<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 MARCH 31, 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 ($.0002145 par value) 8,454,621
Warrants to purchase shares of
Common Stock ($.0002145 par value) 837,067
</TABLE>
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I Financial Information
ITEM 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information 13
SIGNATURE PAGE 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,402,048 $ 40,681
Other receivables 319,688 --
Deferred taxes -- 1,640,000
----------- -----------
Total current assets 7,721,736 1,680,681
Equipment and furniture:
Equipment 83,415 82,690
Furniture 78,877 78,877
Less accumulated depreciation (69,699) (60,700)
----------- -----------
Total equipment and furniture, net 92,593 100,867
----------- -----------
Total assets $ 7,814,329 $ 1,781,548
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities:
Obligations under research agreements $ 250,000 $ 260,000
Accounts payable 906,086 275,926
Accrued compensation -- 67,500
Income taxes payable - current 35,000 --
Deferred taxes 1,099,000 --
----------- -----------
Total current liabilities 2,290,086 603,426
----------- -----------
Stockholders' equity:
Common stock, $.0002145 par value;
15,000,000 shares authorized:
8,454,621 and 8,341,779 shares issued
and outstanding, respectively 1,801 1,789
Additional paid-in capital 6,822,768 6,637,378
Deficit accumulated during the
development stage (1,300,326) (5,461,045)
----------- -----------
Total stockholders' equity 5,524,243 1,178,122
----------- -----------
Total liabilities and stockholders'
equity $ 7,814,329 $ 1,781,548
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 15, 1990)
THROUGH
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 9,000,000 $ -- $ 9,550,000
Expenses:
Research and development 639,729 95,939 4,510,803
General and administrative 556,008 244,135 4,525,629
Related party expenses (Note 3) 902,691 124,419 4,985,854
------------ ------------ ------------
Total Expenses 2,098,428 464,493 14,022,286
Income (loss) from operations 6,901,572 (464,493) (4,472,286)
Interest income 35,007 37,382 572,535
Interest expense - principal shareholder 1,062 -- 579,281
Interest expense - other 798 -- 158,185
------------ ------------ ------------
Interest income(expense) - net 33,147 37,382 (164,931)
Net Income (loss) before income taxes $ 6,934,719 $ (427,111) $ (4,637,217)
------------ ------------ ------------
------------ ------------ ------------
Income taxes 2,774,000 -- 1,134,000
------------ ------------ ------------
Net Income (loss) $ 4,160,719 $ (427,111) (5,771,217)
------------ ------------ ------------
Net Income (loss) per share
Basic $ .49 $ (.05)
------------ ------------
------------ ------------
Diluted $ .38 $ (.05)
------------ ------------
------------ ------------
Weighted average shares outstanding
Basic 8,417,622 8,195,810
------------ ------------
------------ ------------
Diluted 11,059,752 8,599,134
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 15, 1990)
THROUGH
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income (loss) $ 4,160,719 $ (427,111) $ (5,771,217)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 8,999 1,746 81,498
Gain on disposal of equipment -- -- (408)
Deferred income taxes 2,739,000 -- 1,099,000
Services contributed (non-cash)
by related party -- -- 101,042
Interest payable to principal
shareholder converted to stock -- -- 523,385
Compensation expense from non-employee
stock options -- -- 251,339
Restricted stock grants in lieu of
cash compensation -- -- 311,875
Changes in assets and liabilities:
(Increase) decrease in other assets (319,688) 52,933 (330,788)
Increase (decrease) in accounts
payable and accrued liabilities 587,660 (217,126) 1,191,086
------------ ------------ ------------
Net cash provided by (used in)
operating activities 7,176,690 (695,424) (2,543,188)
------------ ------------ ------------
Cash flows used in investing activities:
Purchase of equipment and
furniture (725) (63,218) (163,394)
Proceeds from disposal of
equipment and furniture -- -- 810
------------ ------------ ------------
Net cash used in investing activities (725) (63,218) (162,584)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from loan payable to
principal stockholder -- -- 1,500,000
Advance on line of credit -- -- 2,114,652
Reduction in line of credit -- -- (2,114,652)
Costs incurred related to the
initial public offering -- -- (688,321)
Proceeds from initial public offering -- -- 8,585,438
Proceeds from issuance of common stock 182,000 -- 707,301
Proceeds from exercise of warrants 3,402 -- 3,402
Cashless exercise of warrants, charge (1,019,104) -- (1,504,059)
Cashless exercise of warrants, proceeds 1,019,104 -- 1,504,059
------------ ------------ ------------
Net cash provided by financing activities 185,402 -- 10,107,820
------------ ------------ ------------
Net increase (decrease) in cash 7,361,367 (758,642) 7,402,048
Cash, beginning of period 40,681 2,776,697 --
------------ ------------ ------------
Cash, end of period $ 7,402,048 $ 2,018,055 $ 7,402,048
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash paid for:
Interest $ 1,860 $ -- $ 214,082
Income taxes -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 interim financial 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 March 31, 1999, the results of operations for
the three months ended March 31, 1999 and 1998, the results of operations from
inception (June 15, 1990) to date (March 31, 1999), the changes in cash flows
for the three month periods ended March 31, 1999 and 1998 and the changes in
cash flows from inception to date.
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:
----------------------------------
March 31 March 31
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income (loss) from continuing operations $ 4,160,719 $ (427,111)
----------- -----------
----------- -----------
Denominator:
Denominator for basic loss per share-weighted
Average shares 8,417,622 8,195,810
Effect of Dilutive securities:
Stock options 1,358,294 403,324
Warrant exercise 1,283,836 0
----------- -----------
Dilutive potential common shares 2,642,130 403,324
----------- -----------
----------- -----------
Denominator for diluted loss per share-weighted
Average shares and assumed conversions 11,059,752 8,599,134
----------- -----------
----------- -----------
Basic income (loss) per share $ .49 $ (.05)
----------- -----------
----------- -----------
Diluted income (loss) per share $ .38 $ (.05)
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
NOTE 3 RELATED PARTY EXPENSES
The following table provides further detail of the related party
expenses reflected in the statement of operations:
<TABLE>
<CAPTION>
For the Three Months Ended: Inception
------------------------------- (June 15, 1990)
March 31 March 31 through March 31
Related Party Expense Type 1999 1998 1999
---------- ---------- ----------
<S> <C> <C> <C> <C>
Georgetown University Research & Fees $ 800,000 $ 170 $2,849,000
Dr. Aquilur Rahman Consulting -- -- 70,000
Gail Salzberg Consulting 60,705 76,418 1,124,726
Aegis Technology, Inc. Consulting -- -- 31,779
---------- ---------- ----------
Total research and development expenses 860,705 76,588 4,075,505
Option Care, Inc. Rent and Expenses 9,256 8,181 47,919
E.J. Financial Enterprises Consulting 31,250 31,250 594,150
E.J. Financial Enterprises Direct Expenses 1,480 8,400 268,280
---------- ---------- ----------
Total general and administrative expenses 41,986 47,831 910,349
Total related party expenses $ 902,691 $ 124,419 $4,985,854
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
7
<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. Through
March 31, 1999, with the exception of license fees, the Company has not
generated any revenue from operations.
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
8
<PAGE>
investigated and used for many years as drug delivery systems, the difficulty in
producing liposomes on a large scale, as well as the limited shelf life of many
liposomes, have limited their use in clinical settings.
The Company's LED is currently under 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, which could
aggregate, if all milestone targets were to be achieved, $52,000,000. 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 Company anticipates that the INDs
will be transferred and the stock will then be issued and the cash proceeds
received by early in the 3rd quarter of 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. Additionally, the Company paid a
one time bonus to employees of approximately $180,000 upon 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 received a $75,000 non-refundable license issue payment upon execution
of the agreement and will receive 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.
9
<PAGE>
The Company expects to scale up the production of this chimeric protein to
complete preclinical studies in the second quarter of 1999 to be followed later
in the year by Phase I clinical program in humans with renal cell carcinoma and
glioblastoma.
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 reimbursement, for up to $175,000 of
previously incurred patent prosecution costs.
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
For the three month period ended March 31, 1999, the Company received a
nonrefundable license fee of $9,000,000 related to the licensing agreement with
P&U for the development and commercialization of the Company's LEP and LED
products. The Company recorded no revenue for the three month period ended March
31, 1998.
Research and development expense for the three month period ended
March 31, 1999 were $1,500,434 compared to $172,527 for the same period in
1998. Research and development spending increased primarily due to expenses
for the addition of clinical staff to manage the ongoing clinical trials of
$148,000, nonrecurring expenses associated with the licensing of Mesothelin
Mab of $256,000, the sublicense fee paid to Georgetown of $800,000 and bonus
payments to employees based upon milestone acheivement of $100,000.
General and administrative expenses for the three month period ended
March 31, 1999 were $597,994 compared to $291,966 for the same period in 1998.
General and administrative
10
<PAGE>
expense increased primarily due to additional payroll costs of $23,000, bonus
payments to employees based upon milestone achievements of $79,000, additional
insurance costs of $47,000 due to expanded coverages, increased investor
relation activities of $19,000 and increased professional fees of $125,000
related to licensing activities and other corporate matters, part of which
are nonrecurring.
The Company generated interest income on exess cash balances of $35,007
and $37,382 for the three month periods ended March 31, 1999 and March 31, 1998
respectively.
The Company incurred $1,860 of interest expense during the three month
period ended March 31, 1999. The Company recorded no interest expense for the
same period in 1998.
The Company recorded income tax expense of $2,774,000 for the three
month period ended March 31, 1999. No income tax expense was recorded for the
comparable period in the prior year.
Net income for the three months ended March 31, 1999 was $4,160,719
compared to a net loss of $427,111 for the three month period ended March 31,
1998.
Net income per share for the three month period ended March 31, 1999
was $0.49 basic and $0.38 diluted compared to net loss per share of $0.05
basic and diluted for the three months ended March 31, 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 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. Kappor 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 March 31, 1999, the Company's cash and cash equivalents were
$7,402,048 compared to $40,681 at December 31, 1998. This increase in cash and
cash equivalents of $7,361,367 was the result of cash generated by operating
activities of $7,176,690, cash used to purchase equipment and furniture of $725
and cash provided by financing activities of $185,402. 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
11
<PAGE>
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 are in the
process of being completed. The cost of the review and corrective measures is
expected to be 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, 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 compliant 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
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 None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 is a License Agreement, dated as of
March 22, 1999 by and between the Company and
the National Institute of Health.
(b) Reports on Form 8-K
On March 9, 1999, the Company filed a report on
Form 8-K, reporting the execution of a
License Agreement between the Company and
Pharmacia and Upjohn Company and describing
the general terms of same.
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: May 14, 1999
-------------
14
<PAGE>
PUBLIC HEALTH SERVICE
PATENT LICENSE AGREEMENT--EXCLUSIVE
COVER PAGE
For PHS internal use only:
Patent License Number: L-323-98/0
Serial Number(s) of Patent Application(s) that are "Licensed Patent Rights" -
licensed on an exclusive basis:
USPA 08/776,271, entitled, "Mesothelium Antigen and Methods and Kits for
Targeting It", inventors: Dr. Ira H. Pastan (NCI) and Dr. Kai Chang (NCI)
[= E-002-96/1]; and
USPA 60/067,175, entitled "Antibodies, Including Fv Molecules, and
Immunoconjugates having High Binding Affinity for Mesothelin and Methods
for Their Use", inventors Dr. Ira H. Pastan (NCI) and Dr. Partha Chowdhury
(NCI)[=E-021-98/0]
Serial Number(s) of Patent(s) and Patent Application(s) that are "Background
Patent Rights" and licensed on a non-exclusive basis:
USPN 4,892,827 (=USSN 06/911,227), entitled, "Recombinant PSEUDOMONAS
Exotoxin: Construction of an Active Immunotoxin with Low Side Effects",
inventors: Drs. Ira H. Pastan (NCI), Sankar Adhya (NCI), and David
FitzGerald (NCI), - excluding any foreign equivalents corresponding to
4,892,827 (= USSN 06/911,227 ) [=E-385-96/0].
USPN 5,747,654 (= USPA 08/077,252) enabled, "Recombinant Disulfide-
Stabilized Polypeptide Fragments Having Binding Specificity", inventors:
Drs. Ira H. Pastan (NCI), Byungkook Lee (NCI), Sun-Hee Jung (NCI), Ulrich
Brinkmann (NC1) [=E-163-93/0].
USPA 09/002,753 (=Division of USPA 08/077,252), entitled: "Recombinant
Disulfide-Stabilized Polypeptide Fragrnents Having Binding Specificity",
inventors: Drs. Ira H. Pastan (NCl), Byungkook Lee (NCI), Sun-Hee Jung
(NC1), Ulrich Brinkman (NCI) [=E-163-93/4].
Licensee: NeoPharm, Inc.
100 Corporate North - Suite 214
Bannockburn, Illinois 60015
Phone No.: (847)-295-8678
Fax No.: (847) 295-8854
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Cooperative Research and Development Agreement (CRADA) (if applicable):
N/A
Public Benefit(s): NeoPharm agrees, after their First Commercial Sale, to make
reasonable quantities of Licensed Products or materials
produced through the use of Licensed Processes available on
a compassionate use basis to patients, either through the
patient's physician(s) and/or the medical center treating
the patient.
NeoPharm also agrees, after their First Commercial Sale and
as part of their marketing and product promotion, to develop
written educational materials (e.g., brochures,
advertisements, etc.) directed to patients and physicians
detailing the Licensed Products and/or medical aspects and
the therapeutic treatment(s) of ovarian carcinomas and
mesotheliomas.
_______________________________________________________
This Patent License Agreement, hereinafter referred to as the "Agreement",
consists of this Cover Page, an attached Agreement, a Signature Page, Appendix A
(List of Patent(s) and/or Patent Application(s)), Appendix B (Fields of Use and
Territory), Appendix C (Royalties), Appendix D (Modifications), Appendix E
(Benchmarks), Appendix F (Commercial Development Plan) end appendix G (PHS
Incurred Patent Prosecution Costs). The Parties to this Agreement are:
1) The National Institutes of Health ("NIH"), the Centers for Disease
Control and Prevention ("CDC"), or the Food and Drug Administration
("FDA"), hereinafter singly or collectively referred to as "PHS",
agencies of the United States Public Heals Service within the
Department of Health and Human Services ("DHHS"); and
2) The person, corporation, or institution identified above and/or on the
Signature Page, having offices at the address indicated on the
Signature Page, hereinafter referred to as "Licensee".
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PHS PATENT LICENSE AGREEMENT--EXCLUSIVE
PHS and Licensee agree as follows:
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<S> <C>
1. BACKGROUND
1.01 In the course of conducting biomedical and behavioral research, PHS
investigators made inventions that may have commercial
applicability.
1.02 By assignment of rights from PHS employees and other inventors,
DHHS, on behalf of the United States Government, owns intellectual
property rights claimed in any United States and/or foreign patent
applications or patents corresponding to the assigned inventions.
DHHS also owns any tangible embodiments of these inventions
actually reduced to practice by PHS.
1.03 The Secretary of DHHS has delegated to PHS the authority to enter
into this Agreement for the licensing of rights to these
inventions.
1.04 PHS desires to transfer these inventions to the private sector
through commercialization licenses to facilitate the commercial
development of products and processes for public use and benefit.
l.05 Licensee desires to acquire commercialization rights to certain of
these inventions in order to develop processes, methods, and/or
marketable products for public use and benefit.
2. DEFINITIONS
2.01 "Benchmarks" mean the performance milestones that are set forth in
Appendix E.
2.02 "Commercial Development Plan" means the written commercialization
plan attached as Appendix F.
2.03 "First Commercial Sale" means the initial transfer by or on behalf
of Licensee or its sublicensees of Licensed Products or the initial
practice of a Licensed Process by or on behalf of Licensee or its
sublicensees in exchange for cash or some equivalent to which value
can be assigned for the purpose of determining Net Sales.
2.04 "Government" means the Government of the United States of America.
2.05 "Licensed Fields of Use" means the fields of use identified in
Appendix B.
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2.06 "Licensed Patent Rights" shall mean:
a) Patent applications (including provisional patent
applications and PCT patent applications) and/or patents
listed in Appendix A, all divisions and continuations of
these applications, all patents issuing from such
applications, divisions, and continuations, and any
reissues, reexaminations, and extensions of all such
patents, excluding those patent applications and patents
listed as Background Patent Rights;
b) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a)
above: 1) continuations-in-part of a) above, ii) all
divisions and continuations of these continuations-in-part;
iii) all patents issuing from such continuations-in-part,
divisions, and continuations; iv) priority patent
application(s) of a) above; and v) any reissues,
reexaminations, and extensions of all such patents;
c) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a)
above: all counterpart foreign and U.S. patent applications
and patents to a) and b) above, including those listed in
Appendix A as Licensed Patent Rights.
Licensed Patent Rights shall NOT include b) or c) above to the
extent that they contain one or more claims directed to new matter
which is not the subject matter disclosed in a) above.
2.07 "Background Patent Rights" shall specifically mean USPN 4,892,827;
USPN 5,747,654; and USPA 09/002,753 licensed to the Licensee on a
non-exclusive basis as granted in Article 3 Paragraph 3.02 below
and listed in Appendix A as Background Patent Rights and
a) Patent applications (including provisional patent
applications and PCT patent applications) and/or patents
listed in Appendix A, all divisions and continuations of
these applications, all patents issuing from such
applications, divisions, and continuations, and any
reissues, reexaminations, and extensions of all such
patents, excluding those patent applications and patents
listed as Licensed Patent Rights;
b) to the extent that the following contain one or more claims
directed to the inventions or inventions disclosed in a)
above: 1) continuations-in-part of a) above; ii) all
divisions and continuations of these continuations-in-part;
iii) all patents issuing from such continuations-in-part,
divisions, and continuations; (iv) priority patent
application(s) of a) above; and v) any reissues,
reexaminations, and extensions of all such patents;
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c) to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a)
above: all counterpart foreign and U.S. patent applications
and patents to a) and b) above, including those listed in
Appendix A as Background Patent Rights.
Background Patent Rights shall NOT include b) or c) above to the
extent that they contain one or more claims directed to new matter
which is not the subject matter disclosed in a) above.
2.08 "Licensed Process(es)" means processes which, in the course of
being practiced would, in the absence of this Agreement, infringe
one or more claims of the Licensed Patent Rights that have not been
held invalid or unenforceable by an unappealed or unappealable
judgment of a court of competent jurisdiction.
2.09 "Licensed Product(s)" means tangible materials which, in the course
of manufacture, use, offer to sell, sale, or importation would, in
the absence of this Agreement, infringe one or more claims of the
Licensed Patent Rights, that have not been held invalid or
unenforceable by an unappealed or unappealable judgment of a court
of competent jurisdiction.
2.10 "Licensed Territory" means the geographical area identified in
Appendix B.
2.11 "Net Sales" means the total gross receipts for sales of Licensed
Products or practice of Licensed Processes by or on behalf of
Licensee or its sublicensees, and from leasing, renting, or
otherwise making Licensed Products available to others without sale
or other dispositions, whether invoiced or not, less returns and
allowances, packing costs, insurance costs, freight out, taxes or
excise duties imposed on the transaction (if separately invoiced),
and wholesaler and cash discounts in amounts customary in the trade
to the extent actually granted. No deductions shall be made for
commissions paid to individuals, whether they be with independent
sales agencies or regularly employed by Licensee, or sublicensees,
and on its payroll, or for the cost of collections.
2.12 "Practical Application" means to manufacture in the case of a
composition or product, to practice in the case of a process or
method, or to operate in the case of a machine or system; and in
each case, under such conditions as to establish that the invention
is being utilized and that its benefits are to the extent permitted
by law or Government regulations available to the public on
reasonable terms.
2.13 "Research License" means a nontransferable, nonexclusive license to
make and to use the Licensed Products or Licensed Processes as
defined by the Licensed Patent Rights and/or Background Patent
Rights for purposes of research and not for purposes of commercial
manufacture or distribution or in lieu of purchase.
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2.14 "Affiliate" means a corporation or other business entity which,
directly or indirectly, is controlled by, controls, or is under
common control with Licensee. For this purpose, the term "control"
shall mean ownership of more than forty-eight percent (48%) of the
voting stock or other ownership interest of the corporation or
other business entity, or the power to elect or appoint more than
forty-eight percent (48%) of the members of the governing body of
the corporation or other business entity.
3. GRANT OF RIGHTS
3.01 PHS hereby grants and Licensee accepts, subject to the terms and
conditions of this Agreement, an exclusive license under the
Licensed Patent Rights in the Licensed Territory to make and have
made, to use and have used, to sell and have sold, to offer to
sell, and to import any Licensed Products in the Licensed Fields of
Use and to practice and have practiced any Licensed Processes in
the Licensed Fields of Use.
3.02 PHS hereby grants and Licensee, accepts, subject to the terms and
conditions of this Agreement, a non-exclusive license under the
Background Patent Rights in the Licensed Territory to make and have
made, to use and have used, and to sell and have sold any Licensed
Products in the Licensed Fields of Use and to practice and have
practiced any Licensed Process in the Licensed Fields of Use.
3.03 This Agreement confers no license or rights by implication,
estoppel, or otherwise under any patent applications or patents of
PHS other than Licensed Patent Rights or Background Patent Rights
regardless of whether such patents are dominant or subordinate to
Licensed Patent Rights or Background Patent Rights.
4. SUBLICENSING
4.01 Upon written approval by PHS, which approval will not be
unreasonably withheld, Licensee may enter into sublicensing
agreements under Licensed Patent Rights and under the Background
Patent Rights to the extent necessary to practice the Licensed
Patent Rights. Licensee has no right to sublicense Background
Patent Rights except as necessary to effectively sublicense
Licensed Patent Rights.
4.02 Licensee agrees that any sublicenses granted by it shall provide
that the obligations to PHS of Paragraphs 5.01-5.06, 8.01, 10.01,
10.02, 12.05, and 13.07-13 .09 of this Agreement shall be binding
upon the sublicensee as if it were a party to this Agreement.
Licensee further agrees to attach copies of these Paragraphs to all
sublicensee agreements.
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4.03 Any sublicenses granted by Licensee shall provide for the
termination of the sublicensee, or the conversion to a license
directly between such sublicensees and PHS, at the option of the
sublicensee, upon termination of this Agreement under Article 13.
Such conversion is subject to PHS approval and contingent upon
acceptance by the sublicensee of the remaining provisions of this
Agreement.
4.04 Licensee agrees to forward to PHS a copy of each fully executed
sublicensee agreement postmarked within thirty (30) days of the
execution of such agreement. To the extent permitted by law, PHS
agrees to maintain each such sublicensee agreement in confidence.
5. STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
5.01 (a) PHS reserves on behalf of the Government an irrevocable,
nonexclusive, nontransferable, royalty-free license for the
practice of all inventions licensed under the Licensed
Patent Rights and/or Background Patent Rights throughout the
world by or on behalf of the Government and on behalf of any
foreign government or international organization pursuant to
any existing or future treaty or agreement to which the
Government is a signatory. Prior to the First Commercial
Sale, Licensee agrees to provide PHS with quantities of
Licensed Products or materials made by the Licensed
Processes for PHS research use and/or for PHS use in
conducting pre-clinical, Phase I, Phase II, Phase III
Clinical Trials.
(b) In the event that Licensed Patent Rights are Subject
Inventions made under a Cooperative Research and Development
Agreement (CRADA), Licensee grants to the Government,
pursuant to 15 U.S.C. 3710a(b)(1)(A), a nonexclusive,
nontransferable, irrevocable, paid-up license to practice
Licensed Patent Rights or have Licensed Patent Rights
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. Prior to the First Commercial Sale, Licensee
agrees to provide PHS reasonable quantities of Licensed
Products or materials made through the Licensed Processes
for PHS research use and/or for PHS use in conducting pre-
clinical, Phase I, Phase II, Phase m Clinical Trials.
5.02 Licensee agrees that products used or sold in the United States
embodying Licensed Products or produced through use of Licensed
Processes shall be manufactured in the United States, unless a
written waiver is obtained in advance from PHS.
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5.03 Licensee agrees, after First Commercial Sale, to make reasonable
quantities of Licensed Products or materials produced through the
use of Licensed Processes available on a compassionate use basis to
patients, either through the patient's physician(s) and/or the
medical center treating the patient.
5.04 Licensee agrees, after First Commercial Sale and as part of their
marketing and product promotion, to develop written educational
materials (e.g., brochures, advertisements, etc.) directed to
patients and physicians detailing the Licensed Products and/or
medical aspects and the therapeutic treatment(s) of ovarian
carcinomas and mesotheliomas.
5.05 Licensee acknowledge that PHS may enter into future Cooperative
Research and Development Agreements (CRADAs) under the Federal
Technology Transfer Act of 1986 that relate to the subject matter
of this Agreement. Licensee agrees not to unreasonably deny
requests for a Research License from such future collaborators with
PHS when acquiring such rights is necessary in order to make a
Cooperative Research and Development Agreement (CRADA) project
feasible. Licensee may request an opportunity to join as a party to
the proposed Cooperative Research and Development Agreement
(CRADA).
5.06 (a) In addition to the reserved license of Paragraph 5.01 above,
PHS reserves the right to grant nonexclusive Research
License directly or to require Licensee to grant
nonexclusive Research License on reasonable terms. The
purpose of this Research License is to encourage basic
research, whether conducted at an academic or corporate
facility. In order to safeguard the Licensed Patent Rights,
however, PHS shall consult with Licensee before granting to
commercial entities a Research License or providing to them
research samples of materials made through the Licensed
Processes.
b) In exceptional circumstances, and in the event that Licensed
Patent Rights are Subject Inventions made under a
Cooperative Research and Development Agreement (CRADA), the
Government, pursuant to 15 U.S.C. 3710a(b)(1)(B), retains
the right to require the Licensee to grant to a responsible
applicant a nonexclusive, partially exclusive, or exclusive
sublicensee to use Licensed Patent Rights in Licensee's
field of use on terms that are reasonable under the
circumstances; or if Licensee fails to grant such a license,
the Government retains the right 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 (1) the action is necessary to meet
health or safety needs that are not reasonably satisfied by
Licensee, (ii) the action is necessary to meet requirements
for public use specified by Federal regulations, and such
requirements are not reasonably satisfied by the Licensee;
or (iii) the Licensee 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
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Article is subject to administrative appeal and judicial review
under 35 U.S.C. 203(2).
6. ROYALTIES AND REIMBURSEMENT
6.01 Licensee agrees to pay to PHS a noncreditable, nonrefundable
license issue royalty as set forth in Appendix C within thirty (30)
days from the date that this Agreement becomes effective.
6.02 Licensee agrees to pay to PHS a nonrefundable minimum annual
royalty as set forth in Appendix C. The minimum annual royalty is
due and payable on January 1 of each calendar year and may be
credited against any earned royalties due for sales made in that
year. The minimum annual royalty due for the first calendar year of
this Agreement may be prorated according to the fraction of the
calendar year remaining between the effective date of this
Agreement and the next subsequent January 1.
6.03 Licensee agrees to pay PHS earned royalties as set forth in
Appendix C.
6.04 Licensee agrees to pay PHS benchmark royalties as set forth in
Appendix C.
6.05 Licensee agrees to pay PHS sublicensing royalties as set forth in
Appendix C.
6.06 A patent or patent application licensed under this Agreement shall
cease to fall within the Licensed Patent Rights and/or Background
Patent Rights for the purpose of computing earned royally payments
in any given country on the earliest of the dates that a) the
application has been abandoned and not continued, b) the patent
expires or irrevocably lapses, or c) the claim has been held to be
invalid or unenforceable by an unappealed or unappealable decision
of a court of competent jurisdiction or administrative agency.
6.07 No multiple royalties shall be payable because any Licensed
Products or Licensed Processes are covered by more than one of the
Licensed Patent Rights and Background Patent Rights.
6.08 (a) Transfer of Licensed Products by Licensee to sublicensees or
an Affiliated party made in other than an arm's-length for
no furler resale shall be attributed a value which would
have been recovered in an arm's length transaction of like
quantity and quality of products sold on or about the time
of the transfer of Licensed Products for the purpose of
calculating Net Sales.
6.08 (b) Transfer of Licensed Products by Licensee to sublicensees or
Affiliated party for furler resale shalt have attributed
either a value which would have been received in an arm's-
length transaction based on sales or like
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quantity and quality of products transferred on or about
the time of each transfer of Licensed Products or the
actual value received in a later arm's length transaction,
whichever is greater, for purposes of calculating Net Sales.
6.09 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and patents
included within the Licensed Patent Rights and Background Patent
Rights incurred by PHS prior to the effective date of this
Agreement, Licensee shall pay to PHS, as an additional royalty,
within sixty (60) days of PHS's submission of a statement and
request for payment to Licensee, an amount equivalent to such
patent expenses previously incurred by PHS and detailed in Appendix
G.
6.10 With regard to expenses associated with the preparation, filing,
prosecution, and maintenance of all patent applications and patents
included within the Licensed Patent Rights and Background Patent
Rights incurred by PHS on or after the effective date of this
Agreement, PHS, at its sole option, may require Licensee:
(a) to pay PHS on an annual basis, within sixty (60) days of PHS's
submission of a statement and request for payment, a royalty amount
equivalent to all such patent expenses incurred during the previous
calendar year(s); or
(b) to pay such expenses directly to the law firm employed by PHS
to handle such functions. However, in such event, PHS and not
Licensee shall be the client of such law firm.
In limited circumstances, Licensee may be given the right to assume
responsibility for the preparation, filing, prosecution, or
maintenance of any patent application or patent included with the
Licensed Patent Rights. In that event, Licensee shall directly pay
the attorneys or agents engaged to prepare, file, prosecute, or
maintain such patent applications or patents and shall provide to
PHS copies of each invoice associated with such services as well as
documentation that such invoices have been paid.
6.11 Licensee may elect to surrender its rights in any country of the
Licensed Territory under any Licensed Patent Rights and Background
Patent Rights upon ninety (90) days written notice to PHS and owe
no payment obligation under Article 6.10 for patent-related
expenses incurred in that country after ninety (90) days of the
effective date of such written notice.
7. PATENT FILING, PROSECUTION, AND MAINTENANCE
7.01 Except as otherwise provided in this Article 7, PHS agrees to take
responsibility for, but to consult with, the Licensee in the
preparation, filing, prosecution, and maintenance of any and all
patent applications or patents included in the Licensed
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Patent Rights and shall furnish copies of relevant patent-related
documents to Licensee.
7.02 Upon PHS's written request, Licensee shall assume the
responsibility for the preparation, filing, prosecution, end
maintenance of any and all patent applications or patents included
in the Licensed Patent Rights and shall on an ongoing basis
promptly furnish copies of all patent-related documents to PHS. In
such event, Licensee shall, subject to the prior Approval of PHS,
select registered patent attorneys or patent agents to provide such
services on behalf of Licensee and PHS. PHS shall provide
appropriate powers of attorney and other documents necessary to
undertake such actions to the patent attorneys or patent agents
providing such services. Licensee and its attorneys or agents shall
consort with PHS in all aspects of the preparation, filing,
prosecution and maintenance of patent applications and patents
included within the Licensed Patent Rights and shall provide PHS
sufficient opportunity to comment on any document that Licensee
intends to file or to cause to be filed with the relevant
intellectual property or patent office.
7.03 At any time, PHS may provide Licensee with written notice that PHS
wishes to assume control of the preparation, filing, prosecution,
and maintenance of any and all patent applications or patents
included in the Licensed Patent Rights. If PHS elects to assume
such responsibilities, Licensee agrees to cooperate fully with PHS,
its attorneys, and agents in the preparation, filing, prosecution,
and maintenance of any and all patent applications or patents
included in the Licensed Patent Rights and to provide PHS with
complete copies of any and all documents or other materials that
PHS deems necessary to undertake such responsibilities. Licensee
shall be responsible for all costs associated with transferring
patent prosecution responsibilities to an attorney or agent of
PHS's choice.
7 04 Each park shall promptly inform the other as to all matters that
come to its attention that may affect the preparation, filing,
prosecution, or maintenance of the Licensed Patent Rights and
permit each other to provide comments and suggestions with respect
to the preparation, filing, prosecution, and maintenance of
Licensed Patent Rights, which comments and suggestions shall be
considered by the other party.
8. RECORDKEEPING
8.01 Licensee agrees to keep accurate and correct records of Licensed
Products made, used, sold, or imported and Licensed Processes
practiced under this Agreement appropriate to determine the amount
of royalties due PHS. Such records shall be retained for at least
five (5) years following a given reporting period and shall be
available during normal business hours for inspection at the
expense of PHS by an accountant or other designated auditor
selected by PHS for the sole purpose of verifying reports and
payments hereunder. The accountant or auditor shall only
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disclose to PHS information relating to the accuracy of reports
and payments made under this Agreement. If an inspection shows an
under reporting or underpayment in excess of five percent (5%/0)
for any twelve (12) month period, then Licensee shall reimburse
PHS for the cost of the inspection at the time Licensee pays the
unreported royalties, including any late charges as required by
Paragraph 9.08 of this Agreement. All payments required under
this Paragraph shall be due within thirty (30) days of the date
PHS provides Licensee notice of the payment due.
8.02 Licensee agrees to have an audit of sales end royalties conducted
by an independent auditor at least every two (2) years if annual
sales of the Licensed Product or Licensed Processes are over two
(2) million dollars. The audit shall address, at a minimum, the
amount of gross sales by or on behalf of Licensee during the audit
period, terms of the license as to percentage or fixed royalty to
be remitted to the Government, the amount of royalty funds owed to
the Government under this Agreement, and whether the royalty amount
owed has been paid to the Government and is reflected in the
records of the Licensee. The audit shall also indicate the PHS
license number, product, and the time period being audited. A
report certified by the auditor shall be submitted promptly by the
auditor directly to PHS on completion. Licensee shall pay for the
entire cost of the audit.
9. REPORTS ON PROGRESS BENCHMARKS, SALES AND PAYMENTS
9.01 Prior to signing this Agreement, Licensee has provided to PHS the
Commercial Development Plan at Appendix F, under which Licensee
intends to bring the subject matter of the Licensed Patent Rights
and/or Background Patent Rights to the point of Practical
Application. This Commercial Development Plan is hereby
incorporated by reference into this Agreement. Based on this plan,
performance Benchmarks are determined as specified in Appendix E.
9.02 Licensee shall provide written annual reports on its product
development progress or efforts to commercialize under the
Commercial Development Plan for each of the Licensed Fields of Use
within sixty (60) days after December 31 of each calendar year.
These progress reports shall include, but not be limited to:
progress on research and development, status of applications for
regulatory approvals, manufacturing, sublicensing, marketing,
importing, and sales during the preceding calendar year, as well as
plans far the present calendar year. PHS also encourages these
reports to include information on any of Licensee's public service
activities that relate to the Licensed Patent Rights and Background
Patent Rights. If reported progress differs from that projected in
the Commercial Development Plan and Benchmarks, Licensee shall
explain the reasons for such differences. In any such annual
report, Licensee may propose amendments to the Commercial
Development Plan, acceptance of which by PHS may not be denied
unreasonably. Licensee agrees to provide any additional information
reasonably required by PHS to evaluate Licensee's performance under
this Agreement. Licensee may
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amend the Benchmark at any time upon written consent by PHS. PHS
shall not unreasonably withhold approval of any request of
Licensee to extend the time periods of this schedule if such
request is supported by a reasonable showing by Licensee of
diligence in its performance under the Commercial Development
Plan and toward bringing the Licensed Products to the point of
Practical Application as defined in 37 CFR 404.3(d). Licensee
shall amend the Commercial Development Plan and Benchmarks at the
request of PHS to address any Licensed fields of Use not
specifically addressed in the plan originally submitted.
9.03 Licensee shall report to PHS the dates for achieving Benchmarks
specified in Appendix E and the First Commercial Sale in each
country in the Incensed Territory within thirty (30) days of such
occurrences.
9.04 Licensee shall submit to PHS within sixty (60) days after each
calendar half-year ending June 30 and December 31 a royalty report
setting forth for the preceding half-year period the amount of the
Licensed Products sold or Licensed Processes practiced by or on
behalf of Licensee in each country within the Licensed Territory,
the Net Sales, and the amount of royalty accordingly due. With each
such royalty report, Licensee shall submit payment of the earned
royalties due. If no earned royalties are due to PHS for any
reporting period, the written report shall so state. The royalty
report shall be recorded as correct by an authorized officer of
Licensee and shall include a detailed listing of all deductions
made under Paragraph 2.10 to determine Net Sales made under Article
6 to determine royalties due.
9.05 Licensee agrees to forward semi-annually to PHS a copy of such
reports received by Licensee from its sublicensees during the
preceding half-year period as shall be pertinent to a royalty
accounting to PHS by Licensee for activities under the sublicensee.
9.06 Royalties due under Article 6 shall be paid in U.S. dollars. For
conversion of foreign currency to U.S. dollars, the conversion rate
shall be the New York foreign exchange rate quoted in THE WALL
STREET JOURNAL on the day that the payment is due. All checks and
bank drafts shall be drawn on United States banks and shall be
payable, as appropriate, to "NIH/Patent Licensing." All such
payments shall be sent to the following address: NIH, P.O. Box
360120, Pittsburgh, PA 15251-6120. Any loss of exchange, value,
taxes, or other expenses incurred in the transfer or conversion to
U.S. dollars shall be paid entirely by Licensee. The royalty
report required by Paragraph 9.04 of this Agreement shall accompany
each such payment, and a copy of such report shall also be mailed
to PHS at its address for notices indicated on the Signature Page
of this Agreement.
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9.07 Licensee shall be solely responsible for determining if any tax on
royalty income is owed outside the United States and shall pay any
such tax and be responsible for all filings with appropriate
agencies of foreign governments.
9.08 Interest and penalties may be assessed by PHS on any overdue
payments in accordance with the Federal Debt Collection Act. The
payment of such late charges shall not prevent PHS from exercising
any other rights it may have as a consequence of the lateness of
any payment.
9.09 All plans and reports required by this Article 9 and marked
"confidential" by Licensee shall, to the extent permitted by law,
be treated by PHS as commercial and financial information obtained
from a person and as privileged and confidential, and any proposed
disclosure of such records by the PHS under the Freedom of
Information Act (FOIA), 5 U.S.C. Section 552 shall be subject to
the predisclosure notification requirements of 45 CFR Section
5.65(d).
10. PERFORMANCE
10.01 Licensee shall use its reasonable best efforts to bring the
Licensed Products and Licensed Processes to Practical Application.
"Reasonable best efforts" for the purposes of this provision shall
include adherence to the Commercial Development Plan at Appendix F
and performance of the Benchmarks at Appendix E. The efforts of a
sublicensee shall be considered the efforts of Licensee.
10.02 Upon the First Commercial Sale, until the expiration of this
Agreement, Licensee shall use its reasonable best efforts to make
Licensed Products and Licensed Processes reasonably accessible to
the United States public.
11. INFRINGEMENT AND PATENT ENFORCEMENT
11.01 PHS and Licensee agree to notify each other promptly of each
infringement or possible infringement of the Licensed Patent Rights
and for Background Patent Rights, as well as any facts which may
affect the validity, scope, or enforceability of the Licensed
Patent Rights and/or Background Patent Rights of which either Party
becomes aware.
11.02 Pursuant to this Agreement and the provisions of Chapter 29 of
title 35, United States Code, Licensee may: a) bring suit in its
own name, at its own expense, and on its own behalf for
infringement of presumably valid claims in the Licensed Patent
Rights; b) in any such suit, enjoin infringement and collect for
its use, damages, profits, and awards of whatever nature
recoverable for such infringement; and c) settle any claim or suit
for infringement of the Licensed Patent Rights provided, however,
that PHS and appropriate Government authorities shall have the
first right to take such actions. If Licensee desires to
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initiate a suit for patent infringement, Licensee shall notify
PHS in writing. If PHS does not notify Licensee of its intent to
pursue legal action within ninety (90) days, Licensee will be
free to initiate suit. PHS shall have a continuing right to
intervene in such suit. Licensee shall take no action to compel
the Government either to initiate or to join in any such suit for
patent infringement. Licensee may request the Government to
initiate or join in any such suit if necessary to avoid dismissal
of the suit. Should the Government be made a party to any such
suit, Licensee shall reimburse the Government for any costs,
expenses, or fees which the Government incurs as a result of such
motion or other action, including any and all costs incurred by
the Government in opposing any such motion or other action. In
all cases, Licensee agrees to keep PHS reasonably appraised of
the status and progress of any litigation. Before Licensee
commences an infringement action, Licensee shall notify PHS and
give careful consideration to the views of PHS and to any
potential effects of the litigation on the public health in
deciding whether to bring suit.
11.03 In the event that a declaratory judgment action alleging invalidity
or non-infringement of any of the Licensed Patent Rights shall be
brought against Licensee or raised by way of counterclaim or
affirmative defense in an infringement suit brought by Licensee
under Paragraph 11.02, pursuant to this Agreement and the
provisions of Chapter 29 of Title 35, United States Code or other
statutes, Licensee may: a) defend the suit in its own name, at its
own expense, and on its own behalf for presumably valid claims in
the Licensed Patent Rights; b) in any such suit, ultimately to
enjoin infringement and to collect for its use, damages, profits,
and awards of whatever nature recoverable for such infringement;
and c) settle any claim or suit for declaratory judgment involving
the Licensed Patent Rights- provided, however, that PHS and
appropriate Government authorities shall have the first right to
take such actions and shall have a continuing right to intervene in
such suit. If PHS does not notify Licensee of its intent to respond
to the legal action within a reasonable time, Licensee will be free
to do so. Licensee shall take no action to compel the Government
either to initiate or to join in any such declaratory judgment
action. Licensee may request the Government to initiate or to join
any such suit if necessary to avoid dismissal of the suit. Should
the Government be made a party to any such suit by motion or ally
other action of Licensee, Licensee shall reimburse the Government
for any costs, expenses, or fees which the Government incurs as a
result of such motion or other action. If Licensee elects not to
defend against such declaratory judgment action, PHS, at its
option, may do so at its own expense. In all cases, Licensee agrees
to keep PHS reasonably appraised of the status and progress of any
litigation. Before Licensee commences an infringement action,
licensee shall notify PHS and give careful consideration to the
views of PEIS and to any potential effects of the litigation on the
public health in deciding whether to bring surf.
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11.04 In any action under Paragraphs 11.02 or 11.03, the expenses
including costs, fees, attorney fees, and disbursements, shall be
paid by Licensee. The value of any recovery made by Licensee
through court judgment or settlement shall be treated as Net Sales
and subject to earned royalties.
11.05 PHS shall cooperate fully with Licensee in connection with any
action under Paragraphs 11.02 or 11.03. PHS agrees promptly to
provide access to all necessary documents and to render reasonable
assistance in response to a request by licensee.
12. NEGATION OF WARRANTIES AND LNDEMNIFICATION
12.01 PHS offers no warranties other than those specified in Article 1.
12.02 PHS does not wan ant the validity of the Licensed Patent Rights and
Background Patent Rights and makes no representations whatsoever
with regard to the scope of the Licensed Patent Rights and
Background Patent Rights, or that the Licensed Patent Rights and
Background Patent Rights may be exploited without infringing other
patents or other intellectual proper rights of third parties.
12.03 PHS MAKES NO WARRANTS, EXPRESSED OR IMPLIED, OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER DEFINED BY
THE CLAIMS OF THE LICENSED PATENT RIGHTS AND BACKGROUND PATENT
RIGHTS OR TANGIBLE MATERIALS RELATED THERETO.
12.04 PHS does not represent that it will commence legal actions against
third parties infringing the Licensed Patent Rights and/or
Background Patent Rights.
12.05 Licensee shall indemnify and hold PHS, its employees, students,
fellows, agents, and consultants harmless from and against all
liability, demands, damages, expenses, and losses, including but
not limited to death, personal injury, illness, or property damage
in connection with or arising out of: a) the use by or on behalf of
Licensee, its sublicensees, directors, employees, or third parties
of any Licensed Patent Rights and Background Patent Rights b) the
design, manufacture, distribution, or use of any Licensed Products,
Licensed Processes or materials by Licensee, or other products or
processes developed in connection with or arising out of the
Licensed Patent Rights and/or Background Patent Rights. Licensee
agrees to maintain a liability insurance program consistent with
sound business practice.
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13. TERM, TERMINATION, AND MODIFICATION OF RIGHTS
13.01 This Agreement is effective when signed by all parties and shall
extend to the expiration of the last to expire of the Licensed
Patent Rights and Background Patent Rights unless sooner terminated
as provided in this Article 13.
13.02 In the event that Licensee is in default in the performance of any
material obligations under this Agreement, including but not
limited to the obligations listed in Article 13.05 and if the
default has not been remedied within ninety (90) days after the
date of notice in writing of such default, PHS may terminate this
Agreement by written notice and pursue outstanding amounts owed
through procedures provided by the Federal Debt Collection Act.
13.03 In the Event that Licensee becomes insolvent, files a petition in
bankruptcy, has such a petition filed against it, determines to
file a petition in bankruptcy, or receives notice of a third
party's intention to file an involuntary petition in bankruptcy,
Licensee shall immediately notify PHS in writing. Furthermore, PHS
shall have the right to terminate this Agreement immediately upon
Licensee's receipt of written notice.
13 .04 Licensee shall have a unilateral right to terminate this Agreement
and/or any licenses in any country or territory by giving PHS sixty
(60) days written notice to that effect.
13.05 PHS shall specifically have the right to terminate or modify, at
its option, this Agreement, if PHS determines that the Licensee: 1)
is not executing the Commercial Development Plan submitted with its
request for a license and the Licensee cannot otherwise demonstrate
to PHS's satisfaction that the Licensee has taken, or can be
expected to take within a reasonable time, effective steps to
achieve Practical Application of the Licensed Products or Licensed
Processes; 2) has not achieved the Benchmarks as may be modified
under Paragraph 9.02; 3.) has not met one or more of the
obligations of Appendix C; 4) has willfully made a false statement
of, or willfully omitted, a material fact in the license
application or in any report required by the license Agreement; 5)
has committed a material breach of a covenant or agreement
contained in the license; 6) is not keeping Licensed Products or
Licensed Processes reasonably available to the public after
commercial use commences; 7) cannot reasonably satisfy unmet health
and safety needs; or 8) cannot reasonably justify a failure to
comply with the domestic production requirement of Paragraph 5.02
unless waived. In making this determination, PHS will take into
account the normal course of such commercial development programs
conducted with sound and reasonable business practices and judgment
and the annual reports submitted by Licensee under Paragraph 9.02.
Prior to invoking this right, PHS shall give written notice to
Licensee providing Licensee specific notice of, and a ninety (90)
day opportunity to respond to, PHS's concerns as to the previous
items 1) to 7). If Licensee fails to
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alleviate PHS's concerns as to the previous items 1) to 7) or
fails to initiate corrective action to PHS's satisfaction, PHS
may terminate this Agreement.
13.06 When the public health and safety so require, and after written
notice to Licensee providing Licensee a sixty (60) day opportunity
to respond, PHS shall have the right to require Licensee to grant
sublicenses to responsible applicants, on reasonable terms, in any
Licensed Fields of Use under the Licensed Patent Rights, unless
Licensee can reasonably demonstrate that the granting of the
sublicensee would not materially increase the availability to the
public of the subject matter of the Licensed Patent Rights. PHS
will not require the granting of a sublicensee unless the
responsible applicant has first negotiated in good faith with
Licensee.
13.07 PHS reserves the right according to 35 U.S.C. Section 209(f)(4) to
terminate or modify this Agreement if it is determined that such
action is necessary to meet requirements for public use specified
by federal regulations issued after the date of the license and
such requirements are not reasonably satisfied by Licensee.
13.08 Within thirty (30) days of receipt of written notice of PHS's
unilateral decision to modify or terminate this Agreement, Licensee
may, consistent with the provisions of 37 CFR 404.11, appeal the
decision by written submission to the designated PHS official. The
decision of the designated PHS official shall be the final agency
decision. Licensee may thereafter exercise any and all
administrative or judicial remedies that may be available.
13.09 Within ninety (90) days of expiration or termination of this
Agreement under this Article 13, a final report shall be submitted
by Licensee. Any royalty payments, including those incurred but not
yet paid (such as the full minimum annual royalty), and those
related to patent expense, due to PHS shall become immediately due
and payable upon termination or expiration. If terminated under
this Article 13, sublicensees may elect to convert their
sublicenses to direct licenses with PHS pursuant to Paragraph 4.03.
Unless otherwise specifically provided for under this Agreement,
upon termination or expiration of this Agreement, Licensee shall
return all Licensed Products or other materials included within the
Licensed Patent Rights and Background Patent Rights to PHS or
provide PHS with certification of the destruction thereof
14. GENERAL PROVISIONS
14.01 Neither Party may waive or release any of its rights or interests
in this Agreement except in writing. The failure of the Government
to assert a right hereunder or to insist upon compliance with any
term or condition of this Agreement shall not constitute a waiver
of that right by the Government or excuse a similar subsequent
failure to perform any such term or condition by Licensee.
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14.02 This Agreement constitutes the entire agreement between the Parties
relating to the subject matter of the Licensed Patent Rights and
Background Patent Rights, and all prior negotiations,
representations, agreements, and understandings are merged into,
extinguished by, and completely expressed by this Agreement.
14.03 The provisions of this Agreement are severable, and in the event
that any provision of this Agreement shall be determined to be
invalid or unenforceable under any controlling body of law, such
determination shall not in any way affect the validity or
enforceability of the remaining provisions of this Agreement.
14.04 If either Party desires a modification to this Agreement, the
Parties shall, upon reasonable notice of the proposed modification
by the Party desiring the change, confer in good faith to determine
the desirability of such modification. No modification will be
effective until a written amendment is signed by the signatories to
this Agreement or their designees.
14.05 The construction, validity, performance, and effect of this
Agreement shall be governed by Federal law as applied by the
Federal courts in the District of Columbia.
14.06 All notices required or permitted by this Agreement shall be given
by prepaid, first class, registered or certified mail or by an
express/overnight delivery service provided by a commercial
carrier, properly addressed to the other Party at the address
designated on the following Signature Page, or to such other
address as may be designated in writing by such other Party.
Notices shall be considered timely if such notices are received on
or before the established deadline date or sent on or before the
deadline date as verifiable by U.S. Postal Service postman or dated
receipt from a commercial carrier. Parties should request legibly
dated U.S. Postal Service postmark or obtain a dated receipt from a
commercial carrier or the U.S. Postal Service. Private metered
postmarks shall not be acceptable as proof of timely mailing.
14.07 This Agreement shall not be assigned by Licensee except: a) with
the prior written consent of PHS, such consent not to be withheld
unreasonably; or b) as part of a sale or transfer of substantially
the entire business of Licensee relating to operations which
concern this Agreement. Licensee shall notify PHS within ten (10)
days of any assignment of this Agreement by Licensee, and Licensee
shall pay PHS, as an additional royalty, one percent (1%) of the
fair market value of any consideration received for any assignment
of this Agreement within thirty (30) days of such assignment.
14.08 Licensee agrees in its use of any PHS-supplied materials to comply
with all applicable statutes, regulations, and guidelines,
including PHS and DEBS regulations and guidelines. Licensee agrees
not to use the materials for research involving human subjects or
clinical trials in the United States without complying
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with 21 CFR Part 50 and 45 CFR Part 46. Licensee agrees not to
use the materials for research involving human subjects or
clinical trials outside of the United States without notifying
PHS, in writing, of such research or trials and complying with
the applicable regulations of the appropriate national control
authorities. Written notification to PHS of research involving
human subjects or clinical trials outside of the United States
shall be given no later than sixty (60) days prior to
commencement of such research or trials.
14.09 Licensee acknowledges that it is subject to and agrees to abide by
the United States laws and regulations (including the Export
Administration Act of 1979 and Arms Export Control Act) controlling
the export of technical data, computer software, laboratory
prototypes, biological material, and other commodities. The
transfer of such items may require a license from the cognizant
Agency of the U.S. Government or written assurances by Licensee
that it shall not export such items to certain foreign countries
without prior approval of such agency. PHS neither represents that
a license is or is not required or that, if required, it shall be
issued.
14.10 Licensee agrees to mark the Licensed Products or their packaging
sold in the United States with all applicable U.S. patent numbers
and similarly to indicate "Patent Pending" status. All Licensed
Products manufactured in, shipped to, or sold in other countries
shall be marked in such a manner as to preserve PHS patent rights
in such countries.
14.11 By entering into this Agreement, PHS does not directly or
indirectly endorse any product or service provided, or to be
provided, by Licensee whether directly or indirectly related to
this Agreement. Licensee shall not state or imply that this
Agreement is an endorsement by the Government, PHS, any over
Government organizational unit, or any Government employee.
Additionally, Licensee shall not use the names of N1H, CDC, PHS, or
DHHS or the Government or their employees in any advertising,
promotional, or sales literature without the prior written consent
of PHS.
14.12 The Parties agree to attempt to settle amicably any controversy or
claim arising under this Agreement or a breach of this Agreement,
except for appeals of modifications or termination decisions
provided for in Article 13 . Licensee agrees first to appeal any
such unsettled claims or controversies to the designated PHS
official, or designee, whose decision shall be considered the final
agency decision. Thereafter, Licensee may exercise any
administrative or judicial remedies that may be available.
14.13 Nothing relating to the grant of a license, nor the grant itself,
shall be construed to confer upon any person any immunity from or
defenses under the antitrust laws or from a charge of patent
misuse, and the acquisition and use of rights pursuant to
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37 CFR Part 404 shall not be immunized from the operation of state
or Federal law by reason of the source of the grant.
14.14 Paragraphs 4.03, 8.01, 9.05-9.07, 12.01-12.05, 13.08, 13.09, and
14.12 of this Agreement shall survive termination of this
Agreement.
</TABLE>
SIGNATURE BEGIN ON NEXT PAGE
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PHS PATENT LICENSE AGREEMENT -- EXCLUSIVE
SIGNATURE PAGE
For PHS:
____________________________________ __________________, 1999
Jack Spiegel, Ph.D. Date
Director, Division of Technology Development and Transfer
Office of Technology Transfer
National Institutes of Health
Mailing Address for Notices:
Office of Technology Transfer
National Institutes of Health
6011 Executive Boulevard, Suite 325
Rockville, Maryland 20852-3804
For Licensee (Upon, information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of Licensee made or referred to
in this document are truthful and accurate.):
by:
__________________________________________ _________________, 1999
Signature of Authorized Official Date
__________________________________________
Printed Name
__________________________________________
Title
Official and Mailing Address for Notices:
NeoPharm, Inc.
100 Corporate North - Suite 214
Bannockburn, Illinois 60015
Phone No.: (847)-295-8678
FAX No.: (847)-295-8854
Any false or misleading statements made, presented, or submitted to the
Government, including any relevant omissions, under this Agreement and during
the course of negotiation of this Agreement are subject to all applicable civil
and criminal statutes including Federal statutes 31 U.S.C. Sections 3801-3812
(civil liability) and 18 U.S.C. Section 1001 (criminal liability including
fine(s) and/or imprisonment).
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APPENDIX A-Patent(s) or Patent Application(D)
Patent Application(s) that are "Licensed Patent Rights" - licensed exclusive
basis:
1.) USPA 08/776,271, Entitled, "Mesothelium Antigen and Methods and Kits for
Targeting It", Inventors: Dr. Ira H. Pastan (NCI) and Dr. Rai Chang (NCI),
Filed: January 12, 1998,[= E-002-96/0/1/1/2]; and
2.) USPA 60/067,175, Entitled "Antibodies, Including Fv Molecules, and
Immunoconjugates having High Binding Affinity for Mesothelin and Methods
for Their Use", Inventors Dr. Ira H. Pastan (NCI) and Dr. Partha Chowdhury
(NCI), Filed December 1, 1997,
[= E-021-98/0/1].
Patent(s) or Patent Application(s) that are Background Patent Rights - licensed
on a nonexcluslve basis:
A.) USPN 4,892,827 (= USSN 06/911,227), enabled, "Recombinant PSEUDOMONAS
Exotoxin: Construction of an Active Immunotoxin with Low Side Effects",
inventors: Drs. Ira H. Pastan (NCI), Sankar Adhya (NCI), and David
FitzGerald (NC1), - excluding any foreign equivalents corresponding to
4,892,827 (= USSN 06/911,227 ) [= E-385-96/0].
B.) USPN 5,747,654 (= USPA 08/077,252) entitled, "Recombinant Disulfide
Stabilized Polypeptide Fragments Having Binding Specificity", inventors:
Drs. Ira H. Pastan (NCI), Byungkook Lee (NCI), Sun-Hee Jung (NCI), Ulrich
Brinkmann (NCI). PHS is an owner of corresponding foreign rights in
national phase prosecution in Canada, Australia, Japan, and the European
Patent Office [E-163-93/0].
C.) USPA 09/002,753 (=Division of USPA 08/077,252), entitled: "Recombinant
Disulfide Stabilized Polypeptide Fragments Having Binding Specificity",
inventors: Ira H. Pastan (NCI), Byungkook Lee (NCI), Sun-Hee Jung (NCI),
Ulrich Brinkmann (NCI) [=13-63-93/4].
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APPENDIX B-Licensed Fields of Use and Territory
Licensed Fields of Use:
The Licensed Fields of Use: is limited to the use of the SS(dsFv)-P-38
immunotoxin, and the relevant patent applications defined under Licensed Patent
Rights and/or Background Patent Rights, for the IN VIVO therapeutic treatment of
ovarian carcinomas and mesotheliomas.
Licensed Territory: World-Wide
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APPENDIX C - Royalties
EXECUTION ROYALTY:
.1 Licnesee agrees to pay PHS a noncreditable, nonrefundable license issue
royalty in the amount of Seventy-Five Thousand ($75,000.00) U.S. Dollars.
MINIMUM ANNUAL ROYALTY:
2. Licensee agrees to pay PHS a nonrefundable minimum annual royalty in the
amount of twenty thousand dollars $20,000.00) beginning on January 1, 2001
and for each year thereafter that this Agreement is in effect, except that
in the event Licensee fails to meet the benchmarks associated with the
"Scale Up Production of the SS9dsFv)-PE38 immunotoxin", and/or the
initiation of Phase II or Phase III clinical trials as set forth in
Appendix E for which a time period has been assigned, Licensee shall be
obligated to pay retroactive to the prior January 1, to PHS a minimum
annual royalty in the amount of one hundred and fifty thousand dollars
$150,000.00) per year, any time after the execution of this Agreement,
until such time as the benchmark(s) is achieved, after which time the
nonrefundable minimum annual royalty shall revert to twenty thousand
dollars ($20,000.00) per year beginning January 1, 2001 or the next January
1 thereafter or until the subject agreement is terminated.
EARNED ROYALTIES:
3. Licensee agrees to pay PHS earned royalties on Net Sales as follows:
A. Five Percent (5%) of Net Sales by Licnesee and Licensee's
sublicensee(s) (or an Affiliate of Licensee) of Licensed Products
and/or Licensed Process(es).
B. Licensee and Licensee's sublicensee(s) shall be entitled to a One
Half Percent (0.5%) credit against the earned royalty rate on Net
Sales for each percent of royalty Licensee must pay to third party
licensors for the manufacture and sale of Licensed Products and/or
Licensed Process(es), except for any royalty which Licensee must
pay to other unaffiliated licensors for all counterpart foreign
Applications and Patents corresponding to United States Patent
Number 4,892,827, entitled "Recombinant Pseudomonas Exotoxin:
Construction Of An Immunotoxin With Low Side Effects", inventors;
Dr. Ira H. Pastan, Sankar Adhya and David FitzGerald, as listed in
Appendix A. Said reduction in earned royalties, however, shall
only be triggered should the collective earned royalty burden on
Net Sales be more than Twelve Percent (12%), but, in no case, shall
the royalty rate owed to PHS by Licensee and Licensee's
sublicensee(s) for Licensed Products and/or Licensed Process(es) be
reduced below four percent (4%).
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BENCHMARK ROYALTIES:
4. Licensee agrees to pay PHS benchmark royalties as follows:
Upon filing of the first application for regulatory approval to conduct a
clinical trial in humans anywhere in the Licensed Territory utilizing
and/or directed to Licensed Products and/or Licensed Process(es) -
Twenty-Five Thousand ($25,000.00) U.S. Dollars.
At the completion of the First Phase I Clinical Trials in humans anywhere
in the Licensed Territory utilizing and/or directed to Licensed Products
and/or Licensed Process(es) - Fifty Thousand ($50,000.00) U.S. Dollars.
At the completion of the First Phase II Clinical Trials in humans anywhere
in the Licensed Territory utilizing and/or directed to Licensed Products
and/or Licensed Process(es) anywhere in the Licensed Territory - Seventy-
Five Thousand ($75,000.00) U.S. Dollars.
At the initiation of the first Phase III Clinical Trials in he as anywhere
in the Licensed Territory utilizing and/or directed to Licensed Products
and/or Licensed Process(es) - One Hundred Thousand ($100,000.00) U.S.
Dollars.
Upon filing of the first application for marketing approval anywhere in the
Licensed Territory utilizing and/or directed to Licensed Produces and/or
Licensed Process(es) -Two Hundred and Fifty Thousand Dollars ($250,000.00)
U.S. Dollars.
Upon each additional rnarketing approval in a major market (e.g., the
United States of America, Canada, Europe, Japan, etc.) utilizing and/or
directed to Licensed Product and/or Licensed Process(es) - Five Hundred
Thousand ($500,000.00) U.S. Dollars.
SUBLICENSING ROYALTIES:
5. Licensee agrees to pay PHS sublicensing royalties as follows:
(a.) Twenty-five percent (25%) of earned royalties paid by a sublicensee
on Net Sales or two percent (2%) of the Net Sales of a sublicensee,
whichever is greater; and
(b.) Twenty percent (20%) of all non-creditable and non-refundable
consideration received for granting a sublicense, if the technology
is sublicensed on or before the one year anniversary of this
Agreement; or ten percent (10%) of all noncreditable and non-
refundable consideration received in granting a sublicense, if the
technology is sublicensed after the one year anniversary of this
Agreement. Fees paid expressly for research and development of
Licensed Product and Licensed Processes, such as clinical trial
support, shall be excluded.
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APPENDIX C - Royalties
EXECUTION ROYALTY:
1. Licensee agrees to pay PHS a noncreditable, nonrefundable license issue
royalty in the amount of Seventy-Five Thousand ($75,000.00) U.S. Dollars.
MINIMUM ANNUAL ROYALTY:
2. Licensee agrees to pay PHS a nonrefundable minimum annual royalty in the
amount of twenty thousand dollars ($20,000.00) beginning on January 1, 2001
and for each year thereafter that this Agreement is in effect, except that
in the event Licensee fails to meet the benchmarks associated with the
"Scale Up Production of the SS(dsFv)-PE38 immunotoxin", and/or the
initiation of Phase II or Phase m clinical teals as set forth in Appendix
E! for which a time period has been assigned, Licensee shall be obligated
to pay, retroactive to the prior January lo alto PHS a minimum annual
royalty in the amount of one hundred and fifty thousand dollars
($150,000.00) per year, any time after the execution of this Agreement,
until such time as the benchmark(s) is achieved, after which time the
nonrefundable minimum annual royalty shall revert to twenty thousand
dollars($20,000.00)per year beginning January 1,2001 or the next January
1st thereafter or until the subject Agreement is terminated.
EARNED ROYALTIES:
3. Licensee agrees to pay PHS earned royalties on Net Sales as follows:
A. Five Percent (5%) of Net Sales by Licensee and Licensee's
sublicensee(s) (or an Affiliate of Licensee) of Licensed Products
and/or Licensed Process(es) .
B. Licensee and Licensee's sublicensee(s) stall be entitled to a One
Half Percent (0.5%) credit against the earned royalty rate on Net
Sales for each percent of royalty Licensee must pay to third party
licensors for the manufacture and sale of Licensed Products, except
for any royalty which Licensee must pay to other unaffiliated
licensors for all counterpart foreign Applications and Patents
corresponding to United States Patent Number 4,892,827, entitled,
"Recombinant Pseudomonas Exotoxin: Construction Of An l~nunotoxin
With Low Side Effects", inventors; Dr. Ira H. Pastan, Sankar Adhya
and David FitzGerald, as listed in Appendix A. Said reduction in
earned royalties, however, shall only be triggered should the
collective earned royalty burden on Net Sales be more loom Twelve
Percent (12%), but, in no case, shall the royalty rate owed to PHS
by Licensee and Licensee's sublicensee(s) for Licked Products
and/or Licensed Process(es) be reduced below four Percent (4%).
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APPENDIX D - Modifications
PHS and Licensee agree to the following modifications to the Articles and
Paragraphs of this Agreement:
NONE DOES NOT APPLY/ NO MODIFICATIONS OR AMENDMENTS ARE HEREBY MADE TO THIS
AGREEMENT.
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APPENDIX E - Benchmark Performance
Licensee agrees to the following Benchmarks for its performance under this
Agreement and, within thirty (30) days of achieving a Benchmark, shall notify
PHS that the Benchmark has been achieved.
Ethical Therapeutic for the treatment of Ovarian Carcinoma and Mesothelioma
The Projected Project lime Lines are as followers:
Manufacture and scale up of Therapeutic Drug
[incorporating the SS(dsFv)-PE-38 immunotoxin] October 1, 1999
IN VIVO Efficacy and IN VIVO Toxicity Studies initiated
by: March 31, 2000
Scale-Up Production Regulatory Studies, GLP & GMP,
Validation of Process completed by: July 31, 2000
Phase I trial initiated by: December 1, 2000
Phase I trial completed by: June 30, 2002
Phase II trial initiated by: November 1, 2001
Patient accrual completed by: June 30, 2003
Phase III trial Initiated by: March 31, 2004
Patient accrual completed by: June 30, 2004
If Safety and Efficacy Indicate:
Study evaluated for safety and efficacy by: September 30, 2004
Product License Application filed by: March 31, 2005
29
<PAGE>
APPENDIX F- Commercial Development Plan
See NeoPharm, Inc.'s License Application dated August 12, 1998 and signed by
James Hussey R.Ph., M.B.A., Chief Executive Officer and President,
for L-323-08/0
The NeoPharm, Inc. "Commercial Development Plan" is attached to this Agreement
and/or hereby incorporated by reference into this Agreement.
30
<PAGE>
APPENDIX G - PHS Reimbursable Patent Prosecution Costs
As set forth in Article 6 and Section 6.09 of this Agreement.
Patent Application(s) that are "Licensed Patent Rights" - licensed on an
exclusive basis:
1.) USPA 08/776,271, Entitled, "Mesothelium Antigen and Methods and
Kits for Targeting It", Inventors: Dr. Ira H. Pastan (NCI) and Dr.
Kai Chang NCI), Filed January 12,1998; and
($29,000.00)
2.) USPA 60/067,175, Entitled "Antibodies, Including Pv Molecules, and
Immunoconjugates~, having High Binding Affinity for Mesothelin and
Methods for Their Use", Inventors Dr. Ira HI. Pastan (NCI) and Dr.
Parka Chowdhury (NCI), Filed: December 1, 1997.
($8,200.00)
Patent(s) or Patent Application(s) that are "Background Patent Rights" -
licensed on a non-exclusive basis:
USPN 4,892,827 (= USSN 06/911,227), entitled, "Recombinant
Pseudomonas Exotoxin: Construction of an Active Imrnunotoxin with
Low Side Effects", inventors: Drs. Ira H. Pastan (NCI), Sankar
Adhya (NCl), and David FitzGerald (NCI), - exuding any foreign
equivalents corresponding to 4,892,827 (= USSN 06/911,227 ).
($5,000.00)
USPN 5,747,654 (= USPA 08/077,252) entitled, "Recombinant
DisulfideStabilized Polypeptide Fragments Having Binding
Specificity", inventors: Drs. Ira H. Pastan (NCI), Byungkook Lee
(NCI), Sun-Hee Jung (NCI), Ulrich Brinkmann (NC1). PHS is an owner
of corresponding foreign rights in national phase prosecution in
Canada, Australia, Japan, and the European Patent Office.
($135,054.00)
USPA 09/002,753 (-Division of USPA 08/077,252), entitled
"Recombinant Disulfide-Stabilized Polypeptide Fragments Having
Binding Specificity", inventors: Drs. Ira H. Pastan (NC1),
Byungkook Lee (NC1), Sun-Hee Jung (NCI) Ulrich Brinkmann (NCI).
($1,203.00)
Total: ($175,457.00)
31
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