<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
------------------- ----------------------------
<S> <C>
Common Stock ($.0002145 par value) 8,485,000
Warrants to purchase shares of
Common Stock ($.0002145 par value) 837,067
</TABLE>
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION)
PAGE NUMBER
-----------
PART I Financial Information
ITEM 1. Financial Statements
Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. Other Information 13
SIGNATURE PAGE 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NEOPHARM, INC.
(A DELAWARE CORPORATION)
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,219,512 $ 40,681
Other receivables 154,229 --
Deferred taxes -- 1,640,000
Prepaid expenses 40,908 --
----------- -----------
Total current assets 6,414,649 1,680,681
Equipment and furniture
Equipment 85,447 82,690
Furniture 78,877 78,877
Less accumulated depreciation (78,700) (60,700)
----------- -----------
Total equipment, furniture, net 85,624 100,867
----------- -----------
Total assets $ 6,500,273 $ 1,781,548
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities:
Obligations under research agreements $ 155,371 $ 260,000
Accounts payable and accrued liabilities 547,446 275,926
Accrued compensation -- 67,500
Deferred Taxes 677,000 --
----------- -----------
Total current liabilities 1,379,817 603,426
----------- -----------
Stockholders' equity
Common stock, $.0002145 par value;
15,000,000 shares authorized:
8,485,000 and 8,454,621 shares issued and
outstanding, respectively 1,820 1,789
Additional paid-in capital 6,992,886 6,637,378
Accumulated deficit (1,874,250) (5,461,045)
----------- -----------
Total stockholders' equity 5,120,456 1,178,122
----------- -----------
Total liabilities and stockholders'
equity $ 6,500,273 $ 1,781,548
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION)
STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Licensing Revenues $ -- $ -- $ 9,000,000 $ --
Expenses:
Research and
development 516,892 375,446 2,017,326 548,300
General and
administrative 502,355 319,761 1,100,349 611,400
----------- ------------ ----------- ------------
Total Expenses 1,019,247 695,207 3,117,675 1,159,700
Income (loss)
from operations (1,019,247) (695,207) 5,882,325 (1,159,700)
Interest income 63,588 28,068 98,595 65,450
Interest expense 266 -- 2,126 --
----------- ------------ ----------- ------------
Interest income
(expense) - net 63,322 28,068 96,469 65,450
Net income (loss)
before income taxes $ (955,925) $ (667,139) $ 5,978,794 $ (1,094,250)
----------- ------------ ----------- ------------
Income taxes (382,000) -- 2,392,000 --
----------- ------------ ----------- ------------
Net Income (loss) $ (573,925) $(667,139) $ 3,586,794 $ (1,094,250)
=========== ============ =========== ============
Net Income (loss) per share
Basic $ (.07) $ (.08) $ .43 $ (.13)
=========== ============ ============ ============
Diluted $ (.07) $ (.08) $ .31 $ (.13)
=========== ============ ============ ============
Weighted average
shares outstanding
Basic 8,459,288 8,195,810 8,438,570 8,195,810
=========== ============ ============ ============
Diluted 11,620,726 8,600,098 11,552,102 8,601,873
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION)
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows used in operating activities:
Net income (loss) $3,586,794 $(1,094,250)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 18,000 9,915
Deferred income taxes 2,317,000 --
Changes in assets and liabilities:
(Increase) decrease in other assets (195,137) (7,415)
Increase (decrease) in accounts
payable and accrued liabilities 99,391 (201,727)
------------ -----------
Net cash provided by (used in)
operating activities 5,826,048 (1,293,477)
------------ -----------
Cash flows used in investing activities:
Purchase of equipment and furniture (2,757) (92,109)
------------ -----------
Net cash used in investing activities (2,757) (92,109)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 183,750 --
Proceeds from exercise of warrants, net 171,790 --
Cashless exercise of warrants, charge (1,074,208) --
Cashless exercise of warrants, proceeds 1,074,208 --
------------ -----------
Net cash provided by financing activities 355,540 --
------------ -----------
Net increase (decrease) in cash 6,178,831 (1,385,586)
Cash, beginning of period 40,681 2,776,697
------------ -----------
Cash, end of period 6,219,512 $ 1,391,111
============ ============
Supplemental disclosure of cash paid for:
Interest $ 2,126 $ --
Income taxes 75,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 BASIS OF PRESENTATION
The financial information herein is unaudited, other than the Balance Sheet at
December 31, 1998, which is derived from the audited financial statements.
The accompanying unaudited statements of NeoPharm, Inc. (the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, the accompanying unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's financial
position as of June 30, 1999, the results of operations for the three and six
months ended June 30, 1999 and 1998 and the changes in cash flows for the six
month periods ended June 30, 1999 and 1998.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and notes included in the
Company's 1998 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
NOTE 2 EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted earnings
per share from continuing operations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED: FOR THE SIX MONTHS ENDED:
June 30, June 30 June 30, June 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations $(573,925) $(667,139) $3,586,794 $(1,094,250)
=========== =========== =========== ===========
Denominator:
Denominator for basic loss per share-weighted
Average shares 8,459,288 8,195,810 8,438,570 8,195,810
Effect of Dilutive securities:
Stock options 1,783,888 404,288 1,777,595 406,063
Warrant exercise 1,377,550 - 1,335,937 -
----------- ----------- ----------- -----------
Dilutive potential common shares 11,620,726 8,600,098 11,552,102 8,601,873
=========== =========== =========== ===========
Denominator for diluted loss per share-weighted
Average shares and assumed conversions
Basic income (loss) per share $ (.07) $ (.08) $ .43 $ (.13)
=========== =========== =========== ===========
Diluted income (loss) per share $ (.07) $ (.08) $ .31 $ (.13)
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Any statements made by NeoPharm Inc. (the "Company") in this quarterly report
that are forward looking are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
that important factors may affect the Company's actual results and could cause
such results to differ materially from forward-looking statements made by or on
behalf of the Company. Such factors include, but are not limited to, changing
market conditions, the impact of competitive products and pricing, the timely
development, approval by the Food and Drug Administration ("FDA") and foreign
health authorities, and market acceptance of the Company's products in
development, the Company's ability to further raise capital, the Company's
dependence on key personnel, and other factors referenced under "Risk Factors"
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998
OVERVIEW
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 antisense
oligodeoxynucleotide ("LE-AON" and with LED and LEP the "Liposome Products"),
IL-13 PE38QQR ("IL-13") and Mesothelin ss-(dsFv)-PE38 ("Mesothelin Mab"). IL-13
and Mesothelin Mab are both Ligand Target Cytotoxins that specifically target
cancer cells and leave normal cells unaffected.
The Company has obtained rights to its various products as a result of
agreements and relationships entered into with various third parties including
the National Cancer Institute ("NCI"), the United States Food and Drug
Administration ("FDA"), the National Institute of Health ("NIH") and Georgetown
University.
To date, the Company has been engaged primarily in research and
development of its developmental stage products. The Company has developed
expertise in identification, development and preparation for regulatory approval
of cancer drugs for both therapeutic and diagnostic purposes, although the
Company has no products that are currently approved for sale. The Company
currently has no marketing or sales staff and has conducted its activities
primarily through consultants and at university research facilities. To date,
the Company's sole source of revenue has come from the licensing of technology
it has developed. The Company has moved from its development stage upon the
licensing of its LEP and LED products as discussed 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.
NEOPHARM PRODUCTS
The Company's Liposome Products consist of spheres of subcellular size
composed primarily of phospholipids, 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 systematic 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.
7
<PAGE>
The Company's LED is currently under development in three Phase II
trials. The Company started a Phase II trial in hormone refractory prostate
cancer patients in June 1998. The Company is also starting an additional
trial in osteosarcoma (bone cancer) at higher doses of LED. These Phase II
trials will be conducted in several cancer centers in the United States. The
Company has also initiated a multi-center Phase II trial of LED in breast
cancer patients who have failed most of the chemotherapy protocols to
appreciate the capacity of LED in overcoming MDR in those patients. The
Company also has a clinical trial with LED in myeloma, a blood cancer. The
Company has also initiated a Phase I clinical study on LEP in September of
1998 for patients with lung cancer. These trials are on-going at this time.
In February 1999, the Company signed a License Agreement with Pharmacia
and Upjohn ("P&U") to develop and commercialize LEP and LED worldwide. The
Company received a $9,000,000 nonrefundable up-front payment upon execution of
the License Agreement and will receive milestone payments as clinical progress
occurs under the License Agreement. The Company will also receive royalties on
overseas sales and a co-promotion profit split on sales in the United States.
Pursuant to the License Agreement, P&U will assume all further responsibility
for, and the costs associated with, the further development and testing of LED
and LEP and the obtaining of all regulatory approvals. In addition, the Company
has agreed to sell $8,000,000 of its common stock to P&U when certain
Investigatory New Drug ("IND") applications are transferred to P&U in accordance
with a separate Stock Purchase Agreement at a price per share equal to 110% of
the then market price of the common stock during the sixty (60) day period
preceeding the transfer of the INDs. The final IND was transferred on July 14,
1999. Pursuant to the license agreement, P&U purchased 452,861 shares of the
Company's common stock at a per share price of $17.6655 on July 23, 1999.
Additionally, the Company received its first milestone payment from P&U in the
amount of $2,000,000 on July 12, 1999.
The Company has two license and research agreements with Georgetown
University that cover the use of certain technologies used in the Company's LED
and LEP products. In January 1999, the Company and Georgetown University agreed
to amend the agreements to reduce the level of future sublicense royalties on
LEP and LED sales payable to Georgetown in return for a one time sublicense fee
of $800,000. The Company made the $800,000 payment to Georgetown in March 1999,
after the execution of the P&U agreement.
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." The National Institute of Health
license requires a $75,000 non-refundable license issue payment and minimum
annual royalty payments of $10,000, which increase to $25,000 after our first
commercial sale. The National Institute of Health license also provides for
milestone payments which, if all milestones were to be attained, would require
payments aggregating to $785,000 and royalties of 4% based on future
product sales, if any. We are also required to pay the costs of filing and
maintaining product patents on the licensed products as they are incurred.
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 (glioblastoma), Kaposi's sarcoma and breast
carcinoma express high numbers of IL-13 receptors on their cell surfaces.
These receptor 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 successfully
scaled up the production of this chimeric protein to complete preclinical
studies. The Company plans to initiate a Phase I clinical program in humans
with renal cell carcinoma and glioblastoma during the third quarter.
8
<PAGE>
The Company also recently entered into a Licensing Agreement with the
NIH for Mesothelin Mab for head and neck cancer and mesothelioma. Like IL-13,
Mesothelin Mab targets mesothelin receptors on cancer cells and delivers a
cytotoxin to destroy the cancer cell while leaving normal cells alone.
Mesothelin Mab is expected to enter Phase I Clinical Studies in the later part
of 1999. The terms and conditions of the Mesothelin Mab License Agreements with
the National Institute of Health are substantially the same as those described
above for our agreement with the National Institute of Health for IL-13 chimeric
protein-therapy, with the exception that milestone payments by the Company (if
all milestones were to be attained) would aggregate to $500,000. The royalty
payable on future product sales if any, would be 5% and the Company has agreed
to reimburse the National Institute of Health, within 60 days of a request for
up to $175,000 of previously incurred patent prosecution costs. Additionally,
the Company finalized a Cooperative Research and Development Agreement (CRADA)
with the NCI on May 19, 1999 for the development of Mesothelin Mab. Under the
terms of the agreement, the company paid a $50,000 up front payment and is
required to pay $50,000 every six months during the four year term of the
agreement.
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
was informed on March 31, 1998 that the time for processing the original
application has expired. The Company is continuing to work with FDA to explore
the requirements for a prognostic application. Additionally, the Company is
exploring opportunities to license and/or sell its Budr product.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED
MARCH 31, 1998
Research and development expenses for the three month period ended
June 30, were $516,892 compared to $375,446 for the same period in 1998.
Research and development payroll and related travel expenses increased
approximately $51,000 due to staff additions being present for the full 1999
period. The Company's research and development expenses related to LED and
LEP have been substantially reduced due to the licensing agreement with P&U.
However, the Company has redirected its research and development activities
toward its other compounds and as a result has seen its research cost
increase by approximately $90,000 over the 1998 period.
General and administrative expenses for the three month period ended June 30,
1999 were $502,355 compared to $319,761 for the same period is 1998. General
and administrative expense increased primarily due to increased investor
relations activity, increased professional fees related to licensing activities
and other corporate matters, and relocation costs for one of the Company's
executives.
The Company generated interest income on excess cash balances of $63,588 and
$28,068 for the three month periods ended June 30, 1999 and June 30, 1998
respectively. The Company incurred $266 of
9
<PAGE>
interest expense during the three month period ended June 30, 1999. The Company
recorded no interest expense for the same period in 1998.
The Company recorded an income tax benefit of $382,000 for the three month
period ended June 30, 1999. No income tax expense or benefit was recorded for
the comparable period in the prior year.
The net loss for the three months ended June 30, 1999 was $573,925 compared to a
net loss of $667,139 for the three month period ended June 30, 1998.
Net loss per share for the three month period ended June 30, 1999 was $0.07
basic and diluted compared to a net loss per share of $0.08 basic and diluted
for the three month period ended June 30, 1998.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED JUNE
30, 1998.
Research and development expenses increased by approximately $1,469,026 for the
six month period ended June 30, 1999 compared to the six month period ended June
30, 1998. The increase was due primarily to the sublicensing fee paid to
Georgetown of $800,000, increased payroll due to additional staff being present
for the full 1999 period and employee bonuses of $300,000 and other expenditures
of approximately $369,000 related to other licensing and direct research
activities.
General and administrative expenses increased by $488,949 for the six month
period ended June 30, 1999 compared to the six month period ended June 30,
1998 due to additional payroll costs and bonuses of approximately $100,000,
increased insurance costs of $54,000 increased investor relations activities
and professional fees of approximately $274,000 and relocation expenses for a
corporate executive of $50,000.
The Company generated interest income on excess cash balances of $98,595 and
$65,450 for the six month periods ended June 30, 1999 and June 30, 1998
respectively.
The Company incurred $2,126 of interest expense during the six months ended June
30, 1999. The Company recorded no interest expense for the same period in 1998.
The Company recorded income tax expense of $2,392,000 for the six month period
ended June 30, 1999. The Company recorded no income tax expense for the same
period in 1998.
Net income for the six month ended June 30, 1999 was $3,586,794 compared to a
net loss of $1,094,250 for the period ended June 30, 1998.
Net income per share for the six month period ended June 30, 1999 was $0.43
basic and $.31 diluted compared to a net loss per share of $0.13 basic and
diluted for the six month period ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures exceeded revenues from the Company's inception until
the 1st Quarter of 1999. Operations have principally been funded through a loan
from the Company's Chairman, a bank line-of-credit and since January 1996, the
initial public offering of common stock. The Company expects to incur additional
expenses, resulting in potentially significant losses, as it continues and
expands its research and development activities and undertakes additional
clinical trials of compounds obtained under proprietary licenses. The Company
also expects to incur substantial administrative and
10
<PAGE>
commercialization expenditures in the future as it seeks FDA approval of drugs
under development and initiates marketing activities.
From October 1998 through February 1999 the Company had a $3,000,000
line of credit in place with the John N. Kapoor Trust dtd 9/20/89, an entity
affiliated with the Company's Chairman. The Company borrowed $250,000 on the
line of credit on January 8, 1999. The $250,000 plus accrued interest of $1,062
was repaid on January 29, 1999. The line of credit terminated upon the signing
of the licensing agreement with P&U on February 19, 1999.
At June 30, 1999, the Company's cash and cash equivalents were
$6,219,512 compared to $40,681 at December 31, 1998. This increase in cash and
cash equivalents of $6,178,831 was the result of cash generated by operating
activities of $5,826,048, cash used to purchase equipment and furniture of
$2,757 and cash provided by financing activities of $355,540.
The Company called its 837,067 redeemable common stock purchase warrants and
the 67,500 warrants underlying its representative's warrants on June 24,
1999. The period for exercising the outstanding warrants ended at the close
of business on July 27, 1999. Warrant holders exercised 836,942 of the
redeemable warrants and 67,500 of the underlying warrants for 1,808,884
shares of the Company's common stock. The Company received total proceeds of
$9,135,692 from the exercise of the warrants. The remaining 125 redeemable
common stock purchase warrants will be redeemed for $0.01 per warrant.
The Company plans to finance its immediate needs principally from its existing
capital resources and interest thereon, and to the extent available, through
collaborative agreements with corporate partners and future public and private
financing. The Company's long term capital needs will require substantial
additional funding in order to continue its research and product development
programs. The Company's long-term capital requirements and the adequacy of its
available funds will depend upon many factors, including results of research and
development, results of product testing, relationships with potential
partnerships and collaborations, and the FDA regulatory process. No assurance
can be given that additional funding will be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company to delay,
scale-back or eliminate certain of its research and development programs or to
license third parties to commercialize products or technologies that the Company
would otherwise undertake itself.
THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment software and devices with imbedded technology that are time sensitive
may treat years as occurring between 1900 and the end of 1999 and may not
self-convert to reflect the upcoming change in the century. If not corrected,
this problem could result in system failures or miscalculations and erroneous
results by, or at, Year 2000.
The Company conducted an assessment of its business systems that could
encounter Year 2000 problems. This assessment included both information
technology systems and non-information technology systems. Based on this
internal assessment, the Company has not identified any material year 2000
issues. The Company retained an outside consultant to review its assessment. The
consultant recommended several minor corrective measures which have been
completed. The cost of the review and corrective measures was less than $5,000.
Because the Company expects that its internal systems will be Year 2000
compliant, the Company belives that the most likely worst case scenario would
result from third parties failing to achieve Year 2000 compliance. The Company
relies on vendors, service providers and collaboration partners for raw
materials, contract manufacturing, research activities, product testing,
clinical trials,
11
<PAGE>
administrative services and other services ("Service Providers"). The Company is
in the process of surveying its Service Providers to determine if they are Year
2000 complient or have effective plans in place to address the Year 2000 issue
and to determine the extent of the Company's vulnerability to the failure of its
Service Providers to remedy such issues. Based upon the responses that the
Company receives from its Service Providers, the Company will assess its risks
and develop appropriate contingency plans as needed. The Company does not
currently have a contingency plan in place; however it is the Company's
intention to complete its contingency plan by October 31, 1999.
The Company does not expect the Year 2000 issue to have a material
adverse impact on the Company's business or results of operations. However, no
assurance can be given that unanticipated or undiscovered Year 2000 problems
will not arise that could have a material adverse effect on the Company's
business and results of operations. In addition, there can be no assurance that
Year 2000 non-compliance by any of the Company's significant Service Providers
will not have a material adverse effect on the Company's business or results of
operations.
12
<PAGE>
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote
of Security-Holders
</TABLE>
On June 10, 1999, the Company held its annual meeting of Stockholders for the
purpose of electing 5 directors to serve until the 2000 Annual Meeting of
Stockholders and voting on the adoption of the 1998 Equity Inception Plan.
With respect to the election for directors, the votes were as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- --------------
<S> <C> <C> <C>
James M. Hussey 7,904,107 0 279,800
John N. Kapoor 7,904,107 0 279,800
Aquilur Rahman 7,904,107 0 279,800
Sander Flaum 7,904,107 0 279,800
Erick E. Hanson 7,904,107 0 279,800
</TABLE>
With respect to the adoption of the 1998 Equity Incentive Plan, the votes were
as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- -------------
<S> <C> <C> <C>
5,361,628 814,818 2,007,461
</TABLE>
<TABLE>
<S> <C>
Item 5. Other Information
On July 23, 1999, the Company sold 452,861 shares of its common stock to Pharmacia & UpJohn, Inc.
("P&U") at a price of $17.67 per share, pursuant to the terms of the Licensing Agreement entered
into by both companies on February 19, 1999. As a result of the sale, and based on the number of
shares of NeoPharm common stock outstanding as of July 23, 1999, the stock acquired by P&U represented
approximately 4.6% of the Company's issued and outstanding shares. The stock sale provision of the
Licensing Agreement was triggered by the transfer of the Investigational New Drug Applications for
NeoPharm's two anti-cancer agents, LEP ("Liposomal Encapsulated Paxlitaxel") and LED ("Liposomal
Encapsulated Doxorubicin") to P&U.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 is a Cooperative Research and Development Agreement ("CRADA") entered into
as of May 19, 1999 by and between the Company and the National Cancer Institute and relating
to Mesothelin Mab ss-(dsFv)-PE38.
(b) Reports on Form 8-K
On July 7, 1999, the Company filed a report on Form 8-K, reporting the call for redemption
of the Company's Redeemable Common Stock Purchase Warrants and describing the terms and
conditions of such redemption.
</TABLE>
13
<PAGE>
SIGNATURE PAGE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NEOPHARM, INC.
By: /s/ Kevin M. Harris
--------------------------------
Kevin M. Harris,
CHIEF FINANCIAL OFFICER
AND AUTHORIZED OFFICER
Date: AUGUST 13, 1999
-------------------
14
<PAGE>
PUBLIC HEALTH SERVICE
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
This Cooperative Research and Development Agreement, hereinafter referred to as
the "CRADA," consists of this Cover Page, an attached Agreement, and various
Appendices referenced in the Agreement. This Cover Page serves to identify the
Parties to this CRADA:
(1) the following Bureau(s), Institute(s), Center(s) or
Division(s) of the National Institutes of Health ("NIH"), the Food and Drug
Administration ("FDA"), and the Centers for Disease Control and Prevention
("CDC"):
THE NATIONAL CANCER INSTITUTE,
hereinafter singly or collectively referred to as the Public Health Service
("PHS"); and
(2) NEOPHARM, INC., which has offices at 100 Corporate North,
Bannockburn, IL 60015 hereinafter referred to as the "Collaborator."
<PAGE>
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
ARTICLE 1. INTRODUCTION
This Cooperative Research and Development Agreement (CRADA) between PHS and the
Collaborator will be effective when signed by all Parties. The research and
development activities which will be undertaken by each of the Parties in the
course of this CRADA are detailed in the Research Plan (RP) which is attached as
Appendix A. The funding and staffing commitments of the Parties are set forth in
Appendix B. Any exceptions or changes to the CRADA are set forth in Appendix C.
This CRADA is made under the authority of the Federal Technology Transfer Act,
15 U.S.C. Section 3710a ET SEQ. and is governed by its terms.
ARTICLE 2. DEFINITIONS
As used in this CRADA, the following terms shall have the indicated meanings:
2.1 "AFFILIATE" means any corporation or other business entity controlled
by, controlling or under common control with Collaborator. For this
purpose, "control" means direct or indirect beneficial ownership of at
least fifty (50) percent of the voting stock or at least fifty (50)
percent interest in the income of such corporation or other business.
2.2 "COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT" or "CRADA" means this
Agreement, entered into by PHS pursuant to the Federal Technology
Transfer Act of 1986, as amended, 15 U.S.C. 3710a ET SEQ. and
Executive Order 12591 of October 10, 1987.
2.3 "GOVERNMENT" means the Government of the United States as represented
through the PHS agency that is a Party to this agreement.
2.4 "IP" means intellectual property.
2.5 "INVENTION" means any invention or discovery which is or may be
patentable or otherwise protected under title 35, United States Code,
or any novel variety or plant which is or may be protectable under the
Plant Variety Protection Act (7U.S.C. 2321 ET SEQ.).
2.6 "PRINCIPAL INVESTIGATOR(S)" OR "PIs" means the persons designated
respectively by the Parties to this CRADA who will be responsible for
the scientific and technical conduct of the RP.
2.7 "PROPRIETARY/CONFIDENTIAL INFORMATION" means confidential scientific,
business, or financial information provided that such information does
not include:
2.7.1 information that is publicly known or available from
other sources who are not under a confidentiality
obligation to the source of the information;
2.7.2 information which has been made available by its owners to
others without a confidentiality obligation;
2.7.3 information which is already known by or available to the
receiving Party without a confidentiality obligation; or
<PAGE>
2.7.4 information which relates to potential hazards or
cautionary warnings associated with the production,
handling or use of the subject matter of the Research
Plan of this CRADA.
2.8 "RESEARCH MATERIALS" means all tangible materials other than Subject
Data first produced in the performance of this CRADA.
2.9 "RESEARCH PLAN" or "RP" means the statement in Appendix A of the
respective research and development commitments of the Parties to this
CRADA.
2.10 "SUBJECT INVENTION" means any Invention of the Parties, conceived or
first actually reduced to practice in the performance of the Research
Plan of this CRADA.
2.11 "SUBJECT DATA" means all recorded information first produced in the
performance of this CRADA by the Parties.
ARTICLE 3. COOPERATIVE RESEARCH
3.1 PRINCIPAL INVESTIGATORS. PHS research work under this CRADA will be
performed by the PHS laboratory identified in the RP, and the PHS
Principal Investigator (PI) designated in the RP will be responsible
for the scientific and technical conduct of this project on behalf of
PHS. Also designated in the RP is the Collaborator PI who will be
responsible for the scientific and technical conduct of this project on
behalf of the Collaborator.
3.2 RESEARCH PLAN CHANGE. The RP may be modified by mutual written consent
of the Principal Investigators. Substantial changes in the scope of the
RP will be treated as amendments under Article 13.6.
ARTICLE 4. REPORTS
4.1 INTERIM REPORTS. The Parties shall exchange formal written interim
progress reports on a schedule agreed to by the PIs, but at least
within twelve (12) months after this CRADA becomes effective and at
least within every twelve (12) months thereafter. Such reports shall
set forth the technical progress made, identifying such problems as may
have ben encountered and establishing goals and objectives requiring
further effort, any modifications to the Research Plan pursuant to
Article 3.2, and all CRADA-related patent applications filed.
4.2 FINAL REPORTS. The Parties shall exchange final reports of their
results within four (4) months after completing the projects described
in the RP or after the expiration or termination of this CRADA.
ARTICLE 5. FINANCIAL AND STAFFING OBLIGATIONS
5.1 PHS AND COLLABORATOR CONTRIBUTIONS. The contributions of the Parties,
including payment schedules, if applicable, are set forth in Appendix
B. PHS shall not be obligated to perform any of the research specified
herein or to take any other action required by this CRADA if the
funding is not provided as set forth in Appendix B. PHS shall return
excess funds to the Collaborator when it sends its final fiscal report
pursuant to Article 5.2, except for staffing support pursuant to
Article 10.3. Collaborator acknowledges that the U.S. Government will
<PAGE>
have the authority to retain and expend any excess funds for up to one
(1) year subsequent to the expiration or termination of the CRADA to
cover any costs incurred during the term of the CRADA in undertaking
the work set forth in the RP.
5.2 ACCOUNTING RECORDS. PHS shall maintain separate and distinct current
accounts, records, and other evidence supporting all its obligations
under this CRADA, and shall provide the Collaborator, a final fiscal
report pursuant to Article 4.2.
5.3 CAPITAL EQUIPMENT. Equipment purchased by PHS with funds provided by
the Collaborator shall be the property of PHS. All capital equipment
provided under this CRADA by one party for the use of another Party
remains the property of the providing Party unless other disposition is
mutually agreed upon in writing by the Parties. If title to this
equipment remains with the providing Party, that Party is responsible
for maintenance of the equipment and the costs of its transportation to
and from the site where it will be used.
ARTICLE 6. INTELLECTUAL PROPERTY RIGHTS AND PATENT APPLICATIONS
6.1 REPORTING. The Parties shall promptly report to each other in writing
each Subject Invention resulting from the research conducted under this
CRADA that is reported to them by their respective employees. Each
Party shall report all Subject Inventions to the other Party in
sufficient detail to determine inventorship. Such reports shall be
treated as Proprietary/Confidential Information in accordance with
Article 8.4.
6.2 COLLABORATOR EMPLOYEE INVENTIONS. If the Collaborator does not elect to
retain its IP rights, the Collaborator shall offer to assign these IP
rights to the Subject Invention to PHS pursuant to Article 6.5. If the
Collaborator declines such assignment, PHS may release IP rights in
such Subject Invention to its employee inventors pursuant to Article
6.6.
6.3 PHS EMPLOYEE INVENTIONS. PHS on behalf of the U.S. Government may elect
to retain IP rights to each Subject Invention made solely by PHS
employees. If PHS does not elect to retain IP rights, PHS shall offer
to assign these IP rights to such Subject Invention to the Collaborator
pursuant to Article 6.5. If the Collaborator declines such assignment,
PHS may release IP rights in such Subject Invention to its employee
inventors pursuant to Article 6.6.
6.4 JOINT INVENTIONS. Each Subject Invention made jointly by PHS and
Collaborator employees shall be jointly owned by PHS and the
Collaborator. The Collaborator may elect to file the joint patent or
other IP application(s) thereon and shall notify PHS promptly upon
making this election. If the Collaborator decides to file such
applications, it shall do so in a timely manner and at its own expense.
If the Collaborator does not elect to file such application(s), PHS on
behalf of the U.S. Government shall have the right to file the joint
application(s) in a timely manner and at its own expense. If either
Party decides not to retain its IP rights to a jointly owned Subject
Invention, it shall offer to assign such rights to the other Party
pursuant to Article 6.5. If the other Party declines such assignment,
the offering Party may release its IP rights as provided in Articles
6.2, 6.3, and 6.6.
6.5 FILING OF PATENT APPLICATIONS. With respect to Subject Inventions made
by the Collaborator as described in Article 6.2, or by PHS as
described in Article 6.3, a Party exercising its right to elect to
retain IP rights to a Subject Invention agrees to file patent or other
IP applications in a timely manner and at its own expense and after
consultation with the other Party. The Party
<PAGE>
shall notify the other Party of its decision regarding filing in
countries other than the United States in a timely manner. The Party
may elect not to file a patent or other IP application thereon in any
particular country or countries provided it so advises the other Party
ninety (90) days prior to the expiration of any applicable filing
deadline, priority period or statutory bar date, and hereby agrees to
assign its IP right, title and interest in such country or countries to
the Subject Invention to the other Party and to cooperate in the
preparation and filing of a patent or other IP applications. In any
countries in which title to patent or other IP rights is transferred to
the Collaborator, the Collaborator agrees that PHS inventors will share
in any royalty distribution that the Collaborator pays to its own
inventors.
6.6 RELEASE TO INVENTORS. In the event neither of the Parties to this CRADA
elects to file a patent or other IP application on a Subject Invention,
either or both (if a joint invention) may retain or release their IP
rights in accordance with their respective policies and procedures.
However, the Government shall retain a nonexclusive, non-transferable,
irrevocable, royalty-free license to practice any such Subject
Invention or have it practiced throughout the world by or on behalf of
the Government.
6.7 PATENT EXPENSES. The expenses attendant to the filing of patent or
other IP applications generally shall be paid by the Party filing such
application. If an exclusive license to any Subject Invention is
granted to the Collaborator, the Collaborator shall be responsible for
all past and future out-of-pocket expenses in connection with the
preparation, filing, prosecution and maintenance of any applications
claiming such exclusively-licensed inventions and any patents or other
IP grants that may issue on such application. The Collaborator may
waive its exclusive license rights on any application, patent or other
IP grant at any time, and incur no subsequent compensation obligation
for that application, patent or IP grant.
6.8 PROSECUTION OF INTELLECTUAL PROPERTY APPLICATIONS. Within one month of
receipt or filing, each Party shall provide the other Party with copies
of the applications and all documents received from or filed with the
relevant patent or other IP office in connection with the prosecution
of such applications. Each party shall also provide the other Party
with the power to inspect and make copies of all documents retained in
the patent or other IP application files by the applicable patent or
other IP office. Where licensing is contemplated by collaborator, the
Parties agree to consult with each other with respect to the
prosecution of applications for PHS Subject Inventions described in
Article 6.3 and joint subject Inventions described in Article 6.4. If
the Collaborator elects to file and prosecute IP applications on joint
Subject Inventions pursuant to Article, PHS will be granted an
associate power of attorney (or its equivalent) on such IP
applications.
ARTICLE 7. LICENSING
7.1 OPTION FOR COMMERCIALIZATION LICENSE. With respect to Government IP
rights to any Subject Invention not made solely by the Collaborator's
employees for which a patent or other IP application is filed, PHS
hereby grants to the Collaborator an exclusive option to elect an
exclusive or nonexclusive commercialization license, which is
substantially in the form of the appropriate model PHS license
agreement. This option does not apply to Subject Inventions conceived
prior to the effective date of this CRADA that are reduced to practice
under this CRADA, if prior to that reduction to practice, PHS has filed
a patent application on the invention and has licensed it or offered to
license it to a third party. The terms of the license will fairly
reflect the nature of the invention, the relative contributions of the
Parties to the
<PAGE>
invention and the CRADA, the risks incurred by the Collaborator and the
costs of subsequent research and development needed to bring the
invention to the marketplace. The field of use of the license will be
commensurate with the scope of the RP.
7.2 EXERCISE OF LICENSE OPTION. The option of Article 7.1 must be exercised
by written notice mailed within three (3) months after either (i)
Collaborator receives written notice from PHS that the patent or other
IP application has been filed; or (ii) the date Collaborator files such
IP application. Exercise of this option by the Collaborator initiates a
negotiation period that expires nine (9) months after the exercise of
the option. If the last proposal by the Collaborator has not been
responded to in writing by PHS within this nine (9) month period, the
negotiation period shall be extended to expire one (1) month after PHS
so responds, during which month the Collaborator may accept in writing
the final license proposal of PHS. In the absence of such acceptance,
or an extension of the time limits by PHS, PHS will be free to license
such IP rights to others. In the event that the Collaborator elects the
option for an exclusive license, but no such license is executed during
the negotiation period, PHS agrees not to make an offer for an
exclusive license on more favorable terms to a third party for a period
of six (6) months without first offering Collaborator those more
favorable terms. These times may be extended at the sole discretion of
PHS upon good cause shown in writing by the Collaborator.
7.3 LICENSE FOR PHS EMPLOYEE INVENTIONS AND JOINT INVENTIONS. Pursuant to
15 U.S.C. Section 3710a(b)(1)(A), for Subject Inventions made under
this CRADA by a PHS employee(s) or jointly by such employee(s) and
employees of the Collaborator pursuant to Articles 6.3 and 7.4 and
licensed pursuant to the option of Article 7.1, the Collaborator
grants to the Government a nonexclusive, nontransferable, irrevocable,
paid-up license to practice the invention or have the invention
practiced throughout the world by or on behalf of the Government.
In the exercise of such license, the Government shall not publicly
disclose trade secrets or commercial or financial information that
is privileged or confidential within the meaning of 5 U.S.C.
552(b)(4) or which would be considered as such if it had been obtained
from a non-Federal party.
7.4 LICENSE IN COLLABORATOR INVENTIONS. Pursuant to 15 U.S.C. Section
3710a(b)(2), for inventions made solely by Collaborator employees under
this CRADA pursuant to Article 6.2, the Collaborator grants to the
Government a nonexclusive, nontransferable, irrevocable, paid-up
license to practice the invention or have the invention practiced
throughout the world by or on behalf of the Government for research or
other Government purposes.
7.5 THIRD PARTY LICENSE. Pursuant to 15 U.S.C. Section 3710a(b)(1)(B), if
PHS grants an exclusive license to a Subject Invention made wholly by
PHS employees or jointly with a Collaborator under this CRADA, pursuant
to Articles 6.3 and 6.4, the Government shall retain the right to
require the Collaborator to grant to a responsible applicant a
nonexclusive, partially exclusive, or exclusive sublicense to use the
invention in Collaborator's licensed field of use on terms that are
reasonable under the circumstances; or if the Collaborator fails to
grant such a license, to grant the license itself. The exercise of
such rights by the Government shall only be in exceptional
circumstances and only if the Government determines (i) the action
is necessary to meet health or safety needs that are not reasonably
satisfied by Collaborator, (ii) the action is necessary to meet
requirements for public use specified by Federal regulations, and
such requirements are not reasonably satisfied by the Collaborator;
or (iii) the Collaborator has failed to comply with an agreement
containing provisions described in 15 U.S.C. 3710a(c)(4)(B). The
determination made by the Government under this Article is subject
to administrative appeal and judicial review under 35 U.S.C.203(2).
<PAGE>
7.6 JOINT INVENTIONS NOT EXCLUSIVELY LICENSED. In the event that the
Collaborator does not acquire an exclusive commercialization license to
IP rights in all fields in joint Subject Inventions described in
Article 6.4, then each Party shall have the right to use the joint
Subject Invention and to license its use to others in all fields not
exclusively licensed to Collaborator. The Parties may agree to a joint
licensing approach for such IP rights.
ARTICLE 8. PROPRIETARY RIGHTS AND PUBLICATION
8.1 RIGHTS OF ACCESS. PHS and the Collaborator agree to exchange all
Subject Data produced in the course of research under this CRADA.
Research Materials will be shared equally by the Parties to the CRADA
unless other disposition is agreed to by the Parties. All parties to
this CRADA will be free to utilize Subject Data and Research Materials
for their own purposes, consistent with their obligations under this
CRADA.
8.2 OWNERSHIP OF SUBJECT DATA AND RESEARCH MATERIALS. Subject to the
sharing requirements of paragraph 8.1 and the regulatory filing
requirements of Paragraph 8.3, the producing Party will retain
ownership of and title to all Subject Inventions, all Subject Data and
all Research Materials produced solely by their investigators. Jointly
developed Subject Inventions, Subject Data and Research Materials will
be jointly owned.
8.3 DISSEMINATION OF SUBJECT DATA AND RESEARCH MATERIALS. To the extend
permitted by law, the Collaborator and PHS agree to use reasonable
efforts to keep subject Data and Research Materials confidential until
published or until corresponding patent applications are filed. Any
information that would identify human subjects of research or patients
will always be maintained confidentially. To the extent permitted by
law, the Collaborator shall have the exclusive right to use any and all
CRADA Subject Data in and for any regulatory filing by or on behalf of
Collaborator, except that PHS shall have the exclusive right to use
Subject Data for that purpose, and authorize others to do so, if the
CRADA is terminated or if Collaborator abandons its commercialization
efforts.
8.4 PROPRIETARY/CONFIDENTIAL INFORMATION. Each Party agrees to limit its
disclosure of Proprietary/Confidential Information to the amount
necessary to carry out the Research Plan of this CRADA, and shall place
a confidentiality notice on all such information. Confidential oral
communications shall be reduced to writing within 30 days by the
disclosing Party. Each Party receiving Proprietary/Confidential
Information agrees that any information so designated shall be used by
it only for the purposes described in the attached Research Plan. Any
Party may object to the designation of information as
Proprietary/Confidential Information by another Party. Subject Data and
Research Materials developed solely by the Collaborator may be
designated as Proprietary/Confidential Information when they are wholly
separable from the Subject Data and Research Materials developed
jointly with PHS investigators, and advance designation of such data
and material categories is set forth in the RP. The exchange of other
confidential information, e.g., patient-identifying data, should be
similarly limited and treated. Jointly developed Subject Data and
Research Material derived from the Research Plan may be disclosed by
Collaborator to a third party under a confidentiality agreement for the
purpose of possible sublicensing pursuant to the Licensing Agreement
and subject to Article 8.7.
8.5 PROTECTION OF PROPRIETARY/CONFIDENTIAL INFORMATION.
Proprietary/Confidential Information shall not be disclosed, copied,
reproduced or otherwise made available to any other person or entity
without the consent of the owning Party except as required under court
order or the
<PAGE>
Freedom of Information Act (5 U.S.C. 552). Each Party agrees to use its
best efforts to maintain the confidentiality of
Proprietary/Confidential Information. Each Party agrees that the other
Party is not liable for the disclosure of Proprietary/Confidential
Information which, after notice to and consultation with the concerned
Party, the other Party in possession of the Proprietary/Confidential
Information determines may not be lawfully withheld, provided the
concerned Party has been given an opportunity to seek a court order to
enjoin disclosure.
8.6 DURATION OF CONFIDENTIALITY OBLIGATION. The obligation to maintain the
confidentiality of Proprietary/Confidential Information shall expire at
the earlier of the date when the information is no longer Proprietary
Information as defined in Article 2.5 or three (3) years after the
expiration or termination date of this CRADA. The Collaborator may
request an extension to this term when necessary to protect
Proprietary/Confidential Information relating to products not yet
commercialized.
8.7 PUBLICATION. The Parties are encouraged to make publicly available the
results of their research. Before either Party submits a paper or
abstract for publication or otherwise intends to publicly disclose
information about a Subject Invention, Subject Data or Research
Materials, the other Party shall be provided thirty (30) days to review
the proposed publication or disclosure to assure that
Proprietary/Confidential Information is protected. The publication or
other disclosure shall be delayed for up to thirty (30) additional days
upon written request by any Party as necessary to preserve U.S. or
foreign patent or other IP rights.
ARTICLE 9. REPRESENTATIONS AND WARRANTIES
9.1 REPRESENTATIONS AND WARRANTIES OF PHS. PHS hereby represents and
warrants to the Collaborator that the official signing this CRADA has
authority to do so.
9.2 REPRESENTATIONS AND WARRANTIES OF THE COLLABORATOR.
(a) The Collaborator hereby represents and warrants to PHS that the
Collaborator has the requisite power and authority to enter into this
CRADA and to perform according to its terms, and that the
Collaborator's official signing this CRADA has authority to do so. The
Collaborator further represents that it is financially able to satisfy
any funding commitments made in Appendix B.
(b) The Collaborator certifies that the statements herein are true,
complete, and accurate to the best of its knowledge. The Collaborator
is aware that any false, fictitious, or fraudulent statements or claims
may subject it to criminal, civil, or administrative penalties.
ARTICLE 10. TERMINATION
10.1 TERMINATION BY MUTUAL CONSENT. PHS and the Collaborator may terminate
this CRADA, or portions thereof, at any time by mutual written consent.
In such event the Parties shall specify the disposition of all
property, inventions, patent or other IP applications and other results
of work accomplished or in progress, arising from or performed under
this CRADA, all in accordance with the rights granted to the Parties
under the terms of this Agreement.
<PAGE>
10.2 UNILATERAL TERMINATION. Either PHS or the Collaborator may unilaterally
terminate this entire CRADA at anytime by giving written notice at
least thirty (30) days prior to the desired termination date, and any
rights accrued in property, patents or other IP rights shall be
disposed of as provided in paragraph 10.1.
10.3 STAFFING. If this CRADA is mutually or unilaterally terminated prior to
its expiration, funds will nevertheless remain available to PHS for
continuing any staffing commitment made by the Collaborator pursuant to
Article 5.1 above and Appendix B, if applicable, for a period of six
(6) months after such termination. If there are insufficient funds to
cover this expense, the Collaborator agrees to pay the difference.
10.4 NEW COMMITMENTS. No Party shall make new commitments related to this
CRADA after a mutual termination or notice of a unilateral termination
and shall, to the extent feasible, cancel all outstanding commitments
and contracts by the termination date.
10.5 TERMINATION COSTS. Concurrently with the exchange of final reports
pursuant to Articles 4.2 and 5.2, PHS shall submit to the Collaborator
for payment a statement of all costs incurred prior to the date of
termination and for all reasonable termination costs including the cost
of returning Collaborator property or removal of abandoned property,
for which Collaborator shall be responsible.
ARTICLE 11. DISPUTES
11.1 SETTLEMENT. Any dispute arising under this CRADA which is not disposed
of by agreement of the Principal Investigators shall be submitted
jointly to the signatories of this CRADA. If the signatories are unable
to jointly resolved the dispute within thirty (30) days after
notification thereof, the Assistant Secretary for Health (or his/her
designee or successor) shall propose a resolution. Nothing in this
Article shall prevent any Party from pursuing any additional
administrative remedies that may be available and, after exhaustion of
such administrative remedies, pursuing all available judicial remedies.
11.2 CONTINUATION OF WORK. Pending the resolution of any dispute or claim
pursuant to this Article, the Parties agree that performance of all
obligations shall be pursued diligently in accordance with the
direction of the PHS signatory.
ARTICLE 12. LIABILITY
12.1 PROPERTY. The U.S. Government shall not be responsible for damages to
any Collaborator property provided to PHS, where Collaborator retains
title to the property, or any property acquired by Collaborator for its
own use pursuant to this CRADA.
12.2 NO WARRANTIES. EXCEPT AS SPECIFICALLY STATED IN ARTICLE 9, THE PARTIES
MAKE NO EXPRESS OR IMPLIED WARRANTY AS TO ANY MATTER WHATSOEVER,
INCLUDING THE CONDITIONS OF THE RESEARCH OR ANY INVENTION OR PRODUCT,
WHETHER TANGIBLE OR INTANGIBLE, MADE, OR DEVELOPED UNDER THIS CRADA, OR
THE OWNERSHIP, MERCHANTABILITY, OR
<PAGE>
FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR ANY INVENTION
OR PRODUCT.
12.3 INDEMNIFICATION. The Collaborator agrees to hold the U.S. Government
harmless and to indemnify the Government for all liabilities, demands,
damages, expenses and losses arising out of the use by the Collaborator
for any purpose of any Subject Data, Research Materials and/or Subject
Inventions produced in whole or part by PHS employees under this CRADA,
unless due to the negligence or willful misconduct of PHS, its
employees, or agents. The Collaborator shall be liable for any claims
or damages it incurs in connection with this CRADA. PHS has no
authority to indemnify the Collaborator.
12.4 FORCE MAJEURE. Neither Party shall be liable for any unforeseeable
event beyond its reasonable control not caused by the fault or
negligence of such Party, which causes such Party to be unable to
perform its obligations under this CRADA, and which it has been unable
to overcome by the exercise of due diligence. In the event of the
occurrence of such a FORCE MAJEURE event, the Party unable to perform
shall promptly notify the other Party. It shall further use its best
efforts to resume performance as quickly as possible and shall suspend
performance only for such period of time as necessary as a result of
the FORCE MAJEURE event.
ARTICLE 13. MISCELLANEOUS
13.1 GOVERNING LAW. The construction, validity, performance and effect of
this CRADA shall be governed by Federal law, as applied by the Federal
Courts in the District of Columbia. Federal law and regulations will
preempt any conflicting or inconsistent provisions in this CRADA.
13.2 ENTIRE AGREEMENT. This CRADA constitutes the entire agreement between
the Parties concerning the subject matter of this CRADA and supersedes
any prior understanding or written or oral agreement.
13.3 HEADINGS. Titles and headings of the articles and subarticles of this
CRADA are for convenient reference only, do not form a part of this
CRADA, and shall in no way affect its interpretations. The PHS
component that is the Party for all purposes of this CRADA is the
Bureau(s), Institute(s), Center(s) or Division(s) listed on the Cover
Page herein.
13.4 WAIVERS. None of the provisions of this CRADA shall be considered
waived by the Party unless such waiver is given in writing to the other
Party. The failure of a Party to insist upon strict performance of any
of the terms and conditions hereof, or failure or delay to exercise any
rights provided herein or by law, shall not be deemed a waiver of any
rights of any Party.
13.5 SEVERABILITY. The illegality or invalidity of any provisions of this
CRADA shall not impair, affect, or invalidate the other provisions of
this CRADA.
13.6 AMENDMENTS. If either Party desires a modification to this CRADA, the
Parties shall, upon reasonable notice of the proposed modification or
extension by the Party desiring the change, confer in good faith to
determine the desirability of such modification or extension. Such
modification shall not be effective until a written amendment is signed
by the signatories to this CRADA or by representatives duly authorized
to execute such amendment.
<PAGE>
13.7 ASSIGNMENT. Neither this CRADA nor any rights or obligations of any
Party hereunder shall be assigned or otherwise transferred by either
Party without the prior written consent of the other Party.
13.8 NOTICES. All notices pertaining to or required by this CRADA shall be
in writing and shall be signed by an authorized representative and
shall be delivered by hand or sent by certified mail, return receipt
requested, with postage prepaid, to the addresses indicated on the
signature page for each Party. Notices regarding the exercise of
license options shall be made pursuant to Article 7.2. Any Party may
change such address by notice given to the other Party in the manner
set forth above.
13.9 INDEPENDENT CONTRACTORS. The relationship of the Parties to this CRADA
is that of independent contractors and not agents of each other or
joint ventures or partners. Each Party shall maintain sole and
exclusive control over its personnel and operations. Collaborator
employees who will be working at PHS facilities may be asked to sign a
Guest Researcher or Special Volunteer Agreement appropriately modified
in view of the terms of this CRADA.
13.10 USE OF NAME OR ENDORSEMENTS. By entering into this CRADA, PHS
does not directly or indirectly endorse any product or service
provided, or to be provided, whether directly or indirectly
related to either this CRADA or to any patent or other IP
license or agreement which implements this CRADA by its
successors, assignees, or licensees. The Collaborator shall
not in any way state or imply that this CRADA is an
endorsement of any such product or service by the U.S.
Government or any of its organizational units or employees.
Collaborator issued press releases that reference or rely upon
the work of PHS under this CRADA shall be made available to
PHS at least seven (7) days prior to publication for review
and comment.
13.11 EXCEPTIONS TO THIS CRADA. Any exceptions or modifications to
this CRADA that are agreed to by the Parties prior to their
execution of this CRADA are set forth in Appendix C.
13.12 REASONABLE CONSENT. Whenever a Party's consent or permission
is required under this CRADA, such consent or permission shall
not be unreasonably withheld.
ARTICLE 14. DURATION OF AGREEMENT
14.1 DURATION. It is mutually recognized that the duration of this project
cannot be rigidly defined in advance, and that the contemplated time
periods for various phases of the RP are only good faith guidelines
subject to adjustment by mutual agreement to fit circumstances as the
RP proceeds. In no case will the term of this CRADA extend beyond the
term indicated in the RP unless it is revised in accordance with
Article 13.6
14.2 SURVIVABILITY. The provisions of Articles 4-2, 5-8, 10.3-10.5, 11.1,
12.2-12.4, 13.1, 13.10 and 14.2 shall survive the termination of this
CRADA.
SIGNATURES BEGIN ON THE NEXT PAGE
<PAGE>
SIGNATURES
FOR PHS:
/s/ Alan Rabson, M.D. 5/14/99
- -------------------- -------
Alan Rabson, M.D. Date
Deputy Director, NCI
Mailing Address for Notices:
Technology Development and Commercialization Branch
National Cancer Institute
Executive Plaza South, Room 450
6120 Executive Blvd.
Rockville, MD 20852
FOR NeoPharm, Inc.:
/s/ Dr. Aquilur Rahman 5/19/99
- ---------------------- -------
Dr. Aquilur Rahman Date
Chief Scientific Officer
NeoPharm, Inc.
Mailing Address for Notices:
NeoPharm, Inc.
100 Corporate North
Bannockburn, IL 60015
<PAGE>
APPENDIX A
RESEARCH PLAN
Title of CRADA
Drug and Method for the Therapeutic Treatment of Ovarian Cancer and
Mesotheliomas SS(ds Fv)-PE38
NIH Principal Investigator
Dr. Ira Pastan
Chief, Laboratory of Molecular Biology
Division of Basic Sciences
National Cancer Institute
National Institutes of Health
NeoPharm Inc. Principal Investigator
Dr. Aquilur Rahman
Chief Scientific Officer
NeoPharm, Inc.
Term of CRADA
Four Years
ABSTRACT (for publication):
NeoPharm and NCI will collaborate to identify cancer cells expressing
mesothelin, to develop an immunotoxin/liposome pharmaceutical directed against
mesothelin expressed on cancer cells, and to develop preclinical data for the
use of this combination as a therapy for a variety of malignancies.
<PAGE>
GOALS
The goals of this CRADA are to:
1) Determine the effectiveness of SS(ds Fv)-PE38 against a variety of tumors
expressing mesothelin, both in vivo and in vitro.
2) To identify other potential tumor types which expresses mesothelin antigen
such as pancreatic cancers, gastric cancer and colon cancers, etc.
3) To identify the toxicity of this immunotoxin protein in at lest two animal
species by administering graded doses intravenously, and to define the LD10,
LD50 and LD90 doses in animals.
4) To develop a liposomal delivery system for the immunotoxin SS(ds Fv)-PE38 as
a new modality of treatment for cancer chemotherapy, using NeoPharm's
proprietary lipid compositions.
5) To determine the effectiveness of the immunotoxin SS(ds Fv)-PE38 on MDR
(Multiple Drug Resistant) cancer cells.
INTRODUCTION
Ovarian cancer is one of the leading causes of death in women. It is estimated
that of the 27,000 women diagnosed with ovarian cancer, over 15,000 of them will
die of cancer in 1998. The vast majority of ovarian cancers are found in
post-menopausal women with 15-20% discovered in pre-menopausal women (1). The
median age for epithelial ovarian cancer, the most common histologic type, is
between the age of 60-65 years. However, ovarian cancer is one of the most
treatable solid tumors since the majority are sensitive to chemotherapy
regimens. Hence, a reliable means of early detection for ovarian cancer is
highly warranted. The discovery of a non-metastatic malignancy usually relies on
pelvic examination, but even small tumors may have metastasized by the time they
are palpated.
Potentially ovarian cancer represents the disease type which could be treated by
immunotherapy since the ovaries are always removed during surgery for this
disease and reactivity with normal ovarian tissue is not a problem. Several
antibodies that recognize differentiation antigens on ovarian cancer cells have
been generated. One of these is OC125 which recognizes the CA125 antigen (2).
CA125 antigen is a high molecular weight glycoprotein that is shed by ovarian
cancer cells and has been an effective tool for the diagnosis of ovarian cancer.
However, immunotherapy cannot be directed with this antigen since CA125 is shed
into the blood stream. Another antigen for ovarian cancer is MOV18, which
recognizes the folate binding proteins (3). Though this protein is abundant in
ovarian cancers, unfortunately this protein is also significantly expressed in
the kidneys, hence specific immunotherapy is very much limited. For successful
immunotherapy, the antigen has to be specific for ovarian cancer and other
cancers and should have minimal levels of that protein in normal tissues.
BACKGROUND RESEARCH - LABORATORY OF MOLECULAR BIOLOGY
In an effect to obtain high affinity binding antibody, Pastan et al. immunized
mice with DNA encoding mesothelin. With the help of novel molecular biology
technology and persistent efforts, they were able
<PAGE>
to obtain single chain Fv (sc Fv) that bind specifically to recombinant
mesothelin and cells carrying mesothelin antigen with high affinity. Further
experiments were performed to use sc Fv and to construct an immunotoxin by
genetically fusing it with a truncated mutant Pseudomonas exotoxin A. It was
shown that the purified immunotoxin binds to mesothelin antigen expressed on
cells with a high affinity and is internalized effectively to produce
cytotoxicity in mesothelin expressing cells in picomole concentration (8).
Further improvement for this immunotoxin was carried out by Pastan and
colleagues and produced SS(ds Fv)-PE38 as a recombinant immunotoxin comprising
the single-stranded, disulfide linked Fv region of an anti-mesothelin antibody
(named SS) genetically linked to the 38 kDa truncated form of Pseudomonas
exotoxin, PE38. The construction is stabilized by the engineering of a disulfide
bond between the two Fv domains in the framework region of the immunoglobin. The
toxin moiety is molecularly attached to the c-terminus of the domain. This
recombinant immunotoxin has been produced from cytoplasmic inclusion bodies in
separate E. coli cultures containing the expression plasmid with the coding
region for either the VH-PE38 or VL chains. The recombinant immunotoxin thus
produced is quite stable at 37DEG.C and has extremely high binding affinity to
mesothelin expressing cells. The recombinant immunotoxin was found to have
significantly high cytotoxicity in human ovarian cancer cell line A431 that was
transfected with the cDNA of mesothelin. This cell line was inject
subcutaneously into immunodeficient mice to produce tumors. When the tumor mass
reached about 50mm(3), the animals were injected i.v. with 5, 8 and 10 mg of
SS(ds Fv)-PE38 every other day x3. At each dose of SS(ds Fv)-PE38 a complete
response rate of tumor was observed in mice. These studies demonstrate that the
recombinant immunotoxin can be effectively utilized as a therapeutic modality in
ovarian cancer, head and neck cancer and other cancers which express mesothelin
antigen.
Domain Ia of PE can be deleted, thus producing a 40-KDa protein (PE40) that has
minimal low cellular and animal cytotoxicity because it cannot bind to cellular
receptors (15). PE40 has also been used to make recombinant chimeric toxins by
fusing DNA fragments encoding growth factors, antibody combining sites, or other
recognition elements to the PE40 gene. The gene encoding of such chimeric toxin
is expressed in E. coli, from which source the chimeric toxin is purified.
Further deletion mapping studies have produced a derivative of PE, PE38, in
which domain la (amino acid 1-252) and amino acids 365-380 of PE are deleted
(16).
The initial work was performed to demonstrate that an antibody linked to
exotoxin has much more specificity and cytotoxicity to human solid tumors. These
studies utilized B3 monoclonal antibody chemically linked to PE38 and the
chimeric protein was termed as LMB-I. Immunotoxin LMB-I was found to produce
complete regression of human tumor xengrafts implanted in immunodeficient mice
(17). Recently, a Phase I clinical trial of this immunotoxin was completed in 38
patients with solid tumors. LMB-1 was found to be quite effective in patients
who had failed conventional therapy. In this trial, anti-tumor activity was
observed in 5 patients and 18 patients had stable disease. This is the first
clinical observation where the immunotoxin has shown activity in solid tumors.
However, the chimeric molecule exhibited vasculature leakage syndrome as major
toxicity which was manifested as hypoalbuminemia, fluid retention, hypotension
and pulmonary edema.
Basic research is being extended by Dr. Pastan and his colleagues to extend the
therapeutic application of Pseudomonas exotoxin and the recombinant monoclonal
antibodies, which has resulted in the development of present technology, SS(ds
Fv)PE 38. This CRADA application is based on the further development of this
technology.
<PAGE>
BACKGROUND RESEARCH - NEOPHARM, INC.
Liposomes, as a drug delivery system, have been adopted increasingly in recent
years primarily to modify toxicities and pharmacokinetics of encapsulated drugs.
The precise liposome composition is critical for assuring drug stability,
modifying drug kinetics in vivo and even introducing unanticipated pharmacologic
properties. NeoPharm will develop an optimal liposome delivery system for
immunotoxin SS(ds Fv)-PE38 with its proprietary technology. NeoPharm has
extensive expertise in the area of liposomes and in fact NeoPharm was founded on
the premise of exploiting the liposomal carrier system for a number of important
anti-cancer drugs. The Company has half a dozen patents for important
anti-cancer drugs and has two products in Phase I and Phase II trials.
The anthracycline antibiotic, doxorubicin, is one of the most important
anti-tumor agents demonstrating activity for a wide range of solid tumors.
However, doxorubicin produces treatment-limiting delayed cardiotoxicity which is
manifested in the form of congestive heart failure (18). It has been
demonstrated that liposomes as carriers of doxorubicin offer important
advantages with regard to the attenuation of the dose dependant cardiotoxicity
apparently due in part to the reduced uptake of liposome entrapped drug in
cardiac tissue (19). It has been further demonstrated that chronically
administered doxorubicin entrapped in cardiolipin liposomes completely protects
from drug-induced cardiotoxicity in beagle dogs (20). At the same time, liposome
encapsulated doxorubicin (LED) had equivalent or greater anti-tumor activity
than conventional doxorubicin against various murine tumor models (21).
Based on the extensive preclinical studies, a Phase I clinical trial was
performed with NeoPharm's formulation of LED in patients with advanced
malignancies (22). This Phase I trial demonstrated that the maximum tolerated
dose of LED to be 90 mg/m(2) with dose limiting granulocytopenia.
Phase II studies of liposome encapsulated doxorubicin were performed in
advanced breast cancer patients at doses of 60-75 mg/m(2) every three weeks
(23). Objective responses were noted in 9 of 20 patients and 5 of those
patients were complete responders of the disease. In this Phase II trial,
hematological and non-hematological toxicities were extremely mild. Twelve of
the 20 patients had cumulative doses of GREATER THAN 400 mg/m(2) with no
incidence of cardiotoxicity or decrease in left ventricular ejection
fraction. In this trial, five patients who have received doses of 600 mg/m(2)
underwent endomyuocardial biopsies: four of these had Billinghem grade 0 and
one patient had grade 1 histophathology. In addition, the acute
treatment-limiting toxicities such as mucositis and gastrointestinal
toxicities observed with free doxorubicin were minimally observed with LED
(23).
NeoPharm has performed substantial improvement in the formulation of LED. The
improvement in formulation has resulted in a very convenient and simple
industrial scale-up process of LED (24). With this newly scaled-up LED
preparation, NeoPharm has started a multi-center Phase II trial in hormone
refractory prostate cancer patients. The initial Phase II trial of LED in
prostate cancer demonstrates a significant activity of this modality of
treatment as represented by decrease in PSA levels, decrease in pain intensity
of the bones and overall substantial increase in the quality of life of prostate
cancer patients.
<PAGE>
RESEARCH PLAN
1. EFFICACY EVALUATION, IN VITRO AND IN VIVO
The studies performed by Pastan et al (4) described the presence of mesothelin
as antigen on the surface of ovarian cancer and squamous cell carcinoma. They
created a small chain monoclonal, SS(ds Fv), which binds specifically to
mesothelin-expressing cells and the antibody-antigen complex is effectively
internalized in the cells. The recombinant monoclonal gene is then fused with
the truncated PE38 toxin gene to produce a gene which expresses immunotoxin
SS(ds Fv)-PE38. The immunotoxin is then expressed in E. coli and is obtained
from the inclusion bodies and purified. Based on this technology, the
immunotoxin has been extracted in sufficient quantities to perform the IN VITRO
experiments in several human cell lines to define the therapeutic potential of
this technology. It has been demonstrated that the immunotoxin SS(ds Fv)-PE38 is
cytotoxic in picomole concentration to human ovarian cancer cells. These are
highly exciting observations since mesothelin antigens are very exclusively
expressed by the human solid tumors such as ovarian cancer and head and neck
cancers and not by the normal cells of the body so far examined. Hence, specific
targeting to tumor sites with this immunotoxin should be more effective while
avoiding the toxicities to the normal cells. This modality of treatment in
cancer chemotherapy will be potentially preferred since treatment limiting
toxicities of anticancer drugs are the major obstacles for the successful
management of the disease. At present the technology describes the IN VITRO
application, however, some preliminary IN VIVO efficacy data recently became
available. Hence, a major thrust of this CRADA will be to a) define whether
immunotoxin is as effective IN VIVO as IN VITRO in a variety of tumors
expressing mesothelin antigen, and b) to identify other potential tumor types
which express mesothelin antigen such as pancreatic cancers, gastric cancer and
colon cancers, etc.
The IN VIVO therapeutic evaluation of the immunotoxin SS(ds Fv)-PE38 will be
performed in nude mice implanted with ovarian cancer cells (OVCAR) and head
and neck cancer cells (SQ20B). These tumor cells will be implanted
subcutaneously and when the tumor mass becomes about 50 mm(3) mice will be
randomly divided in a group often and will be injected intravenously with
this immunotoxin. The immunotoxin doses will range from 0.5-2.0 mg/kg and
will be administered three times at alternate days. The tumor volumes will be
calculated based on the formula, volume -- (length) x (width)(2)
2 x (0.4). These doses will give a determination of minimal effective dose,
most optimal dose as well as toxic therapeutic dose. The mice will be
observed till day 60. This experiment will determine the effectiveness of
this modality of treatment in delaying the growth of the tumor, in completely
curing the mice with tumor and also the cure rate of tumor with associated
toxicities.
2. IN VIVO TOXICITY EVALUATION
NeoPharm will identify the toxicity of this immunotoxin protein in at least two
animal species by administering graded doses i.v., and will define the LD10,
LD50 and LD90 doses in animals. In addition NeoPharm will obtain a complete
hematology and blood chemistry profile at each dose level in the animals. A
complete histopathologic evaluation will be performed to identify organs which
could be at risk with this modality of treatment.
It is possible that the immunotoxin SS(ds Fv)-PE38 would bind and internalize
nonspecifically into normal tissues, particularly the liver, thus adversely
compromising the therapeutic potential of this modality of treatment. Further, a
safe starting dose for clinical trial in humans will be derived by the
<PAGE>
LD10 doses in mice and rats. Hence, nude mice will be injected i.v. with this
immunotoxin at doses of 0.5-2.0 mg/kg on day 1, 3 and 5, having 10 mice at each
dose level. Four days after the last dose, half of the mice in each group will
be bled by orbital sinus, blood will be collected and hematology and chemistries
will be performed. Mice will then be sacrificed by cervical dislocation and
tissues will be fixed in formalin for histopathologic evaluation. The blood
chemistry determination will define the alterations in liver function tests as
well as any abnormalities in metabolic processes. The tissues such as liver,
spleen, heart, lungs and GI tract with potential abnormalities will identify the
possible non-specific binding of this immunotoxin to these organs and
pathological lesions observed therein.
A major concern with this immunotoxin is the manifestation of VASCULATURE
LEAKAGE SYNDROME. VLS. This phenomenon has been observed with other immunotoxins
such as LMB-I. Though the chimeric protein LMB-I is much bigger than the
immunotoxin SS(ds Fv)-PE38, it is hoped that manifestations of VLS will be
minimal with this agent. The occurrence of this syndrome in mice and rats will
be evaluated by histopathologic determinations established in Dr. Pastan's
laboratory.
The dose range selected with this immunotoxin SS(ds Fv)-PE38 will define the
LD10 and LD50 dose in nude mice. The understanding of these doses will define
the safe starting dose of this immunotoxin in humans. THE SAME STUDIES WILL BE
PERFORMED IN RATS AT EQUIVALENT DOSES OF MICE. With the mutual concurrence of
NeoPharm, Dr. Pastan and his coworkers at NCI, if needed, large animal studies
will be added by amendment, in accordance with Article 13.6, to facilitate an
IND application for clinical trials.
3. PHARMACOKINETIC STUDIES
The pharmacokinetic studies of the immunotoxin SS(ds Fv)-PE38 will be performed
in normal mice i.v. at a single maximum tolerated dose. For this study, four
mice at each time point will be used and will be bled from orbital sinus and
blood will be collected at 2, 5, 10, 15, 20, 30, 60 and 120 minutes and at 4, 6
and 24 hours. The serum will be separated and stored at -70 DEG. C before the
determination and immunotoxin levels. Levels of recombinant immunotoxin will be
determined by their cytotoxic activity toward ovarian cancer cells, A431/KS
expressing mesothelin antigen, using a standard curve generated by the cytotoxic
activity of purified immunotoxin toward A431 cells. (These methods are well
established in the Laboratory of Molecular Biology).
4. DEVELOPMENT OF SS(ds Fv)-PE38 IMMUNOTOXIN AS A LIPOSOME ENCAPSULATED MODALITY
OF TREATMENT FOR OVARIAN CANCER
NeoPharm will develop a liposomal delivery system for the immunotoxin SS(ds
Fv)-PE38 as a new modality of treatment for cancer chemotherapy, using
proprietary lipid compositions. This goal will be achieved by different
strategies. The first attempt will attempt to encapsulate the monoclonal MabKI
in liposomes. Previous studies by Pastan, et al (7) have demonstrated that this
monoclonal binds to the mesothelin antigen on the ovarian cancer cells but fails
to be internalized in the cells in sufficient quantities to be immunotoxic.
Since liposomes are internalized by a different process, it is possible that the
immonoliposomes thus formed, have sufficient capacity to penetrate the target
cells. The specificity of immunoliposomes to bind to the cells will be dictated
by the monoclonal portion of the liposomes thus becoming a targeted delivery
system exhibiting minimal non-specific binding to antigen depleted cell types.
The binding capacity and cytotoxicity of these immunoliposomes will be measured
in A431 ovarian cancer cells expressing high amounts of mesothelin antigen.
<PAGE>
Another approach will be to incorporate a cancer therapeutic agent such as
doxorubicin inside the immunoliposomes provided there is enough binding of these
liposomes to the target cells.
NeoPharm has developed a unique system of encapsulating doxorubicin in
cardiolipin containing liposomes. It only requires the mixing of free
doxorubicin solution with cardiolipin containing liposomes and this simple
process provides GREATER THAN 90% encapsulation of the drug inside the
liposomes. By this method, immunoliposomes will be prepared with entrapped
doxorubicin. Upon exposure of these liposomes, optimal binding to A431 cells
should be achieved because of the monoclonal specificity and subsequent
internalization should produce desired toxicity to the A431 ovarian cancer
cells. If this is achieved, it will represent a unique and very effective
delivery system for cancer chemotherapeutic agents to the target cancer
cells. Dependent on the success of the process, the IN VIVO therapeutic
evaluation of the immuno chemotherapeutic liposomes will be performed in nude
mice bearing ovarian cancer. In addition, a detailed toxicity evaluation will
be performed of these liposomes in dose-dependent and schedule-dependent
administration in mice.
Another approach to developing the liposomal delivery system for the immunotoxin
will be directed to encapsulate the whole SS(ds Fv)-PE38 molecule into the
liposomes. As the technology indicates, the monoclonal portion of the molecule
will be outside the lipid bilayers and the remainder of the molecule inside the
aqueous environment of the liposomes. This should facilitate the specific SS (ds
Fv)-PE38 interaction with the mesothelin antigen. The antibody-antigen complex
should be internalized efficiently as observed in previous studies (7). This
liposomal delivery system should provide a further protection from non-specific
toxicities which may be associated with this immunotoxin. The goal of using
liposomes as a drug delivery system involves a high concentration and/or long
duration of action at a target site, where beneficial effects may occur while
maintaining a low concentration and/or reduced duration at other sites, where
adverse effects may occur. Such an objective requires altering the organ
distribution of the drug substantially. Extensive studies have demonstrated that
liposomes can significantly alter the pharmacokinetic and organ distribution of
the encapsulated drugs. A favorable distribution profile of these immunotoxin
liposomes in the body can be expected. NeoPharm will perform an extensive
pharmacologic, therapeutic and toxicologic evaluation of these liposomes in
mice, followed by large animal studies to expedite clinical evaluation of these
liposomes.
All the studies on liposome delivery will be performed jointly by Dr. Ira Pastan
and his coworkers at NCI, and NeoPharm's scientists. These projects will develop
a close working relationship between the NCI and NeoPharm which will facilitate
the clinical and commercial development of these modalities of treatment.
5. DETERMINATION OF MESOTHELIN ANTIGEN ON MULTIDRUG-RESISTANT CELLS
The studies performed by Dr. Pastan and his coworkers have described the
specific expression of a differentiation antigen present on the surface of
ovarian cancers, meotheliomas and several other types of human cancers. The
absence or low level expression of mesothelin antigen on T-cells, B-cells and
bone marrow cells makes the immunotoxin SS(ds Fv)-PE38 as a specific target for
cancel cells expressing this antigen. This specificity between the novelty of
this modality of treatment as a preferred chemotherapeutic agent.
It is highly desirable that studies are conducted to determine whether multiple
drug resistant cancer cells also express the mesothelin antigen. The phenomenon
of multidrug-resistance (MDR) is observed in
<PAGE>
those cancer cells which have been exposed to chemotherapeutic agents and is
related to major treatment failures in cancer patients. In addition, the
emergence of MDR is demonstrated in ovarian, breast, kidney, colon and
pancreatic cancer patients who have not been treated with any chemotherapy
protocols.
The dominant feature of the MDR phenotype is the reduced accumulation of the
drugs involved. For a given extracellular drug concentration,
multidrug-resistance cells maintain a lower intracellular drug level than the
drug sensitive parental cells. While this could result from either a decreased
influx or an increased efflux or both (25), several studies have shown that the
influx of many drugs involved in MDR occurs by unmediated diffusion, whereas
efflux is mediated by an energy-dependent pump. The apparent reason for this
failure of drug accumulation is that these cells express a protein at the cell
surface which prevents the drugs from accumulating within the cell. Juliano and
Ling (26) first detected this protein in the cell membranes of MDR phenotype
cells and named it P-glycoprotein. P-glycoprotein has a molecular weight of
about 170,000 and is both phosphorylated and glycosylated. This protein was not
expressed in the drug sensitive parental CHO (Chinese Hamster Ovary) cells from
which the MDR phenotype was derived. Monoclonal antibodies raised against plasma
membranes from multidrug-resistant CHO cells detect an increased amount of a
surface component with an apparent molecular mass identical to the CHO
P-glycoprotein in multidrug-resistant hamster, mouse and human cell lines (15).
Thus, P-glycoprotein is conserved both in molecular size and immunogenicity
among mammalian species. In any series of multidrug-resistant cells lines, the
degree of drug resistance correlates with the amount of P-glycoprotein
expressed. Studies involving over 20 multidrug-resistant cell lines from several
species and isolated by various investigators have confirmed the intimate
association of P-glycoprotein expression and multidrug-resistance (27).
Multidrug-resistance is often associated with cytogenic changes, such as double
minutes or homogenous staining regions in chromosomes, indicating the presence
of gene amplification. In 1985, Riordan, Ling and co-workers (28) used a
monoclonal antibody against the P-glycoprotein, P170, to clone the MDRI gene.
Meanwhile, several investigators (29-32), using a variety of techniques, have
isolated amplified DNA sequences from multidrug-resistant cells. Four of these
groups have isolated sequences homologous to the P170 gene and found them to be
amplified and overexpressed in multidrug-resistant cells. Transfection studies
with both genomic and cDNA copies of the MDR gene have confirmed that is confers
the MDR phenotype to the recipient cells (31, 32), although the degree of
resistance is considerably less than in naturally selected resistant cell lines.
The expression of drug resistance via P-glycoprotein is believed to reside in
its ability to function as an ATP-dependent drug efflux pump. Hence, any
modality of treatment which can overcome the MDR in cancer cells is highly
preferred.
It is very probably that MDR phenotype cells also express abundantly mesothelin
protein. If such is the case, the immunotoxin SS(ds Fv)-PE38 can be specifically
targeted to these cancer cells very effectively. Hence, it is a goal of this
CRADA to investigate the presence of mesothelin antigen in SKVLB cells which are
the Vinblastin-resistant phenotype of SKOV3 ovarian cancer cells as well as in
MCF-7/ADR cells which are derived from sensitive breast cancer cells MCF-7 and
made drug-resistant with adriamycin (doxorubicin). The differential expressing
of mesothelin protein in parental and resistant phenotype cells will be
determined by affinity binding studies well established in Dr. Pastan's
laboratory. Additional cell lines of ovarian and head and neck cancer both
parental and resistant phenotype will be evaluated for the differential
expression of mesothelin antigen.
<PAGE>
If the mesothelin antigen is found to be in more abundance in MDR phenotype
cells than parental cell lines, the immunotoxin SS(ds Fv)-PE38 can be quite
effectively targeted to these phenotype cells. On the other hand, if equal
number of mesothelin antigen is expressed in MDR phenotype cells as compared to
parental cells, even then the MDR cells will be susceptible to the cytotoxic
action of this immunotoxin. Hence, this immunotoxin can become a new modality of
treatment for overcoming MDR. These studies will be performed in Dr. Pastan's
laboratory and based on the outcome of these studies, further studies will be
designed to perform the in vivo therapeutic evaluation in animals bearing the
tumors derived from the MDR phenotype cells.
In addition, studies have demonstrated that liposomes of specific compositions
modulate very effectively the MDR phenotype in LZ cells, a Chinese hamster cell
line made resistant to doxorubicin, breast cancer resistant cells, MCF-7/ADR,
ovarian cancer resistant cells, SKVLB, resistant promyelocytic leukemia cells,
HL-60/VCR, and resistant colon cancer cells (33-36). In all these studies, the
cellular drug uptake was 2 to 3 fold higher with liposome encapsulated drug
exposure than with free drug. This modulation of drug resistance and enhanced
cellular drug uptake is effected by the direct binding of liposomes to
P-glycoprotein on the surface of MDR phenotype cells (35). Studies have shown
that liposomes completely inhibited the photo affinity labeling of
P-glycoprotein by azidopine in membrane vesicles of HL-60/VCR cells and in
KB-CSV2 cells transfected with the human MDR gene. In addition, liposome
encapsulated doxorubicin has been shown to modulate multidrug resistance in
transgenic mice expressing a functional mdr-1 gene in the bone marrow (37). This
capacity of liposomes to effectively overcome multidrug resistance in cancer
cells will become an added tool for SS(ds Fv)-PE38 liposomes as a new modality
of treatment in cancer chemotherapy.
6. IMPLEMENT PLANS TO INDEPENDENTLY SECURE FUTURE CONTINUING SUPPLIES OF SS(ds
Fv)-PE38 FOR PRECLINICAL AND CLINICAL DEVELOPMENT
The immunotoxin SS(ds Fv)-PE38 is extracted from Escherichia coli from the
inclusion bodies. The process developed by Dr. Pastan and colleagues at NCI
provides quantities which are sufficient for IN VITRO and in a limited scale for
IN VIVO studies. However, for enlarged preclinical evaluation and for Phase I
clinical use, the immunotoxin has to be produced in larger quantities under Good
Laboratory Practice (cGLP) and Good Manufacturing Practice (cGMP). NeoPharm
believes that this task can be easily achieved by contracting out the scale-up
production. NeoPharm will select the site for scale-up production after the
formal approval of this CRADA.
NeoPharm has substantial experience in the scale-up production of immunotoxin. A
similar technology, IL-13 PE38QQR which has been licensed from FDA and NIH for
the commercial and clinical development by NeoPharm is being produced in large
scale at Advanced BioScience Laboratories. The cGLP derived fusion protein is
now being evaluated in mice, rats and monkey for toxicological, pharmacologic
and therapeutic activity in renal cell carcinoma and glioblastoma.
The scale-up production of this immunotoxin will be achieved with the full
cooperation and participation of NCI personnel. The exact methodology of
transfecting E. coli with the combined gene of recombinant monoclonal SS(ds Fv)
and the exotoxin gene expressing PE38 will be provided to contract manufacturer.
The manufacturer will perform this transfection, and induction in the E. coli
which has grown in controlled and well characterized conditions. From the
inclusion bodies of E. coli SS(ds Fv)-PE38 is extracted, purified by gel
chromatography and HPLC and analyzed by Western Blot for biological
characterization and cytotoxic characterization in A431/KS cells. The scale-up
<PAGE>
immunotoxin has to meet all the criteria which are established by Dr. Pastan's
laboratory at NCI. It is expected that the production of SS(ds Fv)-PE38 at the
contract facility would be sufficient in quality for preclinical and Phase I
studies with this immunotoxin. In any situation, the investigators at NCI will
interact closely with this pharmaceutical manufacturer and NeoPharm to validate
the method and biologic activity of this immunotoxin with the established
laboratory methods for commercial scale production.
NEOPHARM'S QUALIFICATIONS, EXPERIENCES AND RESOURCES
NeoPharm is an emerging pharmaceutical company engaged in the research and
development and commercialization of drugs for the diagnosis and treatment of
various forms of cancer. The company has several drugs in Phase I and Phase II
clinical evaluation. The Company's business strategy is to target drug
development programs for those cancer types which do not respond to chemotherapy
at present. The company has half dozen full employees and about 12 part-time
employees and consultants currently devoted to clinical development, regulatory
affairs and manufacturing. The major emphasis of the company is research and
development of cancer drugs.
OTHER AGREEMENTS
CRADA CACR-157 Cooperative Research and Development
Agreement for the Clinical Development of BUDR/IUDR,
expired.
CRADA CACR-623 Interleukin-13-Pseudomonas Exotoxin as an
Anticancer Agent: Amendment adding the National
Cancer Institute as a Party, negotiating.
There are no MTAs or CDAs between LMB and NeoPharm.
INTELLECTUAL PROPERTY
PHS holds the domestic patent rights to the PE 38 exotoxin, US Patent
#4,892,827. NeoPharm has licensed the following NIH patent applications:
08/776,271 60/067,175 06/911,227 08/077,252 09/002,753
NeoPharm holds numerous patents to its proprietary liposome technology.
<PAGE>
RESPECTIVE SCIENTIFIC CONTRIBUTIONS OF THE PARTIES
NCI WILL:
1) Supply NeoPharm with expression plasmids to SS(ds Fv)-PE38.
2) Supply a protocol to produce the recombinant immunotoxin.
3) Supply a master cell bank and a working cell bank that can be used for GMP
production of SS(ds Fv)-PE38.
4) Supply a protocol to grow the bacteria that express dsFv-PE38.
5) Supply SS(ds Fv)-PE38 protein as a standard.
6) Test SS(ds Fv)-PE38 preparations that have been incorporated into
liposomes by NeoPharm for bioactivity.
7) Collaborate in the design of toxicity studies in relevant animals for
clinical development.
8) Isolate new high-affinity forms of SS(ds Fv)-PE38.
9) Isolate mutants of SS(ds Fv)-PE38 that have better internalization
properties without requiring a change in affinity.
10) Supply NeoPharm with antibodies to PE for use in assays for SS(ds Fv)-PE38
in blood.
NEOPHARM WILL:
1) Perform experiments to determine the efficacy of SS(ds Fv)-PE38 in vitro
and in vivo.
2) Perform experiments to determine the toxicity of SS(ds Fv)-PE38 in mice and
rats.
3) Perform pharmacokinetic studies on SS(ds Fv)-PE38.
4) Develop a liposomal preparation of SS(ds Fv)-PE38 in NeoPharm's
proprietary liposomal materials.
5) Perform experiments to identify mesothelin on multiple drug resistant
cells and determine the efficacy of SS(ds Fv)-PE38 in killing them.
6) Establish a GMP supply of SS(ds Fv)-PE38.
<PAGE>
REFERENCES
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30:7154-59 (1991).
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82:7661-7665 (1985).
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33. Thierry, A., Jorgense, T.J., Forst, D., Belli J.A., Dritschilo A., and
Rahman, A. Cancer Communications. 1:311-316 (1989).
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Chemother. Pharmacol 28:259- 265 (1991)
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M., Safa, A.R., and Glazer, R.I. JNCI 84:1909-1915 (1992).
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<PAGE>
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<PAGE>
APPENDIX B
FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES
LABORATORY OF MOLECULAR BIOLOGY (LMB), NCI:
LMB will provide scientific staff and other support as necessary to conduct the
research outlined in Appendix A, Research Plan. It is estimated that Dr. Ira
Pastan will devote 5% of his time to the CRADA. Other LMB scientific and
technical staff will contribute the balance of the approximately 0.5
person-years per year to be committed to this CRADA project.
NEOPHARM, INC.:
NeoPharm will provide scientific staff and other support as necessary to conduct
its research responsibilities outlined in Appendix A, Research Plan. It is
estimated that Dr. Aquilur Rahman will devote approximately 5% of his time to
this CRADA. Other NeoPharm scientific and technical staff will contribute the
balance of the approximately 0.5 person-years per year to be committed to this
CRADA project.
NeoPharm will provide $100,000 per year for four years, to be deposited to an
NCI CAN account established for the administration of this CRADA, to support
personnel, supplies, services and equipment.
A check in the amount of $50,000 payable to the National Cancer Institute will
be provided to the NCI by NeoPharm upon execution of the CRADA and payments of
$50,000 are due every six months thereafter. The check should indicate CRADA
#784 and be sent to the NCI CRADA Funds Coordinator at 6120 Executive Boulevard,
Executive Plaza South, Suite 450, Rockville, MD 20852.
In accordance with NIH policy, no full-time tenured NCI employees will be
supported by funds provided to the NCI under this CRADA by NeoPharm. As
precluded by the Federal Technology Transfer Act, no funds are being provided to
NeoPharm by the NCI under this CRADA.
<PAGE>
APPENDIX C
EXCEPTIONS AND CHANGES
There are no exceptions or changes to the CRADA.
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