreement, the Company has committed to commercialize certain products
received from NCI. The Company has agreed to provide product to support NCI
sponsored clinical trials and will use its best efforts to file a New Drug
Application ("NDA") with the Food and Drug Administration ("FDA"). NCI has
agreed to collaborate on the clinical development of the products and to
provide access to the data necessary to obtain pharmaceutical regulatory
approval.
During the years ended December 31, 1997, 1996 and 1995, the Company paid
approximately $102,000, $0 and $87,000, respectively, for product used in
clinical trials. The Company is committed to pay NCI $120,000 per year for
reasonable and necessary expenses incurred by NCI in carrying out NCI's
responsibilities under the CRADA. During 1997, 1996 and 1995, the Company
expensed, as research and development costs, the $120,000 payable to NCI for
these expenses. NCI is required to provide the Company an accounting of the use
of funds. Any amounts not expended at the end of the agreement are refundable
to the Company.
The CRADA will expire on September 13, 1998, if not terminated earlier. It
may be terminated by mutual consent of NCI and the Company. Either Party may
terminate if the other Party breaches a material term or condition and such
breach is not cured within a certain period of time. Also, either Party may
unilaterally terminate by giving 60 days notice. If unilaterally terminated by
either party, all provisions of the CRADA shall continue in full force and
effect during the completion of all clinical trials and clinical protocols
included under the CRADA prior to the date of notification of intent to
terminate. In such situation, the Company retains the rights to data from
clinical trials conducted prior to, or in progress, at the time of the
termination.
U.S. FOOD AND DRUG ADMINISTRATION
37
<PAGE> 38
The Company has entered into a CRADA with the Food and Drug
Administration. Pursuant to the CRADA, the Company has committed to
commercialize the IL-13 chimeric protein product which it licensed from the
National Institute of Health and the Food and Drug Administration. The FDA has
agreed to collaborate on the clinical development and commercialization of the
licensed product.
The Company is committed to pay $100,000 per year for the reasonable and
necessary expenses incurred by the FDA in carrying out the FDA's
responsibilities under the CRADA. The CRADA has a term of four years. During
1997, the Company expensed $100,000 as research and development costs. The
CRADA will expire on August 27, 2001.
NATIONAL INSTITUTE OF HEALTH
The Company entered into an exclusive worldwide licensing agreement with
the National Institute of Health (NIH) and the Food and Drug Administration to
develop and commercialize an IL-13 chimeric protein therapy. The agreement
required a $75,000 non-refundable license issue payment and minimum annual
royalty payments of $10,000 which increases to $25,000 after the first
commercial sale. The agreement further provided for milestone payments and
royalties based on future product sales. The Company is required to pay the
costs of filing and maintaining product patients on the licensed products. The
agreement shall extend to the expiration of the last to expire of the patents
on the licensed products, if not terminated earlier. The agreement may be
terminated by mutual consent of NIH and the Company. Either party may
terminate if the other Party breaches a material term or condition and such
breach is not cured within a certain period of time. Also, either Party may
unilaterally terminate by giving advanced notice.
BIOCHEM PHARMA
The Company has entered into a collaboration agreement with BioChem
Therapeutics, Inc., the wholly owned subsidiary of BioChem Pharma, under which
BioChem will develop, market, and distribute broxuridine in Canada. The
agreement required BioChem to make an initial up-front payment of $550,000 and
subsequent milestone-based payments. The Company and BioChem will share
product revenue from any future sales of broxuridine in Canada.
GEORGETOWN UNIVERSITY
The Company has entered into two license and research agreements with
Georgetown whereby the Company has obtained an exclusive worldwide license to
use certain technologies. In exchange for the grant of these exclusive
licenses, the Company will pay Georgetown, beginning with the first commercial
sale of a product incorporating the licensed technologies, a royalty on net
sales by the Company of products incorporating any of such technologies. The
royalty will be payable for the life of the related patents.
During the years ended December 31, 1997, 1996 and 1995, the Company paid
and expensed approximately $247,000, $204,000 and $277,000, respectively,
pursuant to the license and research agreements.
OTHER
The Company has entered into consulting arrangements with members of its
Scientific Advisory Board who are also employed on a full-time basis by
academic or research institutions. Since inception through December 31, 1997,
members of the Scientific Advisory Board have been issued options (see Note 4)
to purchase an aggregate 63,324 shares of Company stock at the fair market
value at the date of grant which vest over the consulting period. Additionally,
the Scientific Advisory Board members have received aggregate payments of
approximately $83,000 since the inception of these consulting arrangements for
work performed and expenses incurred through December 31, 1997.
38
<PAGE> 39
The Company is obligated for rental payments under a sublease arrangement
with OptionCare, Inc. for office space in Bannockburn, Illinois. Until moving
to the Banockburn location in November of 1997, the Company occupied office
space in Lake Forest, Illinois. This space was provided as part of a
consulting agreement with EJ Financial. (See Note 8 - "Transactions with
Related Parties" in Notes to Financial Statements) At December 1997, amounts
committed were $29,550 for fiscal year 1998. Management expects this lease to
be extended or replaced by another lease.
7. CONTINGENCIES
The pharmaceutical industry has traditionally experienced difficulty in
maintaining product liability insurance coverage at desired levels. To date, no
significant product liability suit has ever been filed against the Company.
However, if a suit were filed and a judgment entered against the Company that
significantly exceeded the policy limits, it could have a material adverse
effect upon the Company's operations and financial condition.
The Company is not a party to any litigation or other legal proceedings.
8. TRANSACTIONS WITH RELATED PARTIES
The Company receives management services from EJ Financial Enterprises,
Inc. ("EJ Financial"), a healthcare consulting and investment firm in which Dr.
Kapoor is the principal stockholder. From inception through June 30, 1994, EJ
Financial charged the Company $25,000 per year for services provided plus
actual expenses incurred. Through June 30, 1994, no payment for these services
was made, but rather was treated as additional capital contributions by Dr.
Kapoor in the accompanying statements of stockholders' equity (deficit).
Effective July 1, 1994, EJ Financial increased its charge for management
services provided to $125,000 per year plus actual expenses. The agreement
reflected an increased need for technical support in the areas of research and
development and operations. Charges to the Company are based on actual time
spent by EJ Financial personnel on the Company's affairs. Management believes
that the cost for management services allocated to the Company represents the
cost of the services provided. From inception through December 31, 1997, the
Company expensed approximately $437,900 for management services and $255,500 as
reimbursement of actual expenses incurred by EJ Financial that directly related
to the Company.
The Company subleases office space from Option Care Inc., a home infusion
company in which Dr. Kapoor, the Company's Chairman, is a major stockholder.
From inception through December 31, 1997 the company expensed approximately
$3,000 for rent under the Option Care sublease.
The Company's Chief Scientific Officer, Dr. Aquilur Rahman, was employed
on a full-time basis by Georgetown until joining the Company in March 1996. As
was previously mentioned, Georgetown and the Company are parties to license and
sponsored research agreements for product research and development (see Note
6). During 1997, 1996 and 1995, the Company expensed approximately $247,000,
$204,000 and $277,000 related to work performed and expenses incurred by
Georgetown. Since inception through December 31, 1997, the Company has expensed
approximately $1,996,000. Additionally, Dr. Rahman received options in June
1990 (See Note 4) to purchase 932,540 shares of Company stock at the fair
market value on the date of the grant of the options.
On July 16, 1997, the Company loaned $50,000 to Dr. Rahman pursuant to a
promissory note. The note accrues interest at a rate of 9%. The principal
together with all accrued interest becomes due and payable on July 31, 1998.
As of December 31, 1997, there was $2,071 of accrued interest on this note.
Prior to February 1996, the Company's former President and Chief Executive
Officer ("CEO"), William C. Govier, was a consultant to the Company on clinical
trials and NDA filing matters, both as an individual and as a consultant with
Aegis Technology, Inc. ("Aegis"), an entity co-founded by Govier. Dr. Govier
retired from the Company on January 16, 1998. As the Company's President and
CEO, Govier received
39
<PAGE> 40
options in December 1993, to purchase 233,134 shares of Company stock at the
fair market value on the date of grant, which were later fully exercised (See
Note 4). His colleague and co-founder of Aegis also received options in
December 1993 (see Note 4) to purchase 15,542 shares of Company stock at the
fair market value on the date of grant, of which 7,770 options were 100% vested
and 7,772 options vest upon future performance of services. The Company
expensed approximately $863,500 since inception through December 31, 1997,
related to work performed and expenses incurred by Govier, his colleague and
Aegis. During 1997, 1996 and 1995, the Company expensed approximately $262,000,
$159,500 and $334,400, respectively, related to these arrangements.
9. STOCKHOLDERS' EQUITY
In January 1995, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock to 15,000,000 shares.
In October 1995, the Company amended its Certificate of Incorporation to
convert each 1.28681 shares of outstanding Common Stock into one share of
Common Stock and to restate the par value of the Common Stock from $0.000333
per share to $0.000429 per share. The reverse stock split has been reflected
retroactively in these financial statements for all periods presented.
In January 1996, the Company completed a public offering of newly issued
1,350,000 shares of common stock and 675,000 warrants, for proceeds of
approximately $8,585,000 net of expenses. On March 8, 1996 the Company issued
36,130 shares of common stock and 18,565 warrants related to the underwriter's
over-allotment option for proceeds of approximately $267,000, net of expenses.
Each warrant can be converted into two shares of common stock at $4.90 per
share.
On August 14, 1996, the Company's Board of Directors declared a
two-for-one stock split of issued and outstanding Common Stock for stockholders
of record as of the close of business on August 26, 1996. Accordingly, all
numbers of common shares and per share data have been restated to reflect the
stock split. The par value of common stock has been adjusted from $0.000429
per share to $0.0002145 per share.
10. SUBSEQUENT EVENTS
Management Changes
The Company announced on January 20, 1998 that William C. Govier, M.D.,
Ph.D., the Company's President and Chief Executive Officer retired effective
January 16, 1998. Also announced was that James M. Hussey would replace Mr.
Govier within 90 days of the announcement. Subsequently, Mr. Hussey joined the
Company as President and Chief Executive Officer on March 16, 1998. John N.
Kapoor, Ph.D., chairman of the board of directors served as interim chief
executive officer. Mr. Govier will continue to serve as a consultant to the
Company.
FDA Meeting
On December 19, 1997, the FDA's Oncology Advisory Committee ("ODAC") voted
not to recommend NEOMARK (BUdR) to the FDA for approval. Since the ODAC action,
the Company has met with the FDA to respond to concerns raised by ODAC for the
purpose of continuing to pursue FDA approval. Based on these discussions the
Company is gathering additional data and reanalyzing the existing data in order
to obtain the FDA's approval of the Company's NDA. The original NDA was filed
in December, 1996. The application has already been extended once and the
Company anticipates being notified on or after March 31, 1998 that the time for
processing the original application has expired. In order for the Company to
continue to pursue approval of its NDA for use of BUdR as a prognostic
indicator, it will be necessary to submit additional information to support the
NDA.
40
<PAGE> 1
EXHIBIT 10.12
CRADA # 26 - 97
FEDERAL TECHNOLOGY TRANSFER ACT
FDA/CBER COOPERATIVE RESEARCH & DEVELOPMENT AGREEMENT
1. SUMMARY OF PROPOSED AGREEMENT WITH NEOPHARM, INC.
Laboratory: Center for Biologics Evaluation and Research
Project Title: Development and Commercialization of Interleukin-13
Pesudomonas Exotoxin as anticancer agent
Project Description: SEE TAB 1 - RESEARCH PLAN
FDA Project Officer: RAJ K. PURI, M.D., PH.D.
<TABLE>
<CAPTION>
Proposed Effective Dates From: August 1997 To: August 2001
Resource Summary: $ Estimated # Estimated Estimated
Designated FTEs Equipment Materials
---------- ----------- --------- ---------
<S> <C> <C> <C>
FDA 0 0.05 ($45,000/yr)
Collaborator $100,000/yr 0.10
Total $400,000 0.15 ($180,000)
</TABLE>
2. REVIEWS BY FDA ORGANIZATIONS - TAB 2
A. Possible Organizational Conflict -- Revisions Requested:
None
B. Comments on Individual Conflict of Interest:
DEPI AND CBER - SEE TAB 3
3. Center action in response to reviews
[ ] Summary of Comments
[X] No Revisions Made To Agreement
4. FDA Review Board Recommendation to the Commissioner
[X] Accept [ ] Disapprove [ ] Modify (Explanation
Attached)
/s/ Elizabeth D. Jacobson 8/6/97
- ------------------------------------------ ---------------
Review Board Chairperson Date
5. LEAD DEPUTY COMMISSIONER'S DECISION
[ ] Accepted [ ] Disapproved [ ] Modification(s)
(Explanation
Attached)
/s/ Masira 8/12/97
- ------------------------------------------ ---------------
Lead Deputy Commissioner of Food and Drugs Date
<PAGE> 2
CRADA SIGNATURE PAGE
--------------------
FOR FDA:
/s/ 8/27/97
- ------------------------------------------ -------
Name/Signature Date
Acting Deputy Director
- ------------------------------------------
Title
Mailing Address for Notices:
- ------------------------------------------
Center for Biologics Evaluation
- ------------------------------------------
and Research
- ------------------------------------------
Food and Drug Administration
- ------------------------------------------
5600 Fishers Lane, HFM-44
- ------------------------------------------
Rockville, MD 20857
- ------------------------------------------
Attn: Mary Meyer
FOR THE COLLABORATOR: (The undersigned expressly certifies or affirms that the
contents of any statements made or reflected in this document are truthful and
accurate.)
Aguilur Rahman / /s/ Aguilur Rahman 7/21/97
- ------------------------------------------ -------
Name/Signature Date
Chief Scientific Officer
- ------------------------------------------
Title
Mailing Address for Notices:
NeoPharm Inc.
- ------------------------------------------
225, East Deerpath, Suite 250
- ------------------------------------------
Lake Forest, IL 60045
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
[Include additional signature and address blocks as necessary for all Parties
to this CRADA]
33
<PAGE> 3
[LOGO] DEPARTMENT OF HEALTH & HUMAN SERVICES Public Health Service
------------------------------------------------------------------------
Food and Drug Administration
Rockville MD 20857
[STAMPED AUG 6 1997]
NOTE TO: Lead Deputy Commissioner
Through: Executive Secretariat on 8/7/97
SUBJECT: Proposed Cooperative Research and Development
Agreements under the Federal Technology Transfer
Act of 1986 -- ACTION
During its August 4, 1997 meeting, the FDA CRADA Review Board
considered one proposed Cooperative Research and Development
Agreement (CRADA). The proposed collaboration is between
CBER and Neopharm, Inc. to "Develop and
Commercialize Interleukin-13 Pseudomonas
Exotoxin as Anticancer Agent."
The CRADA proposal has been reviewed by other FDA Centers for
organizational conflict of interest; by the Division of Ethics and
Program Integrity for any individual and organizational conflict of
interest, and by other offices for any issues which might need
resolution. The reviews were favorable and all issues that were
raised have been addressed.
The Board then conducted its review and recommends your acceptance
of this CRADA. An Executive Summary is attached. Please indicate
your decision and sign the Summary. Under the Federal Technology
Transfer Act, Agencies are required to make their decision within 30
calendar days or, in this case, by September 4, 1997.
Please let me know if I can provide anything further on this.
/s/ Elizabeth D. Jacobson
Elizabeth D. Jacobson, Ph.D.
Chairperson,
FDA CRADA Review Board
Attachment
Executive Summary and
FDA CRADA 26-97
<PAGE> 4
APPENDIX B
----------
RESEARCH PLAN
-------------
TITLE OF CRADA: Interleukin-13>Pseudomonas exotoxin as a anticancer agent.
------------------------------------------------------------
- -------------------------------------.
FDA PRINCIPAL INVESTIGATOR: Raj K. Puri, M.D., Ph. D.
------------------------------------------------
COLLABORATOR PRINCIPAL INVESTIGATOR: Aquilur Rahman, Ph.D., Chief Scientific
---------------------------------------
Officer, NeoPharm, Inc. Lakeforest, IL
- --------------------------------------------.
TERM OF CRADA: Four (4) years.
-------
CONFLICTS OF INTEREST INFORMATION: Attach completed "Conflict of Interest and
Fair Access Statement." Describe any relevant past, present, or contemplated
relationships between the FDA Principal Investigator and his/her Laboratory and
the Collaborator in sufficient detail to permit reviewers of this CRADA to
determine whether or not any conflicts of interest exist:
- --------------------------------------------
See Attached
- --------------------------------------------
- --------------------------------------------
- --------------------.
The Research Plan which follows this page should be concise but of sufficient
detail to permit reviewers of this CRADA to evaluate the scientific merit of
the proposed collaboration. The RP should explain the scientific importance of
the collaboration and the research goals of FDA and the Collaborator. The
respective contributions in terms of expertise and/or research materials of FDA
and, the Collaborator should be summarized Initial and subsequent projects
contemplated under the RP, and the time periods estimated for their completion,
should be described, and pertinent methodological considerations summarized.
Pertinent literature references may be cited and additional relevant
information included. Include additional pages to identify the Principal
Investigators of all other Parties to this CRADA.
28
<PAGE> 5
Appendix B (CRADA Application):
Title: Interleukin-13-Pseudomonas exotoxin as an anticancer agent.
FDA Principal Investigator (PI): Raj K. Puri, M.D., Ph.D., LMTB, DCGT, OTRR,
HFM-530, Tel.: 82 7-0471
Collaborator Principal Investigator: Aquilur Rahman, Ph.D., Chief Scientific
Officer and Member, Board of Directors, NeoPharm, Inc. 225 east Deerpath, Suite
250, Lake Forest, IL 60045; Tel: 708-295-8678
The term of CRADA: 4 Years
Research Plan:
1. Goals of this CRADA: a) To investigate structure, function, significance,
and biology of interleukin-13 (IL-13) receptor on human malignancy.
b) To investigate the mechanism of cytotoxicity of IL-13-Pseudomonas exotoxin
and targeting of IL-13 receptors in vitro and in vivo to human cancer.
c) To evaluate the clinical effectiveness of IL13-PE in cancer patients.
Scientific Importance:
IL-13 receptors are expressed on solid human cancer cells at uniquely high
concentration and these cancer cells are killed by IL13-toxin at uniquely low
concentration of an il-13 fusion toxin. This project is important
scientifically to investigate the structure, function and significance of IL-13
receptor expression on cancer cells and compare how these receptors are
different from those expressed on normal immune cells. These studies will
provide insight for effective targeting of IL-13-toxin in vivo for the
treatment of human cancer.
2. Detailed description of the Research Plan: In pursuing FDA mission related
regulator research activities to understand the mechanism of the disease and
safety of biologics, we have discovered that human renal cell carcinoma,
glioblastoma, AIDS-related Kaposi's sarcoma and adenocarcinoma express large
numbers of interleukin-13 receptors. IL-13 is a pleiotropic immune regulatory
cytokine and functions through its specific cell surface receptors. Consistent
with its biological effect, we have demonstrated that IL-13 receptors are also
expressed in normal immune cells such as B cells and monocytes but in very low
numbers. The significance of the expression of large numbers of these
receptors on cancer cell lines is not known.
<PAGE> 6
We have expoited the knowledge of the expression of large numbers of
IL-13 receptors to target these with a cytotoxic agent. In this effort, we have
producted a novel chimeric protein composed of IL-13 and a mutated form of a
bacterial toxin, Pseudomonas exotoxin (PE38). This chimeric toxin was produced
by fusing a gene for IL-13 to PE38. This plasmid was expressed in E. coli and
large amounts of this protein was purified to >95% purity by column
chromatography. By utilizing IL-13-PE38 we found that IL-13 receptor positive
cancer cells were killed effectively in a concentration dependent manner as
determined by the inhibition of protein synthesis. The inhibitio of protein
synthesis collaborated with the cell death as assessed by cell viability or
clonogenic asays. Normal resting or activated human T lymphocytes,
EBV-immortalized B cells, promonocytic cell lines, human umbilical vein derived
endothelial cells, bone marrow cells, resting and activated bone marrow
precursor CD34+ cells were not killed by this toxin. These data were consistent
with no or low level expression of IL-13 receptors on these cells. The cell
killing activity of IL 13-toxin was specific and receptor number dependent.
These observations were made primarily using cultured cell lines and some
primary cell cultures. These observations are exciting and have important
clinical implications indicating potential for the use of IL 13-toxin for the
treatment of human solid malignancies.
Above preliminary results have raised numerous questions regarding the
biology of human cancer cell and potential of targeting human cancers in vivo.
Further studies are needed to address important issues at this time of the
technology development. Some of the studies are listed below:
1. Whether IL-13 receptors are expressed on other solid and hematologic
mailgnancies?
2. Whether IL-13 receptors are expressed in situ and how prevalent the
expression of IL-13 receptors on human cancer is?
3. Whether the expression of IL-13 receptors is homogenous i all cells in a
tumor and whether metastatic nodules express KL-13 receptors more abundantly
than primary tumors?
4. The structure of IL-13 receptors in cancer cells has been briefly examined
in our laboratory. Additional studies are needed to examine the structure of
IL-13 receptors on cancer cells and compare it with those expressed on immune
cells.
5. The significance of IL-13 receptors expression on tumor cells needs to be
assessed. Are these receptors functional? The preliminary data on human renal
cell carcinomas indicates that these receptors are functional because IL-13
inhibited the in vitro growth of these cells and up regulated adhesion
molecule, ICAM-1.
<PAGE> 7
6. Whether IL-13 utilizes a unique signal transduction pathway in cancer cells?
7. Whether IL-13 receptors are involved in oncogenesis process or IL-13
receptors act like an oncogene or related to an oncogene. Whether gene for
IL-13 receptors has rearranged and mutated in cancer cells?
8. Whether all IL-13 receptors bearing cancer cells can be targeted and killed
with IL-13-toxin?
9. We have demonstrated in vitro activity of IL-13-toxin against various cancer
cell lines. It needs to be determined whether human tumor xenograft in
immunodeficient animals can be cured? Preliminary data indicate that IL
13-toxin has substantial antitumor activity against brain tumors.
10. Whether IL 13-toxin is toxic to immunodeficient or immunocompetent rodents
or nonhuman primates.
11. Can one encapsulate this toxin in liposomes to target only cancers and thus
avoid nonspecific toxicity of the host if any?
12. Whether IL 13-toxin is cytotoxic to cancer cells which express multidrug
resistance (MDR) gene or gene products and these cancers are refractory to
conventional chemotherapeutics?
13. What is the clinical efficacy of IL 13-PE38QQR in cancer patients? Whether
IL 13-toxin is effective against many types of solid human malignancy?
While research is ongoing in our laboratory to examine many aspects of
above listed studies' predominantly items one through 4,6 and eight, extensive
studies are needed to address items five through 12. Due to the limitation for
research funds and personnel all these studies cannot be performed
expeditiously as desired. In addition, all these studies require a large
quantity of IL-13, IL 13-toxin and other reagents which could not be produced
in our laboratory. These reagents ae not commercially available or some of them
are available such as IL-13 but at prohibitively high cost. The collaborator is
a biotechnology company and they appear to bear extensive expertise and have
contractors available who can manufacture these for preclinical studies. The
collaborator has extensive experience in targeting chemotherapeutics to cancer
cells using liposomes as well as overcoming multidrug resistance through
liposomal modality of treatment. The specific experience of the collaborator
will proviide unique expertise to specifically target our biologic to cancer
cells.
The detailed research plan is described by the collaborator.
<PAGE> 8
3. Respective contributions of the Parties:
a. PI will provide plasmid for IL 13-toxin paste and collaborator will purify
this material under cGMP conditions and provide purified protein in large
quantities.
b. The collaborator will perform preclinical toxicity experiments utilizing
IL-13-toxin in small animals.
c. PI will perform preclinical efficacy experiments in immunodeficient animals
utilizing various solid tumor models including brain tumors, AIDS-Kaposi's
sarcoma and Renal cell carcinoma.
d. The basic receptor biology, signal transduction and other experiments will
be performed in the laboratory of the PI.
e. The PI will perform experiments to examine the in situ expression of IL-13
receptors on many cancer samples using a monoclonal antibody by
immunohistochemistry or flow cytometric analysis.
f. The collaborator will perform all the clinical trial with the IL 13-PE38QQR
for the indication of human renal cell carcinoma, AIDS-Kaposi's sarcoma and
central nervous system malignancies.
Time commitment:
First Year: Investigation of the expression of IL-13 receptors on fresh
cancer tissues, production of various forms of IL 13-toxins, begin preclinical
efficacy experiments.
Second Year: Production of IL 13-toxin in large quantities, perform
preclinical safety experiments in small and large animals, efficacy experiments
continued in various models. Begin clinical trial. Perform IL-13 receptor
expression experiments in patient samples.
Third Year: Continue clinical trial, preparation of liposome encapsulated IL
13-toxin, preclinical in vitro data generation, in vitro efficacy evaluation,
and characterization of encapsulated liposomes.
Fourth Year: Continue clinical trial and if Phase 1 is completed proceed to
Phase 2/three study, supportive studies continue, investigate targeting of MDR
cancer cells by IL 13-toxin in vitro and in vivo. Preclinical efficacy models
to be developed.
4. Abstract of Research Plan: For the collaborator
<PAGE> 9
5. Related CRADAS: PI has no CRADAS
6. Related MTAs: PI has none MTAs regarding this technology.
7. Related Patent applications and Patents: 1. US Patent application for IL-13
receptor specific chimeric proteins and uses thereof DHHS Ref. No E-266-94/0;
Date Filed: March 15, 1995. Patent number 5,614,191 Issued March 25, 1997.
2. International Patent application for IL-13 receptor specific chimeric
proteins and uses thereof; Date Filed: March 5, 1996.
8. Avoidance of Conflict of Interests and Assurance of Fair Access: Signed form
is enclosed for Ethics Branch for review and approval.
<PAGE> 10
APPENDIX C:
FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES:
The PI will hire a post-doctoral fellow from the funds provided by the
collaborator company as indicated in the collaborator commitment letter
submitted to Dr. Goldman. This amount would be $100,000 per year. The
approximate direct and indirect cost for the fellow would be approximately
$55,000.00 dollars per year. The remaining amount ($45,000.00) will be used for
purchasing equipments, supplies, chemicals, animals, and radioactive materials
etc for these projects.
FDA CONTRIBUTION:
FTE PI Time: 5%
FDA supplies: For this collaboration, it is expected that most of the
supplies will be purchased from the funds provided by
the collaborator.
FDA equipments: Most of the equipments and a computer and printer for
computational needs for this project are currently
available in our laboratory. However, some equipments
such as cell harvester, Joan centrifuge, Inverted phase
microscope, Bausch and Lomb microscope, dual chamber
water bath, shaking water bath and circulating water
baths are rented from the NIH rental services. We expect
to purchase these equipments from the CRADA funds because
these equipments will be heavily used during the project.
<PAGE> 1
CONFIDENTIAL
Exhibit 10.13
PUBLIC HEALTH SERVICE
PATENT LICENSE AGREEMENT-EXCLUSIVE
COVER PAGE
For PHS internal use only:
Patent License Number: L-226-96/D
Serial Numbers of Licensed Patents: U.S. PAT. 5,614,191 AND
U.S. PAT. 4,892,827
Licensee: NEOPHARM, INC.
CRADA Number (if applicable): N/A
Additional Remarks: None
This Patent License Agreement, hereinafter referred to as THE "AGREEMENT,"
consists of this Cover Page, an attached AGREEMENT, a Signature Page, Appendix
A (List of Patent(s) or Patent Applications(s)), Appendix B (Fields of Use and
Territory), Appendix C (Royalties), Appendix D (Benchmarks), and Appendix E
(Commercial Development Plan). The Parties to this AGREEMENT are:
1) The National Institutes of Health ("NIH"), the Centers for Disease Control
and Prevention ("CDC"), or the Food and Drug Administration ("FDA"),
hereinafter singly or collectively referred to as "PHS," agencies ("DHHS");
and
2) The person, corporation, or institution identified ABOVE AND/OR ON THE
Signature Page, having offices at the address indicated on the Signature
Page, hereinafter referred to as "Licensee."
<PAGE> 2
PHS PATENT LICENSE AGREEMENT--EXCLUSIVE
PHS and LICENSEE agree as follows:
1. BACKGROUND
1.01 In the course of conducting biomedical and behavioral research, PHS
investigators made inventions that may have commercial applicability.
1.02 By assignment of rights from PHS employees and other inventors, DHHS,
on behalf of the United States Government, owns intellectual property
rights claimed in any United States and foreign patent applications
or patents corresponding to the assigned inventions. DHHS also owns
any tangible embodiments of these inventions actually reduced to
practice by PHS.
1.03 The Assistant Secretary for Health of DHHS has delegated to PHS the
authority to enter into this AGREEMENT for the licensing of rights to
these inventions under 35 U.S.C. Sections 200-212, the Federal
Technology Transfer Act of 1986, 15 U.S.C. Section 3710a, and/or
the regulations governing the licensing of Government-owned
inventions, 37 CFR Part 404.
1.04 PHS desires to transfer these inventions to the private sector
through commercialization licenses to facilitate the commercial
development of products and processes for public use and benefit.
1.05 LICENSEE desires to acquire commercialization rights to certain of
these inventions in order to develop processes, methods, or
marketable products for public use and benefit.
2. DEFINITIONS
2.01 "BACKGROUND PATENT RIGHTS" shall mean U.S. Patent No. 4,892,827.
2.02 "BENCHMARKS" mean the performance milestones that are set forth in
Appendix D.
2.03 "COMMERCIAL DEVELOPMENT PLAN" means the written commercialization
plan attched as Appendix E.
2.04 "FIRST COMMERCIAL SALE" means the initial transfer by or on behalf of
LICENSEE or its sublicensees of LICENSED PRODUCTS or the initial
practice of a LICENSED PROCESS by or on behalf of LICENSEE or its
sublicensees in exchange for cash or some equivalent to which value
can be assigned for the purpose of determining NET SALES.
2.05 "GOVERNMENT" means the Government of the United States of America.
2.06 "LICENSED FIELDS OF USE" means the fields of use identified in
Appendix B.
2.07 "LICENSED PATENT RIGHTS" means the fields of use identified in
Appendix B.
a) U.S. patent applications and patents listed in Appendix A as such,
all divisions and continuations of these applications, all patents
issuing from such applications, divisions, and continuations,
and any reissues, reexaminations, and extensions of all such
patents;
<PAGE> 3
b) to the extent the following contain one or more claims directed to
the invention or inventions disclosed in a) above: i)
continuations-in-part of a) above; ii) all divisions and
continuations of these continuations-in-part; iii) all patents
issuing from such continuations-in-part, divisions, and
continuations; and iv) any reissues, reexaminations, AND EXTENSIONS
OF ALL SUCH PATENTS;
C) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a) above: all
counterpart foreign applications and patents to a) and b) above,
including those listed in Appendix A.
LICENSED PATENT RIGHTS shall not include b) or c) above to the extent
that they contain one or more claims directed to new matter which
is not the subject matter disclosed in a) above.
2.08 "LICENSED PROCESS(es)" means processes which, in the course of being
practiced would, in the absence of this AGREEMENT, infringe one or
more claims of the LICENSED PATENT RIGHTS that have not been held
invalid or unenforceable by an unappealed or unappealable judgment
of a court of competent jurisdiction.
2.09 "LICENSED PRODUCT(s)" means tangible materials which, in the course
of manufacture, use, or sale would, in the absence of this
AGREEMENT, infringe one or more claims of the LICENSED PATENT RIGHTS
that have not been held invalid or unenforceable by an unappealed or
unappealable judgment of a court of competent jurisdiction.
2.10 "LICENSED TERRITORY" means the geographical area identified in
Appendix B.
2.11 "NET SALES" means the total gross receipts for sales of LICENSED
PRODUCTS or practice of LICENSED PROCESSES by or on behalf of
Licensee or its sublicensees, and from leasing, renting, or otherwise
making LICENSED PRODUCTS available to others without sale or other
dispositions, whether invoiced or not, less returns and allowances
actually granted, packing costs, insurance costs, freight out, taxes
or excise duties imposed on the transaction (if separately invoiced),
and wholesaler and cash discounts in amounts customary in the trade.
No deductions shall be made for commissions paid to individuals,
whether they be with independent sales agencies or regularly employed
by LICENSEE, or sublicensees, and on its payroll, or for the cost of
collections.
2.12 "PRACTICAL APPLICATION" means to manufacture in the case of a
composition or product, to practice in the case of a process or
method, or to operate in the case of a machine or system; and in each
case, under such conditions as to establish that the invention is
being utilized and that its benefits are to the extent permitted by
law or GOVERNMENT regulations available to the public on reasonable
terms.
2.13 "RESEARCH LICENSE" means a nontransferable, nonexclusive license to
make and to use the LICENSED PRODUCTS OR LICENSED PROCESSES as
defined by the LICENSED PATENT RIGHTS for purposes of research
including human clinical trials and not for purposes of commercial
manufacture or distribution or in lieu of purchase if LICENSED
PRODUCTS or LICENSED PROCESSES are marketed by LICENSEE.
3. GRANT OF RIGHTS
3.01 PHS hereby grants and LICENSEE accepts, subject to the terms and
conditions of this AGREEMENT, an exclusive license under the
LICENSED PATENT RIGHTS in the LICENSED TERRITORY to make and have
made, to use and have used, and to sell and have sold any LICENSED
PRODUCTS in the LICENSED FIELDS OF USE and to practice and have
practiced any LICENSED PROCESSES in the LICENSED FIELDS OF USE.
3.02 PHS hereby grants and LICENSEE accepts, subject to the terms and
conditions of this AGREEMENT, a non-exclusive license under the
BACKGROUND PATENT RIGHTS in the LICENSED TERRITORY to
<PAGE> 4
make and have made, to use and have used, and to sell and have sold
any LICENSED PRODUCTS in the LICENSED FIELDS OF USE and to practice
and have practiced any LICENSED PROCESSES in the LICENSED FIELDS OF
USE.
3.03 This AGREEMENT confers no license or rights by implication, estoppel,
or otherwise under any patent applications or patents of PHS other
than LICENSED PATENT RIGHTS and BACKGROUND PATENT RIGHTS regardless
of whether such patents are dominant or subordinate to LICENSED
PATENT RIGHTS or BACKGROUND PATENT RIGHTS.
4. SUBLICENSING
4.01 Upon written approval by PHS which will be given within thirty (30)
days of a written request by LICENSEE, said approval not to be
unreasonably withheld, LICENSEE may enter into sublicensing
agreements under the LICENSED PATENT RIGHTS.
4.02 LICENSEE agrees that any sublicenses granted by it shall provide
that the obligations to PHS of Paragraphs 5.01-5.04, 8.01,
10.01, 10.02, 12.05 and 13.07-13.09 of this AGREEMENT shall be
binding upon the sublicensee as if it were a party to this AGREEMENT.
LICENSEE further agrees to attach copies of these Paragraphs to all
sublicense agreements.
4.03 Any sublicenses granted by LICENSEE shall provide for the
termination of the sublicense, or the conversion to a license
directly between such sublicensees and PHS, at the option of the
sublicensee, upon termination of this AGREEMENT under Article 13.
Such conversion is subject to PHS approval and contingent upon
acceptance by the sublicensee of the remaining provisions of this
AGREEMENT.
4.04 LICENSEE agrees to forward to PHS a copy of each fully executed
sublicense agreement postmarked within thirty (30) days of the
execution of such agreement. To the extent permitted by law, PHS
agrees to maintain each such sublicense agreement in confidence.
5. STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
5.01 PHS reserves on behalf of the GOVERNMENT an irrevocable,
nonexclusive, nontransferable, royalty-free license for the
practice of all inventions licensed under the LICENSED PATENT RIGHTS
throughout the world by or on behalf of the GOVERNMENT and on behalf
of any foreign government or international organization pursuant to
any existing or future treaty or agreement to which the GOVERNMENT is
a signatory. Prior to the FIRST COMMERCIAL SALE, LICENSEE agrees to
provide PHS reasonable quantities of LICENSED PRODUCTS or materials
made through the LICENSED PROCESSES for PHS research use including
for human clinical trials but not for purposes of commercial
development, manufacture or distribution.
5.02 LICENSEE agrees that products used or sold in the United States
embodying LICENSED PRODUCTS or produced through use of
LICENSED PROCESSES shall be manufactured substantially in the United
States, unless a written waiver is obtained in advance from PHS.
5.03 LICENSEE acknowledges that PHS may enter into future Cooperative
Research and Development Agreements (CRADAs) under the Federal
Technology Transfer Act of 1986 that relate to the subject matter of
this AGREEMENT. LICENSEE agrees not to unreasonably deny requests for
a Research License from such future collaborators with PHS when
acquiring such rights is necessary in order to make a CRADA project
feasible. LICENSEE may request an opportunity to join as a party to
the proposed CRADA.
5.04 In addition to the reserved license of Paragraph 5.01 above, PHS
reserves the right to grant such nonexclusive RESEARCH LICENSES
directly or to require LICENSEE to grant nonexclusive RESEARCH
LICENSES on reasonable terms. The purpose of this RESEARCH LICENSE is
to encourage basic
<PAGE> 5
research, whether conducted at an academic or corporate facility.
In order to safeguard the LICENSED PATENT RIGHTS, however, PHS shall
consult with LICENSEE before granting to commercial entities a
RESEARCH LICENSE or providing to them research samples of the
materials.
6. ROYALTIES AND REIMBURSEMENT
6.01 LICENSEE agrees to pay to PHS a noncreditable, nonrefundable
license issue royalty as set forth in Appendix C within
thirty (30) days from the date that this AGREEMENT becomes
effective.
6.02 LICENSEE agrees to pay to PHS a nonrefundable minimum annual
royalty as set forth in Appendix C. The minimum annual royalty
is due and payable on January 1 of each calendar year and may be
credited against any earned royalties due for sales made in that
year. The minimum annual royalty due for the first calendar year of
this AGREEMENT may be prorated according to the fraction of the
calendar year remaining between the effective date of this
AGREEMENT and the next subsequent January 1.
6.03 LICENSEE agrees to pay PHS earned royalties as set forth in
Appendix C.
6.04 LICENSEE agrees to pay PHS benchmark royalties as set forth in
Appendix C.
6.05 LICENSEE agrees to pay PHS sublicensing royalties as set forth in
Appendix C.
6.06 LICENSEE agrees to pay PHS assignment royalties as set forth in
Appendix C.
6.07 A claim of a patent or patent application licensed under
this AGREEMENT shall cease to fall within the LICENSED PATENT
RIGHTS or BACKGROUND PATENT RIGHTS for the purpose of computing the
minimum annual royalty and earned royalty payments in any given
country on the earliest of the dates that a) the claim has been
abandoned but not continued, b) the patent expires or irrevocably
lapses, or c) the claim has been held to be invalid or
unenforceable by an unappealed or unappealable decision of a court
of competent jurisdiction or administrative agency.
6.08 No multiple royalties shall be payable because any LICENSED
PRODUCTS or LICENSED PROCESSES are covered by more than one of the
LICENSED PATENT RIGHTS.
6.09(a) Transfer of LICENSED PRODUCTS by LICENSEE to sublicensees or an
affiliated party made in other than an arm's-length
transaction for no further resale shall be attributed a value which
would have been received in an arm's-length transaction of like
quantity and quality of products sold on or about the time of the
transfer of LICENSED PRODUCTS for the purpose of calculating NET
SALES.
6.09(b) Transfer of LICENSED PRODUCTS by LICENSEE to sublicensees or
affiliated party for further resale shall have attributed either
a value which would have been received in an arm's-length
transaction based on sales of like quantity and quality of products
transferred on or about the time of such transfer of LICENSED
PRODUCTS or the actual value received in a later arm's-length
transaction, whichever is greater, for purposes of calculating NET
SALES.
6.10(a) With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and
patents included within the LICENSED PATENT RIGHTS incurred by PHS
prior to the effective date of this AGREEMENT, LICENSEE shall pay
to PHS, as an additional royalty, within sixty (60) days of PHS's
submission of a statement and request for payment to LICENSEE, an
amount equivalent to such patent expenses previously incurred by
PHS.
6.10(b) With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patents included within the
BACKGROUND PATENT RIGHTS incurred by PHS prior to the effective
date of this AGREEMENT, LICENSEE shall pay to PHS, as an additional
royalty, within (60) days of
<PAGE> 6
PHS's submission of a statement and request for payment an amount
equivalent to three-thousand three-hundred dollars ($3,300.00).
6.11 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and
patents included within the LICENSED PATENT RIGHTS incurred by PHS
on or after the effective date of this AGREEMENT, PHS, at its sole
option, may require LICENSEE:
(a) to pay PHS on an annual basis, within sixty (60) days of PHS's
submission of a statement and request for payment, a royalty amount
equivalent to all such patent expenses incurred during the previous
calendar year(s); or
(b) to pay such expenses directly to the law firm employed by PHS to
handle such functions. However, in such event, PHS and not LICENSEE
shall be the client of such law firm.
Under exceptional circumstances, LICENSEE may be given the right
to assume responsibility for the preparation, filing, prosecution, or
maintenance of any patent application or patent included with the
LICENSED PATENT RIGHTS. In that event, LICENSEE shall directly pay
the attorneys or agents engaged to prepare, file, prosecute or
maintain such patent applications or patents and shall provide to PHS
copies of each invoice associated with such services as well as
documentation that such invoices have been paid.
6.12 LICENSEE may elect to surrender its rights in any country of
the LICENSED TERRITORY under any LICENSED PATENT RIGHTS upon
sixty (60) days written notice to PHS and owe no payment obligation
under Article 6.10 (a) for patent-related expenses incurred in that
country after the effective date of such written notice.
7. PATENT FILING, PROSECUTION, AND MAINTENANCE
7.01 Except as otherwise provided in this Article 7, PHS agrees to take
responsibility for, but to consult with, the LICENSEE in the
preparation, filing, prosecution, and maintenance of any and all
patent applications or patents included in the LICENSED PATENT RIGHTS
and shall furnish copies of relevant patent-related documents to
LICENSEE.
7.02 Upon PHS's written request, LICENSEE shall assume the
responsibility for the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents included
in the LICENSED PATENT RIGHTS and shall on an ongoing basis
promptly furnish copies of all patent-related documents to PHS. In
such event, LICENSEE shall, subject to the prior approval of PHS,
select registered patent attorneys or patent agents to provide such
services on behalf of LICENSEE and PHS.PHS shall provide
appropriate powers of attorney and other documents necessary to
undertake such actions to the patent attorneys or patent agents
providing such services. LICENSEE and its attorneys or agents shall
consult with PHS in all aspects of the preparation, filing,
prosecution and maintenance of patent applications and patents
included within the LICENSED PATENT RIGHTS and shall provide PHS
sufficient opportunity to comment on any document that LICENSEE
intends to file or to cause to be filed with the relevant
intellectual property or patent office.
7.03 At any time, PHS may provide LICENSEE with written notice that PHS
wishes to assume control of the preparation, filing,
prosecution, and maintenance of any and all patent applications or
patents included in the LICENSED PATENT RIGHTS. If PHS elects to
assume such responsibilities, LICENSEE agrees to cooperate fully with
PHS, its attorneys and agents in the preparation, filing,
prosecution, and maintenance of any and all patent applications or
patents included in the LICENSED PATENT RIGHTS and to provide PHS
with complete copies of any and all documents or other materials that
PHS deems necessary to undertake such responsibilities. If PHS elects
to assume control of the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents included in
the LICENSED PATENT RIGHTS for a reason other than LICENSEE'S failure
to perform under this AGREEMENT, PHS shall be responsible for all
costs associated with transferring patent prosecution
responsibilities to an attorney or agent of PHS's choice.
<PAGE> 7
7.04 Each party shall promptly inform the other as to all matters that
come to its attention that may affect the preparation, filing,
prosecution, or maintenance of the LICENSED PATENT RIGHTS and permit
each other to provide comments and suggestions with respect to the
preparation, filing, and prosecution of LICENSED PATENT RIGHTS, which
comments and suggestions shall be considered by the other party.
8. RECORD KEEPING
8.01 LICENSEE agrees to keep accurate and correct records of LICENSED
PRODUCTS made, used, or sold and LICENSED PROCESSES practiced under
this Agreement appropriate to determine the amount of royalties due
PHS. Such records shall be retained for at least five (5) years
following a given reporting period. They shall be available during
normal business hours for inspection at the expense of PHS by an
accountant or other designated auditor selected by PHS for the sole
purpose of verifying reports and payments hereunder. The accountant
or auditor shall only disclose to PHS information relating to the
accuracy of reports and payments made under this AGREEMENT. If an
inspection shows an underreporting or underpayment in excess of five
percent (5%) for any twelve (12) month period, then LICENSEE shall
reimburse PHS for the cost of the inspection at the time Licensee
pays the unreported royalties, including any late charges as required
by Paragraph 9.08 of this AGREEMENT. All payments required under this
Paragraph shall be due within thirty (30) days of the date PHS
provides LICENSEE notice of the payment due.
8.02 LICENSEE agrees to conduct an independent audit of sales and
royalties at least every two years if annual sales of the LICENSED
PRODUCT or LICENSED PROCESSES are over two (2) million dollars. The
audit may be conducted in conjunction with the annual audit performed
on behalf of LICENSEE. The audit shall address, at a minimum, the
amount of gross sales by or on behalf of LICENSEE during the audit
period, the amount of funds owed to the GOVERNMENT under this
AGREEMENT, and whether the amount owed has been paid to the
GOVERNMENT and is reflected in the records of the LICENSEE. A report
by the auditor shall be submitted promptly to PHS on completion.
LICENSEE shall pay for the entire cost of the audit.
9. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS
9.01 Prior to signing this AGREEMENT, LICENSEE has provided to PHS the
COMMERCIAL DEVELOPMENT PLAN at Appendix F, under which
LICENSEE intends to bring the subject matter of the LICENSED PATENT
RIGHTS to the point of PRACTICAL APPLICATION. This COMMERCIAL
DEVELOPMENT PLAN is hereby incorporated by reference into this
Agreement. Based on this plan, performance BENCHMARKS are determined
as specified in Appendix D.
9.02 LICENSEE shall provide written annual reports on its product
development progress or efforts to commercialize under the
COMMERCIAL DEVELOPMENT PLAN for each of the LICENSED FIELDS OF USE
within sixty (60) days after December 31 of each calendar year. These
progress reports shall include, but not be limited to: progress on
research and development, status of applications for regulatory
approvals, manufacturing, sublicensing, marketing, and sales during
the preceding calendar year, as well as plans for the present
calendar year. PHS also encourages these reports to include
information on any of LICENSEE'S public service activities that
relate to the LICENSED PATENT RIGHTS. If reported progress differs
from that projected in the COMMERCIAL DEVELOPMENT PLAN and
BENCHMARKS, LICENSEE shall explain the reasons for such differences.
In any such annual report, LICENSEE may propose amendments to the
COMMERCIAL DEVELOPMENT PLAN, acceptance of which by PHS may not be
denied unreasonably. LICENSEE agrees to provide any additional
information reasonably required by PHS to evaluate LICENSEE'S
performance under this AGREEMENT. LICENSEE may amend the Benchmarks
at any time upon written consent by PHS. PHS shall not unreasonably
withhold approval of any request of LICENSEE to extend the time
periods of this schedule if such request is supported by a reasonable
showing by LICENSEE of diligence in its performance under the
COMMERCIAL DEVELOPMENT PLAN and toward bringing the
<PAGE> 8
LICENSED PRODUCTS to the point of practical application as defined
in 37 CFR 404.3(d). LICENSEE shall amend the COMMERCIAL
DEVELOPMENT PLAN and BENCHMARKS at the request of PHS to address any
LICENSED FIELDS OF USE not specifically addressed in the plan
originally submitted.
9.03 LICENSEE shall report to PHS the date of the FIRST COMMERCIAL SALE
in each country in the LICENSED TERRITORY within thirty (30) days
of such occurrence.
9.04 LICENSEE shall submit to PHS within sixty (60) days after each
calendar half-year ending June 30 and December 31 a royalty
report setting forth for the preceding half-year period the amount
of the LICENSED PRODUCTS sold or LICENSED PROCESSES practiced by or
on behalf of LICENSEE in each country within the LICENSED TERRITORY,
the NET SALES, and the amount of royalty accordingly due. With each
such royalty report, LICENSEE shall submit payment of the earned
royalties due. If no earned royalties are due to PHS for any
reporting period, the written report shall so state. The royalty
report shall be certified as correct by an authorized officer of
LICENSEE and shall include a detailed listing of all deductions made
under Paragraph 2.11 to determine NET SALES made under Article 6 to
determine royalties due.
9.05 LICENSEE agrees to forward semi-annually to PHS a copy of such
reports received by LICENSEE from its sublicensees during the
preceding half-year period as shall be pertinent to a royalty
accounting to PHS by LICENSEE for activities under the sublicense.
9.06 Royalties due under Article 6 shall be paid in U.S. dollars. For
conversion of foreign currency to U.S. dollars, the conversion
rate shall be the New York foreign exchange rate quoted in The Wall
Street Journal on the day that the payment is due. All checks and
bank drafts shall be drawn on United States banks and shall be
payable, as appropriate, for FDA or NIH licenses to the National
Institutes of Health, P.O. Box 360120, Pittsburgh, Pennsylvania
15251-6120. Any loss of exchange, value, taxes, or other expenses
incurred in the transfer or conversion to U.S. dollars shall be paid
entirely by LICENSEE. The royalty report required by Paragraph 9.04
of this AGREEMENT shall accompany each such payment and a copy of
such report shall also be mailed to PHS at its address for notices
indicated on the Signature Page of this AGREEMENT.
9.07 LICENSEE shall be solely responsible for determining if any tax on
royalty income is owed outside the United States and shall pay
any such tax and be responsible for all filings with appropriate
agencies of foreign governments. The taxes paid by LICENSEE on
behalf of PHS may be deducted from the earned royalty due under
paragraph 6.03.
9.08 Late charges will be assessed by PHS as additional royalties on any
overdue payments at a rate of one (1) percent per month
compounded monthly. The payment of such late charges shall not
prevent PHS from exercising any other rights it may have as a
consequence of the lateness of any payment.
9.09 All plans and reports required by this Article 9 and marked
"confidential" by LICENSEE shall, to the extent permitted by law, be
treated by PHS as commercial and financial information obtained from
a person and as privileged and confidential and any proposed
disclosure of such records by the PHS under the Freedom of
Information Act, 5 U.S.C. Section 552 shall be subject to the
predisclosure notification requirements of 45 CFR Section 5.65(d).
10. PERFORMANCE
10.01 LICENSEE shall use its reasonable best efforts to bring
the License Products and Licensed Processes to Practical
Application. "Reasonable best efforts" for the purposes of this
provision shall include adherence to the COMMERCIAL DEVELOPMENT
PLAN at Appendix F and performance of the BENCHMARKS at Appendix
D. The efforts of a sublicensee shall be considered the efforts of
LICENSEE.
<PAGE> 9
10.02 Upon the FIRST COMMERCIAL SALE, until the expiration of this
Agreement, LICENSEE shall use its reasonable best efforts to make
LICENSED PRODUCTS and LICENSED PROCESSES reasonably accessible to
the United States public.
11. INFRINGEMENT AND PATENT ENFORCEMENT
11.01 PHS and LICENSEE agree to notify each other promptly of each
infringement or possible infringement of the LICENSED PATENT RIGHTS,
as well as any facts which may affect the validity, scope, or
enforceability of the LICENSED PATENT RIGHTS of which either Party
becomes aware.
11.02 Pursuant to this AGREEMENT and the provisions of Chapter 29 of
title 35, United States Code, LICENSEE may a) bring suit in its own
name, at its own expense, and on its own behalf for infringement
of presumably valid claims in the LICENSED PATENT RIGHTS; b) in any
such suit, enjoin infringement and collect for its use, damages,
profits, and awards of whatever nature recoverable for such
infringement; and c) settle any claim or suit for infringement of
the LICENSED PATENT RIGHTS provided, however, that PHS and
appropriate GOVERNMENT authorities shall have the first right to
take such actions. If LICENSEE desires to initiate a suit for patent
infringement, LICENSEE shall notify PHS in writing. If PHS does not
notify LICENSEE of its intent to pursue legal action within ninety
(90) days, LICENSEE will be free to initiate suit. PHS shall have a
continuing right to intervene in such suit. LICENSEE shall take no
action to compel the GOVERNMENT either to initiate or to join in any
such suit for patent infringement. LICENSEE may request the
GOVERNMENT to initiate or join in any such suit if necessary to
avoid dismissal of the suit. Should the GOVERNMENT be made a party
to any such suit, LICENSEE shall reimburse the GOVERNMENT for any
costs, expenses, or fees which the GOVERNMENT incurs as a result of
such motion or other action, including any and all costs incurred by
the GOVERNMENT in opposing any such motion or other action. In all
cases, LICENSEE agrees to keep PHS reasonably apprised of the status
and progress of any litigation. Before LICENSEE commences an
infringement action, LICENSEE shall notify PHS and give careful
consideration to the views of PHS and to any potential effects of
the litigation on the public health in deciding whether to bring
suit.
11.03 In the event that a declaratory judgment action alleging invalidity
or non-infringement of any of the LICENSED PATENT RIGHTS shall be
brought against LICENSEE or raised by way of counterclaim or
affirmative defense in an infringement suit brought by LICENSEE
under Paragraph 11.02, pursuant to this AGREEMENT and the provisions
of Chapter 29 of Title 35, United States Code or other statutes,
LICENSEE may a) defend the suit in its own name, at its own expense,
and on its own behalf for presumably valid claims in the LICENSED
PATENT RIGHTS; b) in any such suit, ultimately to enjoin
infringement and to collect for its use, damages, profits, and
awards of whatever nature recoverable for such infringement; and c)
settle any claim or suit for declaratory judgment involving the
LICENSED PATENT Rights-provided, however, that PHS and appropriate
Government authorities shall have the first right to take such
actions and shall have a continuing right to intervene in such suit.
If PHS does not notify LICENSEE of its intent to respond to the
legal action within a reasonable time, LICENSEE will be free to do
so. Licensee shall take no action to compel the GOVERNMENT either to
initiate or to join in any such declaratory judgment action.
LICENSEE may request the GOVERNMENT to initiate or to join any such
suit if necessary to avoid dismissal of the suit. Should the
GOVERNMENT be made a party to any such suit by motion or any other
action of LICENSEE, LICENSEE shall reimburse the GOVERNMENT for any
costs, expenses, or fees which the GOVERNMENT incurs as a result of
such motion or other action. If LICENSEE elects not to defend
against such declaratory judgment action, PHS, at its option, may do
so at its own expense. In all cases, LICENSEE agrees to keep PHS
reasonably apprised of the status and progress of any litigation.
Before LICENSEE commences an infringement action, LICENSEE shall
notify PHS and give careful consideration to the views of PHS and to
any potential effects of the litigation on the public health in
deciding whether to bring suit.
11.04 In any action under Paragraphs 11.02 or 11.03, the expenses
including costs, fees, attorney fees, and disbursements,
shall be paid by LICENSEE. Up to twenty-five percent (25%) of such
expenses may be credited against the royalties payable to PHS under
Paragraph 6.03 under the LICENSED
<PAGE> 10
PATENT RIGHTS in the country in which such a suit is filed. In the
event that twenty-five percent (25%) of such expenses exceed the
amount of royalties payable by LICENSEE in any calendar year, the
expenses in excess may be carried over as a credit on the same basis
into succeeding calendar years. A credit against litigation
expenses, however, may not reduce the royalties due in any calendar
year to less than the minimum annual royalty. Any recovery made by
LICENSEE, through court judgment or settlement, first shall be
applied to reimburse PHS for royalties withheld as a credit against
litigation expenses and then to reimburse LICENSEE for its
litigation expense. Any remaining recoveries shall be split with
seventy-five (75%) going to Licensee and twenty-five percent (25%)
going to PHS.
11.05 PHS shall cooperate fully with LICENSEE in connection with any
action under Paragraphs 11.02 or 11.03. PHS agrees promptly
to provide access to all necessary documents and to render
reasonable assistance in response to a request by LICENSEE.
12. NEGATION OF WARRANTIES AND INDEMNIFICATION
12.01 PHS offers no warranties other than those specified in Article 1.
12.02 PHS does not warrant the validity of the LICENSED PATENT
RIGHTS and makes no representations whatsoever with regard to the
scope of the LICENSED PATENT RIGHTS, or that the LICENSED PATENT
RIGHTS may be exploited without infringing other patents or other
intellectual property rights of third parties.
12.03 PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER OR
DEFINED BY THE CLAIMS OF THE LICENSED PATENT RIGHTS.
12.04 PHS does not represent that it will commence legal actions against
third parties infringing the LICENSED PATENT RIGHTS.
12.05 LICENSEE shall indemnify and hold PHS, its employees, students,
fellows, agents, and consultants harmless from and against all
liability, demands, damages, expenses, and losses, including but not
limited to death, personal injury, illness, or property damage in
connection with or arising out of a) the use by or on behalf of
LICENSEE, its sublicensees, directors, employees, or third parties
of any LICENSED PATENT RIGHTS, or b) the design, manufacture,
distribution, or use of any LICENSED PRODUCTS, LICENSED PROCESSES or
materials by Licensee, or other products or processes developed in
connection with or arising out of the LICENSED PATENT RIGHTS.
LICENSEE agrees to maintain a liability insurance program consistent
with sound business practice.
13. TERM TERMINATION. AND MODIFICATION OF RIGHTS
13.01 This AGREEMENT is effective when signed by all parties and
shall extend to the expiration of the last to expire of the
LICENSED PATENT RIGHTS unless sooner terminated as provided in
this Article 13.
13.02 In the event that LICENSEE is in default in the performance of any
material obligations under this AGREEMENT, including but not
limited to the obligations listed in Article 13.05, and if the
default has not been remedied within ninety (90) days after the date
of notice in writing of such default, PHS may terminate this
AGREEMENT by written notice.
13.03 In the event that LICENSEE becomes insolvent, files a petition in
bankruptcy, has such a petition filed against it, determines to
file a petition in bankruptcy, or receives notice of a third party's
intention to file an involuntary petition in bankruptcy, LICENSEE
shall immediately notify PHS in writing.
13.04 LICENSEE shall have a unilateral right to terminate this AGREEMENT
and/or any licenses in any
<PAGE> 11
country by giving PHS sixty (60) days written notice to that
effect.
13.05 PHS shall specifically have the right to terminate or modify, at
its option, this AGREEMENT, if PHS determines that the LICENSEE:
1) is not executing the COMMERCIAL DEVELOPMENT PLAN submitted
with its request for a license and the LICENSEE cannot otherwise
demonstrate to PHS's satisfaction that the LICENSEE has taken,
or can be expected to take within a reasonable time, effective
steps to achieve practical application of the LICENSED PRODUCTS
or LICENSED PROCESSES; 2) has not achieved the Benchmarks as may
be modified under Paragraph 9.02; 3) has willfully made a false
statement of, or willfully omitted, a material fact in the
license application or in any report required by the license
agreement; 4) has committed a material breach of a covenant or
agreement contained in the license; 5) is not keeping LICENSED
PRODUCTS or LICENSED PROCESSES reasonably available to the
public after commercial use commences; 6) cannot reasonably
satisfy unmet health and safety needs; or 7) cannot reasonably
justify a failure to comply with the domestic production
requirement of Paragraph 5.02 unless waived. In making this
determination, PHS will take into account the normal course of
such commercial development programs conducted with sound and
reasonable business practices and judgment and the annual
reports submitted by LICENSEE under Paragraph 9.02. Prior to
invoking this right, PHS shall give written notice to LICENSEE
providing LICENSEE specific notice of, and a ninety (90) day
opportunity to respond to, PHS's concerns as to the previous
items 1) to 7). If LICENSEE fails to alleviate PHS's concerns as
to the previous items 1) to 7) or fails to initiate corrective
action to PHS's satisfaction, PHS may terminate this AGREEMENT.
13.06 When the public health and safety so require, and after written
notice to LICENSEE providing LICENSEE a sixty (60) day
opportunity to respond, PHS shall have the right to require
LICENSEE to grant sublicenses to responsible applicants, on
resonable terms, in any Licensed Fields of Use under the
Licensed Patent Rights, unless LICENSEE can reasonably
demonstrate that the granting of the sublicense would not
materially increase the availability to the public of the
subject matter of the LICENSED PATENT RIGHTS. PHS will not
require the granting of a sublicense unless the responsible
applicant has first negotiated in good faith with LICENSEE.
13.07 PHS reserves the right according to 35 U.S.C. Section 209(f)(4)
to terminate or modify this AGREEMENT if it is determined that
such action is necessary to meet requirements for public use
specified by federal regulations issued after the date of the
license and such requirements are not reasonably satisfied by
LICENSEE.
13.08 Within thirty (30) days of receipt of written notice of PHS's
unilateral decision to modify or terminate this Agreement,
LICENSEE may, consistent with the provisions of 37 CFR 404.11,
appeal the decision by written submission to the designated PHS
official. The decision of the designated PHS official shall be
the final agency decision. LICENSEE may thereafter exercise any
and all administrative or judicial remedies that may be
available.
13.09 Within ninety (90) days of termination of this AGREEMENT under
this Article 13 or expiration under Paragraph 3.02, a final
report shall be submitted by LICENSEE. Any royalty payments,
including those related to patent expense, due to PHS shall
become immediately due and payable upon termination or
expiration. If terminated under this Article 13, sublicensees
may elect to convert their sublicenses to direct licenses with
PHS pursuant to Paragraph 4.03.
14. GENERAL PROVISIONS
14.01 Neither Party may waive or release any of its rights or
interests in this AGREEMENT except in writing. The failure of
the GOVERNMENT to assert a right hereunder or to insist upon
compliance with any term or condition of this AGREEMENT shall
not constitute a waiver of that right by the GOVERNMENT or
excuse a similar subsequent failure to perform any such term or
condition by LICENSEE.
14.02 This AGREEMENT constitutes the entire agreement between the
Parties relating to the subject
<PAGE> 12
matter of the LICENSED PATENT RIGHTS, and all negotiations,
representations, agreements, and understandings are merged into,
extinguished by, and completely expressed by this AGREEMENT.
14.03 The provisions of this AGREEMENT are severable, and in the event that
any provision of this AGREEMENT shall be determined to be invalid or
unenforceable under any controlling body of law such determination shall
not in any way affect the validity or enforceability of the remaining
provisions of this AGREEMENT.
14.04 If either Party desires a modification to this AGREEMENT, the Parties
shall, upon reasonable notice of the proposed modification by the Party
desiring the change, confer in good faith to determine the desirability
of such modification. No modification will be effecffve until a written
amendment is signed by the signatories to this AGREEMENT or their
designees.
14.05 The construction, validity, performance, and effect of this AGREEMENT
shall be governed by Federal law as applied by the Federal courts in the
District of Columbia.
14.06 All notices required or permitted by this AGREEMENT shall be given by
prepaid, first class, registered or certified mail properly addressed to
the other Party at the address designated on the following Signature
Page, or to such other address as may be designated in writing by such
other Party, and shall be effective as of the date of the postmark of
such notice..
14.07 This AGREEMENT shall not be assigned by LICENSEE except a) with the
prior written consent of PHS, such consent not to be withheld
unreasonably; or b) as part of a sale or transfer of substantially the
entire business of LICENSEE relating to operations which concern this
Agreement. LICENSEE shall notify PHS within ten (10) days of any
assignment of this Agreement by LICENSEE.
14.08 LICENSEE agrees in its use of any PHS-supplied materials to comply with
all applicable statutes, regulations, and guidelines, including Public
Health Service and National Institutes of Health regulations and
guidelines. LICENSEE agrees not to use the materials for research
involving human subjects or clinical trials in the United States without
complying with 21 CFR Part 50 and 45 CFR Part 46. Licensee agrees not to
use the materials for research involving human subjects or clinical
trials outside of the United States without notifying PHS, in writing, of
such research or trials and complying with the applicable regulations of
the appropriate national control authorities.. Written notification to
PHS of research involving human subjects or clinical trials outside of
the United States shall be given no later than sixty (60) days prior to
commencement of such research or trials.
14.09 LICENSEE acknowledges that it is subject to and agrees to abide by
the United States laws and regulations (including the Export
Administration Act of 1979 and Arms Export Control Act) controlling the
export of technical data, computer software, laboratory prototypes,
biological material, and other commodities. The transfer of such items
may require a license from the cognizant Agency of the U.S. GOVERNMENT
or written assurances by LICENSEE that it shall not export such items
to certain foreign countries without prior approval of such agency. PHS
neither represents that a license is or is not required or that, if
required, it shall be issued.
14.10 LICENSEE agrees to mark the LICENSED PRODUCTS or their packaging sold
in the United States with all applicable U.S. patent numbers and
similarly to indicate "Patent Pending" status. All LICENSED PRODUCTS
manufactured in, shipped to, or sold in other countries shall be marked
in such a manner as to preserve PHS patent rights in such countries.
14.11 By entering into this AGREEMENT, PHS does not directly or indirectly
endorse any product or service provided, or to be provided, by LICENSEE
whether directly or indirectly related to this Agreement. LICENSEE shall
not state or imply that this AGREEMENT is an endorsement by the
GOVERNMENT, PHS, any other GOVERNMENT organizational unit, or any
GOVERNMENT employee.
<PAGE> 13
Additionally, LICENSEE shall not use the names of NIH, CDC, PHS,
or DHHS or the GOVERNMENT or their employees in any advertising,
promotional, or sales literature without the prior written
consent of PHS.
14.12 The Parties agree to attempt to settle amicably any controversy
or claim arising under this Agreement or a breach of this
Agreement, except for appeals of modifications or termination
decisions provided for in Article 13. LICENSEE agrees first to
appeal any such unsettled claims or controversies to the
designated PHS official, or designee, whose decision shall be
considered the final agency decision. Thereafter, LICENSEE may
exercise any administrative or judicial remedies that may be
available.
14.13 Nothing relating to the grant of a license, nor the grant
itself, shall be construed to confer upon any person any
immunity from or defenses under the antitrust laws or from a
charge of patent misuse, and acquisition and use of rights
pursuant to 37 CFR Part 404 shall not be immunized from the
operation of state or Federal law by reason of the source of the
grant.
14.14 Paragraphs 4.03, 8.01, 9.06-9.08, 12.01-12.05, 13.08, 13.09, and
14.12 of this AGREEMENT shall survive termination of this
AGREEMENT.
SIGNATURES BEGIN ON NEXT PAGE
<PAGE> 14
PHS PATENT LICENSE AGREEMENT -- EXCLUSIVE
SIGNATURE PAGE
For PHS:
/s/ 9/23/97
- ------------------------------------------------ ----------------
Signature of Authorized PHS Official Date
- ------------------------------------------------
Printed Name
- ------------------------------------------------
Title
Mailing Address for Notices:
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
For LICENSEE (Upon, information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of LICENSEE made or referred to
in this document are truthful and accurate.):
by:
/s/
- ------------------------------------------------ ----------------
Signature of Authorized Official Date
John N. Kapoor, Ph.D.
- ------------------------------------------------
Printed Name
Chairman
- ------------------------------------------------
Title
Mailing Address for Notices:
225 East Deerpath Rd.
- ------------------------------------------------
Suite 250
- ------------------------------------------------
Lake Forest, IL 60045
- ------------------------------------------------
<PAGE> 15
APPENDIX A -- PATENT(s) OR PATENT APPLICATION(s)
PATENT(s) OR PATENT APPLICATION(s) THAT ARE LICENSED PATENT RIGHTS:
U.S. Patent 5,614,191 issued March 25, 1997
USSN 08/821,840 (div of 08/404,685) filed March 21, 1997
PATENT(s) OR PATENT APPLICATION(s) THAT ARE BACKGROUND PATENT RIGHTS:
U.S. Patent 4,892,827 issued January 9, 1990
<PAGE> 16
APPENDIX B -- LICENSED FIELDS OF USE AND TERRITORY
LICENSED FIELDS OF USE: Use of the chimeric molecule hIL-13-PE38QQR or
cphIL-13-PE38QQR to treat cancer.
LICENSED TERRITORY: World-wide
<PAGE> 17
APPENDIX C -- ROYALTIES
ROYALTIES:
1. LICENSEE agrees to pay to PHS a noncreditable, nonrefundable license issue
royalty in the amount of seventy-five thousand dollars ($75,000).
2. LICENSEE agrees to pay to PHS a nonrefundable minimum annual royalty in the
amount of ten thousand dollars ($10,000) prior to the FIRST COMMERCIAL SALE or
twenty-five thousand dollars ($25,000.00) after the FIRST COMMERCIAL SALE.
3. LICENSEE agrees to pay PHS an earned royalty of four percent (4%) on NET
SALES; provided however that LICENSEE shall be entitled to a credit of one-half
percent (0.5%) against the earned royalty rate for each percent point in excess
of two percent (2.0%) that LICENSEE must pay to an unaffiliated licensor for
the manufacture and sale of LICENSED PRODUCTS. Said credit, however, shall not
reduce the earned royalty due to PHS for LICENSED PRODUCTS below two percent
(2.0%).
4. LICENSEE agrees to pay PHS benchmark royalties as follows:
<TABLE>
<S> <C>
1. Submission of first IND $25,000
2. Completion of first Phase I Clinical Trial $50,000
3. Completion of first Phase II Clinical Trial $75,000
4. Completion of each additional Phase II Clinical Trial $35,000
5. Completion of first Phase III Clinical Trial $100,000
6. Completion of each additional Phase III Clinical Trial $50,000
7. Approval of first BLA/ELA/PLA/NDA $300,000
8. Approval of each additional BLA/PLA/ELA/NDA $150,000
</TABLE>
5. LICENSEE agrees to pay PHS sublicensing royalties as follows:
(a) Twenty-five percent (25%) of earned royalties paid by a sublicensee on
NET SALES or two percent of the NET SALES of a sublicensee, whichever is
greater; and
(b) Twenty percent (20%) of all non-creditable and non-refundable
consideration received for granting a sublicense, if the technology is
sublicensed on or before the one year anniversary of this AGREEMENT; or
ten percent (10%) of all non-creditable and non-refundable
consideration received in granting a sublicense, if the technology is
sublicensed after the one year anniversary of this AGREEMENT. Fees paid
expressly for research and development of LICENSED PRODUCT and LICENSED
PROCESSES, such as clinical trial support, shall be excluded.
6. In the event that Licensee shall transfer, in a separate and distinct
transaction, that aspect of its business involving this AGREEMENT, Licensee
agres to pay PHS an assignment royalty of fifteen-percent (15%) of any cash
consideration received as part of such sale or transfer, provided, however,
that no such royalty shall be owned to PHS in the event that the foregoing
transfer is part of or results from a merger, consolidation or other
reorganization of the LICENSEE or from a sale, exchange or other transfer of
all or substantially all of its assets.
<PAGE> 18
APPENDIX D -- Benchmarks and Performance
LICENSEE agrees to the following BENCHMARKS, for its performance under this
AGREEMENT and, within ten (10) days of achieving a BENCHMARK, shall notify
PHTS that the BENCHMARK has been achieved.
<TABLE>
<CAPTION>
BENCHMARK DEADLINE
---------- --------
<S> <C>
1. Pilot Scale Up Production 1. within one year of executing this Agreement but
no later than August 1, 1998
2. Initiation of In Vivo Efficacy Studies 2. December 1, 1998
3 Completion of In Vivo Efficacy Studies 3. October 1, 1999
4 Initiation of Toxicological end Pharmacological 4. April 1, 2000
Studies
5. Completion of Toxicological and 5. April 1, 2001
Pharmacological Studies
6. IND Submission 6. November 1, 2001
7 Initiation of Phase I Clinical Trial 7. March 1, 2002
8 Completion of Phase I Clinical Trial 8. March 1, 2003
9. Initiation of Small Phase II Clinical Trials for 9. September 1, 2003
Renal Cell Carcinoma (use 20 patients)
10. Completion of Small Phase II Clinical Trial in 10. March 1, 2004
patients with Renal Cell Carcinoma
11. Initiation of Large Phase II Clinical Trials in Renal 11. September, 2004
Cell Carcinoma (use at least 150 patients)
12. Election of 2nd cancer type* for development 12. March, 2005
13. Initiation of Small Phase II Clinical Trial on 2nd 13. September, 2005
Cancer type to be developed
14. Completion of Large Phase II in patients with 14. March, 2006
Renal Cell Carcinoma
15. Completion of Small Phase II Clinical Trial on 2nd 15. June, 2006
Cancer to be developed
16. Initiation of Phase III Clinical Trial for Renal Cell 16. September, 2006
Cancer
17. Initiation of Large Phase II Clinical Trial for 2nd 17. January, 2007
Cancer type to be developed
18. Submission of a Revised Development Plan which 18. June, 2007
includes election of 3rd indication to be developed
and benchmarks for development
19. Completion of Large Phase II Clinical Trial for 2nd 19. June, 2008
Cancer type to be developed
20. Completion of Phase III Clinical Trial Renal Cell 20. September, 2008
Cancer
21. Initiation of Phase III Clinical Trial for 2nd Cancer 21. January, 2009
type to be developed
22 BLA Submission for Renal Cell Cancer 22. March, 2009
23 Product Launch for Renal Cell Cancer 23. March, 2010
24. Completion of Phase III Clinical Trial for 2nd 24. January, 2011
Cancer type in development
25 BLA Submission for 2nd Cancer Type Developed 25. June, 2011
26 Product Launch for 2nd Cancer Type Developed 26. June, 2012
</TABLE>
- ---------------------------
* The next therapy to be developed will treat
either brain, pancreatic, ovarian, prostate, breast
or colon cancer or Karposi's sarcoma.
<PAGE> 19
APPENDIX E -- COMMERCIAL DEVELOPMENT PLAN
SEE ATTACHED
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 16th day of March, 1998,
by and between NEOPHARM, INC., a Delaware corporation (the "Company") and JAMES
M. HUSSEY ("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. Employment. Throughout the Term (as defined in Section 2 below), the
Company shall employ Executive as provided herein, and Executive hereby
accepts such employment. In accepting such employment, Executive states
that, to the best of his knowledge, he is not now, and by accepting such
employment, will not be, under any restrictions in the performance of the
duties contemplated under this Agreement as a result of the provisions of
any prior employment agreement or non-compete or similar agreement to
which Executive is or was a party.
2. Term of Employment. The term of Executive's employment by the Company
hereunder shall commence on March 16, 1998 (the "Effective Date") and
shall continue thereafter unless sooner terminated as a result of
Executive's death or in accordance with the provisions of Section 7 below
(the "Term").
3. Duties. Throughout the Term, and except as otherwise expressly provided
herein, Executive shall be employed by the Company as the President and
Chief Executive Officer ("CEO") of the Company. In such capacity,
Executive shall devote his full time to the performance of his duties as
President and CEO of the Company in accordance with the Company's By-laws,
this Agreement and the directions of the Company's Board of Directors. In
addition, the Company shall promptly appoint Executive to the Board and
thereafter nominate Executive as a nominee for election to the Board and
solicit proxies for his election for so long as this Agreement is in
effect. Without limiting the generality of the foregoing, throughout the
Term Executive shall faithfully perform his duties as President and CEO at
all times so as to promote the best interests of the Company.
4. Compensation.
(a) Salary. For any and all services performed by Executive
under this Agreement during the Term, in whatever capacity, the
Company shall pay to Executive an annual salary of Two Hundred Fifty
Thousand Dollars ($250,000) per year (the "Salary") less any and all
applicable federal, state and local payroll and withholding
<PAGE> 2
taxes. The Salary shall be paid in the same increments as the
Company's normal payroll, but no less frequent than monthly and
prorated, however, for any period of less than a full month. The
Salary will be reviewed annually by the Compensation Committee of
the Board and a determination shall be made at that time as to the
appropriateness of an increase, if any, thereto.
(b) Bonus. In addition to the Salary, Executive shall be
eligible to receive from the Company an incentive compensation bonus
(the "Bonus") based on a percentage of his Salary. The Bonus, if
any, shall be determined based on the achievement by the Company of
certain specific strategic plans and goals (the "Performance Goals")
during the preceding calendar year (the "Measurement Period") as
shall be determined by the Board in consultation with the Executive.
The initial Performance Goals will be established by the Board
within ninety (90) days of Executive's employment hereunder.
Thereafter, the Performance Goals for each Measurement Period shall
be established as promptly as possible in each such Measurement
Period, with the expectation that the Performance Goals be in place
each year prior to distribution of the Company's annual proxy
materials. Following each Measurement Period, the Compensation
Committee of the Board shall review the Performance Goals for the
prior Measurement Period in light of the Company's actual
performance during such Measurement Period as reflected on the
Company's audited financial statements. Achievement of various
levels of the Performance Goals shall result in the following
payments as a percentage of Salary:
<TABLE>
<CAPTION>
Level of Achievement Bonus as Percent of Salary
-------------------- --------------------------
<S> <C>
Below Threshold 0%
Threshold Goal 20-50%
TargetGoal 50%
Stretch Goal 50-80%
</TABLE>
Payment of each year's Bonus, if any, shall be made within
thirty (30) days after the Company's performance for the Measurement
Period is established on the basis of the Company's audited
financial statements. In addition, and at its sole discretion, the
Board may award additional compensation to Executive based on
Executive's contributions to the Company.
5. Benefits and Other Rights. In consideration for Executive's performance
under this Agreement, the Company shall provide to Executive the following
benefits:
(a) The Company will provide Executive with cash advances for or
reimbursement of all reasonable out-of-pocket business expenses
incurred by Executive in connection with his employment hereunder;
provided, Executive adheres to any and all reasonable policies
established by Company from time to time with respect to such
2
<PAGE> 3
reimbursements or advances, including, but not limited to, a
requirement that Executive submit supporting evidence of any such
expenses to the Company.
(b) The Company will provide Executive with a monthly car
allowance in the amount of Seven Hundred and Fifty Dollars ($750.00)
subject to standard payroll withholding for taxes.
(c) The Company will provide Executive and his family with group
medical coverage under the terms of the Company's health insurance
plan, but subject to completion of normal waiting periods. During
any such waiting period, or in the event that at the date of this
Agreement the Company's group medical coverage is not yet in effect,
then, in either case, Company will pay, or reimburse Executive for,
the cost of COBRA coverage for Executive and his family under his
prior health plan.
(d) During the Term the Executive shall be entitled to three (3)
weeks paid vacation, it being understood and agreed that unused
vacation shall not be carried over from one year to the next.
(e) As a one time benefit, the Company will reimburse, or pay
directly on Executive's behalf, the expenses, including, but not
limited to, realtor fees, associated with moving Executive's family
and household possessions from Naperville, Illinois to the northern
suburbs of the Chicago metropolitan area ("Moving Expenses");
provided, in each case, that Executive shall provide such
documentation of all Moving Expenses as the Company shall reasonably
request.
6. Options.
(a) The Company shall grant to Executive options pursuant to the
Company's 1995 Stock Plan (the "Option Plan"), as amended, to
purchase 400,000 shares of the Company's common stock at an option
exercise price of $4.75 per share of common stock (the "Options")
which was the fair market value (as determined under the Option
Plan) of the Company's common stock as of January 12, 1998, which
was the date of Executive's acceptance of employment with the
Company and which date shall be the date of grant of the Options for
purposes of the Option Plan (the "Date of Grant"). The Options
shall vest in equal installments of 100,000 Options per year on each
of the first four anniversaries of the Date of Grant. The Options
shall not be exercisable subsequent to the date ten (10) years after
the Date of Grant. In all other respects the Options shall be
governed by the terms and conditions of the Option Plan.
(b) In the event the Company shall elect to obtain additional
capital investment in the future, after the completion of any such
capital investment program by the Company, the Board will evaluate
the awarding of additional stock options to Executive based
3
<PAGE> 4
on the success of such fundraising endeavors and Executive's
contributions to that success.
7. Termination of the Term.
(a) The Company shall have the right to terminate the Term,
effective upon delivery of written notice of termination to
Executive setting forth the basis of such termination, under the
following circumstances:
(i) Executive shall die; or
(ii) With or without cause, effective ninety (90) days
after delivery of written notice to Executive by the Company
or, in lieu of said ninety (90) day notice, upon payment to
Executive of three months compensation based on his then
current Salary.
(b) This Agreement may be terminated by the Executive at any time
upon ninety (90) days prior written notice to the Company.
8. Effect of Expiration or Termination of the Term. Promptly following
the termination of the Term, and except as provided in Section 7 or as
otherwise expressly agreed by the Company, Executive shall
(a) provide the Company with all reasonable assistance necessary
to permit the Company to continue its business operations without
interruption and in a manner consistent with reasonable business
practices; provided, however, that such transition period shall not
exceed thirty (30) days after termination nor require more than
forty (40) hours of Executive's time per week. In the event that
the Company shall request Executive to provide transitional
assistance after the effective date of termination, Executive shall
be paid at any hourly rate based on an 8 hour work day, a 2,080 hour
work year and his then current Salary, based upon time sheets
submitted by Executive specifying the services performed and the
amount of time expended;
(b) deliver to the Company possession of any and all property
owned or leased by the Company which may then be in Executive's
possession or under his control, including without limitation any
and all such keys, credit cards, automobiles, equipment, supplies,
books, records, files, computer equipment, computer software and
other such tangible and intangible property of any description
whatsoever. If, following the expiration or termination of the
Term, Executive shall receive any mail addressed to the Company,
then Executive shall immediately deliver such mail, unopened and in
its original envelope or package, to the Company; and
(c) Other than as provided in Section 7, upon a termination of
employment all other benefits and/or entitlements to participate in
programs or benefits, if any, will cease
4
<PAGE> 5
as of the effective date medical insurance coverage at his own
expense as provided by applicable law or written Company policy.
9. Confidentiality. The Executive acknowledges that during the period of
his employment by the Company, and in his performance of services
hereunder, he will be placed in a relationship of trust and confidence
regarding the Company and its affairs. In the course of and due to that
relationship he will have contact with the Company's customers, suppliers,
affiliates, and distributors and their personnel. In the course of the
aforesaid relationship, he will have access to and will acquire
confidential information relating to the business and operations of the
Company, including, without limitation, information relating to processes,
plans and methods of operation of the Company. The Executive acknowledges
that any such information that is not a trade secret, nonetheless
constitutes confidential information as between himself and the Company,
that the disclosure thereof (or of any information which he knows relates
to confidential, trade, or other secret aspects of the Company's business)
would cause substantial loss to the goodwill of the Company, and will
continue to be made known to Executive only because of the position of
trust and confidence which he will continue to occupy hereunder. In view
of the foregoing, and in consideration of the covenants and premises of
this Agreement, the Executive agrees that he will not, at any time during
the term of his employment, and for a period of twelve months thereafter,
disclose to any person, firm or company any trade secrets or confidential
information or such ideas which he may have acquired or developed or may
acquire or develop relating to the Business of the Company while serving
the Company as an Executive.
10. Remedies.
(a) The covenants of Executive set forth in Section 9 are
separate and independent covenants for which valuable consideration
has been paid, the receipt, adequacy and sufficiency of which are
acknowledged by Executive, and have also been made by Executive to
induce the Company to enter into this Agreement. The aforesaid
covenants may be availed of, or relied upon, by the Company in any
court of competent jurisdiction, and shall form the basis of
injunctive relief and damages including expenses of litigation
(including, but not limited to, reasonable attorney's fees upon
trial and appeal) suffered by the Company arising out of any breach
of the aforesaid covenants by Executive. The covenants of Executive
set forth in this Section 10 are cumulative to each other and to all
other covenants of Executive in favor of the Company contained in
this Agreement and shall survive the termination of this Agreement
for the purposes intended.
(b) The covenants contained in Section 9 above shall be construed
as agreements which are independent of any other provision of this
Agreement, and the existence of any claim or cause of action by any
party hereto against any other party hereto, of whatever nature,
shall not constitute a defense to the enforcement of such covenants.
If any of such covenants shall be deemed unenforceable by virtue of
its scope in terms
5
<PAGE> 6
of geographical area, length of time or otherwise, but may be made
enforceable by the imposition of limitations thereon, Executive
agrees that the same shall be enforceable to the fullest extent
permissible under the laws and public policies of the jurisdiction
in which enforcement is sought. The parties hereto hereby authorize
any court of competent jurisdiction to modify or reduce the scope of
such covenants to the extent necessary to make such covenants
enforceable.
11. Enforcement Costs. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any provisions of
this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorney's fees, court costs and all
expenses even if not taxable as court costs (including, without
limitation, all such fees, costs and expenses incident to appeal and other
post-judgment proceedings), incurred in that action or proceeding, in
addition to any other relief to which such party or parties may be
entitled. Attorney's fees shall include, without limitation, paralegal
fees, investigative fees, administrative costs, sales and use taxes and
all other charges billed by the attorney to the prevailing party.
12. Notices. Any and all notices necessary or desirable to be served
hereunder shall be in writing and shall be
(a) personally delivered, or
(b) sent by certified mail, postage prepaid, return
receipt requested, or guaranteed overnight delivery by a
nationally recognized express delivery company, in each case
addressed to the intended recipient at the address set forth
below.
(c) For notices sent to the Company:
NeoPharm, Inc.
100 Corporate North
Bannockburn, Illinois 60015
Telephone No.: (847) 295-8678
Facsimile No.: (847) 295-8654
With a copy to:
Burke, Warren, Mackay & Serritella, P.C.
330 N. Wabash, Suite 2200
Chicago, Illinois 60611
Attn: Christopher R. Manning
6
<PAGE> 7
(d) For notices sent to Executive:
James M. Hussey
4111 Kingshill Circle
Naperville, Illinois 60564
Either party hereto may amend the addresses for notices to such party
hereunder by delivery of a written notice thereof served upon the other
party hereto as provided herein. Any notice sent by certified mail as
provided above shall be deemed delivered on the third (3rd) business day
next following the postmark date which it bears.
13. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto with respect to the subject matter hereof, and all prior
negotiations, agreements and understandings are merged herein. This
Agreement may not be modified or revised except pursuant to a written
instrument signed by the party against whom enforcement is sought.
14. Severability. The invalidity or unenforceability of any provision hereof
shall not affect the enforceability of any other provision hereof, and
except as otherwise provided in Section 11 above, any such invalid
or unenforceable provision shall be severed from this Agreement.
15. Waiver. Failure to insist upon strict compliance with any of the terms
or conditions hereof shall not be deemed a waiver or such term or
condition, and the waiver or relinquishment of any right or
remedy hereunder at any one or more times shall not be deemed a
waiver or relinquishment of such right or remedy at any other time
or times.
16. Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed by and construed in accordance
with the laws of the State of Illinois, without regard to its conflicts of
laws provisions. Each party hereto hereby (a) agrees that any litigation
which may be initiated with respect to this Agreement or to
enforce rights granted hereunder shall be initiated in a court located in
Cook County, Illinois and (b) consents to personal jurisdiction of such
courts for such purpose.
17. Benefit and Assignability. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The
rights and obligations of Executive hereunder are personal to him,
and are not subject to voluntary or involuntary alienation, transfer,
delegation or assignment.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
NEOPHARM, INC.
By: ___________________________________
Its: __________________________________
EXECUTIVE:
________________________________________
JAMES M. HUSSEY
8
<PAGE> 1
EXHIBIT 11.1
NEOPHARM, INC.
CALCULATION OF EARNINGS PER SHARE
FOR DECEMBER 31, 1997
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97
------------ ------------ ------------
<S> <C> <C> <C>
Net loss for the period $(1,669,627) $(1,865,645) $(2,021,677)
Weighted average shares outstanding 4,698,446 7,803,412 8,146,746
============ ============ ============
Net loss per share ($0.36) ($0.24) ($0.25)
============ ============ ============
</TABLE>
41
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000942788
<NAME> NEOPHARM, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,776,697
<SECURITIES> 0
<RECEIVABLES> 52,634
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,829,331
<PP&E> 58,723
<DEPRECIATION> 33,555
<TOTAL-ASSETS> 2,854,499
<CURRENT-LIABILITIES> 480,427
<BONDS> 0
0
0
<COMMON> 1,758
<OTHER-SE> 2,372,314
<TOTAL-LIABILITY-AND-EQUITY> 2,854,499
<SALES> 0
<TOTAL-REVENUES> 550,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,782,178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,021,677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,021,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,021,677)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> 0
</TABLE>
