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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
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NEOPHARM, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 51-0327886
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
60015
(Zip Code)
100 CORPORATE NORTH
SUITE 215
BANNOCKBURN, ILLINOIS
(Address of Principal Executive Offices) (847) 295-8678
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.0002145 PAR VALUE
(Title of class)
WARRANTS TO PURCHASE SHARES OF COMMON STOCK, $.0002145 PAR VALUE
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the Registrant's common stock held by
non-affiliates (affiliates being, for these purposes only, directors, executive
officers and holders of 5% of the registrant's stock) of the registrant, par
value $.0002145 per share, (based on the closing price of such shares on the
American Stock Exchange on March 19, 1999) was $40,926,325. As of March 19, 1999
there were 8,454,621 shares of Common Stock outstanding.
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FORM 10-K TABLE OF CONTENTS
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PAGE
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<S> <C> <C>
PART I
Item 1. Business......................................................................................... 3
Item 2. Properties....................................................................................... 18
Item 3. Legal Proceedings................................................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................ 19
Item 6. Selected Financial Data.......................................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 20
Item 8. Financial Statements and Supplemental Data....................................................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............ 23
PART III
Item 10. Directors and Executive Officers of the Registrant............................................... 24
Item 11. Executive Compensation........................................................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and Management................................... 27
Item 13. Certain Relationships and Related Transactions................................................... 29
PART IV
Item 14. Exhibits and Financial Statement Schedules....................................................... 31
Signatures....................................................................................... 33
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PART I
ITEM 1. BUSINESS
THE COMPANY
NeoPharm is a pharmaceutical Company engaged in the research and development
of drugs for the diagnosis and treatment of various forms of cancer. Presently
the Company has several drugs which are in varying stages of development: BUdR
(Broxuridine), liposome encapsulated doxorubicin ("LED"), liposome encapsulated
paclitaxel ("LEP"), liposome encapsulated 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. See "NeoPharm Products" below.
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. See "Research and Development, Collaborative Relationships and
Licenses" below.
To date, the Company has been engaged primarily in research and development
of its developmental stage products. The Company has developed 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. The Company will need to hire
additional personnel and gain access to marketing and sales resources in order
to continue the development and commercialization of its products. See
"Marketing and Sales" below.
NeoPharm, Inc. was incorporated in Delaware under the name OncoMed, Inc. in
June 1990, and changed it's name to NeoPharm, Inc. in March, 1995. The Company's
principal offices are located at 100 Corporate North, Suite 215, Bannockburn,
Illinois 60015, and its telephone number is (847) 295-8678.
NEOPHARM PRODUCTS
The Company is currently developing six compounds which all target various
forms of cancer. Cancer is the second largest cause of death in the U.S. and
there are a large number of new cases of cancer each year. However, for some
types of cancer, there are no acceptable treatments, while for others, the
currently available treatments are limited due to severe side effects. The
Company's products under development offer either improvements to currently
available technology or new technology that improves the efficacy and reduces
the side effects. Before new drugs can be approved by the U.S. Food and Drug
Administration, they must go through several test phases, from pre-clinical
trials to Phase I to Phase II and Phase III
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trials. The products which the Company currently has under development are
detailed in the following table:
<TABLE>
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U.S. PATENT
COMPOUNDS USE OR ADVANTAGE DEVELOPMENT STATUS CANCER INDICATION POSITION
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<S> <C> <C> <C> <C>
LED We believe LED allows cancer patients Phase I completed, Breast, Prostate, 2 Patents
to tolerate higher dosages of initiated Phase II Hematological
chemotherapy providing greater in June 1998
therapeutic value in a number of types
of cancer tumors.
LEP We believe LEP allows cancer patients Phase I in Ovarian, Breast, 3 Patents
to tolerate higher dosages of September 1998 Lung
chemotherapy, providing greater
therapeutic value in a number of types
of cancer tumors.
LE-AON LE-AON is an antisense drug useful in Pre-clinical Head & Neck, Lung, 2 Patents
enhancing the lethality and trials ongoing, Brain
effectiveness of radiation initiate Phase I
in the 2nd
Quarter, 1999
IL-13 IL-13 Chimeric Protein Exotoxin is a Pre-clinical Renal Cell, Brain, 2 Patents
Chimeric genetically engineered compound trials ongoing, Kaposi's Sarcoma,
Protein incorporating a highly toxic material initiate Phase I Breast
Exotoxin that destroys cells once linked to the in the
target receptor on its surface. 2(nd)Quarter, 1999
Broxine-Registered Trademark- We believe Broxine will prove useful New drug Breast, Colon, 0 Patents
in characterizing tumor cell growth in application Prostate,
nearly all solid tumors. pending before the Hematologic
FDA
Mesothelin Mesothelin Mab Phase I to be Ovarian, 5 Patents
Mab (Pending) specifically targets those tumors that initiated in 4(th) Mesotheliomas,
express Mesothelin Antigen on the Quarter, 1999 Head & Neck
surface of the cancer cells
</TABLE>
The Company's short term goal is to use its proprietary technology to
significantly enhance the efficiency and reduce the side effects of currently
available chemotherapy compounds.
The Company's long term goal is to be a leading worldwide oncology drug
development Company. To reach our goals the Company has developed the following
strategies:
- focus its resources exclusively on the expanding cancer market;
- develop a balanced portfolio of anti-cancer drugs based on enhancing
proven compounds;
- develop novel therapeutic agents and leverage its expertise to identify
compounds it can license; and
- form strategic alliances with larger pharmaceutical and biotechnology
companies to obtain financial and marketing support for certain of its
product development activities.
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There can be no assurance that any of the Company's products will receive
necessary regulatory approvals, be successfully commercialized and achieve
market acceptance, or that any products commercialized by the Company will not
be rendered obsolete by other developments in the field of cancer treatment. In
addition, continued development of the Company's products will require the
Company to obtain additional sources of capital and there can be no assurance
that such capital will be available when needed or on terms acceptable to the
Company.
LIPOSOME PRODUCTS. The Company's Liposome Products consist of spheres of
subcellular size composed primarily of 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 systemic side
effects. Although liposomes have been investigated and used for many years as
drug delivery systems, the difficulty in producing liposomes on a large scale,
as well as the limited shelf life of many liposomes, have limited their use in
clinical settings.
The Company's LED is currently under 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. See "Government Regulation", below.
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 substantial up-front payment upon execution of the License Agreement
and will receive milestone payments as clinical progress occurs under the
License Agreement. The Company will also receive royalties on overseas sales and
a co-promotion profit split on sales in the United States. Pursuant to the
License Agreement, P&U will assume all further responsibility for, and the costs
associated with, the further development and testing of LED and LEP and the
obtaining of all regulatory approvals. In addition, the Company has agreed to
sell $8,000,000 of its common stock to P&U when certain Investigatory New Drug
("IND") applications are transferred to P&U in accordance with a separate Stock
Purchase Agreement at a price per share equal to 110% of the then market price
of the common stock during the sixty (60) day period preceding the transfer of
the INDs.
LIGAND TARGETED CYTOTOXINS. In October 1997, the Company entered into an
exclusive worldwide licensing agreement with the FDA and the NIH to develop and
commercialize a chimeric human protein known as "IL13-PE38QQR." This is the
fusion of receptor-binding with a derivative of Pseudomonas exotoxin (PE38QQR).
The Company also entered into a Cooperative Research and Development Agreement
("CRADA") with the FDA for the clinical and commercial development of the IL-13
as an anticancer agent. See "Research and Development, Collaborative
Relationships and Licenses" below.
Extensive research by the scientists at FDA and NCI have demonstrated that
some solid human tumors such as kidney cancer (renal cell carcinoma), brain
cancer (glioblastoma), Kaposi's sarcoma and breast carcinoma express high
numbers of IL-13 receptors on their cell surfaces. These receptors sites become
a specific target for the IL-13 chimeric protein for inducing cytotoxicity at
nanogram concentration. On the other hand, normal organs of the body are shown
to exhibit minimal receptors sites thereby sparing these organs from any toxic
effect. The Company expects to scale up the production of this
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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 signed and is awaiting confirmation from the NIH
with respect to another CRADA and 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.
BUDR PRODUCT. Clinical trials involving prognostic use of BUdR have
indicated that the information regarding tumor cell behavior provided by BUdR
can assist the oncologist in selecting appropriate therapeutic regimens for the
patients and enable better monitoring of the effectiveness of the chosen
therapy.
In December 1996, the Company filed an NDA with the FDA for BUdR as a
prognostic agent in the treatment of breast cancer. The Company's NDA as it
relates to BUdR as a prognostic indication in the treatment of breast cancer was
accepted for review by the FDA and was reviewed by the FDA's Oncology Advisory
Committee ("ODAC") on December 19, 1997, at which time ODAC voted not to
recommend this indication to the FDA for approval. Since the ODAC action, the
Company has met with the FDA to respond to concerns raised by ODAC for the
purpose of continuing to pursue FDA approval. Based on these discussions the
Company is gathering additional data and reanalyzing the existing data in order
to obtain the FDA's approval of the Company's NDA. The original NDA was filed in
December, 1996. The application has already been extended once and the Company
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.
In May 1997, the Company entered into a collaboration agreement with BioChem
Therapeutics, Inc., the wholly owned subsidiary of BioChem Pharma, under which
BioChem Pharma will develop, market and distribute BUdR in Canada after receipt
of approval from the Canadian Health Protection Branch ("HPB") of BUdR for
certain specific uses, the applications for which will be submitted by BioChem
Pharma. Upon signing the collaboration agreement, the Company received a
nonrefundable initial payment. The Company may receive additional milestone
payments based upon receipt of various approvals from the FDA and HPB.
RESEARCH AND DEVELOPMENT, COLLABORATIVE RELATIONSHIPS AND LICENSES
RESEARCH AND DEVELOPMENT. During the three year period ended December 31,
1998, the Company has expended the following amounts on research and
development: $1,611,000 for the fiscal year ended December 31, 1998, $1,412,000
for the fiscal year ended December 31, 1997 and $1,100,000 for the fiscal year
ended December 31, 1996. It is anticipated that additional research and
development will be required beyond 1999 and may necessitate the Company's
obtaining additional capital.
COLLABORATIVE RELATIONSHIPS AND LICENSES. The Company has entered into a
Clinical Trials Agreement ("CTA") with the NCI, a CRADA with the FDA, a
licensing agreement with the NIH and has licensed certain technology relating to
its Liposome Products from Georgetown University. The principal terms of the
foregoing agreements and the license are as follows:
NCI CTA. In 1992 the Company entered into a CRADA with the NCI. Under the
terms of the NCI CRADA, the Company has exclusive rights to the data generated
with respect to BUdR by NCI for certain indications contained in the CRADA
including tumors mestastic to the brain, astrocytomas, gastrointestinal cancers,
colon cancer, pancreatic cancer, lung cancer, soft tissue sarcomas, head and
neck cancer and leukemia. The NCI CRADA expired on September 13, 1998 and the
Company then entered into a CTA with the NCI effective October 29, 1998. The CTA
covers the same research that was the subject of the NCI CRADA. The CTA provides
for collaboration on the clinical development for BUdR and access to
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related clinical data required for regulatory approval. Although BUdR is not
covered by patents or patent applications, the Company believes that its
exclusive access to the clinical data collected by NCI represent a significant
competitive advantage for the Company in the development and eventual
commercialization of BUdR.
FDA CRADA. The Company entered into a CRADA with the FDA in October 1997
covering IL-13. Pursuant to the FDA CRADA, the Company has committed to
commercialize the IL-13 chimeric protein product which it licensed from the NIH
and FDA. The FDA has agreed to collaborate on the clinical development and
commercialization of the licensed product.
The Company is committed to pay $100,000 per year for the reasonable and
necessary expenses incurred by the FDA in carrying out the FDA's
responsibilities under the FDA CRADA. The FDA CRADA has a term of four years.
During 1997 and 1998, the Company expensed $100,000 per year on research and
development costs. The term of the FDA CRADA runs to August 27, 2001.
NIH CRADA AND LICENSING AGREEMENTS. The Company has entered into an
exclusive worldwide licensing agreement with the NIH and the FDA to develop and
commercialize an IL-13 chimeric protein therapy (the "NIH License"). The NIH
License required a $75,000 non-refundable license issue payment and minimum
annual royalty payments of $10,000, which increase to $25,000 after the first
commercial sale. The NIH License also provides for milestone payments and
royalties based on future product sales. The Company is required to pay the
costs of filing and maintaining product patents on the licensed products. The
Company also recently executed and is awaiting confirmation from the NIH
regarding a second CRADA and a License Agreement with the NIH for Mesothelin
Mab, a compound similar to IL-13 (Ligand Targeted Cytotoxin). The terms and
conditions of the pending Mesothelin Mab Agreements with NIH are substantially
the same as for the NIH Agreement.
GEORGETOWN UNIVERSITY AGREEMENTS. The Company previously entered into two
license and sponsored research agreements with Georgetown University relating to
LED, LEP, and LE-AON ("the "Georgetown Licenses"). Under the Georgetown
Licenses, and in return for the sponsorship of supportive research, the Company
has exclusive licenses to manufacture and sell LED, LEP, and LE-AON. The Company
will also be obligated to pay Georgetown royalties on commercial sales of the
Liposome Products. In addition, the Company is obligated to make certain advance
royalty payments to Georgetown, which payments will be credited against future
royalties payable under the Company's agreements with Georgetown. The Georgetown
Licenses are generally not terminable by Georgetown, except in the event of
default by the Company. The Company's rights under the Georgetown Licenses with
respect to LED and LEP have recently been sublicensed to P&U. See "NeoPharm
Products-Liposome Products".
Any default and resulting termination of the Georgetown Licenses would be
materially adverse to the Company's liposome program, could require curtailment
or termination of such program and could therefore have a material adverse
effect on the Company's business, financial condition and results of operations.
Dr. Aquilur Rahman, Chief Scientific Officer of the Company, is an Adjunct
Professor of Radiology at Georgetown and Dr. Anatoly Dritschilo, a director of
the Company, is the Chairman of the Department of Radiation Medicine and Medical
Director of the Georgetown University Medical Center in Washington, D.C. See
"Certain Relationships and Related Transactions".
MARKETING AND SALES
The treatment of cancer is a highly specialized activity in which the
treating oncologist tend to be concentrated in major medical centers. The
Company's marketing strategy is designed to enable the Company to operate with a
relatively small direct sales force in the United States. As products receive
regulatory approval, the Company plans to develop a sales force of modest size
to service the over 3,500 practicing oncologists in the United States. The
Company also intends to pursue collaboration agreements with other Companies to
market the Company's products elsewhere in the world.
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In May 1997, Neopharm entered into a collaboration agreement with BioChem
Pharma, under which BioChem Pharma will develop, market and distribute BUdR in
Canada after receipt of approval from the Canadian Health Protection Branch
("HPB") of BUdR for certain specific uses, the applications for which will be
submitted by BioChem Pharma.
The Company recently licensed its LEP and LED to P&U in February 1999. As
part of its responsibilities under the License Agreement, P&U will have
obligations to actively market and promote the LED and LEP products throughout
the world once they have been approved for commercial sale, an event that is not
expected to occur for several more years, if ever. Under the provisions of its
License Agreement with P&U, the Company has received the right to co-promote the
product within the United States. See "NeoPharm Products-Lipsome Products."
MANUFACTURING
The Company does not intend to establish its own dedicated manufacturing
facilities for the foreseeable future. Rather, the Company's manufacturing
strategy will be to develop manufacturing relationships with established
pharmaceutical manufacturers for production of BUdR, its Liposome Products,
IL-13 and Mesothelin Mab.
There are a number of FDA approved suppliers of raw materials used in the
Company's products in existence. There are also a number of facilities with FDA
Good Manufacturing Practice approval for contract manufacturing of the Company's
proposed products. The Company has a source for the manufacture of BUdR and is
in the process of arranging for sources for the manufacture of certain of its
planned Liposome Products and the IL-13 chimeric protein. The Company believes
that, in the event of the termination of its existing sources for product
supplies and manufacture, the Company will be able to enter into agreements with
other suppliers and/or manufacturers on similar terms. There can be no assurance
that there will be manufacturing capacity available to the Company at the time
the Company is ready to manufacture its products.
PATENTS AND PROPRIETARY RIGHTS
It will be the Company's policy to, where possible, file patent applications
to protect technology, inventions and improvements that are important to the
development of its business. Under its agreements with Georgetown University,
the Company has licensed rights to four United States patents and one pending
United States patent application relating to its Liposome Products under
development. Under its agreements with the NIH, the Company has licensed rights
to two United States patent relating to the IL-13 chimeric protein under
development and three United States patents and two pending United States
patents relating to the pending Mesothelin Mab agreements. BUdR is not currently
the subject of patents or patent applications, and the Company does not expect
to obtain patent protection for its BUdR product. The Company's principal
advantage with respect to the development and planned commercialization of BUdR
is its exclusive access under the CRADA to NCI's clinical data regarding the
compound.
The patent position of participants in the pharmaceutical field generally is
highly uncertain, involves complex legal and factual questions, and has recently
been the subject of much litigation. There can be no assurance that any patent
applications relating to the Company's potential products or processes will
result in patents being issued, or that the resulting patents, if any, will
provide protection against competitors who successfully challenge the Company's
patents, obtain patents that may have an adverse effect on the Company's ability
to conduct business, or are able to circumvent the Company's patent position. It
is possible that other parties have conducted or are conducting research and
could make discoveries of compounds or processes that would precede any
discoveries made by the Company, which could prevent the Company from obtaining
patent protection for these discoveries. Finally, there can be no assurance that
others will not independently develop pharmaceutical products similar to or
obsoleting those that the Company is planning to develop, or duplicate any of
the Company's products.
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The Company's competitive position is also dependent upon unpatented trade
secrets. In an effort to protect its trade secrets, the Company has a policy of
requiring its employees, Scientific Advisory Board members, consultants and
advisors to execute proprietary information and invention assignment agreements
upon commencement of employment or consulting relationships with the Company.
These agreements provide that all confidential information of the Company
developed or made known to the individual during the course of their
relationship with the Company must be kept confidential, except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets or other
proprietary information in the event of unauthorized use or disclosure of
confidential information. Invention assignment agreements executed by Scientific
Advisory Board members, consultants and advisors may conflict with, or be
subject to, the rights of third parties with whom such individuals have
employment or consulting relationships. In addition, there can be no assurance
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets, that such trade secrets will not be disclosed or that the Company can
effectively protect its rights to unpatented trade secrets.
The Company may be required to obtain licenses to patents or proprietary
rights of others. No assurance can be given that any licenses required under any
such patents or proprietary rights would be made available on terms acceptable
to the Company, or at all. If the Company does not obtain such licenses, it
could encounter delays in product market introductions while it attempts to
design around such patents, or could find that the development, manufacture or
sale of products requiring such licenses could be foreclosed. Litigation may be
necessary to defend against or assert such claims of infringement, to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the scope and validity of the proprietary rights of
others. In addition, interference proceedings declared by the United States
Patent and Trademark Office may be necessary to determine the priority of
inventions with respect to patent applications of the Company or its licensors.
Litigation or interference proceedings could result in substantial costs to and
diversion of effort by, and may have a material adverse impact on, the Company.
In addition, there can be no assurance that these efforts by the Company will be
successful.
GOVERNMENT REGULATION
INTRODUCTION. Regulation by governmental authorities in the United States
and foreign countries is a significant factor in the development, manufacture
and marketing of the Company's proposed products and in its ongoing research and
product development activities. The nature and extent to which such regulation
will apply to the Company will vary depending on the nature of any products
which may be developed by the Company. It is anticipated that all of the
Company's products will require regulatory approval by governmental agencies
prior to commercialization. In particular, human therapeutic and some diagnostic
products are subject to rigorous preclinical and clinical testing and other
approval procedures of the FDA and similar regulatory authorities in foreign
countries. Various Federal statutes and regulations also govern or influence
testing, manufacturing, safety, labeling, storage and record-keeping related to
such products and their marketing. The process of obtaining these approvals and
the subsequent compliance with appropriate Federal statutes and regulations
require the expenditure of substantial time and financial resources. Any failure
by the Company or its collaborators to obtain, or any delay in obtaining,
regulatory approval could adversely affect the marketing of any products
developed by the Company, its ability to receive product revenues and its
liquidity and capital resources.
FDA APPROVAL PROCESS. Prior to commencement of clinical studies involving
human beings, preclinical testing of new pharmaceutical products is generally
conducted on animals in the laboratory to evaluate the potential efficacy and
the safety of the product. The results of these studies are submitted to the FDA
as a part of an investigational new drug ("IND") application, which must become
effective before clinical testing in humans can begin. Typically, clinical
evaluation involves a time consuming and costly three-phase process. In Phase I,
clinical trials are conducted with a small number of subjects to determine the
early
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safety profile, the pattern of drug distribution and metabolism. In Phase II,
clinical trials are conducted with groups of patients afflicted with a specific
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large-scale, multi-center, comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data to demonstrate the efficacy and safety required by the FDA. The FDA
closely monitors the progress of each of the three phases of clinical testing
and may, at its discretion, re-evaluate, alter, suspend or terminate the testing
based upon the data which have been accumulated to that point and its assessment
of the risk/benefit ratio to the patient.
The results of the preclinical and clinical testing on a nonbiologic drug
and certain diagnostic drugs are submitted to the FDA in the form of a new drug
application ("NDA") for approval to commence commercial sales. In responding to
an NDA, the FDA may grant marketing approval, request additional information or
deny the application if the FDA determines that the application does not satisfy
its regulatory approval criteria. There can be no assurance that approvals will
be granted on a timely basis, if at all. Similar procedures are in place in
countries outside the United States.
In 1988, the FDA issued "fast-track" regulations intended to accelerate the
approval process for the development, evaluation and marketing of new
therapeutic and diagnostic products used to treat life-threatening and severely
debilitating illnesses, especially those for which no satisfactory alternative
therapies exist. "Fast-track" designation affords the Company early interaction
with the FDA in terms of protocol design and permits, although it does not
require the FDA to grant approval after completion of Phase II clinical trials
(although the FDA may require subsequent Phase III clinical trials or even
post-approval Phase IV efficacy studies). The Company believes that a number of
its product candidates may fall under these regulations, but there can be no
assurance that any of the Company's products will receive this or other similar
regulatory treatment.
In late 1992, legislation imposing FDA user fees on drug manufacturers was
enacted. Such fees will be required for each commercial marketing drug
application submitted by the Company for FDA approval, and annual product and
establishment fees will also be imposed upon approval. The revenues raised from
these fees are earmarked specifically to increase the resources of the FDA, and
by doing so, to increase the speed with which the FDA reviews and approves drug
marketing applications. Currently, the user fee for an NDA is approximately
$260,000, and the statute provides for periodic fee increases. The statute
currently provides small companies (defined as companies with less than 500
employees that are not marketing a prescription drug product) with a reduction
in the initial application fee and contains limited provisions for fee waivers.
During 1996, the Company was granted a waiver of the user fee required with the
filing of the NDA for BUdR.
WAXMAN-HATCH ACT. The Drug Price Competition and Patent Restoration Act of
1984, also known as the Waxman-Hatch Act, contains provisions pertaining to
marketing exclusivity from generic competition for most non-biological drugs and
patent restoration for most pharmaceutical products. A five-year marketing
exclusivity period is provided for new chemical entities, and a three-year
marketing exclusivity period is provided for approved drugs for which new
clinical investigations are essential to the receipt of FDA approval to market
the product. For purposes of the Waxman-Hatch Act, a new chemical entity is
defined as a drug product that contains an active moiety not previously approved
by the FDA for marketing. The five year exclusivity period would not prevent a
competitive product from being marketed based upon new preclinical and clinical
studies conducted by the competitor.
ORPHAN DRUG ACT. Under the Orphan Drug Act, the FDA may designate drug
products as orphan drugs if there is no reasonable expectation of recovery of
the costs of research and development from sales in the United States or if such
drugs are intended to treat a rare disease or condition, which is defined as a
disease or condition that affects less than 200,000 persons in the United
States. If certain conditions are met, designation as an orphan drug confers
upon the sponsor marketing exclusivity for seven years following FDA approval of
the product, meaning that the FDA cannot approve another version of the
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<PAGE>
"same" product for the same use during such seven year period. The market
exclusivity provision does not, however, prevent the FDA from approving a
different orphan drug for the same use or the same orphan drug for a different
use. The Orphan Drug Act has been controversial, and many legislative proposals
have from time to time been introduced in Congress to modify various aspects of
the Orphan Drug Act, particularly the market exclusivity provisions. There can
be no assurance that new legislation will not be introduced in the future that
may adversely impact the availability or attractiveness of orphan drug status
for any of the Company's products.
OTHER REGULATIONS. The Company is also subject to various Federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with the Company's research
work. The extent of government regulation that might result from future
legislation or administrative action cannot be predicted accurately. The Company
has not made and does not anticipate making material capital expenditures with
respect to the protection of the environment.
COMPETITION
Competition in the discovery and development of methods for treating cancer
is intense. Numerous pharmaceutical, biotechnology and medical companies and
academic and research institutions in the United States and elsewhere are
engaged in the discovery, development, marketing and sale of products for the
treatment of cancer. These include surgical approaches, new pharmaceutical
products and new biologically derived products. The Company expects to encounter
significant competition for the principal pharmaceutical products it plans to
develop. Companies that complete clinical trials, obtain regulatory approvals
and commence commercial sales of their products before their competitors may
achieve a significant competitive advantage. A number of pharmaceutical
companies are developing new products for the treatment of the same diseases
being targeted by the Company. In some instances, the Company's competitors
already have products in clinical trials. In addition, certain pharmaceutical
companies are currently marketing drugs for the treatment of the same diseases
being targeted by the Company, and may also be developing new drugs to address
these disorders.
The Company believes that its competitive success will be based on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals, obtain
orphan drug status for certain products and manufacture and successfully market
its products either independently or through outside parties. Many of the
Company's competitors have substantially greater financial, clinical testing,
regulatory compliance, manufacturing, marketing, human and other resources. In
addition, the Company will continue to seek licenses with respect to key
technologies related to its fields of interest and may face competition with
respect to such efforts.
HUMAN RESOURCES
As of March 16, 1999, the Company had six full time employees, and one
part-time employee. The Company currently has consulting agreements with eight
consultants. None of the Company's employees and consultants are represented by
a collective bargaining arrangement, and the Company believes its relationship
with its employees and consultants is satisfactory. The Company intends to
continue to retain consultants and to add personnel in as the business strategy
is implemented.
SCIENTIFIC ADVISORY BOARD
The Company has assembled a seven-member Scientific Advisory Board. The
members of the Scientific Advisory Board together provide expertise in areas of
scientific and medical interest to the Company. The Company has entered into
agreements with the Scientific Advisors providing that all
11
<PAGE>
inventions made by the Advisors when working for the Company will belong to the
Company; however, most of the members of the Company's Scientific Advisory Board
are employed on a full-time basis by academic or research institutions. The
members of the Scientific Advisory Board are permitted to share information
among themselves regarding the projects that they are working on with the
Company. As of March 16, 1999, the Company had granted options to acquire an
aggregate of 68,324 shares its Common Stock to members of the Scientific
Advisory Board, and pays a retainer to compensate its Scientific Advisory Board
members.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this Annual Report on Form 10-K under the caption "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company (sometimes
referred to as "we" or "us")to be materially different from the historical
results or from any results expressed or implied by such forward-looking
statements. Such factors include, among others, the following:
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO JUDGE US. We are a
development stage Company and our history of operations consists primarily of
the development of our products and the sponsorship of research and clinical
trials. Therefore, we have only a limited history upon which you may judge our
performance and prospects.
WE LACK SIGNIFICANT REVENUES AND ANTICIPATE CONTINUING LOSSES. We have
incurred significant losses since inception. At December 31, 1998 and December
31, 1997, we had accumulated losses since inception of approximately $9,932,000
and $8,358,000 respectively. We may incur substantial additional operating
losses for at least the next several years as our research and development
efforts expand. We have only generated limited amounts of revenue from our
license fees and we cannot predict when or if we will be able to develop other
sources of revenue or when or if our operations will become profitable, even if
we are able to commercialize some of our products.
OUR PRODUCTS ARE IN THE EARLY STAGE OF DEVELOPMENT AND WE DON'T KNOW IF THEY
WILL BE SUCCESSFULLY DEVELOPED. Our research and development programs are at
various states of development, ranging from the pre-clinical stage, to Phase I
and Phase II clinical trials to a pending new drug application. We will need to
conduct substantial additional research and development in order to develop our
products, and we don't know whether our research and development will lead to
the development of commercially viable products that are shown to be safe and
effective in clinical trials. Our proposed products will also require clinical
testing, regulatory approval and substantial additional investment prior to
commercialization. Our proposed products are subject to the risks of failure
inherent in the development of pharmaceutical products. These risks include the
following:
- some of our products may be found to be unsafe or ineffective, or may fail
to receive the necessary regulatory clearances in a timely fashion, if at
all;
- our products, if safe and effective, may be difficult to manufacture on a
large scale or may be uneconomical to market;
- the proprietary rights of competitors may prevent us from marketing some
of our products; and
- competitors and other researchers may market more effective or less costly
products for treatment of the same diseases.
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<PAGE>
As a result, we do not know whether we will successfully develop any of our
products, receive the required governmental regulatory approvals on a timely
basis, become commercially viable or achieve market acceptance. Also, we have
only limited experience in conducting clinical trials and other aspects of the
regulatory process.
We have experienced delays in our testing and development schedules and our
expected testing and development schedules may not be met. Delays in our testing
and development schedules could have a material adverse effect on our business,
financial condition and results of operations.
WE ARE DEPENDENT UPON DEVELOPING WORKING RELATIONSHIPS WITH OTHERS IN ORDER
TO DEVELOP OUR PRODUCT. In order to successfully develop our products, we must
develop and maintain strategic and collaborative relationships with government
agencies, research institutions, public and private universities and hospitals.
Our failure to develop and maintain any of the following strategic and
collaborative relationships could have a material adverse effect on our
business, financial condition and results of operations:
- Our Broxine-Registered Trademark- product was the subject of a cooperative
research and development agreement with the National Cancer Institute
which gave us exclusive rights to data generated by the National Cancer
Institute for certain cancer indications. That agreement expired on
September 13, 1998 and was replaced by a clinical trials agreement which
became effective October 29, 1998. Because our
Broxine-Registered Trademark- product is not covered by patents or patent
applications, our exclusive access to the data collected by the National
Cancer Institute is of significant importance to us for the conduct of
clinical trials and is a principal advantage over others.
- Our IL-13 product is the subject of a cooperative research and development
agreement with the FDA that extends through October 2001 and provides us
with rights to the development of IL-13 with the FDA and to the data
generated during the term of this agreement. This agreement may be
terminated by either party upon sixty days advance notice without cause.
Termination of this agreement would materially adversely affect our
development program and could require curtailment or termination of that
program.
- We have also entered into two license and sponsored research agreements
with Georgetown University relating to our liposomal products. These
licenses are generally not terminable by Georgetown University except in
the event of a default by us. Any such default and resulting termination
of the licenses would be materially adverse to our liposome program and
could require curtailment or termination of that program, and could
adversely effect the sublicense agreements that we have entered into with
Pharmacia & Upjohn Company for two of our liposome compounds.
WE REQUIRE SUBSTANTIAL FUNDS AND WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN
THE FUTURE. We require substantial funds to conduct research and development,
pre-clinical and clinical testing and to manufacture and market our proposed
products. Our fixed commitments, including consulting fees, rent, payments under
license agreements and other contractual commitments are substantial and are
likely to increase. Our cash requirements may vary materially from those now
planned. We may seek to satisfy our future funding requirements through
additional public or private offerings of securities, with collaborative
arrangements with corporate partners or from other sources.
Additional financing may not be available when we need it or be on terms
acceptable to us. If adequate financing is not available, we may be required to
delay, scale back or eliminate certain of our research and development programs,
to relinquish rights to some of our technologies, therapeutic and diagnostic
agents, product candidates or products, or to license third parties to
commercialize products or technologies that we would otherwise seek to develop
ourself. If additional capital is raised through the sale of equity or debt
securities, the percentage ownership of our existing stockholders will be
reduced and such securities may have rights, preferences or privileges superior
to those of our current stockholders.
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WE DO NOT HAVE MANUFACTURING, MARKETING, OR SALES RESOURCES. We currently
do not have internal manufacturing, marketing or sales resources. Since we focus
on research and development and have limited resources, we do not anticipate
spending a significant amount of cash to acquire resources and develop
capabilities in these areas. Our manufacturing strategy will be to develop
manufacturing relationships with established pharmaceutical manufacturers for
the production of products. We can give no assurance that we will be able to
enter into manufacturing agreements on commercially reasonable terms, if at all.
WE DO NOT HAVE CLINICAL TESTING OR REGULATORY CAPABILITY. We currently do
not have internal clinical testing or regulatory capability. If we develop
compounds with commercial potential, we will have to hire additional personnel
skilled in the clinical testing and the regulatory compliance processes. We may
not successfully complete clinical testing of, obtain regulatory approval for,
or manufacture or market any product we may develop, either independently or
pursuant to manufacturing or marketing arrangements. Should we seek to enter
into third-party arrangements, we cannot give any assurance that such
arrangements can be successfully negotiated on commercially reasonable terms, if
at all.
WE MAY NOT BE ABLE TO PROTECT OUR PATENTS AND PROPRIETARY
INFORMATION. Because of the substantial length of time and expense associated
with bringing new products through development and regulatory approval to the
marketplace, patent and trade secret protection for new technologies, products
and processes is very important to us. We have obtained licenses to ten United
States patent applications and have sixteen other issued or allowed patent
applications outside the United States. With respect to these patents, however,
no assurance can be given that:
- any patents under any pending applications or on future patent
applications will be issued;
- the scope of any patent protection will exclude competitors or provide
competitive advantages to us;
- any of our patents that may be issued will be held valid if subsequently
challenged;
- others will not claim rights in or ownership to the patents and other
proprietary rights held by us;
- others will not independently develop substantially equivalent proprietary
information or otherwise obtain access to our know-how; or
- others may be issued patents that require licensing and the payment of
significant fees or royalties by us.
Further, we may incur substantial costs in defending ourselves in suits that
may be brought against us claiming infringement of the patent rights of others,
in asserting our patent rights in a suit against another party, or in
participating in interference proceedings declared by the United States Patent
and Trademark Office for the purpose of determining the priority of invention in
connection with our patent applications or those of others. If we lose, we may
be forced to seek licenses, which may not be available on commercially
reasonable terms, if at all, or subject us to significant liabilities to a third
party and could, therefore, have a material adverse effect on us.
Our Broxine-Registered Trademark- product is not currently the subject of
patents or patent applications and we do not expect to obtain patent protection
for this product. The lack of patent protection could have a material adverse
effect on our business, financial condition and results of operations.
Finally, we also rely on trade secrets, know-how and technological advantage
to protect the technology we develop. Although we use confidentiality agreements
and employee proprietary information and invention assignment agreements to
protect our trade secrets and other unpatented know-how, these agreements may be
breached by the other party thereto or may otherwise be of limited effectiveness
or enforceability.
CERTAIN OF OUR EXECUTIVE OFFICERS HAVE RELATIONSHIPS WITH OTHER ENTITIES AND
HAVE CONFLICTS OF INTEREST. Messrs. John N. Kapoor, Mahendra Shah and Kevin M.
Harris, who each hold executive positions with us,
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are also associated with EJ Financial Enterprises, Inc., a healthcare investment
firm which is wholly owned by John N. Kapoor. On July 1, 1994, we entered into a
consulting agreement with EJ Financial. The consulting agreement provides that
we will pay EJ Financial $125,000 per year (paid quarterly) for certain business
and financial services, including having certain officers of EJ Financial serve
as officers of ours without pay. EJ Financial is involved in the management of
healthcare companies in various fields, and Messrs. Kapoor, Shah and Harris are
involved in various capacities with the management and operation of these
companies. The John N. Kapoor Trust, dated September 20, 1989, the beneficiary
of which is Dr. John Kapoor, is a principal shareholder of each of these
companies as well as us. The John N. Kapoor Trust and other entities controlled
by John N. Kapoor beneficially own shares of our common stock, representing
approximately 24% of our outstanding shares of common stock.
Mr. Harris, our Chief Financial Officer, is also the Director of Taxes and
Planning of EJ Financial. Accordingly, Mr. Harris will not devote all of his
working hours to our affairs. In addition, EJ Financial is involved with other
companies in the oncology field. Although these companies are pursuing different
therapeutic approaches for the treatment of cancer, discoveries made by one or
more of these companies could render our products less competitive or obsolete.
WE PREVIOUSLY ENTERED INTO A LINE OF CREDIT WITH A TRUST WHOSE BENEFICIARY
IS OUR PRINCIPAL SHAREHOLDER. On September 30, 1998, the John N. Kapoor Trust
entered into a line of credit agreement with us (the "Line of Credit") pursuant
to which we could borrow up to $3,000,000 at a rate of interest equal to 2% over
the "prime rate" announced from time to time by The Northern Trust Bank of
Chicago. Loans under the credit agreement were secured by a continuing security
agreement which provided the Trust with a security interest in our assets. The
Line of Credit was terminated by its terms in February 1999.
MEMBERS OF OUR SCIENTIFIC ADVISORY BOARD COMMIT ONLY A PORTION OF THEIR TIME
TO OUR BUSINESS AND RESEARCH ACTIVITIES AND WE MAY NOT HAVE RIGHTS TO THEIR
INVENTIONS OR DISCOVERIES. Members of our scientific advisory board are employed
on a full-time basis by academic or research institutions. These individuals
will devote only a portion of their time to our business and research
activities. Except for work performed specifically for and at our direction, the
inventions or processes discovered by our consultants and scientific advisors
will not become our property but will be the intellectual property of other
institutions with which they may have an affiliation. If this happens, we would
have to obtain licenses to such technology from such institutions. In addition,
invention assignment agreements executed by scientific advisory board members
and consultants in connection with their relationships with us may be subject to
the rights of their primary employers or other third parties with whom such
individuals have consulting relationships.
OUR BUSINESS IS DEPENDENT UPON COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND
OBTAINING APPROVALS BY GOVERNMENTAL AGENCIES. Governmental authorities in the
United States and other countries regulate our research, testing, manufacturing,
labeling, distribution, marketing and advertising activities. The FDA and
comparable agencies in foreign countries impose substantial requirements on our
ability to introduce pharmaceutical products through lengthy and detailed
laboratory and clinical testing procedures, sampling procedures, sampling
activities and other costly and time consuming procedures. Our proprietary
products may require substantial clinical trials and FDA review as new drugs.
We cannot predict with certainty if or when we might submit for regulatory
review our products currently under development. Once we submit our potential
products for review, we don't know whether the FDA or other regulatory agencies
will grant approvals for any of our pharmaceutical products on a timely basis or
at all. A delay in obtaining or failure to obtain these approvals may adversely
affect our business. If we fail to comply with regulatory requirements, we could
be subjected to regulatory or judicial enforcement actions, including product
recalls or seizures, injunctions, civil penalties, criminal prosecution,
refusals to approve new products, withdrawal of approvals, and product liability
exposure. Sales of our products outside the United States will be subject to
regulatory requirements governing clinical trials and marketing approval. These
requirements vary widely from country to country and could delay the
introduction of our products in those countries.
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THE DEMAND FOR OUR PRODUCTS MAY BE ADVERSELY AFFECTED BY HEALTH CARE REFORM
AND POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT. The continuing effort of
governmental and third-party payors to contain or reduce the costs of health
care may reduce our revenues and profitability. We cannot predict the effect
that health care reforms may have on our business, and it is possible that any
reforms will hurt our business. In addition, in both the United States and
elsewhere, sales of prescription pharmaceuticals are dependent in part on the
availability of reimbursement to the consumer from third-party payors, such as
government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. We cannot be
certain that our current and proposed products will be considered cost-effective
and that reimbursement to the consumer will be available or will be sufficient
to allow us to sell products on a competitive basis.
WE ARE SUBJECT TO REGULATIONS REGARDING HAZARDOUS MATERIALS AND
ENVIRONMENTAL MATTERS. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and certain waste products. We currently maintain a supply
of several hazardous materials at our facilities. While we currently outsource
our research and development programs involving the controlled use of
biohazardous materials, if we conduct such programs, we might be required to
incur significant cost to comply with environmental laws and regulations. In the
event of an accident, we could be held liable for any damages that result, and
such liability could exceed our resources.
WE DON'T HAVE PRODUCT LIABILITY INSURANCE AT THIS TIME. We currently do not
have any product liability insurance and our business exposes us to potential
product liability risks which are inherent in the testing, manufacturing and
marketing of human therapeutic products. Although we plan to obtain product
liability insurance when and if our products become commercially available,
there can be no assurance that we will be able to obtain or maintain this
insurance on acceptable terms or that any insurance we obtain will provide us
with adequate coverage against potential liabilities. Claims or losses in excess
of any liability insurance coverage we obtain could have a material adverse
effect on our business and prospects.
WE MAY BE AFFECTED BY LITIGATION INVOLVING OUR CHAIRMAN. John N. Kapoor,
our chairman and principal stockholder, was previously the chairman and
president of Lyphomed Inc. Fujisawa Pharmaceutical Co. Ltd. was a major
stockholder of Lyphomed from the mid-1980s until 1990, at which time Fujisawa
completed a tender offer for the remaining shares of Lyphomed, including the
shares held by Dr. Kapoor. Fujisawa filed suit in federal district court in
Illinois against Dr. Kapoor alleging that between 1980 and 1986, Lyphomed filed
a large number of allegedly fraudulent new drug applications with the FDA, and
that Dr. Kapoor's failure to disclose these violations to Fujisawa constituted a
violation of federal securities laws and the Racketeer Influenced and Corrupt
Organizations Act. Fujisawa also alleged state common-law claims of constructive
trust, fraud, breach of fiduciary duties and breach of warranty against Dr.
Kapoor. In addition to substantial monetary relief in excess of $100,000,000
(which amount could be trebled under RICO), Fujisawa also seeks a constructive
trust on the assets of Dr. Kapoor, which may include Dr. Kapoor's shares of our
common stock or rights to acquire shares of our common stock.
Dr. Kapoor has vigorously defended himself against all these allegations. In
the federal lawsuit, Dr. Kapoor's motion for summary judgement was granted by
the trial court. However, the Seventh Circuit Court of Appeals subsequently
reversed, in part, the trial court's decision, reinstating the RICO claims
against Dr. Kapoor. Dr. Kapoor's subsequent motion for summary judgment was
denied and the matter has been referred to a special master for mediation
discussions. It is anticipated that in the absence of resolution of the matter,
a trial would be held in late 1999 or early in 2000. Fujisawa's claims under
state law against Dr. Kapoor are also pending. A related suit filed by Dr.
Kapoor in Delaware Chancery Court seeking to require Lyphomed to advance to Dr.
Kapoor the cost of his defense to all of Fujisawa's lawsuits was decided in Dr.
Kapoor's favor and that decision was subsequently affirmed by the Delaware
Supreme Court. Finally, a countersuit filed by Dr. Kapoor against Fujisawa in
the Circuit Court of Cook County for breach of contract was dismissed without
prejudice with the court determining that the proper forum for such an action
was as part of the pending federal lawsuit. The decision of the lower court was
affirmed on appeal and Dr. Kapoor has filed a counterclaim for breach of
contract as part of the federal court action.
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If a decision is made in favor of Fujisawa, Fujisawa may acquire the right
to control Dr. Kapoor's shares of our common stock, which comprise 24% of our
common stock. This decision could have a material adverse effect on us.
SHARES ELIGIBLE FOR FUTURE SALE COULD ADVERSELY AFFECT OUR STOCK PRICE. If
our stockholders sell substantial amounts of our common stock, including shares
issued upon the exercise of outstanding options and warrants, in the public
market, the market price of our common stock could fall. These sales might also
make it more difficult to sell our equity or equity related securities in the
future at a time and price that we deem appropriate. Of the 8,454,621 shares of
common stock outstanding as of March 19, 1999, 3,792,746 shares are freely
transferable without restriction or further registration under the Securities
Act. The remaining 4,661,875 shares are "restricted securities," and may only be
sold pursuant to a registration statement under the Securities Act or an
applicable exemption from registration thereunder.
WE ARE CONTROLLED BY OUR OFFICERS AND DIRECTORS. As of March 19, 1999, our
directors and officers beneficially owned a total of 60.79% of the outstanding
shares of our common stock. Accordingly, our officers and directors, if acting
together, have the ability to elect a majority of our directors and otherwise
control our operations.
WE MAY REDEEM THE REDEEMABLE WARRANTS. Since July 25, 1997, the redeemable
warrants have been subject to redemption by us at $0.01 per redeemable warrant
on thirty (30) days' prior written notice to the redeemable warrantholders. We
can only redeem the warrants if the average closing sale price of our common
stock as reported on the American Stock Exchange equals or exceeds $5.60 per
share for twenty (20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. If we redeem the redeemable warrants, holders of the redeemable
warrants will lose their rights to purchase shares of our common stock issuable
upon the exercise of the redeemable warrants.
Upon receipt of a notice of redemption, holders would be required to:
- exercise the redeemable warrants and pay the exercise price at a time when
it may be disadvantageous for them to do so;
- sell the redeemable warrants at the current market price, if any, when
they might otherwise wish to hold the redeemable warrants; or
- accept the redemption price which is likely to be substantially less than
the market value of the redeemable warrants at the time of redemption.
Since November 4, 1998, our common stock has traded above $5.60. As a
result, we may redeem the redeemable warrants, if we wish. We are currently
evaluating the merits of calling the redeemable warrants.
HOLDERS OF REDEEMABLE WARRANTS MAY BE RESTRICTED FROM SELLING THE SHARES OF
OUR COMMON STOCK UNDERLYING THE REDEEMABLE WARRANTS. The redeemable warrants are
not exercisable unless, at the time of the exercise, we have a current
prospectus covering the shares of common stock issuable upon exercise of the
redeemable warrants, and such shares have been registered, qualified or deemed
to be exempt under the securities laws of the state of residence of the
exercising holder of the redeemable warrants. We do not intend to qualify the
redeemable warrants for exercise in the states in which the holders reside. As a
result, holders of the redeemable warrants may be deprived of value. Although we
have agreed to use our best efforts to keep a registration statement covering
the shares of common stock issuable upon exercise of the redeemable warrants
effective for the term of the redeemable warrants, if we fail to do so for any
reason, your ability to resell the shares underlying the redeemable warrants
will be materially adversely effected.
Purchasers may buy redeemable warrants in the aftermarket or may move to
jurisdictions in which the shares underlying the redeemable warrants are not
registered or qualified during the period that the
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redeemable warrants are exercisable. If this happens, we can't issue shares to
those persons desiring to exercise their redeemable warrants, and holders of
redeemable warrants would have no choice but to attempt to sell the redeemable
warrants in a jurisdiction where such sale is permissible or allow the
redeemable warrants to expire unexercised.
THE YEAR 2000 RISK MAY ADVERSELY AFFECT US. Many currently installed
computer systems and software products are coded to accept only two digit
entries in the date code field. As a result, software that records only the last
two digits of the calendar year may not be able to distinguish whether "00"
means 1900 or 2000. This may result in software failures or the creation of
erroneous results. We believe that our products and internal systems are
currently year 2000 compliant. We are confirming our year 2000 compliance by
obtaining representations by third party vendors of their products' year 2000
compliance, as well as specific testing of our products. The failure of products
or systems maintained by third parties or our products and systems to be year
2000 complaint could cause us to incur significant expenses to remedy any
problems, or seriously damage our business. We have not incurred significant
costs to date complying with year 2000 requirements, and we do not believe that
we will incur significant costs for such purposes in the foreseeable future.
ITEM 2. PROPERTIES
The Company's administrative offices are located in approximately 1330
square feet of subleased office space in Bannockburn, Illinois. This subleased
space is provided to the Company at a market rate rent by Option Care, Inc, an
affiliate of the Company's Chairman and principal shareholder, John N. Kapoor.
Until moving to the Bannockburn location in November of 1997, the Company
occupied office space in Lake Forest, Illinois. This space was provided as part
of a consulting agreement with EJ Financial. (See Note 8--"Transactions with
Related Parties" in Notes to Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or other legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
From January 25, 1996 until December 2, 1996 the Company's Common Stock was
quoted on the Nasdaq Stock Market's SmallCap Market under the trading symbol
NPRM. Beginning on December 2, 1996, and continuing through the date of this
report, the Common Stock has been traded on the American Stock Exchange ("AMEX")
under the symbol NEO.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---------------------------------------------------------------------------------------------------- ----- ---
<S> <C> <C>
First Quarter....................................................................................... 9 5/8 6 3/8
Second Quarter...................................................................................... 7 1/2 3 1/16
Third Quarter....................................................................................... 5 1/2 3 5/8
Fourth Quarter...................................................................................... 9 3 3/4
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
- --------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter...................................................................................... 5 3/4 3 3/4
Second Quarter..................................................................................... 4 15/16 2 15/16
Third Quarter...................................................................................... 4 1/2 2
Fourth Quarter..................................................................................... 13 1/4 3 5/8
</TABLE>
As of March 19, 1999, there were 63 holders of record of the Common Stock,
and the Company estimates that as of such date there were more than 400
beneficial holders of the Common Stock. The Company has never paid a cash
dividend on its Common Stock and has no present intention of paying cash
dividends in the foreseeable future. Any determination in the future to pay
dividends will depend on the Company's financial condition, capital
requirements, results of operations, contractual limitations and other factors
deemed relevant by the Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
INCEPTION
FOR THE YEARS ENDED (JUNE 15,1990)
DECEMBER 31, THROUGH
------------------------------------------------------------------------- DECEMBER 31,
1994 1995 1996 1997 1998 1998
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues....................... $ -- $ -- $ -- $ 550,000 $ -- $ 550,000
Operating expenses:
Research and development....... 813,761 1,068,683 1,099,631 1,411,692 1,611,343 7,085,874
General and administrative..... 107,286 244,901 956,924 1,370,486 1,691,132 4,837,984
------------- ------------- ------------- ------------- ------------- --------------
Loss from operations........... (921,047) (1,313,584) (2,056,555) (2,232,178) (3,302,475) (11,373,858)
Interest income................ $ -- $ -- $ 238,275 $ 210,501 $ 88,752 $ 537,528
Interest expense............... (162,620) (356,043) (47,365) -- -- (735,606)
------------- ------------- ------------- ------------- ------------- --------------
Interest income
(expense)--net............... (162,620) (356,043) 190,910 210,501 88,752 (198,078)
------------- ------------- ------------- ------------- ------------- --------------
Loss Before Income Taxes....... $ (1,083,667) $ (1,669,627) $ (1,865,645) $ (2,021,677) $ (3,213,723) $ (11,571,936)
Income Taxes................... -- -- -- -- (1,640,000) (1,640,000)
------------- ------------- ------------- ------------- ------------- --------------
Net Loss....................... $ (1,083,667) $ (1,669,627) $ (1,865,645) $ (2,021,677) $ (1,573,723) $ (9,931,936)
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
Basic and Diluted
Net loss per share............. $ (.32) $ (.36) $ (.24) $ (.25) $ (.19)
------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
------------- ------------- ------------- ------------- -------------
Balance Sheet Data:
Cash.................................. $ 9,205 $ 671 $ 4,479,041 $ 2,776,697 $ 40,681
Working capital (deficit)............. (2,137,037) (4,553,057) 4,013,010 2,348,904 1,077,255
Total assets.......................... 112,988 495,891 4,492,208 2,854,499 1,781,548
Line of credit with bank.............. 656,452 2,007,652 -- -- --
Loan payable to principal
stockholder......................... 1,500,000 1,500,000 -- -- --
Deficit accumulated during the
development stage................... (2,801,264) -- (1,865,645) (3,887,322) (5,461,045)
Total stockholders' equity (deficit).. (2,691,773) (4,361,392) 4,026,177 2,374,072 1,178,122
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since the Company's inception in June 1990, NeoPharm has devoted its
resources primarily to fund research and product development programs. The
Company has been unprofitable since inception and has had no revenues from the
sale of products. The Company expects to continue to incur losses as it expands
its research and development activities and sponsorship of clinical trials. As
of December 31, 1998, the Company's accumulated deficit was approximately $5.5
million.
20
<PAGE>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The Company had no operating revenues during the three fiscal years ended
December 31, 1998 except for a $550,000 payment received from BioChem Pharma in
1997 as part of a licensing and distribution agreement. Interest income for 1998
totaled $88,752. The Company completed its initial public offering in January
1996. Cash in excess of funds needed to retire debt, pay for issuance costs or
pay outstanding payables was invested in short term investments.
The Company incurred research and development expenses of approximately
$1,611,000 in 1998 as compared to approximately $1,412,000 in 1997 and
$1,100,000 in 1996. The increase in 1998 research and development expenses is
primarily due to the increased research activity and the addition of two new
employees related to the Company's Liposome Products. 1998, 1997 and 1996
expenses include payments made by the Company to Georgetown and the NCI pursuant
to the Company's license and sponsored research agreements with Georgetown, its
CRADA with the NCI, payments to U.S. Food and Drug Administration pursuant to
the CRADA, and the NIH pursuant to its license agreement. The Company expects
research and development spending to increase over the next several years. See
"Item 1--Research and Development, Collaborative Relationships and Licenses."
General and administrative expenses increased to approximately $1,691,000 in
1998 from approximately $1,370,000 in 1997. The increase was primarily the
result of increased professional fees of $103,000, executive recruitment costs
of $81,000, increased public relations costs of $29,000, increased insurance
costs of $9,000, increased space costs of $35,000 and an increase in other
miscellaneous expenses of $64,000. General and administrative expenses for 1997
compared to 1996 increased approximately $413,000. This increase was primarily
the result of increased professional fees of $103,000 related to corporate
public filings, increased personel costs and compensation expense related to
non-employee stock options of $144,000 executive relocation expenses of $76,000,
increased travel costs of $37,000 and on increase of miscellaneous office
expense of $53,000.
The Company incurred zero interest expense in both 1998 and 1997. Interest
expense for 1997 compared to 1996 decreased approximately $47,000. The Company
had outstanding debt for a portion of 1996. Proceeds from the initial public
offering, completed in January, 1996, were used to retire both the debt owed to
the principal shareholder and the line of credit provided by Harris Bank and
Trust N.A. The principal stockholder converted the principal of and interest on
the loan into shares of Common Stock and Warrants at the initial public offering
price. Interest expense totaled approximately $356,000 in 1995. The proceeds of
borrowings were used to fund the Company's operations during the period from
1994 to 1996. See "Item 13--Certain Relationships and Related Transactions" and
Note 3 of Notes to the Financial Statements.
INCEPTION TO DECEMBER 31, 1998
The Company was taxed as an S Corporation from inception through October 11,
1995 when the S Corporation status was voluntarily terminated. Because the
Company was taxed as an S Corporation, all of its net losses from inception
through October 11, 1995 were passed through to its stockholders. Accordingly,
the Company did not accumulate operating loss carry forwards prior to October
11, 1995. The deficit accumulated while under S Corporation status was
reclassified to Additional Paid-In Capital in 1995. The Company has begun
accruing net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company has approximately $41 thousand dollars in
cash and cash equivalents and net working capital of approximately $1.1 million.
On October 22, 1998, the Company established a $3,000,000 line of credit (the
"Line of Credit") with the John N. Kapoor Trust dtd. 9/20/89, an
21
<PAGE>
entity affiliated with the Company's Chairman. Interest on borrowings on the
Line of Credit were accrued at the rate of 2% over the prime rate of the
Northern Trust Bank. The accrued interest and outstanding principal were repaid
on January 29, 1999 and the line of Credit terminated upon the signing of the
Pharmacia and Upjohn licensing agreement in February 1999. The Company believes
that cash and cash equivalents should be adequate to fund operations for the
next 12 months. However, management can offer no assurances that additional
funding will not be required during that period.
The Company's assets at December 31, 1998 were $1,781,548 compared to
$2,854,499 at December 31, 1997. This decrease in assets was primarily due to a
reduction of cash and cash equivalents of approximately $2,736,000 as a result
of cash used in operating activities of approximately $2,716,000, cash used to
purchase equipment and furniture of approximately $102,000 and cash provided by
issuance of stock of approximately $82,000.
The Company's liabilities at December 31, 1998 increased to approximately
$603,000 from approximately $480,000 at December 31, 1997.
All of the products currently being developed by the Company will require
approval by the FDA before they can be sold commercially in the United States.
The results of the preclinical and clinical testing on a nonbiologic drug and
certain diagnostic drugs are submitted to the FDA in the form of an NDA for
approval to commence commercial sales. In responding to an NDA, the FDA may
grant marketing approval, request additional information or deny the application
if the FDA determines that the application does not satisfy its regulatory
approval criteria.
The Company may seek to satisfy its future funding requirements through
public or private offerings of securities, with collaborative or other
arrangements with corporate partners or from other sources. Additional financing
may not be available when needed or on terms acceptable to the Company. If
adequate financing is not available, the Company may be required to delay, scale
back or eliminate certain of its research and development programs, to
relinquish rights to certain of its technologies, therapeutic and diagnostic
agents, product candidates or products, or to license third parties to
commercialize products or technologies that the Company would otherwise seek to
develop itself.
THE YEAR 2000 ISSUE
The year 2000 problem is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company has conducted a review of its computer
systems and management believes that the Year 2000 issue will not materially
impact the Company.
The Company is in the process of identifying and assessing potential
operating and software problems related to the year 2000 issue both internally
and externally. It is the Company's intention to complete the identification
phase by June 30, 1999 and take any required corrective action by September 30,
1999.
The Company has completed an internal review of its hardware and software
used in its operations and has assessed the Year 2000 readiness. Based on this
review, the Company has not identified any material Year 2000 issues. The cost
of this review is expected to be less than $5,000.
Additionally, the Company is in the process of communicating with its
significant vendors, service providers and collaboration partners to determine
if such parties 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 third parties to remedy such issues. Based upon
the responses that the Company receives from these third parties, the Company
will assess its risks and develop appropriate contingency plans as needed.
22
<PAGE>
The Company does not expect the impact of the Year 2000 to have a material
adverse impact on the Company's business or results of operations. However, no
assurance can be given that any required changes to the Company's software or
operating systems can be made in a timely fashion or 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 vendors, service providers or collaboration partners will not have a
material adverse effect on the Company's business or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements and Supplementary Data are incorporated herein by
reference to the Company's Financial Statements included as Exhibit 1. The
information is contained as follows:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants.............................................. 35
Balance Sheets............................................................................................. 36
Statements of Operations................................................................................... 37
Statements of Stockholders' Equity (Deficit)............................................................... 38
Statements of Cash Flows................................................................................... 41
Notes to Financial Statements.............................................................................. 43
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
POSITION
HELD
NAME AGE POSITION SINCE
- ------------------------------------------------ --- ------------------------------------------------ -----------
<S> <C> <C> <C>
John N. Kapoor, Ph.D.(2)........................ 55 Director, Chairman of the Board 1990
Aquilur Rahman, Ph.D............................ 56 Director, Chief Scientific Officer 1990
Anatoly Dritschilo, M.D.(1)(2).................. 54 Director 1990
James M. Hussey (3)............................. 39 President, Chief Executive Officer, and Director 1998
Erick E. Hanson(1).............................. 52 Director 1997
Mahendra G. Shah, Ph.D.......................... 54 Vice President, Corporate and Business 1991
Development
Sander A. Flaum................................. 57 Director 1998
Kevin Harris.................................... 38 Chief Financial Officer 1998
Lewis Strauss, M.D.............................. 48 Vice President- Chief Medical Officer 1998
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Mr. Hussey assumed the positions of President, Chief Executive Officer and
Director of the Company on March 16, 1998. He replaced Dr. William C. Govier
who served as President, Chief Executive Officer and Director of the Company
until retiring on January 16, 1998.
All directors hold office until the next annual meeting of the stockholders
and until their successors are duly elected. Officers are appointed to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed.
John N. Kapoor, Ph.D., Chairman of the Board of Directors, has been a
director of the Company since July 1990. Prior to forming the Company, Dr.
Kapoor formed EJ Financial Enterprises, Inc., a health care consulting and
investment Company, in March 1990, of which Dr. Kapoor is currently President.
Dr. Kapoor is presently Chairman of Option Care, Inc., a provider of home health
care services; Chairman of Unimed Pharmaceuticals, Inc., a developer and
marketer of pharmaceuticals for cancer, endocrine disorders and infectious
diseases; and Chairman of Akorn, Inc., a manufacturer, distributor, and marketer
of generic ophthalmic products. Dr. Kapoor received his Ph.D. in medicinal
chemistry from the State University of New York in 1970 and a B.S. in pharmacy
from Bombay University in India.
Aquilur Rahman, Ph.D., joined the Company as Chief Scientific Officer and as
a member of the Board of Directors in July 1990. Dr. Rahman joined the Company
on a full time basis in March 1996. Dr. Rahman is currently adjunct professor of
radiology and was an associate professor of pathology and pharmacology at
Georgetown University until March 1996. Dr. Rahman has more than 15 years of
research experience in developing methods of chemotherapy treatment for cancer.
Dr. Rahman received his Masters of Science in Biochemistry from the University
of Dacca (Bangladesh) in 1964 and his Ph.D. in Pharmaceutics from the University
of Strathclyde (Glasgow, U.K.) in 1972.
Anatoly Dritschilo, M.D., joined the Company as a Member of the Board of
Directors in July 1990. Since August 1979, Dr. Dritschilo has been Chairman of
the Department of Radiation Medicine and
24
<PAGE>
Medical Director of the Georgetown University Medical Center in Washington, D.C.
Dr. Dritschilo received his B.S. in Chemical Engineering from the University of
Pennsylvania, his M.S. in Engineering in 1969 from Newark College of
Engineering, and his M.D. in 1973 from the College of Medicine of New Jersey.
James M. Hussey joined the Company in March 1998 as its President, Chief
Executive Officer, and a member of the Board of Directors. Mr. Hussey was
previously the Chief Executive Officer of Physicians Quality Care, a managed
care organization from 1994 to January, 1998. Previous to that, Mr. Hussey held
several positions with Bristol-Myers Squibb from 1984 to 1994, most recently as
the General Manager Midwest Integrated Regional Business Unit. Mr. Hussey
received a B.S. from the College of Pharmacy at Butler University and an M.B.A.
from the University of Illinois.
Erick E. Hanson, joined the Company as a Director in April 1997. Mr. Hanson
is currently President of Hanson and Associates, a consulting firm working with
venture capital companies. Previously, Mr. Hanson served as President and Chief
Executive Officer of OptionCare, Inc., a provider of home health care services.
Prior to joining OptionCare, Inc. Mr. Hanson held a variety of positions with
Caremark, Inc., including from 1991-1995, Vice President Sales and Marketing.
Mr. Hanson served as President and Chief Operating Officer of Clinical Partners,
Inc. in Boston, MA, from 1989-1991 and prior to 1989 was associated with Blue
Cross and Blue Shield of Indiana for over twenty years. Mr. Hanson presently
serves on the Board of Directors for Condell Medical Centers.
Sander A. Flaum, joined the Company as a Director in July 1998. Mr. Flaum is
President and Chief Executive Officer of Robert A. Becker EURO/RSCG, a marketing
and advertising company. Prior to becoming President of Robert A. Becker, Mr.
Flaum was Executive Vice President of Kleinter Advertising and prior to that
served as Marketing Director of Lederle Laboratories, a division of American
Cyanamid where he was employed from 1965-1984.
Mahendra G. Shah, Ph.D., has served as Vice President of Corporate and
Business Development of the Company since October 1991. Dr. Shah is also a Vice
President of EJ Financial Enterprises, Inc., a position he has held since
October 1991. Prior to joining the Company, Dr. Shah was the Senior Director of
New Business Development with Fujisawa USA from January 1987 to October 1991.
Dr. Shah received his M.S. in 1978 and Ph.D. in 1984 in Industrial Pharmacy from
St. John's University and an M.S. in 1969 and a B.S. in 1967 in Pharmaceutical
Chemistry from Gujarat University in India.
Kevin M. Harris has served as Chief Financial Officer and Secretary of the
Company since June 1998. Mr. Harris is also Director of Taxes and Planning at
E.J. Financial Enterprises, Inc. a health care consulting and investment
Company. Prior to joining E.J. Financial Enterprises in 1997, Mr. Harris was
Vice-President of Finance of Duo-Fast Corporation. Previously, Mr. Harris worked
eleven years in public accounting, including six years with Arthur Andersen &
Company. Mr. Harris received a B.Sc. in accounting from Illinois State
University in 1983 and a M.S. from DePaul University in 1988. Mr. Harris is a
Certified Public Accountant and a Certified Financial Planner.
Lewis Strauss, M.D., joined the Company as Chief Medical Officer, in April,
1998. After completing his medical training at Cornell Medical College and his
pediatric residency at The John Hopkins School of Medicine in Baltimore, Dr.
Strauss served as a Pediatric Oncologist at John Hopkins Oncology Center
(1980-1991) and at Northwestern University (1991-1997).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that during the 1998 fiscal year, all filing requirements
applicable to its officers, directors and greater that 10% beneficial owners
were complied with, with the exception that (i) the Initial Statement Of
Beneficial Ownership Of Securities on Form 3, required to be filed by each of
James M. Hussey, President and Chief Executive Officer of the
25
<PAGE>
Company, Dr. Louis C. Strauss, Chief Medical Officer for the Company and Sander
A. Flaum, Director of the Company, were not filed within 10 days of each of
those individuals assuming their respective offices, (ii) Dr. Dritschilo did not
timely file a Form 4 report relating to transfers which has been made for estate
planning purposes, and (iii) Mr. Harris did not timely file a Form 4 report
regarding his initial acquisition of shares. Each of the aforementioned
individuals has now made the required filings.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the total compensation for services rendered
to the Company for the fiscal year ended December 31, 1998, by those persons
holding the position of Chief Executive Officer and for each executive officer
who received more than $100,000 in salary and bonus in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------------------- -----------------------
ANNUAL RESTRICTED
COMPENSATION OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS($) COMPENSATION($) AWARD($) OPTIONS(#)
- ---------------------------------- ----------- ---------- ------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
William C. Govier................. 1998 $ 5,800 $ 0 $ 0 $ 0 0
Chief Executive Officer and 1997 $ 138,600 $ 0 $ 0 $ 0 0
President (1) 1996 121,000 $ 39,600 $ 0 $ 0 0
James M. Hussey................... 1998 $ 197,900 $ 90,000 $ 7100 $ 187,500 400,000(4)
Chief Executive Officer and
President (1)
Aquilur Rahman.................... 1998 $ 178,000 $ 54,000 $ 9600 $ 0 0
Chief Scientific Officer 1997 $ 167,000 $ 51,000 0 0 50,000(3)
1996 $ 144,100 $ 45,000 0 0 0
Lewis Straus M.D.................. 1998 $ 110,000 $ 16,800 $ 20,000 $ 35,000 20,000(5)
Chief Medical Officer (2)
</TABLE>
- ------------------------
(1) Dr. Grovier resigned as President, Chief Executive Officer and a Director
effective January 18, 1998. Effective March 16, 1998, Mr. James M. Hussey
succeeded Dr. Govier as President and Chief Executive Officer and was
appointed to fill the vacancy in the Board of Directors created by Dr.
Govier's departure.
(2) Dr. Stauss joined the Company as Chief Medical Officer on April 6, 1998.
(3) The stock options became exercisable for 50% of the covered shares on August
13, 1997 and the remaining shares became exercisable August 15, 1998 in
accordance with the terms of the 1995 Stock Option Plan.
(4) The stock options became exercisable for 25% of the covered shares on
January 16, 1999 and will become exercisable with respect to an additional
25% on each anniversary of such date
(5) The stock options become exercisable for 25% of the covered shares on April
6, 1999. And will become exercisable with respect to an additional 25% on
each anniversary of such date.
26
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of options
to purchase Common Stock granted to the Named Executive Officers during the
fiscal year ended December 31, 1998:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AS ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME OPTIONS (#) FISCAL YEAR SHARE DATE 5% 10%
- ------------------------------------------ ----------- --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James M. Hussey........................... 400,000 71.81% $ 4.75 1/16/08 $ 1,194,900 $ 3,028,111
Lewis Strauss............................. 20,000 3.59% $ 3.75 4/06/08 $ 47,167 $ 119,531
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR, AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to stock options
exercised during the fiscal year ended December 31, 1998, and the value at
December 31, 1998 of unexercised stock options held by our executive officers:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT FISCAL OPTIONS IN-THE
YEAR-END MONEY
SHARES EXERCISABLE/ AT FISCAL YEAR-END
ACQUIRED ON REALIZED UNEXERCISEABLE EXERCISABLE/
NAME EXERCISE (#) VALUE($) (#) UNEXERCISEABLE($)*
- ------------------------------------------------- ----------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
William C. Govier................................ 0 0 0/0 $ 0/$0
James M. Hussey.................................. 0 0 0/400,000 $ 0/$2,950,000
Aquilur Rahman................................... 0 0 50,000/0 $ 0/$256,250
Lewis Strauss.................................... 0 0 0/20,000 $ 0/$167,500
</TABLE>
- ------------------------
* Represents the fair market value at December 31, 1998, of the common stock
underlying the options minus the exercise price.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of March 19, 1999 for (i) all people
that beneficially own more than 5% of the Company's outstanding common stock,
(ii) all directors, (iii) all executive officers and (iv) all executive officers
and directors as a group. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Percentage of beneficial
ownership is based on 8,454,621 shares of common stock outstanding as of March
19, 1999, plus 559,004 shares subject to warrants and options that are
considered to be beneficially owned by certain of the persons listed. Shares of
common stock subject to options or warrants
27
<PAGE>
exercisable or convertible within 60 days of March 19, 1999 are deemed
outstanding for computing the percentage of the person or group holding such
options or warrants.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
PERCENTAGE OF PERCENTAGE OF
BENEFICIAL SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNERSHIP(3) OWNED
- ----------------------------------------------------------------------- --------------------- -------------------
<S> <C> <C>
John N. Kapoor......................................................... 2,146,957(1) 23.82%
EJ Financial Enterprises, Inc.
225 E. Deerpath, Suite 250
Lake Forest, IL 60045
John N. Kapoor 1994-A.................................................. 1,550,453(2) 17.20%
Annuity Trust
225 E. Deerpath, Suite 250
Lake Forest,IL 60045
Aquilur Rahman......................................................... 915,540 10.16%
100 Corporate North, Suite 215
Bannockburn, IL 60015
Anatoly Dritschilo..................................................... 259,136 2.87%
100 Corporate North, Suite 215
Bannockburn, IL 60015
James M. Hussey........................................................ 166,373 1.85%
100 Corporate North, Suite 215
Bannockburn, IL 60015
Erick E. Hanson........................................................ 2,000 .02%
100 Corporate North, Suite 212
Bannockburn, IL 60015
Sander Flaum........................................................... 2,000 .02%
100 Corporate North, Suite 215
Bannockburn, IL 60015
William C. Govier...................................................... 233,134 2.59%
225 E. Deerpath, Suite 250
Lake Forest,IL 60045
Mahendra Shah.......................................................... 187,106 2.08%
225 E. Deerpath, Suite 250
Lake Forest,IL 60045
Kevin M. Harris........................................................ 600 .01%
225 E. Deerpath, Suite 250
Lake Forest,IL 60045
Lewis Strauss.......................................................... 15,862 .18%
100 Corporate North, Suite 215
Bannockburn, IL 60015
All officers and a directors as group (10 persons)..................... 5,479,161 60.79%
</TABLE>
- ------------------------
(1) Includes 620,059 shares held by John N. Kapoor Trust, dtd 9/20/89, of which
Dr. Kapoor is the sole trustee and sole beneficiary and 904,812 shares held
by EJ Financial/NEO Management, L.P. (the
28
<PAGE>
"Limited Partnership") of which John N. Kapoor is the Managing General
Partner. The address of the John N. Kapoor Trust and the Limited Partnership
is 225 East Deerpath, Suite 250, Lake Forest, Illinois 60045. The John N.
Kapoor Trust also owns warrants to purchase 287,004 shares of common stock,
which are assumed to have been exercised for purposes of disclosing the
ownership indicated. The amount shown also includes 300,000 shares of common
stock which are held by the John N. Kapoor Charitable Trust of which Dr.
Kapoor and his spouse are co-trustees. Dr. Kapoor disclaims beneficial
ownership of the shares held by the charitable trust.
(2) The sole trustee of the John N. Kapoor 1994-A Annuity Trust is Editha
Kapoor, Dr. Kapoor's spouse. Mrs. Kapoor also serves as trustee for four
trusts which have been established for their children and which collectively
own 310,848 shares. In addition, Ms. Kapoor serves as co-trustee with Dr.
Kapoor of the John N. Kapoor Charitable Trust which shares are not included
in the reported shares.
(3) Does not include shares held by family members of officers or directors, or
trusts established for the family members of officers or director, provided
that such officers or directors do not have or share voting or investment
power with such family members or trusts and such officers or directors have
disclaimed beneficial ownership over such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November, 1997 the Company relocated its principal corporate office to
space subleased from Option Care, Inc. Mr. Hanson, a director of the Company,
was formerly President, CEO and a Director of Option Care. In addition, Dr.
Kapoor, Chairman of the Company's Board of Directors, is a director and
principal shareholder of Option Care. Dr. Kapoor holds 57.5% of the outstanding
shares of Option Care, Inc. The sublease was negotiated at arms length. The
Company expensed approximately $38,700 for rent under the Option Care sublease
during 1998.
On July 1, 1994, the Company entered into a Consulting Agreement with EJ
Financial Enterprises, Inc. ("EJ Financial"). The Consulting Agreement provides
that the Company will pay EJ Financial $125,000 per year (paid quarterly) for
certain business and financial services, including having certain officers of EJ
Financial serve as officers of the Company. Dr. John Kapoor, the Company's
Chairman of the Board is the president and a director of EJ Financial. Dr.
Mahendra Shah, Vice President of the Company, is also a Vice President of EJ
Financial. Mr. Kevin Harris, Chief Financial Officer of the Company, is Director
of Taxes and Planning of EJ Financial. Dr. Kapoor, Dr. Shah and Kevin Harris are
paid by EJ Financial. They do not receive compensation from the Company. These
charges reflect the increased need for EJ Financial's services in connection
with the operation of NeoPharm as a publicly-held Company. Unless terminated by
the parties, the management services agreement with EJ Financial automatically
renews in June of each year for a one year term.
On October 22, 1998, the Company established a $3,000,000 line of credit
(the "Line of Credit") with the John N. Kapoor Trust dtd 9/20/89 (the "Trust")
the sole trustee and sole beneficiary of which is John N. Kapoor, the Company's
Chairman. Interest on borrowings on the Line of Credit accrued at the rate of 2%
over the prime rate charged by the Northern Trust Bank. The accrued interest and
outstanding principal became due and payable at the earlier of October 1, 2001
or the date on which the Company completed a public or private offering of debt
or equity securities or a licensing agreement for its products. There were no
borrowings on the Line of Credit during 1998 and borrowings of $250,000 in 1999.
The Line of Credit was terminated in February 1999 as a result of the Company
entering in a license agreement with Pharmacia & Upjohn and the Line of Credit
was thereupon repaid in the amount of $250,000 of principal and $1,100 of
interest.
Dr. Aquilur Rahman, Chief Scientific Officer and a Director of the Company,
was formerly an associate professor of pathology and pharmacology at Georgetown
University. Dr. Anthony Dritschilo, a Director of the Company, is currently
chairman of the Department of Radiation Medicine and Medical Director of the
Georgetown Medical Center in Washington, D.C. As a result of their respective
positions
29
<PAGE>
with Georgetown University both Dr. Rahman and Dr. Dritschilo entered into
agreements with Georgetown relating to the ownership of inventions and other
intellectual property developed while in Georgetown's employ. As part of their
agreements with Georgetown University, Dr. Rahman and Dritschilo have advised
the Company that Georgetown University will share with each of them payments
which Georgetown receives from the Company under the License Agreements between
the Company and Georgetown. While there were no royalty or other payments to
Georgetown University by the Company in 1998, as a result of the Company
entering into a License Agreement with Pharmacia & Upjohn in February 1999, a
payment of $800,000 was recently made to Georgetown University and, assuming
regulatory approval is obtained in the future for the Company's LED and LEP
compounds, additional royalty payments, which could be substantial, would be
made by the Company to Georgetown in the future which the Company understands
Georgetown would then share with the foregoing named individuals.
In connection with the Company's initial public offering, the Company
adopted a policy whereby any further transaction between the Company and its
officers, directors, principal shareholders and any affiliates of the foregoing
persons will be on terms no less favorable to the Company than could reasonably
be obtained in arm's length transactions with independent third parties, and
that any such transactions also be approved by a majority of the Company's
disinterested outside directors.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
3.1 Certificate of Incorporation, as amended filed with the Commission as Exhibit 3.1 to
the Company's Registration Statement on Form S-1 (File No. 33-90516), is incorporated
by reference.
3.2 Bylaws of the Registrant, as amended filed with the Commission as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File No. 33- 90516), is incorporated by
reference.
4.1 Specimen Common Stock Certificate filed with the Commission as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File No. 33- 90516), is incorporated by
reference.
4.2 Specimen Warrant Certificate filed with the Commission as Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (File No. 33-90516), is incorporated by
reference.
4.3 Form of Representative's Warrant Agreement between the Registrant and the
Representative, including form of Representative's Warrant filed with the Commission
as Exhibit 4.3 to the Company's Registration Statement on Form S-1 (File No.
33-90516), is incorporated by reference.
4.4 Form of Warrant Agreement between the Registrant, the Representative and Harris Trust
and Savings Bank, including form of Warrant filed with the Commission as Exhibit 4.4
to the Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
10.1 1995 Stock Option Plan, with forms of Incentive and Nonstatutory Stock Option
Agreements filed with the Commission as Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (File No. 33-90516), is incorporated by reference.
10.2 1995 Director Option Plan, with form of Director Stock Option Agreement filed with
the Commission as Exhibit 10.2 to the Company's Registration Statement on Form S-1
(File No. 33-90516), is incorporated by reference.
10.3 Form of Director and Officer Indemnification Agreement. filed with the Commission as
Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 33-90516),
is incorporated by reference.
10.4 Cooperative Research and Development Agreement between the Company and the National
Cancer Institute dated September 13, 1993 filed with the Commission as Exhibit 10.4
to the Company's Registration Statement on Form S-1 (File No. 33-90516), is
incorporated by reference.
10.5 License Agreement between the Company and Georgetown University dated July, 1990
filed with the Commission as Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (File No. 33-90516), is incorporated by reference.
10.6 License Agreement between the Company and Georgetown University dated April 18, 1994
filed with the Commission as Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (File No. 33-90516), is incorporated by reference.
10.7 Loan Repayment Note, dated June 18, 1990, by and between the Company and the John N.
Kapoor Trust filed with the Commission as Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 33-90516), is incorporated by reference.
</TABLE>
31
<PAGE>
<TABLE>
<C> <S>
10.8 Consulting Agreement, dated July 1, 1994, by and between the Company and EJ Financial
Services, Inc. filed with the Commission as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No. 33-90516), is incorporated by reference.
10.09 Harris Bank and Trust Company Loan Agreement dated March 16, 1995, as amended on
October 5, 1995. filed with the Commission as Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File No. 33-90516), is incorporated by reference.
10.10 Option Agreement, dated as of August 13, 1996, between the Company and John N. Kapoor
and Anatoly Dritschilo, incorporated by reference to Exhibit 10.11 of the Company's
report on Form 10-K for the fiscal year ended December 31, 1996.
10.11 Cooperative Research and Development Agreement between the Company and the Food and
Drug Administration dated August 27, 1997.
10.12 License Agreement between the Company and the National Institute of Health dated
September 23, 1997.
10.13 Employment agreement between James M. Hussey and the Company dated March 16, 1998.
10.14 1998 Equity Incentive Plan filed with the Commission on October 30, 1998 as Exhibit
4.1 to the Company's Registration Statement on Form S-8 (File No. 333-66365), is
incorporated by reference.
10.15 Collaboration Agreement by and between the Company and BioChem Therapeutic Inc. dated
May 12, 1997.
10.16 License Agreement by and between the Company and Pharmacia and Upjohn Company dated
February 19, 1999, filed with the Commission as Exhibit 10.1 of the Company's report
on Form 8-K (File No.33-09516), is incorporated by reference.
10.17 Stock Purchase Agreement by and between the Company and Pharmacia and Upjohn Company
dated February 19, 1999, filed with the Commission on as Exhibit 10.2 of the
Company's report on Form 8-K (File No. 33-09516), is incorporated by reference.
10.18 Amendment No. 1 dated January 22, 1999 to the License Agreement between the Company
and Georgetown University dated January, 1990.
10.19 Amendment No. 1 dated January 22, 1999 to the License Agreement between the Company
and Georgetown University dated April 18, 1994.
10.20 Line of Credit Agreement, dated as of September 30, 1998, by and between Registrant
and the John N. Kapoor Trust dated September 20, 1989 filed with the Commission on
November 16, 1998 as exhibit 10.15 to the Registrant's report on Form 10-Q (File No.
33-09516), is incorporated by reference.
11.1 Calculation of Earnings Per Share.
27 Financial Data Schedule
</TABLE>
(b) Financial Statements
(1) FINANCIAL STATEMENTS
The financial statements filed as part of this Registration Statement are
listed in the Index to Financial Statements of the Company on Page 34.
32
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
NEOPHARM, INC.
By: /s/ JAMES M. HUSSEY
-----------------------------------------
James M. Hussey
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN N. KAPOOR
- ------------------------------ Director, Chairman of the March 26, 1999
John N. Kapoor Board
/s/ AQUILUR RAHMAN
- ------------------------------ Director, Chief Scientific March 26, 1999
Aquilur Rahman Officer
/s/ ANATOLY DRITSCHILO
- ------------------------------ Director March 26, 1999
Anatoly Dritschilo
Director, President, and
/s/ JAMES M. HUSSEY Chief Executive Officer
- ------------------------------ (Principal Executive March 26, 1999
James M. Hussey Officer)
/s/ ERICK E. HANSON
- ------------------------------ Director March 26, 1999
Erick E. Hanson
Chief Financial Officer
/s/ KEVIN M. HARRIS Principal Financial
- ------------------------------ Officer and Principal March 26, 1999
Kevin M. Harris Accounting Officer)
/s/ SANDER FLAUM
- ------------------------------ Director March 26, 1999
Sander Flaum
</TABLE>
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants.............................................. 35
Balance Sheets............................................................................................. 36
Statements of Operations................................................................................... 37
Statements of Stockholders' Equity (Deficit)............................................................... 38
Statements of Cash Flows................................................................................... 41
Notes to Financial Statements.............................................................................. 43
</TABLE>
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of NeoPharm, Inc.:
We have audited the accompanying balance sheets of NeoPharm, Inc. (a
Delaware corporation in the development stage) as of December 31, 1997 and 1998,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1998 and
for the period from inception (June 15, 1990) to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NeoPharm, Inc. as of
December 31, 1997 and 1998, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1998 and for the period
from inception (June 15, 1990) to December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 22, 1999
35
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 2,776,697 $ 40,681
Notes receivable--shareholder....................................................... 52,634 --
Deferred taxes (Note 5)............................................................. -- 1,640,000
------------ ------------
Total current assets.............................................................. 2,829,331 1,680,681
Equipment and furniture:
Equipment........................................................................... 32,492 82,690
Furniture........................................................................... 26,231 78,877
Less accumulated depreciation....................................................... (33,555) (60,700)
------------ ------------
Total equipment and furniture, net................................................ 25,168 100,867
------------ ------------
Total assets...................................................................... $ 2,854,499 $ 1,781,548
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under research agreements............................................... 150,000 260,000
Accounts payable.................................................................... 275,427 275,926
Accrued compensation................................................................ 55,000 67,500
------------ ------------
Total current liabilities......................................................... 480,427 603,426
------------ ------------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity:
Common stock, $.0002145 par value; 15,000,000 shares authorized, 8,195,810 and
8,341,779 shares issued and outstanding as of December 31, 1997 and 1998,
respectively...................................................................... 1,758 1,789
Additional paid-in capital.......................................................... 6,259,636 6,637,378
Deficit accumulated during the development stage.................................... (3,887,322) (5,461,045)
------------ ------------
Total stockholders' equity........................................................ 2,374,072 1,178,122
------------ ------------
Total liabilities and stockholders' equity........................................ $ 2,854,499 $ 1,781,548
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
36
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(JUNE 15,
FOR THE YEARS ENDED 1990)
DECEMBER 31, THROUGH
------------------------------------------- DECEMBER 31,
1996 1997 1998 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues............................................ $ -- $ 550,000 $ -- $ 550,000
Expenses:
Research and development............................ 1,099,631 1,411,692 1,611,343 7,085,874
General and administrative.......................... 956,924 1,370,486 1,691,132 4,837,984
Total expenses.................................... 2,056,555 2,782,178 3,302,475 11,923,858
Loss from operations.......................... (2,056,555) (2,232,178) (3,302,475) (11,373,858)
Interest income..................................... 238,275 210,501 88,752 537,528
Interest expense.................................... (47,365) -- -- (735,606)
Interest income (expense)--net.................. 190,910 210,501 88,752 (198,078)
Loss before income taxes............................ $ (1,865,645) $ (2,021,677) $ (3,213,723) $(11,571,936)
Income taxes........................................ -- -- (1,640,000) (1,640,000)
Net income/(loss)................................... $ (1,865,645) $ (2,021,677) $ (1,573,723) $ (9,931,936)
Net income/(loss) per share
Basic............................................. $ (.24) $ (.25) $ (.19)
Diluted........................................... $ (.24) $ (.25) $ (.19)
Weighted average shares outstanding
Basic............................................. 7,803,412 8,146,746 8,213,980
Diluted........................................... 8,312,378 8,939,143 8,757,187
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
37
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JUNE 15, 1990)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
--------------------- ADDITIONAL DURING STOCKHOLDERS'
PAR PAID-IN DEVELOPMENT EQUITY
SHARES VALUE CAPITAL STAGE (DEFICIT)
---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at inception, June 15, 1990.................. -- $ -- $ -- $ -- $ --
Initial issuance of stock for cash on June 21, 1990
($.0002145 per share).............................. 3,263,888 700 -- -- 700
Services contributed to Company by related party..... -- -- 13,542 -- 13,542
Net loss............................................. -- -- -- (188,441) (188,441)
---------- --------- ------------ ------------- ------------
Balance at December 31, 1990......................... 3,263,888 700 13,542 (188,441) (174,199)
---------- --------- ------------ ------------- ------------
Services contributed to Company by related party..... -- -- 25,000 -- 25,000
Net loss............................................. -- -- -- (468,771) (468,771)
---------- --------- ------------ ------------- ------------
Balance at December 31, 1991......................... 3,263,888 700 38,542 (657,212) (617,970)
---------- --------- ------------ ------------- ------------
Services contributed to Company by related party..... -- -- 25,000 -- 25,000
Net loss............................................. -- -- -- (567,962) (567,962)
---------- --------- ------------ ------------- ------------
Balance at December 31, 1992......................... 3,263,888 700 63,542 (1,225,174) (1,160,932)
---------- --------- ------------ ------------- ------------
Services contributed to Company by related party..... -- -- 25,000 -- 25,000
Net loss............................................. -- -- -- (492,423) (492,423)
---------- --------- ------------ ------------- ------------
Balance at December 31, 1993......................... 3,263,888 700 88,542 (1,717,597) (1,628,355)
---------- --------- ------------ ------------- ------------
Issuance of stock pursuant to exercise of stock
options............................................ 1,398,810 300 7,449 -- 7,749
Services contributed to Company by related party..... -- -- 12,500 -- 12,500
Net loss............................................. -- -- -- (1,083,667) (1,083,667)
---------- --------- ------------ ------------- ------------
Balance at December 31, 1994......................... 4,662,698 1,000 108,491 (2,801,264) (2,691,773)
---------- --------- ------------ ------------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
38
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIOD FROM INCEPTION (JUNE 15, 1990)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
--------------------- ADDITIONAL DURING STOCKHOLDERS'
PAR PAID-IN DEVELOPMENT EQUITY
SHARES VALUE CAPITAL STAGE (DEFICIT)
---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994......................... 4,662,698 1,000 108,491 (2,801,264) (2,691,773)
---------- --------- ------------ ------------- ------------
Issuance of stock pursuant to exercise of stock
options............................................ 37,302 8 -- -- 8
Net loss............................................. -- -- -- (1,669,627) (1,669,627)
Reclassification of the deficit accumulated as the
result of the termination of the Company's S
Corporation status................................. -- -- (4,470,891) 4,470,891 --
---------- --------- ------------ ------------- ------------
Balance at December 31, 1995......................... 4,700,000 1,008 (4,362,400) -- (4,361,392)
---------- --------- ------------ ------------- ------------
Conversion of interest and loan payable to principal
stockholder into common stock ($3.525 per share)... 574,008 123 2,023,262 -- 2,023,385
Issuance of stock pursuant to the Company's public
offering net of costs incurred..................... 2,772,260 595 7,896,521 -- 7,897,116
Issuance of stock pursuant to exercise of stock
options............................................ 84,000 18 259,304 -- 259,322
Net Loss............................................. -- -- -- (1,865,645) (1,865,645)
Issuance of options to non-employees................. -- -- 73,391 -- 73,391
---------- --------- ------------ ------------- ------------
Balance at December 31, 1996......................... 8,130,268 $ 1,744 $ 5,890,078 $ (1,865,645) $4,026,177
---------- --------- ------------ ------------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
39
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIOD FROM INCEPTION (JUNE 15, 1990)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
--------------------- ADDITIONAL DURING STOCKHOLDERS'
PAR PAID-IN DEVELOPMENT EQUITY
SHARES VALUE CAPITAL STAGE (DEFICIT)
---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996......................... 8,130,268 $ 1,744 $ 5,890,078 $ (1,865,645) $4,026,177
---------- --------- ------------ ------------- ------------
Issuance of stock pursuant to exercise of stock
options............................................ 55,542 12 175,166 -- 175,178
Issuance of stock pursuant to restricted stock
grants............................................. 10,000 2 48,748 -- 48,750
Net Loss............................................. -- -- -- (2,021,677) (2,021,677)
Issuance of options to non-employees................. -- -- 145,644 -- 145,644
---------- --------- ------------ ------------- ------------
Balance at December 31, 1997......................... 8,195,810 $ 1,758 $ 6,259,636 $ (3,887,322) $2,374,072
---------- --------- ------------ ------------- ------------
Issuance of stock pursuant to exercise of stock
options............................................ 22,500 5 82,339 -- 82,344
Issuance of stock Pursuant to Restricted stock
Grants............................................. 74,235 16 263,109 -- 263,125
Exercise of warrants................................. 49,234 10 (10) -- --
Net loss............................................. -- -- -- (1,573,723) (1,573,723)
Issuance of options to non-employees................. -- -- 32,304 -- 32,304
---------- --------- ------------ ------------- ------------
Balance at December 31, 1998......................... 8,341,779 $ 1,789 $ 6,637,378 $ (5,461,045) $1,178,122
---------- --------- ------------ ------------- ------------
---------- --------- ------------ ------------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
40
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(JUNE 15,
FOR THE YEARS ENDED 1990)
DECEMBER 31, THROUGH
------------------------------------------- DECEMBER 31,
1996 1997 1998 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash flows used in operating activities:
Net loss............................................ $ (1,865,645) $ (2,021,677) $ (1,573,723) $ (9,931,936)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization....................... 6,279 6,727 27,145 72,499
Gain on disposal of equipment....................... -- -- -- (408)
Deferred income taxes............................... -- -- (1,640,000) (1,640,000)
Services contributed (non-cash) by related party.... -- -- -- 101,042
Interest payable to principal shareholder converted
to stock.......................................... 523,385 -- -- 523,385
Compensation expense from non-employee stock
option............................................ 73,391 145,644 32,304 251,339
Restricted stock grants in lieu of cash
compensation...................................... -- 48,750 263,125 311,875
(Increase)Decrease in other assets.................. -- (52,634) 52,634 (11,100)
(Decrease)Increase accounts payable and accrued
liabilities....................................... (883,600) 14,396 122,999 603,426
------------- ------------- ------------- --------------
Net cash and cash equivalents used in
operating activities........................ (2,146,190) (1,858,794) (2,715,516) (9,719,878)
------------- ------------- ------------- --------------
Cash flows used in investing activities:
Purchase of equipment and furniture................. (10,663) (18,728) (102,844) (162,669)
Proceeds from disposal of equipment................. -- -- -- 810
------------- ------------- ------------- --------------
Net cash and cash equivalents used in investing
activities........................................ (10,663) (18,728) (102,844) (161,859)
------------- ------------- ------------- --------------
Cash flows from financing activities:
Proceeds from loan payable to principal
stockholder....................................... -- -- -- 1,500,000
Advance on line of credit........................... 107,000 -- -- 2,114,652
Reduction in line of credit......................... (2,114,652) -- -- (2,114,652)
Costs incurred related to the initial public
offering.......................................... (201,885) -- (484,955) (1,173,276)
Proceeds from initial public offering............... 8,585,438 -- -- 8,585,438
Proceeds from issuance of common stock.............. 259,322 175,178 567,299 1,010,256
------------- ------------- ------------- --------------
Net cash and cash equivalents provided by
financing activities........................ 6,635,223 175,178 82,344 9,922,418
------------- ------------- ------------- --------------
Net increase (decrease) in cash..................... 4,478,370 (1,702,344) (2,736,016) 40,681
Cash and cash equivalents, beginning of period...... 671 4,479,041 2,776,697 --
------------- ------------- ------------- --------------
Cash and cash equivalents, end of period............ $ 4,479,041 $ 2,776,697 $ 40,681 $ 40,681
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Supplemental disclosure of cash paid for:
Interest............................................ $ 113,846 $ 84,585 $ -- $ 212,222
Income taxes........................................ -- -- -- --
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
41
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
(CONTINUED)
Supplemental disclosure of non-cash transactions:
In 1996, the Company converted the $2,023,385 loan and $523,385 of accrued
interest expense owed to the principal shareholder into 574,008 shares of common
stock and 143,502 warrants to purchase common stock. The loan and accrued
interest were converted at the initial public offering price.
In 1997, two consultants to the Company each received 5,000 shares of
restricted common stock as compensation. These grants were valued at the closing
price of the traded common shares on the date of the grants.
In 1998, the Company granted 69,235 shares of restricted common stock to
employees as compensation. The Company also donated a total of 5,000 shares of
restricted common stock to two charitable organizations on behalf of a
consultant who provided services to the Company. Additionally, holders of the
Company's Representatives warrants that were issued as part of the initial
public offering exercised on a cashless basis 49,234 of the 135,000 outstanding
warrants. Each warrant entitles the holder to two shares of common stock for an
exercise price of $9.80. The cashless exercise of these warrants resulted in a
charge of $484,955 to Additional Paid In Capital as cost related to the initial
public offering.
The accompanying notes to financial statements are an integral part of these
statements.
42
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND BUSINESS:
NeoPharm, Inc. (the "Company"), a Delaware corporation in the development
stage, was incorporated on June 15, 1990, under the name of OncoMed, Inc. In
March 1995, the Company changed its name to NeoPharm, Inc. The Company is
developing products to provide therapeutic and prognostic benefits in the
treatment of various forms of cancer. The Company has one product which is the
subject of a Cooperative Research and Development Agreement ("CRADA") with the
National Cancer Institute ("NCI"), a unit of the National Institute of Health
("NIH") and a product, licensed from the NIH, that is the subject of a CRADA
with the United States Food and Drug Administration ("FDA"). The Company also
has rights to products developed under license and sponsored research agreements
with Georgetown University ("Georgetown").
The Company is in the development stage that requires substantial capital
for research, product development and market development activities. The Company
has not yet initiated marketing of a commercial product. The Company has filed
one New Drug Application ("NDA") with the FDA for BUdR (Broxuridine) in a
prognostic application. This and other proposed products will require clinical
testing, regulatory approval and substantial additional investment prior to
commercialization. The future success of the Company is dependent on its ability
to obtain additional working capital to develop, manufacture and market its
products and, ultimately, upon its ability to attain future profitable
operations. There can be no assurance that the Company will be able to obtain
necessary financing or regulatory approvals to be able to successfully develop,
manufacture and market its products, or attain successful future operations.
Insufficient funds could require the Company to delay, scale back or eliminate
one or more of its research and development programs or to license third parties
to commercialize products or technologies that the Company would otherwise seek
to develop without relinquishing its rights thereto. Accordingly, the
predictability of the Company's future success is uncertain.
The Company's rights to its products are subject to the terms of its
agreements with NCI, NIH, FDA and Georgetown. Termination of any, or all, of
these agreements would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, uncertainty exists
as to the Company's ability to protect its rights to patents and its proprietary
information. There can also be no assurance that research and discoveries by
others will not render some or all of the Company's programs or products
noncompetitive or obsolete. Nor can there be any assurance that unforeseen
problems will not develop with the Company's technologies or applications, or
that the Company will be able to address successfully technological challenges
it encounters in its research and development programs. Although the Company
plans to obtain product liability insurance, it currently does not have any nor
is there any assurance that it will be able to attain or maintain such insurance
on acceptable terms or with adequate coverage against potential liabilities.
2. SIGNIFICANT ACCOUNTING POLICIES:
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. These costs
include, among other things, consulting fees and costs reimbursed to Georgetown
pursuant to the agreements as described in Note 6. Payments related to the
acquisition of technology rights, for which development work is in process, are
expensed and considered a component of research and development costs. The
Company also allocates
43
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
indirect costs, consisting primarily of operational costs for administering
research and development activities, to research and development expenses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost and are depreciated using an
accelerated method over the estimated useful economic lives of the assets
involved. The estimated useful lives employed in computing depreciation are five
years for computer equipment and seven years for furniture. Maintenance and
repairs that do not extend the life of assets are charged to expense when
incurred.
INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share, which establishes standards for computing
and presenting earnings per share for publicly held common stock or potential
common stock. Effective December 31, 1997, the Company adopted the principles of
Statement No. 128 in calculating and presenting its earnings per share. The
computation of net earnings (loss) per share is based on the weighted average
common shares outstanding during the periods, and includes, when dilutive,
common stock equivalents consisting of warrants and stock options.
44
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The following table sets forth the computation of the basic and diluted loss
per share from continuing operations:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Net loss from continuing operations................................ ($ 1,865,645) ($ 2,021,677) ($ 1,573,723)
------------- ------------- -------------
------------- ------------- -------------
Denominator:
Denominator for basic loss per share
Weighted average shares............................................ 7,803,412 8,146,746 8,213,980
Effect of dilutive securities:
Stock options.................................................... 508,966 445,742 467,379
Warrant exercise................................................. 0 346,655 75,829
------------- ------------- -------------
Dilutive potential common shares..................................... 508,966 792,397 543,207
Denominator for diluted loss per share-
Weighted average shares and assumed
Conversions........................................................ 8,312,378 8,939,143 8,757,187
------------- ------------- -------------
------------- ------------- -------------
Basic (loss) per share............................................. $ (0.24) $ (0.25) $ (0.19)
------------- ------------- -------------
------------- ------------- -------------
Diluted (loss) per share........................................... $ (0.24) $ (0.25) $ (0.19)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Options to purchase 99,925, 255,962 and 242,521 shares of common stock were
outstanding as of December 31, 1996, 1997 and 1998, respectively but were not
included in the computation of diluted earnings per share because the options
exercise prices were greater than the average market price of the common shares
and, therefore, would be antidilutive. The Company's warrants first became
exercisable on January 25, 1997. The underlying Representatives warrants to
purchase 135,000 shares of common stock were not included in the computation of
diluted earnings per share because the warrant exercise price was greater than
the average market price of the common shares and, therefore would be
antidilutive. For additional disclosure regarding the stock options and
warrants, see Notes 4 and 9.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). As provided by SFAS 123, the Company has elected to continue to account
for its stock-based compensation programs according to the
45
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation expense has been recognized to
the extent of employee or director services rendered based on the intrinsic
value of compensatory options or shares granted under the plans. The Company has
adopted the disclosure provisions required by SFAS 123 (see "Note 4--Stock
Options" in Notes to Financial Statements).
RECLASSIFICATION
Certain amounts in previously issued financial statements have been
reclassified to conform to 1998 classifications.
SEGMENT REPORTING
The Company currently operates under a single segment.
3. DEBT:
On June 18, 1990, the Company executed a loan agreement with Dr. John N.
Kapoor, a principal stockholder. The loan agreement allowed the Company to
borrow up to $1,500,000. Funds borrowed under the agreement incurred interest at
the lesser of 10% or the prime rate as determined by the Northern Trust Bank.
The Company had borrowed funds up to the maximum of $1,500,000 at December 31,
1995.
Interest on borrowed funds accrued until the second anniversary of the
funding. Thereafter, principal and interest were to be repaid in 12 quarterly
installments. Any principal payment not paid within 5 days of the date when due
was subject to additional interest of 15% per annum.
From June 1990 through April 1994, the Company financed its operations by
borrowing under this loan agreement. No payments of interest or principal were
made during this period. In January of 1996, in accordance with the agreement
between the principal stockholder and the Company, with the completion of the
initial public offering, the principal stockholder converted the outstanding
loan balance, plus accrued interest through November 30, 1995, into shares of
the Company's common stock and common stock purchase warrants at a per share
conversion price equal to the offering price, $3.525 per share, $.10 per
warrant. The Company issued 574,008 shares and 143,502 warrants.
During 1995 and early 1996, the Company maintained a line of credit with
Harris Bank with maximum borrowings of $2,500,000. The line of credit was
personally guaranteed by the principal stockholder. In early 1996, the Company
paid all outstanding balances and closed the line of credit.
On October 22,1998, the Company established a $3,000,000 line of credit with
the John N. Kapoor Trust dtd. 9/20/89, an entity affiliated with the Company's
Chairman. Interest on borrowings on the line of credit will accrue at the rate
of 2% over the prime rate of the Northern Trust Bank. The accrued interest and
outstanding principal becomes due and payable the earlier of October 1, 2001 or
the date upon which the Company completes a public or private offering of debt
or equity securities or a licensing agreement for its products. There were no
borrowings on this line of credit at December 31, 1998.
46
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTIONS
OPTION AGREEMENTS
The Company adopted a stock plan in 1990. The Company granted options under
the plan to purchase 1,460,978 shares. The options have an exercise price of
$.0002145 per share with the exception of options to purchase 248,676 shares
issued in December 1993, which have an exercise price of $.03217 per share.
Effective January 1995, this plan has been terminated. No additional grants will
be made under this plan.
On January 25, 1995, the board of directors approved the NeoPharm, Inc. 1995
Stock Option Plan (the "Plan"), which provided for the grant of up to 900,000
options to acquire the Company's common stock. The board of directors amended
the Plan on May 16, 1997, increasing the number of options to 1,400,000. The
option prices shall be not less than 85 percent of the fair market value of the
stock as determined by the Administrator pursuant to the Plan. The board also
approved the NeoPharm, Inc. 1995 Director Option Plan, which provides for the
grant of up to 100,000 options to acquire the Company's common stock. The option
prices shall be the fair market value on the date of grant. Vesting under these
plans range from 0 to 4 years and all options expire after 10 years. Effective
July 23, 1998 the 1995 Stock Option Plan and the 1995 Directors Option Plan were
suspended. No additional grants will be made under either plan.
On July 23, 1998, the board of directors approved the NeoPharm, Inc. 1998
Equity Incentive Plan (the "1998 Plan"), which provides for the grant of options
to acquire up to 2,000,000 shares of the Company's common stock. Additionally,
250,000 of the 2,000,000 shares can be used for restricted stock grants to
employees and consultants. The option prices shall be not less than 85% of the
fair market value of the stock as determined by the Administrator pursuant to
the 1998 Plan. The consideration paid for shares of restricted stock shall not
be less that the par value of the Company's common stock.
The Company accounts for the plans under APB Opinion No. 25, under which no
compensation cost has been recognized for stock option awards to employees. Had
compensation cost for such stock option awards under the plans been determined
consistent with FASB Statement No. 123, the Company's net income and earnings
per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income/(Loss): As Reported (1,865,645) (2,021,677) (1,573,723)
Pro Forma (2,061,099) (2,379,751) (1,827,864)
Primary EPS: As Reported (.24) (.25) (.19)
Pro Forma (.26) (.29) (.22)
Fully Diluted EPS: As Reported (.24) (.25) (.19)
Pro Forma (.26) (.29) (.22)
</TABLE>
Included in the grants described above are options to purchase 413,824
shares granted to non-employees. The Company accounts for these options using a
fair value method with the fair value of these options determined at the date of
grant. From inception through December 31, 1995 the Company deemed the fair
value of these options on the date of grant to be nominal, and no expense was
recorded. For the year ended December 31, 1996, 1997 and 1998, the fair value
was calculated using the Black-Scholes pricing model, and an expense of $73,391,
$145,644 and $32,304 was recorded respectively.
47
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTIONS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
NUMBER OF EXERCISE PRICE
GRANT/EXERCISE DATE SHARES PER SHARE
- --------------------------------------------------------------------------------- ----------- -------------------
<S> <C> <C>
Grants:
1990........................................................................... 1,184,324 $ .0002145
1992........................................................................... 27,978 .0002145
1993........................................................................... 248,676 .03217
----------- -------------------
Balance at December 31, 1993..................................................... 1,460,978 $ .0002145-$.03217
----------- -------------------
Exercises:
November 17, 1994--issued Jan. 1995............................................ (1,398,810) $ .0002145-$.03217
November 17, 1994--issued Jan. 1995............................................ (37,302) $ .0002145
----------- -------------------
Balance at December 31, 1994..................................................... 24,866 $ .03217
----------- -------------------
Grants:
February, 1995................................................................. 308,000 $ 3.50
May, 1995...................................................................... 10,000 3.50
September, 1995................................................................ 100,000 3.50
November, 1995................................................................. 100,000 3.50
----------- -------------------
Balance at December 31, 1995..................................................... 542,866 $ .03217-$3.50
----------- -------------------
Grants:
May, 1996...................................................................... 30,000 $ 6.00
August, 1996................................................................... 260,000 $ 7.00
Exercises:
June, 1996..................................................................... (19,000) $ 3.50
July, 1996..................................................................... (43,000) 3.50
August, 1996................................................................... (10,000) 3.50
September, 1996................................................................ (2,000) 3.50
December, 1996................................................................. (10,000) .03217
----------- -------------------
Balance at December 31, 1996..................................................... 748,866 $.03217,3.50,6.00,7.00
----------- -------------------
Grants:
January, 1997.................................................................. 1,000 $ 7.38
April, 1997.................................................................... 2,000 7.00
May, 1997...................................................................... 5,000 4.88
August, 1997................................................................... 5,000 4.94
Exercises:
June, 1997..................................................................... (7,000) $ 3.50
July, 1997..................................................................... (15,000) 3.50
October, 1997.................................................................. (9,042) 3.50, .03217
November, 1997................................................................. (1,500) 3.50
December, 1997................................................................. (23,000) 3.50
Cancellations: July 1997......................................................... (15,000) 7.00
----------- -------------------
Balance at December 31, 1997..................................................... 691,324 $ .03217--7.38
----------- -------------------
</TABLE>
48
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
NUMBER OF EXERCISE PRICE
GRANT/EXERCISE DATE SHARES PER SHARE
- --------------------------------------------------------------------------------- ----------- -------------------
<S> <C> <C>
Grants:
January, 1998.................................................................. 400,000 $ 4.75
April, 1998.................................................................... 20,000 3.75
July, 1998..................................................................... 37,000 3.875
September, 1998................................................................ 100,000 2.25
Exercises:
December, 1998................................................................. (22,500) $ 3.50-4.9375
Cancellations:
April, 1998.................................................................... (50,000) 7.00
----------- -------------------
Balance at December 31, 1998..................................................... 1,175,824 $ 2.25--$7.00
----------- -------------------
----------- -------------------
</TABLE>
Options eligible for exercise on December 31, 1993 included 1,212,302
options at an exercise price of $.0002145 and 248,676 options at an exercise
price of $.03217. Options eligible for exercise on December 31, 1994 included
24,866 options at an exercise price of $.03217. Options eligible for exercise on
December 31, 1995 included 24,866 options at an exercise price of $.03217 and
518,000 options at an exercise price of $3.50. Options eligible for exercise on
December 31, 1996 included 14,866 at an exercise price of $.03217 and 444,000
options at an exercise price of $3.50. Options eligible for exercise on December
31, 1997 included 9,324 at an exercise price of $.03217, 394,000 options at an
exercise price of $3.50, 15,000 options at an exercise price of $6.00, 124,500
options at an exercise price of $7.00, and 1000 options at an exercise price of
$7.375. Options eligible for exercise on December 31, 1998 include 9,324 options
at an exercise price of $0.03217, 374,000 options at an exercise price of $3.50,
2500 options at an exercise price of $4,875, 30,000 options at an exercise price
of $6.00, 197,000 options at an exercise price of $7.00 and 1000 options at an
exercise price of $7.375.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for the option grants in 1996, 1997 and 1998 respectively:
risk-free interest rates of 6.45 percent, 6.58 percent and 5.50 percent;
expected dividend yields of 0.00 percent; expected life of 5 years; expected
volatility of 76.21 percent, 79.93 percent and 89.82 percent.
5. FEDERAL INCOME TAXES:
From inception through October 11, 1995, the Company operated as an S
Corporation for income tax purposes. Losses incurred during this period are
reported on the stockholders' tax return, and are not available to the Company
as a net operating loss carryforward.
On October 11, 1995, the Company voluntarily terminated its S Corporation
election. Since that time, losses incurred represent net operating loss
carryforwards which can be used to offset future taxable income. Total net
operating loss carryforwards were approximately $5,330,000 and approximately
$8,582,000 as of December 31, 1997 and 1998, respectively. Additionally, the
Company has general business credit carry forwards of approximately $128,000. In
accordance with the provisions of Statement of Financial Accounting Standard No.
109, a 100% valuation allowance had been established on the net
49
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. FEDERAL INCOME TAXES: (CONTINUED)
operating loss tax asset due to the uncertainty of its realization as of
December 31, 1997. Based on subsequent events which are discussed further in
footnote 10, the valuation allowance was reduced and the tax benefit related to
a portion of the general business credits and net operating loss carry forwards
was recognized as of December 31, 1998.
6. COMMITMENTS:
LICENSE AND RESEARCH AGREEMENTS
From time to time the Company enters into license and research agreements
with third parties. At December 31, 1998, the Company had five agreements in
effect as described below.
NATIONAL CANCER INSTITUTE
The Company entered into a CRADA with NCI. Pursuant to the agreement, the
Company committed to commercialize certain products received from NCI. The
Company agreed to provide product to support NCI sponsored clinical trials and
use its best efforts to file an NDA. NCI agreed to collaborate on the clinical
development of the products and to provide access to the data necessary to
obtain pharmaceutical regulatory approval.
During the years ended December 31, 1998, 1997 and 1996, the Company paid
approximately $0, $102,000 and $0, respectively, for product used in clinical
trials. The Company is committed to pay NCI $120,000 per year for reasonable and
necessary expenses incurred by NCI in carrying out NCI's responsibilities under
the CRADA. During 1998, 1997 and 1996, the Company expensed, as research and
development costs, the $120,000 payable to NCI for these expenses. NCI was
required to provide the Company an accounting of the use of funds. Any amounts
not expended at the end of the agreement were refundable to the Company. All
amounts were expended pursuant to the CRADA.
The CRADA expired on September 13, 1998. The Company then entered into a
Clinical Trials Agreement ("CTA") with the NCI. The CTA covers the same research
that were the subject of the NCI CRADA. The CTA provides for collaboration on
the clinical development of the products and access to clinical data necessary
for future regulatory approval. The Company has no further financial obligations
to NCI other than an agreement to provide supplies of test product for the
covered clinical protocols.
U.S. FOOD AND DRUG ADMINISTRATION
In 1997 the Company entered into a CRADA with the FDA. Pursuant to the
CRADA, the Company committed to commercialize the IL-13 chimeric protein product
which it licensed from the NIH and FDA. The FDA agreed to collaborate on the
clinical development and commercialization of the licensed product.
The Company is committed to pay $100,000 per year for the reasonable and
necessary expenses incurred by the FDA in carrying out the FDA's
responsibilities under the CRADA. The CRADA has a term of four years. During
1998 and 1997, the Company expensed $100,000 per year as research and
development costs. The CRADA will expire on August 27, 2001.
50
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. COMMITMENTS: (CONTINUED)
NATIONAL INSTITUTE OF HEALTH
The Company entered into an exclusive worldwide licensing agreement with the
NIH and the FDA to develop and commercialize an IL-13 chimeric protein therapy.
The agreement required a $75,000 non-refundable license issue payment and
minimum annual royalty payments of $10,000 which increases to $25,000 after the
first commercial sale. The agreement further provided for milestone payments and
royalties based on future product sales. The Company is required to pay the
costs of filing and maintaining product patents on the licensed products. The
agreement shall extend to the expiration of the last to expire of the patents on
the licensed products, if not terminated earlier. The agreement may be
terminated by mutual consent of NIH and the Company. Either party may terminate
if the other party breaches a material term or condition and such breach is not
cured within a certain period of time. Also, either Party may unilaterally
terminate by giving advanced notice. During 1998 and 1997, the Company expensed
approximately $117,000 and $10,000 respectively on research and development
costs.
BIOCHEM PHARMA
The Company entered into a collaboration agreement with BioChem
Therapeutics, Inc., the wholly owned subsidiary of BioChem Pharma, under which
BioChem will have an exclusive license to develop, market and distribute
broxuridine in Canada. The agreement required BioChem to make an initial
non-refundable up-front payment of $550,000 and subsequent milestone-based
payments. The Company and BioChem will share product revenue from any future
sales of broxuridine in Canada.
PHARMACIA AND UPJOHN
Subsequent to year end, the Company entered into a Licensing Agreement on
February 19, 1999 with Pharmacia and Upjohn to license LEP and LED worldwide.
The Company received certain upfront and milestone payment opportunities and
royalties on sales outside the United States and co-promotion profit splits on
sales within the United States. The Company also has the option to license two
additional products in its liposomal drug delivery platform from the Pharmacia
and Upjohn product portfolio.
GEORGETOWN UNIVERSITY
The Company entered into two license and research agreements with Georgetown
whereby the Company obtained an exclusive worldwide license to use certain
technologies. In exchange for the grant of these exclusive licenses, the Company
will pay Georgetown, beginning with the first commercial sale of a product
incorporating the licensed technologies, a royalty on net sales by the Company
of products incorporating any of such technologies. The royalty will be payable
for the life of the related patents.
During the years ended December 31, 1998, 1997 and 1996, the Company paid
and expensed approximately $123,000, $247,000 and $204,000 respectively,
pursuant to the license and research agreements.
OTHER
The Company entered into consulting arrangements with members of its
Scientific Advisory Board who are also employed on a full-time basis by academic
or research institutions. Since inception through
51
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. COMMITMENTS: (CONTINUED)
December 31, 1998, members of the Scientific Advisory Board were issued options
(see Note 4) to purchase an aggregate 68,324 shares of Company stock at the fair
market value at the date of grant. Additionally, the Scientific Advisory Board
members received aggregate payments of approximately $88,000 since the inception
of these consulting arrangements for work performed and expenses incurred
through December 31, 1998.
The Company is obligated for rental payments under a sublease arrangement
with OptionCare, Inc. for office space in Bannockburn, Illinois. Until moving to
the Bannockburn location in November of 1997, the Company occupied office space
in Lake Forest, Illinois. This space was provided as part of a consulting
agreement with EJ Financial. (See Note 8). This sublease expired on November 30,
1998. The Company continues to sublease the same space on comparable terms under
a month to month lease.
7. CONTINGENCIES
The pharmaceutical industry has traditionally experienced difficulty in
maintaining product liability insurance coverage at desired levels. To date, no
significant product liability suit has ever been filed against the Company.
However, if a suit were filed and a judgment entered against the Company that
significantly exceeded the policy limits, it could have a material adverse
effect upon the Company's operations and financial condition.
Currently, the Company is not a party to any litigation or other legal
proceedings.
8. TRANSACTIONS WITH RELATED PARTIES
The Company receives management services from EJ Financial Enterprises, Inc.
("EJ Financial"), a healthcare consulting and investment firm in which Dr.
Kapoor is the principal stockholder. From inception through June 30, 1994, EJ
Financial charged the Company $25,000 per year for services provided plus actual
expenses incurred. Through June 30, 1994, no payment for these services was
made, but rather was treated as additional capital contributions by Dr. Kapoor
in the accompanying statements of stockholders' equity (deficit). Effective July
1, 1994, EJ Financial increased its charge for management services provided to
$125,000 per year plus actual expenses. The agreement reflected an increased
need for technical support in the areas of research and development and
operations. Charges to the Company are based on actual time spent by EJ
Financial personnel on the Company's affairs. Management believes that the cost
for management services allocated to the Company represents the cost of the
services provided. From inception through December 31, 1998, the Company
expensed approximately $562,900 for management services and $266,800 as
reimbursement of actual expenses incurred by EJ Financial that directly related
to the Company.
The Company subleases office space from Option Care Inc., a home infusion
company in which Dr. Kapoor, the Company's Chairman, is a major stockholder.
From inception through December 31, 1998, the Company expensed approximately
$38,700 for rent under the Option Care subleases.
From June 1990 through April 1994, the Company financed its operations by
borrowing under a loan agreement with Dr. Kapoor, a principal shareholder. No
payments of interest or principal were made during this period. In January 1996,
in accordance with the agreement between the principal stockholder and the
Company, with the completion of the initial public offering, the principal
stockholder converted
52
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
the outstanding loan balance of $1,500,000 plus accrued interest through
November 30, 1995 of $523,385 into shares of the Company's common stock and
common stock purchase warrants at a per share conversion price equal to the
offering price, $3.525 per share, $.10 per warrant. The Company issued 574,008
shares and 143,502 warrants.
From October, 1998 through February, 1999 the Company had a $3,000,000 line
of credit in place with the John N. Kapoor Trust dtd 9/20/89, an entity
affiliated with the Company's Chairman. The Company borrowed $250,000 on the
line of credit on January 8, 1999. The $250,000 plus all accrued interest was
repaid on January 29, 1999. The line of credit terminated upon the signing of
the licensing agreement on February 19, 1999 (See Note 10).
The Company's Chief Scientific Officer, Dr. Aquilur Rahman, was employed on
a full-time basis by Georgetown until joining the Company in March 1996. As was
previously mentioned, Georgetown and the Company are parties to license and
sponsored research agreements for product research and development (see Note 6).
During 1998, 1997 and 1996, the Company expensed approximately $123,000,
$247,000 and $204,000 related to work performed and expenses incurred by
Georgetown. Since inception through December 31, 1998, the Company has expensed
approximately $2,119,000 under the agreements. Additionally, Dr. Rahman received
options in June 1990 (See Note 4) to purchase 932,540 shares of Company stock at
the fair market value on the date of the grant of the options.
On July 16, 1997, the Company loaned $50,000 to Dr. Rahman pursuant to a
promissory note. The note accrued interest at a rate of 9%. The principal
together with accrued interest of $3,255 was repaid on April 6, 1998.
Prior to February 1996, the Company's former President and Chief Executive
Officer ("CEO"), William C. Govier, was a consultant to the Company on clinical
trials and NDA filing matters, both as an individual and as a consultant with
Aegis Technology, Inc. ("Aegis"), an entity co-founded by Govier. Dr. Govier
retired from the Company on January 16, 1998. As the Company's President and
CEO, Govier received options in December 1993, to purchase 233,134 shares of
Company stock at the fair market value on the date of grant, which were later
fully exercised (See Note 4). His colleague and co-founder of Aegis, Gail
Salzberg, also received options in December 1993 (see Note 4) to purchase 15,542
shares of Company stock at the fair market value on the date of grant, of which
7,770 options were 100% vested and 7,772 options vested upon future performance
of services. The Company expensed approximately $1,095,800 since inception
through December 31, 1998, related to work performed and expenses incurred by
Govier, his colleague and Aegis. During 1998, 1997 and 1996, the Company
expensed approximately $232,300, $262,500 and $159,500 respectively, related to
these arrangements.
9. STOCKHOLDERS' EQUITY
In January 1995, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock to 15,000,000 shares.
In October 1995, the Company amended its Certificate of Incorporation to convert
each 1.28681 shares of outstanding Common Stock into one share of Common Stock
and to restate the par value of the Common Stock from $0.000333 per share to
$0.000429 per share. The reverse stock split has been reflected retroactively in
these financial statements for all periods presented.
53
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
9. STOCKHOLDERS' EQUITY (CONTINUED)
In January 1996, the Company completed a public offering of newly issued
1,350,000 shares of common stock and 675,000 warrants, for proceeds of
approximately $8,585,000 net of expenses. On March 8, 1996 the Company issued
36,130 shares of common stock and 18,565 warrants related to the underwriter's
over-allotment option for proceeds of approximately $267,000, net of expenses.
Additionally, the Company issued 574,008 shares and 143,502 warrants upon
conversion of its debt (see note 3). Since July 25, 1997, the warrants have been
subject to redemption at $0.01 per warrant on thirty (30) days prior written
notice to the warrant holders. However, the warrants can only be redeemed if the
average closing price of the Company's stock as reported on AMEX equals or
exceeds $5.60 per share for twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. Each warrant can be converted into two shares of
common stock at $4.90 per share.
In connection with the public offering, the Company issued 135,000
Representative's warrants to the underwriter. The warrants can be converted into
270,000 shares of common stock at $4.90 per share and/or 67,500 underlying
warrants at $0.14 per warrant. The underlying warrants in turn can be converted
into 135,000 shares of common stock at $6.86 per share.
On August 14, 1996, the Company's Board of Directors declared a two-for-one
stock split of issued and outstanding Common Stock for stockholders of record as
of the close of business on August 26, 1996. Accordingly, all numbers of common
shares and per share data have been restated to reflect the stock split. The par
value of common stock has been adjusted from $0.000429 per share to $0.0002145
per share.
10. SUBSEQUENT EVENTS
PHARMACIA AND UPJOHN LICENSE AGREEMENT
On February 19, 1999, the Company entered into an exclusive world wide
license agreement with Pharmacia and Upjohn Company ("PNU"). Pursuant to the
agreement, the Company granted PNU an exclusive worldwide license to develop,
use, manufacture, distribute, market, and sell the Company's Liposomal
Encapsulated Doxorubicin ("LED") and Liposomal Encapsulated Paclitaxel ("LEP")
products for all approved indications. All of the development costs, clinical
and pre-clinical, regulatory and manufacturing scale up expenses for LED and LEP
incurred after the date of the agreement shall be borne by PNU.
The Company received a nonrefundable license fee upon signing the agreement.
Upon the transfer of the U.S. Investigational New Drug ("IND") applications for
LED and LEP to PNU, PNU shall purchase $8,000,000 of the Company's newly issued
common stock. The share price shall be equal to 110% of the average closing
price of the Company's Common Stock for the 60 day period preceding the PNU
purchase date. The Company shall receive milestone payments upon the completion
of each phase of clinical development and upon regulatory approval for both LED
and LEP.
Beginning with the first commercial sale of LED and/or LEP, the Company
shall receive a royalty, based on a percentage of net product sales, for a
period of ten years. The Company may elect up to 90 days prior to the NDA filing
of each product, to forgo royalties on product sales in the United States and
instead receive a co-promotion profit split on those sales. If the co-promotion
election is made, the
54
<PAGE>
NEOPHARM, INC.
(A DELAWARE CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. SUBSEQUENT EVENTS (CONTINUED)
Company will be required to reimburse PNU for a portion of the development costs
for LEP and/or LED respectively.
The agreement may be terminated by the Company at any time in the event of a
continuing material breach by PNU. PNU may terminate the agreement at any time
without penalty; however, all amounts paid to the Company prior to the date of
termination would be non-refundable. Further, PNU must transfer back to the
Company all rights to LEP and LED upon termination of the agreement.
AMENDMENT OF GEORGETOWN AGREEMENTS
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 (See Note 6). 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 PNU agreement.
NATIONAL INSTITUTE OF HEALTH
On March 5, 1999, the Company signed and forwarded to the NIH an exclusive
worldwide licensing Agreement with the NIH to develop and commercialize a
Mesothelium Antigen Therapy (Mesothelin Mab) and is awaiting confirmation from
the NIH indicating their acceptance of the agreement. The agreement requires a
$75,000 non-refundable license issue payment and a minimum annual royalty
payment of $20,000 per year beginning January 1, 2001. The agreement further
provides for milestone payments and royalties based on future product sales. The
Company is required to pay the costs of filing and maintaining product patents
on the licensed products. The agreement, once it is executed by the NIH, shall
extend to the expiration of the last to expire of the patents on the licensed
products, if not terminated earlier. The agreement may be terminated by mutual
consent of NIH and the Company. Either party may terminate if the other party
breaches a material term or condition and such breach is not cured within a
certain period of time. Also, each party may unilaterally terminate by giving
advanced notice.
55
<PAGE>
Exhibit 10.11
FEDERAL TECHNOLOGY TRANSFER ACT
FDA/CBER COOPERATIVE RESEARCH & DEVELOPMENT AGREEMENT
1. SUMMARY OF PROPOSED AGREEMENT WITH NEOPHARM, INC.
Laboratory: Center for Biologics Evaluation and Research Project
Title: Development and Commercialization of
Interleukin-13 Pseudomonas Exotoxin as anticancer
agent Project Description: SEE TAB 1 - RESEARCH PLAN
FDA Project Officer: RAJ K. PURI, M.D., PH.D.
Proposed Effective Dates From: August1997 To: August 2001
<TABLE>
<CAPTION>
RESOURCE SUMMARY: $ ESTIMATED # ESTIMATED ESTIMATED
DESIGNATED FTES EQUIPMENT MATERIALS
<S> <C> <C> <C> <C>
FDA 0 0.05 ($45,000/yr)
Collaborator $100,000/yr 0.10
Total $400,000 0.15 ($180,000)
</TABLE>
2. REVIEWS BY FDA ORGANIZATIONS - TAB 2
A. Possible Organizational Conflict -- Revisions Requested: None
B. Comments on Individual Conflict of Interest: DEPI AND CBER -
SEE TAB 3
3. CENTER ACTION IN RESPONSE TO REVIEWS
[ ] Summary of Comments
[X] No Revisions Made To Agreement
4. FDA REVIEW BOARD RECOMMENDATION TO THE COMMISSIONER
[X] Accept [ ] Disapprove [ ] Modify (Explanation Attached)
/s/ ELIZABETH D. JACOBSON 8/6/97
Review Board Chairperson Date
5. LEAD DEPUTY COMMISSIONER'S DECISION
[ ] Accepted [ ] Disapproved [ ] Modification(s) (Explanation
Attached)
/s/ Masira 8/12/97
Lead Deputy Commissioner of Food and Drugs Date
<PAGE>
[LOGO] DEPARTMENT OF HEALTH & HUMAN SERVICES PUBLIC HEALTH SERVICE
FOOD AND DRUG ADMINISTRATION
ROCKVILLE MD 20857
[STAMPED AUG 6 1997]
NOTE TO: Lead Deputy Commissioner
THROUGH: Executive Secretariat on 8/7/97
SUBJECT: Proposed Cooperative Research and Development
Agreements under the Federal Technology Transfer
Act of 1986 -- ACTION
During its August 4, 1997 meeting, the FDA CRADA Review Board
considered one proposed Cooperative Research and Development Agreement
(CRADA). The proposed collaboration is between
CBER and Neopharm, Inc. to "Develop and Commercialize
Interleukin-13 Pseudomonas Exotoxin as Anticancer
Agent."
The CRADA proposal has been reviewed by other FDA Centers for
organizational conflict of interest; by the Division of Ethics and
Program Integrity for any individual and organizational conflict of
interest, and by other offices for any issues which might need
resolution. The reviews were favorable and all issues that were raised
have been addressed.
The Board then conducted its review and recommends your acceptance of
this CRADA. An Executive Summary is attached. Please indicate your
decision and sign the Summary. Under the Federal Technology Transfer
Act, Agencies are required to make their decision within 30 calendar
days or, in this case, by September 4, 1997.
Please let me know if I can provide anything further on this.
/s/ ELIZABETH D. JACOBSON
Elizabeth D. Jacobson, Ph.D.
Chairperson,
FDA CRADA Review Board
Attachment
Executive Summary and FDA CRADA 26-97
<PAGE>
APPENDIX B
RESEARCH PLAN
TITLE OF CRADA: Interleukin-13>Pseudomonas exotoxin as a anticancer agent.
FDA PRINCIPAL INVESTIGATOR: Raj K. Puri, M.D., Ph. D.
COLLABORATOR PRINCIPAL INVESTIGATOR: Aquilur Rahman, Ph.D., Chief Scientific
Officer, NeoPharm, Inc. Lakeforest, IL
TERM OF CRADA: Four (4) years.
CONFLICTS OF INTEREST INFORMATION: Attach completed "Conflict of Interest and
Fair Access Statement." Describe any relevant past, present, or contemplated
relationships between the FDA Principal Investigator and his/her Laboratory and
the Collaborator in sufficient detail to permit reviewers of this CRADA to
determine whether or not any conflicts of interest exist:
See Attached
The Research Plan which follows this page should be concise but of sufficient
detail to permit reviewers of this CRADA to evaluate the scientific merit of the
proposed collaboration. The RP should explain the scientific importance of the
collaboration and the research goals of FDA and the Collaborator. The respective
contributions in terms of expertise and/or research materials of FDA and, the
Collaborator should be summarized Initial and subsequent projects contemplated
under the RP, and the time periods estimated for their completion, should be
described, and pertinent methodological considerations summarized. Pertinent
literature references may be cited and additional relevant information included.
Include additional pages to identify the Principal Investigators of all other
Parties to this CRADA.
<PAGE>
APPENDIX B (CRADA APPLICATION):
TITLE: Interleukin-13-Pseudomonas exotoxin as an anticancer agent.
FDA PRINCIPAL INVESTIGATOR (PI): Raj K. Puri, M.D., Ph.D., LMTB, DCGT, OTRR,
HFM-530, Tel.: 82 7-0471
COLLABORATOR PRINCIPAL INVESTIGATOR: Aquilur Rahman, Ph.D., Chief Scientific
Officer and Member, Board of Directors, NeoPharm, Inc. 225 east Deerpath, Suite
250, Lake Forest, IL 60045; Tel: 708-295-8678
THE TERM OF CRADA: 4 Years
RESEARCH PLAN:
1. GOALS OF THIS CRADA: a) To investigate structure, function, significance, and
biology of interleukin-13 (IL-13) receptor on human malignancy.
b) To investigate the mechanism of cytotoxicity of IL-13-Pseudomonas exotoxin
and targeting of IL-13 receptors in vitro and in vivo to human cancer.
c) To evaluate the clinical effectiveness of IL13-PE in cancer patients.
SCIENTIFIC IMPORTANCE:
IL-13 receptors are expressed on solid human cancer cells at uniquely
high concentration and these cancer cells are killed by IL13-toxin at uniquely
low concentration of an il-13 fusion toxin. This project is important
scientifically to investigate the structure, function and significance of IL-13
receptor expression on cancer cells and compare how these receptors are
different from those expressed on normal immune cells. These studies will
provide insight for effective targeting of IL-13-toxin in vivo for the treatment
of human cancer.
2. DETAILED DESCRIPTION OF THE RESEARCH PLAN: In pursuing FDA mission related
regulator research activities to understand the mechanism of the disease and
safety of biologics, we have discovered that human renal cell carcinoma,
glioblastoma, AIDS-related Kaposi's sarcoma and adenocarcinoma express large
numbers of interleukin-13 receptors. IL-13 is a pleiotropic immune regulatory
cytokine and functions through its specific cell surface receptors. Consistent
with its biological effect, we have demonstrated that IL-13 receptors are also
expressed in normal immune cells such as B cells and monocytes but in very low
numbers. The significance of the expression of large numbers of these receptors
on cancer cell lines is not known.
We have exploited the knowledge of the expression of large numbers of
IL-13 receptors to target these with a cytotoxic agent. In this effort, we have
producted a novel chimeric protein composed of IL-13 and a mutated form of a
bacterial toxin, Pseudomonas exotoxin (PE38). This chimeric toxin was produced
by fusing a gene for IL-13 to PE38. This plasmid was expressed in E. coli and
large amounts of this protein was purified to >95% purity by column
chromatography. By utilizing IL-13-PE38 we found that IL-13 receptor positive
cancer cells were killed effectively in a concentration dependent manner as
determined by the inhibition of protein synthesis. The inhibitio of protein
synthesis collaborated with the cell death as assessed by cell viability or
clonogenic
<PAGE>
asays. Normal resting or activated human T lymphocytes, EBV-immortalized B
cells, promonocytic cell lines, human umbilical vein derived endothelial cells,
bone marrow cells, resting and activated bone marrow precursor CD34+ cells were
not killed by this toxin. These data were consistent with no or low level
expression of IL-13 receptors on these cells. The cell killing activity of IL
13-toxin was specific and receptor number dependent. These observations were
made primarily using cultured cell lines and some primary cell cultures. These
observations are exciting and have important clinical implications indicating
potential for the use of IL 13-toxin for the treatment of human solid
malignancies.
Above preliminary results have raised numerous questions regarding the
biology of human cancer cell and potential of targeting human cancers in vivo.
Further studies are needed to address important issues at this time of the
technology development. Some of the studies are listed below:
1. Whether IL-13 receptors are expressed on other solid and hematologic
mailgnancies?
2. Whether IL-13 receptors are expressed in situ and how prevalent the
expression of IL-13 receptors on human cancer is?
3. Whether the expression of IL-13 receptors is homogenous i all cells in a
tumor and whether metastatic nodules express KL-13 receptors more abundantly
than primary tumors?
4. The structure of IL-13 receptors in cancer cells has been briefly examined in
our laboratory. Additional studies are needed to examine the structure of IL-13
receptors on cancer cells and compare it with those expressed on immune cells.
5. The significance of IL-13 receptors expression on tumor cells needs to be
assessed. Are these receptors functional? The preliminary data on human renal
cell carcinomas indicates that these receptors are functional because IL-13
inhibited the in vitro growth of these cells and up regulated adhesion molecule,
ICAM-1.
6. Whether IL-13 utilizes a unique signal transduction pathway in cancer cells?
7. Whether IL-13 receptors are involved in oncogenesis process or IL-13
receptors act like an oncogene or related to an oncogene. Whether gene for IL-13
receptors has rearranged and mutated in cancer cells?
8. Whether all IL-13 receptors bearing cancer cells can be targeted and killed
with IL-13-toxin?
9. We have demonstrated in vitro activity of IL-13-toxin against various cancer
cell lines. It needs to be determined whether human tumor xenograft in
immunodeficient animals can be cured? Preliminary data indicate that IL 13-toxin
has substantial antitumor activity against brain tumors.
10. Whether IL 13-toxin is toxic to immunodeficient or immunocompetent rodents
or nonhuman primates.
11. Can one encapsulate this toxin in liposomes to target only cancers and thus
avoid nonspecific toxicity of the host if any?
12. Whether IL 13-toxin is cytotoxic to cancer cells which express multidrug
resistance
<PAGE>
(MDR) gene or gene products and these cancers are refractory to conventional
chemotherapeutics?
13. What is the clinical efficacy of IL 13-PE38QQR in cancer patients? Whether
IL 13-toxin is effective against many types of solid human malignancy?
While research is ongoing in our laboratory to examine many aspects of
above listed studies' predominantly items one through 4,6 and eight, extensive
studies are needed to address items five through 12. Due to the limitation for
research funds and personnel all these studies cannot be performed expeditiously
as desired. In addition, all these studies require a large quantity of IL-13, IL
13-toxin and other reagents that could not be produced in our laboratory. These
reagents ae not commercially available or some of them are available such as
IL-13 but at prohibitively high cost. The collaborator is a biotechnology
Company and they appear to bear extensive expertise and have contractors
available who can manufacture these for preclinical studies. The collaborator
has extensive experience in targeting chemotherapeutics to cancer cells using
liposomes as well as overcoming multidrug resistance through liposomal modality
of treatment. The specific experience of the collaborator will provide unique
expertise to specifically target our biologic to cancer cells.
The detailed research plan is described by the collaborator.
3. RESPECTIVE CONTRIBUTIONS OF THE PARTIES:
a. PI will provide plasmid for IL 13-toxin paste and collaborator will purify
this material under cGMP conditions and provide purified protein in large
quantities.
b. The collaborator will perform preclinical toxicity experiments utilizing
IL-13-toxin in small animals.
c. PI will perform preclinical efficacy experiments in immunodeficient animals
utilizing various solid tumor models including brain tumors, AIDS-Kaposi's
sarcoma and Renal cell carcinoma.
d. The basic receptor biology, signal transduction and other experiments will be
performed in the laboratory of the PI.
e. The PI will perform experiments to examine the in situ expression of IL-13
receptors on many cancer samples using a monoclonal antibody by
immunohistochemistry or flow cytometric analysis.
f. The collaborator will perform all the clinical trial with the IL 13-PE38QQR
for the indication of human renal cell carcinoma, AIDS-Kaposi's sarcoma and
central nervous system malignancies.
TIME COMMITMENT:
FIRST YEAR: Investigation of the expression of IL-13 receptors on fresh cancer
tissues, production of various forms of IL 13-toxins, begin preclinical efficacy
experiments.
SECOND YEAR: Production of IL 13-toxin in large quantities, perform preclinical
safety experiments in small and large animals, efficacy experiments continued in
various models.
<PAGE>
Begin clinical trial. Perform IL-13 receptor expression experiments in patient
samples.
THIRD YEAR: Continue clinical trial, preparation of liposome encapsulated IL
13-toxin, preclinical in vitro data generation, in vitro efficacy evaluation,
and characterization of encapsulated liposomes.
FOURTH YEAR: Continue clinical trial and if Phase 1 is completed proceed to
Phase 2/three study, supportive studies continue, investigate targeting of MDR
cancer cells by IL 13-toxin in vitro and in vivo. Preclinical efficacy models to
be developed.
4. ABSTRACT OF RESEARCH PLAN: For the collaborator
5. RELATED CRADAS: PI has no CRADAS
6. RELATED MTAS: PI has none MTAs regarding this technology.
7. RELATED PATENT APPLICATIONS AND PATENTS: 1. US Patent application for IL-13
receptor specific chimeric proteins and uses thereof DHHS Ref. No E-266-94/0;
Date Filed: March 15, 1995. Patent number 5,614,191 Issued March 25, 1997.
2. INTERNATIONAL PATENT APPLICATION FOR IL-13 RECEPTOR SPECIFIC CHIMERIC
PROTEINS AND USES THEREOF; DATE FILED: March 5, 1996.
8. AVOIDANCE OF CONFLICT OF INTERESTS AND ASSURANCE OF FAIR ACCESS: Signed form
is enclosed for Ethics Branch for review and approval.
<PAGE>
APPENDIX C:
FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES:
The PI will hire a post-doctoral fellow from the funds provided by the
collaborator Company as indicated in the collaborator commitment letter
submitted to Dr. Goldman. This amount would be $100,000 per year. The
approximate direct and indirect cost for the fellow would be approximately
$55,000.00 dollars per year. The remaining amount ($45,000.00) will be used for
purchasing equipments, supplies, chemicals, animals, and radioactive materials
etc for these projects.
FDA CONTRIBUTION:
FTE PI TIME: 5%
FDA SUPPLIES: For this collaboration, it is
expected that most of the supplies will be
purchased from the funds provided by the
collaborator.
FDA EQUIPMENT: Most of the equipment and a
computer and printer for computational needs
for this project are currently available in
our laboratory. However, some equipment such
as cell harvester, Joan centrifuge, Inverted
phase microscope, Bausch and Lomb
microscope, dual chamber water bath, shaking
water bath and circulating water baths are
rented from the NIH rental services. We
expect to purchase the equipment from the
CRADA funds because the equipment will be
heavily used during the project.
<PAGE>
CONFIDENTIAL
EXHIBIT 10.12
PUBLIC HEALTH SERVICE
PATENT LICENSE AGREEMENT-EXCLUSIVE
COVER PAGE
For PHS internal use only:
Patent License Number: L-226-96/D
Serial Numbers of Licensed Patents: U.S. PAT. 5,614,191 AND
U.S. PAT. 4,892,827
Licensee: NEOPHARM, INC.
CRADA Number (if applicable): N/A
Additional Remarks: None
This Patent License Agreement, hereinafter referred to as THE "AGREEMENT,"
consists of this Cover Page, an attached AGREEMENT, a Signature Page, Appendix A
(List of Patent(s) or Patent Applications(s)), Appendix B (Fields of Use and
Territory), Appendix C (Royalties), Appendix D (Benchmarks), and Appendix E
(Commercial Development Plan). The Parties to this AGREEMENT are:
1) The National Institutes of Health ("NIH"), the Centers for Disease
Control and Prevention ("CDC"), or the Food and Drug Administration
("FDA"), hereinafter singly or collectively referred to as "PHS,"
agencies ("DHHS"); and
2) The person, corporation, or institution identified ABOVE AND/OR ON THE
Signature Page, having offices at the address indicated on the
Signature Page, hereinafter referred to as "Licensee."
<PAGE>
PHS PATENT LICENSE AGREEMENT--EXCLUSIVE
PHS and LICENSEE agree as follows:
1. BACKGROUND
1.01 In the course of conducting biomedical and behavioral
research, PHS investigators made inventions that may have
commercial applicability.
1.02 By assignment of rights from PHS employees and other
inventors, DHHS, on behalf of the United States
Government, owns intellectual property rights claimed in
any United States and foreign patent applications or
patents corresponding to the assigned inventions. DHHS
also owns any tangible embodiments of these inventions
actually reduced to practice by PHS.
1.03 The Assistant Secretary for Health of DHHS has delegated
to PHS the authority to enter into this AGREEMENT for the
licensing of rights to these inventions under 35 U.S.C.
Sections 200-212, the Federal Technology Transfer Act of
1986, 15 U.S.C. Section 3710a, and/or the regulations
governing the licensing of Government-owned inventions, 37
CFR Part 404.
1.04 PHS desires to transfer these inventions to the private
sector through commercialization licenses to facilitate
the commercial development of products and processes for
public use and benefit.
1.05 LICENSEE desires to acquire commercialization rights to
certain of these inventions in order to develop processes,
methods, or marketable products for public use and
benefit.
2. DEFINITIONS
2.01 "BACKGROUND PATENT RIGHTS" shall mean U.S. Patent No.
4,892,827.
2.02 "BENCHMARKS" mean the performance milestones that are set
forth in Appendix D.
2.03 "COMMERCIAL DEVELOPMENT PLAN" means the written
commercialization plan attached as Appendix E.
2.04 "FIRST COMMERCIAL SALE" means the initial transfer by or
on behalf of LICENSEE or its sublicensees of LICENSED
PRODUCTS or the initial practice of a LICENSED PROCESS by
or on behalf of LICENSEE or its sublicensees in exchange
for cash or some equivalent to which value can be assigned
for the purpose of determining NET SALES.
2.05 "GOVERNMENT" means the Government of the United States of
America.
2.06 "LICENSED FIELDS OF USE" means the fields of use
identified in Appendix B.
2.07 "LICENSED PATENT RIGHTS" means the fields of use
identified in Appendix B.
<PAGE>
a) U.S. patent applications and patents listed in
Appendix A as such, all divisions and
continuations of these applications, all
patents issuing from such applications,
divisions, and continuations, and any reissues,
reexaminations, and extensions of all such
patents;
b) to the extent the following contain one or more
claims directed to the invention or inventions
disclosed in a) above: i) continuations-in-part
of a) above; ii) all divisions and
continuations of these continuations-in-part;
iii) all patents issuing from such
continuations-in-part, divisions, and
continuations; and iv) any reissues,
reexaminations, AND EXTENSIONS OF ALL SUCH
PATENTS;
c) to the extent that the following contain one or
more claims directed to the invention or
inventions disclosed in a) above: all
counterpart foreign applications and patents to
a) and b) above, including those listed in
Appendix A.
Licensed Patent Rights shall not include b) or c) above to
the extent that they contain one or more claims directed
to new matter which is not the subject matter disclosed in
a) above.
2.08 "LICENSED PROCESS(ES)" means processes which, in the
course of being practiced would, in the absence of this
AGREEMENT, infringe one or more claims of the LICENSED
PATENT RIGHTS that have not been held invalid or
unenforceable by an unappealed or unappealable judgment of
a court of competent jurisdiction.
2.09 "LICENSED PRODUCT(S)" means tangible materials which, in
the course of manufacture, use, or sale would, in the
absence of this AGREEMENT, infringe one or more claims of
the LICENSED PATENT RIGHTS that have not been held invalid
or unenforceable by an unappealed or unappealable judgment
of a court of competent jurisdiction.
2.10 "LICENSED TERRITORY" means the geographical area
identified in Appendix B.
2.11 "NET SALES" means the total gross receipts for sales of
LICENSED PRODUCTS or practice of LICENSED PROCESSES by or
on behalf of Licensee or its sublicensees, and from
leasing, renting, or otherwise making LICENSED PRODUCTS
available to others without sale or other dispositions,
whether invoiced or not, less returns and allowances
actually granted, packing costs, insurance costs, freight
out, taxes or excise duties imposed on the transaction (if
separately invoiced), and wholesaler and cash discounts in
amounts customary in the trade. No deductions shall be
made for commissions paid to individuals, whether they be
with independent sales agencies or regularly employed by
LICENSEE, or sublicensees, and on its payroll, or for the
cost of collections.
2.12 "PRACTICAL APPLICATION" means to manufacture in the case
of a composition or product, to practice in the case of a
process or method, or to operate in the case of a machine
or system; and in each case, under such
<PAGE>
conditions as to establish that the invention is being
utilized and that its benefits are to the extent permitted
by law or GOVERNMENT regulations available to the public
on reasonable terms.
2.13 "RESEARCH LICENSE" means a nontransferable, nonexclusive
license to make and to use the LICENSED PRODUCTS OR
LICENSED PROCESSES as defined by the LICENSED PATENT
RIGHTS for purposes of research including human clinical
trials and not for purposes of commercial manufacture or
distribution or in lieu of purchase if LICENSED PRODUCTS
or LICENSED PROCESSES are marketed by LICENSEE.
3. GRANT OF RIGHTS
3.01 PHS hereby grants and LICENSEE accepts, subject to the
terms and conditions of this AGREEMENT, an exclusive
license under the LICENSED PATENT RIGHTS in the LICENSED
TERRITORY to make and have made, to use and have used, and
to sell and have sold any LICENSED PRODUCTS in the
LICENSED FIELDS OF USE and to practice and have practiced
any LICENSED PROCESSES in the LICENSED FIELDS OF USE.
3.02 PHS hereby grants and LICENSEE accepts, subject to the
terms and conditions of this AGREEMENT, a non-exclusive
license under the BACKGROUND PATENT RIGHTS in the LICENSED
TERRITORY to make and have made, to use and have used, and
to sell and have sold any LICENSED PRODUCTS in the
LICENSED FIELDS OF USE and to practice and have practiced
any LICENSED PROCESSES in the LICENSED FIELDS OF USE.
3.03 This AGREEMENT confers no license or rights by
implication, estoppel, or otherwise under any patent
applications or patents of PHS other than LICENSED PATENT
RIGHTS and BACKGROUND PATENT RIGHTS regardless of whether
such patents are dominant or subordinate to LICENSED
PATENT RIGHTS or BACKGROUND PATENT RIGHTS.
4. SUBLICENSING
4.01 Upon written approval by PHS which will be given within
thirty (30) days of a written request by LICENSEE, said
approval not to be unreasonably withheld, LICENSEE may
enter into sublicensing agreements under the LICENSED
PATENT RIGHTS.
4.02 LICENSEE agrees that any sublicenses granted by it shall
provide that the obligations to PHS of Paragraphs
5.01-5.04, 8.01, 10.01, 10.02, 12.05 and 13.07-13.09 of
this AGREEMENT shall be binding upon the sublicensee as if
it were a party to this AGREEMENT. LICENSEE further agrees
to attach copies of these Paragraphs to all sublicense
agreements.
4.03 Any sublicenses granted by LICENSEE shall provide for the
termination of the sublicense, or the conversion to a
license directly between such sublicensees and PHS, at the
option of the sublicensee, upon termination of this
AGREEMENT under Article 13. Such conversion is subject to
PHS approval and contingent upon acceptance by the
sublicensee of the remaining provisions of this AGREEMENT.
<PAGE>
4.04 LICENSEE agrees to forward to PHS a copy of each fully
executed sublicense agreement postmarked within thirty
(30) days of the execution of such agreement. To the
extent permitted by law, PHS agrees to maintain each such
sublicense agreement in confidence.
5. STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
5.01 PHS reserves on behalf of the GOVERNMENT an irrevocable,
nonexclusive, nontransferable, royalty-free license for
the practice of all inventions licensed under the LICENSED
PATENT RIGHTS throughout the world by or on behalf of the
GOVERNMENT and on behalf of any foreign government or
international organization pursuant to any existing or
future treaty or agreement to which the GOVERNMENT is a
signatory. Prior to the FIRST COMMERCIAL SALE, LICENSEE
agrees to provide PHS reasonable quantities of LICENSED
PRODUCTS or materials made through the LICENSED PROCESSES
for PHS research use including for human clinical trials
but not for purposes of commercial development,
manufacture or distribution.
5.02 LICENSEE agrees that products used or sold in the United
States embodying LICENSED PRODUCTS or produced through use
of LICENSED PROCESSES shall be manufactured substantially
in the United States, unless a written waiver is obtained
in advance from PHS.
5.03 LICENSEE acknowledges that PHS may enter into future
Cooperative Research and Development Agreements (CRADAs)
under the Federal Technology Transfer Act of 1986 that
relate to the subject matter of this AGREEMENT. LICENSEE
agrees not to unreasonably deny requests for a Research
License from such future collaborators with PHS when
acquiring such rights is necessary in order to make a
CRADA project feasible. LICENSEE may request an
opportunity to join as a party to the proposed CRADA.
5.04 In addition to the reserved license of Paragraph 5.01
above, PHS reserves the right to grant such nonexclusive
RESEARCH LICENSES directly or to require LICENSEE to grant
nonexclusive RESEARCH LICENSES on reasonable terms. The
purpose of this RESEARCH LICENSE is to encourage basic
research, whether conducted at an academic or corporate
facility. In order to safeguard the LICENSED PATENT
RIGHTS, however, PHS shall consult with LICENSEE before
granting to commercial entities a RESEARCH LICENSE or
providing to them research samples of the materials.
6. ROYALTIES AND REIMBURSEMENT
6.01 LICENSEE agrees to pay to PHS a noncreditable,
nonrefundable license issue royalty as set forth in
Appendix C within thirty (30) days from the date that this
AGREEMENT becomes effective.
6.02 LICENSEE agrees to pay to PHS a nonrefundable minimum
annual royalty as set forth in Appendix C. The minimum
annual royalty is due and payable on January 1 of each
calendar year and may be credited against any earned
royalties due for sales made in that year. The minimum
annual royalty due for the first calendar year of this
AGREEMENT may be prorated according to the fraction of the
calendar year remaining between the effective date of this
AGREEMENT and the next subsequent January 1.
<PAGE>
6.03 LICENSEE agrees to pay PHS earned royalties as set forth
in Appendix C.
6.04 LICENSEE agrees to pay PHS benchmark royalties as set
forth in Appendix C.
6.05 LICENSEE agrees to pay PHS sublicensing royalties as set
forth in Appendix C.
6.06 LICENSEE agrees to pay PHS assignment royalties as set
forth in Appendix C.
6.07 A claim of a patent or patent application licensed under
this AGREEMENT shall cease to fall within the LICENSED
PATENT RIGHTS or BACKGROUND PATENT RIGHTS for the purpose
of computing the minimum annual royalty and earned royalty
payments in any given country on the earliest of the dates
that a) the claim has been abandoned but not continued, b)
the patent expires or irrevocably lapses, or c) the claim
has been held to be invalid or unenforceable by an
unappealed or unappealable decision of a court of
competent jurisdiction or administrative agency.
6.08 No multiple royalties shall be payable because any
LICENSED PRODUCTS or LICENSED PROCESSES are covered by
more than one of the LICENSED PATENT RIGHTS.
6.09(a) Transfer of LICENSED PRODUCTS by LICENSEE to sublicensees
or an affiliated party made in other than an arm's-length
transaction for no further resale shall be attributed a
value which would have been received in an arm's-length
transaction of like quantity and quality of products sold
on or about the time of the transfer of LICENSED PRODUCTS
for the purpose of calculating NET SALES.
6.09(b) Transfer of LICENSED PRODUCTS by LICENSEE to sublicensees
or affiliated party for further resale shall have
attributed either a value which would have been received
in an arm's-length transaction based on sales of like
quantity and quality of products transferred on or about
the time of such transfer of LICENSED PRODUCTS or the
actual value received in a later arm's-length transaction,
whichever is greater, for purposes of calculating NET
SALES.
6.10(a) With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patent
applications and patents included within the LICENSED
PATENT RIGHTS incurred by PHS prior to the effective date
of this AGREEMENT, LICENSEE shall pay to PHS, as an
additional royalty, within sixty (60) days of PHS's
submission of a statement and request for payment to
LICENSEE, an amount equivalent to such patent expenses
previously incurred by PHS.
6.10(b) With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patents
included within the BACKGROUND PATENT RIGHTS incurred by
PHS prior to the effective date of this AGREEMENT,
LICENSEE shall pay to PHS, as an additional royalty,
within (60) days of PHS's submission of a statement and
request for
<PAGE>
payment an amount equivalent to three-thousand
three-hundred dollars ($3,300.00).
6.11 With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patent
applications and patents included within the LICENSED
PATENT RIGHTS incurred by PHS on or after the effective
date of this AGREEMENT, PHS, at its sole option, may
require LICENSEE:
(a) to pay PHS on an annual basis, within sixty (60) days
of PHS's submission of a statement and request for
payment, a royalty amount equivalent to all such patent
expenses incurred during the previous calendar year(s); or
(b) to pay such expenses directly to the law firm employed
by PHS to handle such functions. However, in such event,
PHS and not LICENSEE shall be the client of such law firm.
Under exceptional circumstances, LICENSEE may be given the
right to assume responsibility for the preparation,
filing, prosecution, or maintenance of any patent
application or patent included with the LICENSED PATENT
RIGHTS. In that event, LICENSEE shall directly pay the
attorneys or agents engaged to prepare, file, prosecute or
maintain such patent applications or patents and shall
provide to PHS copies of each invoice associated with such
services as well as documentation that such invoices have
been paid.
6.12 LICENSEE may elect to surrender its rights in any country
of the LICENSED TERRITORY under any LICENSED PATENT RIGHTS
upon sixty (60) days written notice to PHS and owe no
payment obligation under Article 6.10 (a) for
patent-related expenses incurred in that country after the
effective date of such written notice.
7. PATENT FILING, PROSECUTION, AND MAINTENANCE
7.01 Except as otherwise provided in this Article 7, PHS agrees
to take responsibility for, but to consult with, the
LICENSEE in the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents
included in the LICENSED PATENT RIGHTS and shall furnish
copies of relevant patent-related documents to LICENSEE.
7.02 Upon PHS's written request, LICENSEE shall assume the
responsibility for the preparation, filing, prosecution,
and maintenance of any and all patent applications or
patents included in the LICENSED PATENT RIGHTS and shall
on an ongoing basis promptly furnish copies of all
patent-related documents to PHS. In such event, LICENSEE
shall, subject to the prior approval of PHS, select
registered patent attorneys or patent agents to provide
such services on behalf of LICENSEE and PHS.PHS shall
provide appropriate powers of attorney and other documents
necessary to undertake such actions to the patent
attorneys or patent agents providing such services.
LICENSEE and its attorneys or agents shall consult with
PHS in all aspects of the preparation, filing, prosecution
and maintenance of patent applications and patents
included within the LICENSED PATENT RIGHTS and shall
provide PHS sufficient opportunity to comment on any
document that LICENSEE intends to file or to cause to
be filed with the relevant intellectual property or
patent office.
<PAGE>
7.03 At any time, PHS may provide LICENSEE with written notice
that PHS wishes to assume control of the preparation,
filing, prosecution, and maintenance of any and all patent
applications or patents included in the LICENSED PATENT
RIGHTS. If PHS elects to assume such responsibilities,
LICENSEE agrees to cooperate fully with PHS, its attorneys
and agents in the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents
included in the LICENSED PATENT RIGHTS and to provide PHS
with complete copies of any and all documents or other
materials that PHS deems necessary to undertake such
responsibilities. If PHS elects to assume control of the
preparation, filing, prosecution, and maintenance of any
and all patent applications or patents included in the
LICENSED PATENT RIGHTS for a reason other than LICENSEE'S
failure to perform under this AGREEMENT, PHS shall be
responsible for all costs associated with transferring
patent prosecution responsibilities to an attorney or
agent of PHS's choice.
7.04 Each party shall promptly inform the other as to all
matters that come to its attention that may affect the
preparation, filing, prosecution, or maintenance of the
LICENSED PATENT RIGHTS and permit each other to provide
comments and suggestions with respect to the preparation,
filing, and prosecution of LICENSED PATENT RIGHTS, which
comments and suggestions shall be considered by the other
party.
8. RECORD KEEPING
8.01 LICENSEE agrees to keep accurate and correct records of
LICENSED PRODUCTS made, used, or sold and LICENSED
PROCESSES practiced under this Agreement appropriate to
determine the amount of royalties due PHS. Such records
shall be retained for at least five (5) years following a
given reporting period. They shall be available during
normal business hours for inspection at the expense of PHS
by an accountant or other designated auditor selected by
PHS for the sole purpose of verifying reports and payments
hereunder. The accountant or auditor shall only disclose
to PHS information relating to the accuracy of reports and
payments made under this AGREEMENT. If an inspection shows
an underreporting or underpayment in excess of five
percent (5%) for any twelve (12) month period, then
LICENSEE shall reimburse PHS for the cost of the
inspection at the time Licensee pays the unreported
royalties, including any late charges as required by
Paragraph 9.08 of this AGREEMENT. All payments required
under this Paragraph shall be due within thirty (30) days
of the date PHS provides LICENSEE notice of the payment
due.
8.02 LICENSEE agrees to conduct an independent audit of sales
and royalties at least every two years if annual sales of
the LICENSED PRODUCT or LICENSED PROCESSES are over two
(2) million dollars. The audit may be conducted in
conjunction with the annual audit performed on behalf of
LICENSEE. The audit shall address, at a minimum, the
amount of gross sales by or on behalf of LICENSEE during
the audit period, the amount of funds owed to the
GOVERNMENT under this AGREEMENT, and whether the amount
<PAGE>
owed has been paid to the GOVERNMENT and is reflected in
the records of the LICENSEE. A report by the auditor shall
be submitted promptly to PHS on completion. LICENSEE shall
pay for the entire cost of the audit.
9. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS
9.01 Prior to signing this AGREEMENT, LICENSEE has provided to
PHS the COMMERCIAL DEVELOPMENT PLAN at Appendix F, under
which LICENSEE intends to bring the subject matter of the
LICENSED PATENT RIGHTS to the point of PRACTICAL
APPLICATION. This COMMERCIAL DEVELOPMENT PLAN is hereby
incorporated by reference into this Agreement. Based on
this plan, performance BENCHMARKS are determined as
specified in Appendix D.
9.02 LICENSEE shall provide written annual reports on its
product development progress or efforts to commercialize
under the COMMERCIAL DEVELOPMENT PLAN for each of the
LICENSED FIELDS OF USE within sixty (60) days after
December 31 of each calendar year. These progress reports
shall include, but not be limited to: progress on research
and development, status of applications for regulatory
approvals, manufacturing, sublicensing, marketing, and
sales during the preceding calendar year, as well as plans
for the present calendar year. PHS also encourages these
reports to include information on any of LICENSEE'S public
service activities that relate to the LICENSED PATENT
RIGHTS. If reported progress differs from that projected
in the COMMERCIAL DEVELOPMENT PLAN and BENCHMARKS,
LICENSEE shall explain the reasons for such differences.
In any such annual report, LICENSEE may propose amendments
to the COMMERCIAL DEVELOPMENT PLAN, acceptance of which by
PHS may not be denied unreasonably. LICENSEE agrees to
provide any additional information reasonably required by
PHS to evaluate LICENSEE'S performance under this
AGREEMENT. LICENSEE may amend the Benchmarks at any time
upon written consent by PHS. PHS shall not unreasonably
withhold approval of any request of LICENSEE to extend the
time periods of this schedule if such request is supported
by a reasonable showing by LICENSEE of diligence in its
performance under the COMMERCIAL DEVELOPMENT PLAN and
toward bringing the LICENSED PRODUCTS to the point of
practical application as defined in 37 CFR 404.3(d).
LICENSEE shall amend the COMMERCIAL DEVELOPMENT PLAN and
BENCHMARKS at the request of PHS to address any LICENSED
FIELDS OF USE not specifically addressed in the plan
originally submitted.
9.03 LICENSEE shall report to PHS the date of the FIRST
COMMERCIAL SALE in each country in the LICENSED TERRITORY
within thirty (30) days of such occurrence.
9.04 LICENSEE shall submit to PHS within sixty (60) days after
each calendar half-year ending June 30 and December 31 a
royalty report setting forth for the preceding half-year
period the amount of the LICENSED PRODUCTS sold or
LICENSED PROCESSES practiced by or on behalf of LICENSEE
in each country within the LICENSED TERRITORY, the NET
SALES, and the amount of royalty accordingly due. With
each such royalty report, LICENSEE shall submit payment of
the earned royalties due. If no earned royalties are due
to PHS for any reporting period, the written report shall
so state. The royalty report shall be certified as correct
by an authorized officer of LICENSEE and shall include a
detailed listing of all deductions made
<PAGE>
under Paragraph 2.11 to determine NET SALES made under
Article 6 to determine royalties due.
9.05 LICENSEE agrees to forward semi-annually to PHS a copy of
such reports received by LICENSEE from its sublicensees
during the preceding half-year period as shall be
pertinent to a royalty accounting to PHS by LICENSEE for
activities under the sublicense.
9.06 Royalties due under Article 6 shall be paid in U.S.
dollars. For conversion of foreign currency to U.S.
dollars, the conversion rate shall be the New York foreign
exchange rate quoted in The Wall Street Journal on the day
that the payment is due. All checks and bank drafts shall
be drawn on United States banks and shall be payable, as
appropriate, for FDA or NIH licenses to the National
Institutes of Health, P.O. Box 360120, Pittsburgh,
Pennsylvania 15251-6120. Any loss of exchange, value,
taxes, or other expenses incurred in the transfer or
conversion to U.S. dollars shall be paid entirely by
LICENSEE. The royalty report required by Paragraph 9.04 of
this AGREEMENT shall accompany each such payment and a
copy of such report shall also be mailed to PHS at its
address for notices indicated on the Signature Page of
this AGREEMENT.
9.07 LICENSEE shall be solely responsible for determining if
any tax on royalty income is owed outside the United
States and shall pay any such tax and be responsible for
all filings with appropriate agencies of foreign
governments. The taxes paid by LICENSEE on behalf of PHS
may be deducted from the earned royalty due under
paragraph 6.03.
9.08 Late charges will be assessed by PHS as additional
royalties on any overdue payments at a rate of one (1)
percent per month compounded monthly. The payment of such
late charges shall not prevent PHS from exercising any
other rights it may have as a consequence of the lateness
of any payment.
9.09 All plans and reports required by this Article 9 and
marked "confidential" by LICENSEE shall, to the extent
permitted by law, be treated by PHS as commercial and
financial information obtained from a person and as
privileged and confidential and any proposed disclosure of
such records by the PHS under the Freedom of Information
Act, 5 U.S.C. Section 552 shall be subject to the
predisclosure notification requirements of 45 CFR Section
5.65(d).
10. PERFORMANCE
10.01 LICENSEE shall use its reasonable best efforts to bring
the License Products and Licensed Processes to Practical
Application. "Reasonable best efforts" for the purposes of
this provision shall include adherence to the COMMERCIAL
DEVELOPMENT PLAN at Appendix F and performance of the
BENCHMARKS at Appendix D. The efforts of a sublicensee
shall be considered the efforts of LICENSEE.
10.02 Upon the FIRST COMMERCIAL SALE, until the expiration of
this Agreement, LICENSEE shall use its reasonable best
efforts to make LICENSED PRODUCTS
<PAGE>
and LICENSED PROCESSES reasonably accessible to the United
States public.
11. INFRINGEMENT AND PATENT ENFORCEMENT
11.01 PHS and LICENSEE agree to notify each other promptly of
each infringement or possible infringement of the LICENSED
PATENT RIGHTS, as well as any facts which may affect the
validity, scope, or enforceability of the LICENSED PATENT
RIGHTS of which either Party becomes aware.
11.02 Pursuant to this AGREEMENT and the provisions of Chapter
29 of title 35, United States Code, LICENSEE may a) bring
suit in its own name, at its own expense, and on its own
behalf for infringement of presumably valid claims in the
LICENSED PATENT RIGHTS; b) in any such suit, enjoin
infringement and collect for its use, damages, profits,
and awards of whatever nature recoverable for such
infringement; and c) settle any claim or suit for
infringement of the LICENSED PATENT RIGHTS provided,
however, that PHS and appropriate GOVERNMENT authorities
shall have the first right to take such actions. If
LICENSEE desires to initiate a suit for patent
infringement, LICENSEE shall notify PHS in writing. If PHS
does not notify LICENSEE of its intent to pursue legal
action within ninety (90) days, LICENSEE will be free to
initiate suit. PHS shall have a continuing right to
intervene in such suit. LICENSEE shall take no action to
compel the GOVERNMENT either to initiate or to join in any
such suit for patent infringement. LICENSEE may request
the GOVERNMENT to initiate or join in any such suit if
necessary to avoid dismissal of the suit. Should the
GOVERNMENT be made a party to any such suit, LICENSEE
shall reimburse the GOVERNMENT for any costs, expenses, or
fees which the GOVERNMENT incurs as a result of such
motion or other action, including any and all costs
incurred by the GOVERNMENT in opposing any such motion or
other action. In all cases, LICENSEE agrees to keep PHS
reasonably apprised of the status and progress of any
litigation. Before LICENSEE commences an infringement
action, LICENSEE shall notify PHS and give careful
consideration to the views of PHS and to any potential
effects of the litigation on the public health in deciding
whether to bring suit.
11.03 In the event that a declaratory judgment action alleging
invalidity or non-infringement of any of the LICENSED
PATENT RIGHTS shall be brought against LICENSEE or raised
by way of counterclaim or affirmative defense in an
infringement suit brought by LICENSEE under Paragraph
11.02, pursuant to this AGREEMENT and the provisions of
Chapter 29 of Title 35, United States Code or other
statutes, LICENSEE may a) defend the suit in its own name,
at its own expense, and on its own behalf for presumably
valid claims in the LICENSED PATENT RIGHTS; b) in any such
suit, ultimately to enjoin infringement and to collect for
its use, damages, profits, and awards of whatever nature
recoverable for such infringement; and c) settle any claim
or suit for declaratory judgment involving the LICENSED
PATENT Rights-provided, however, that PHS and appropriate
Government authorities shall have the first right to take
such actions and shall have a continuing right to
intervene in such suit. If PHS does not notify LICENSEE of
its intent to respond to the legal action within a
reasonable time, LICENSEE will be free to do so. Licensee
shall take no action to compel the GOVERNMENT either to
initiate or to join in any such declaratory judgment
action. LICENSEE may request the GOVERNMENT to
<PAGE>
initiate or to join any such suit if necessary to avoid
dismissal of the suit. Should the GOVERNMENT be made a
party to any such suit by motion or any other action of
LICENSEE, LICENSEE shall reimburse the GOVERNMENT for any
costs, expenses, or fees which the GOVERNMENT incurs as a
result of such motion or other action. If LICENSEE elects
not to defend against such declaratory judgment action,
PHS, at its option, may do so at its own expense. In all
cases, LICENSEE agrees to keep PHS reasonably apprised of
the status and progress of any litigation. Before LICENSEE
commences an infringement action, LICENSEE shall notify
PHS and give careful consideration to the views of PHS and
to any potential effects of the litigation on the public
health in deciding whether to bring suit.
11.04 In any action under Paragraphs 11.02 or 11.03, the
expenses including costs, fees, attorney fees, and
disbursements, shall be paid by LICENSEE. Up to
twenty-five percent (25%) of such expenses may be credited
against the royalties payable to PHS under Paragraph 6.03
under the LICENSED PATENT RIGHTS in the country in which
such a suit is filed. In the event that twenty-five
percent (25%) of such expenses exceed the amount of
royalties payable by LICENSEE in any calendar year, the
expenses in excess may be carried over as a credit on the
same basis into succeeding calendar years. A credit
against litigation expenses, however, may not reduce the
royalties due in any calendar year to less than the
minimum annual royalty. Any recovery made by LICENSEE,
through court judgment or settlement, first shall be
applied to reimburse PHS for royalties withheld as a
credit against litigation expenses and then to reimburse
LICENSEE for its litigation expense. Any remaining
recoveries shall be split with seventy-five (75%) going to
Licensee and twenty-five percent (25%) going to PHS.
11.05 PHS shall cooperate fully with LICENSEE in connection with
any action under Paragraphs 11.02 or 11.03. PHS agrees
promptly to provide access to all necessary documents and
to render reasonable assistance in response to a request
by LICENSEE.
12. NEGATION OF WARRANTIES AND INDEMNIFICATION
12.01 PHS offers no warranties other than those specified in
Article 1.
12.02 PHS does not warrant the validity of the LICENSED PATENT
RIGHTS and makes no representations whatsoever with regard
to the scope of the LICENSED PATENT RIGHTS, or that the
LICENSED PATENT RIGHTS may be exploited without infringing
other patents or other intellectual property rights of
third parties.
12.03 PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY
SUBJECT MATTER OR DEFINED BY THE CLAIMS OF THE LICENSED
PATENT RIGHTS.
12.04 PHS does not represent that it will commence legal actions
against third parties infringing the LICENSED PATENT
RIGHTS.
12.05 LICENSEE shall indemnify and hold PHS, its employees,
students, fellows, agents, and consultants harmless from
and against all liability, demands,
<PAGE>
damages, expenses, and losses, including but not limited
to death, personal injury, illness, or property damage in
connection with or arising out of a) the use by or on
behalf of LICENSEE, its sublicensees, directors,
employees, or third parties of any LICENSED PATENT RIGHTS,
or b) the design, manufacture, distribution, or use of any
LICENSED PRODUCTS, LICENSED PROCESSES or materials by
Licensee, or other products or processes developed in
connection with or arising out of the LICENSED PATENT
RIGHTS. LICENSEE agrees to maintain a liability insurance
program consistent with sound business practice.
13. TERM TERMINATION. AND MODIFICATION OF RIGHTS
13.01 This AGREEMENT is effective when signed by all parties and
shall extend to the expiration of the last to expire of
the LICENSED PATENT RIGHTS unless sooner terminated as
provided in this Article 13.
13.02 In the event that LICENSEE is in default in the
performance of any material obligations under this
AGREEMENT, including but not limited to the obligations
listed in Article 13.05, and if the default has not been
remedied within ninety (90) days after the date of notice
in writing of such default, PHS may terminate this
AGREEMENT by written notice.
13.03 In the event that LICENSEE becomes insolvent, files a
petition in bankruptcy, has such a petition filed against
it, determines to file a petition in bankruptcy, or
receives notice of a third party's intention to file an
involuntary petition in bankruptcy, LICENSEE shall
immediately notify PHS in writing.
13.04 LICENSEE shall have a unilateral right to terminate this
AGREEMENT and/or any licenses in any country by giving PHS
sixty (60) days written notice to that effect.
13.05 PHS shall specifically have the right to terminate or
modify, at its option, this AGREEMENT, if PHS determines
that the LICENSEE: 1) is not executing the COMMERCIAL
DEVELOPMENT PLAN submitted with its request for a license
and the LICENSEE cannot otherwise demonstrate to PHS's
satisfaction that the LICENSEE has taken, or can be
expected to take within a reasonable time, effective steps
to achieve practical application of the LICENSED PRODUCTS
or LICENSED PROCESSES; 2) has not achieved the Benchmarks
as may be modified under Paragraph 9.02; 3) has willfully
made a false statement of, or willfully omitted, a
material fact in the license application or in any report
required by the license agreement; 4) has committed a
material breach of a covenant or agreement contained in
the license; 5) is not keeping LICENSED PRODUCTS or
LICENSED PROCESSES reasonably available to the public
after commercial use commences; 6) cannot reasonably
satisfy unmet health and safety needs; or 7) cannot
reasonably justify a failure to comply with the domestic
production requirement of Paragraph 5.02 unless waived. In
making this determination, PHS will take into account the
normal course of such commercial development programs
conducted with sound and reasonable business practices and
judgment and the annual reports submitted by LICENSEE
under Paragraph 9.02. Prior to invoking this right, PHS
shall give written notice to LICENSEE providing LICENSEE
specific notice of,
<PAGE>
and a ninety (90) day opportunity to respond to, PHS's
concerns as to the previous items 1) to 7). If LICENSEE
fails to alleviate PHS's concerns as to the previous items
1) to 7) or fails to initiate corrective action to PHS's
satisfaction, PHS may terminate this AGREEMENT.
13.06 When the public health and safety so require, and after
written notice to LICENSEE providing LICENSEE a sixty (60)
day opportunity to respond, PHS shall have the right to
require LICENSEE to grant sublicenses to responsible
applicants, on resonable terms, in any Licensed Fields of
Use under the Licensed Patent Rights, unless LICENSEE can
reasonably demonstrate that the granting of the sublicense
would not materially increase the availability to the
public of the subject matter of the LICENSED PATENT
RIGHTS. PHS will not require the granting of a sublicense
unless the responsible applicant has first negotiated in
good faith with LICENSEE.
13.07 PHS reserves the right according to 35 U.S.C. Section
209(f)(4) to terminate or modify this AGREEMENT if it is
determined that such action is necessary to meet
requirements for public use specified by federal
regulations issued after the date of the license and such
requirements are not reasonably satisfied by LICENSEE.
13.08 Within thirty (30) days of receipt of written notice of
PHS's unilateral decision to modify or terminate this
Agreement, LICENSEE may, consistent with the provisions of
37 CFR 404.11, appeal the decision by written submission
to the designated PHS official. The decision of the
designated PHS official shall be the final agency
decision. LICENSEE may thereafter exercise any and all
administrative or judicial remedies that may be available.
13.09 Within ninety (90) days of termination of this AGREEMENT
under this Article 13 or expiration under Paragraph 3.02,
a final report shall be submitted by LICENSEE. Any royalty
payments, including those related to patent expense, due
to PHS shall become immediately due and payable upon
termination or expiration. If terminated under this
Article 13, sublicensees may elect to convert their
sublicenses to direct licenses with PHS pursuant to
Paragraph 4.03.
14. GENERAL PROVISIONS
14.01 Neither Party may waive or release any of its rights or
interests in this AGREEMENT except in writing. The failure
of the GOVERNMENT to assert a right hereunder or to insist
upon compliance with any term or condition of this
AGREEMENT shall not constitute a waiver of that right by
the GOVERNMENT or excuse a similar subsequent failure to
perform any such term or condition by LICENSEE.
14.02 This AGREEMENT constitutes the entire agreement between
the Parties relating to the subject matter of the LICENSED
PATENT RIGHTS, and all negotiations, representations,
agreements, and understandings are merged into,
extinguished by, and completely expressed by this
AGREEMENT.
14.03 The provisions of this AGREEMENT are severable, and in the
event that any
<PAGE>
provision of this AGREEMENT shall be determined to be
invalid or unenforceable under any controlling body of law
such determination shall not in any way affect the
validity or enforceability of the remaining provisions of
this AGREEMENT.
14.04 If either Party desires a modification to this AGREEMENT,
the Parties shall, upon reasonable notice of the proposed
modification by the Party desiring the change, confer in
good faith to determine the desirability of such
modification. No modification will be effecffve until a
written amendment is signed by the signatories to this
AGREEMENT or their designees.
14.05 The construction, validity, performance, and effect of
this AGREEMENT shall be governed by Federal law as applied
by the Federal courts in the District of Columbia.
14.06 All notices required or permitted by this AGREEMENT shall
be given by prepaid, first class, registered or certified
mail properly addressed to the other Party at the address
designated on the following Signature Page, or to such
other address as may be designated in writing by such
other Party, and shall be effective as of the date of the
postmark of such notice..
14.07 This AGREEMENT shall not be assigned by LICENSEE except a)
with the prior written consent of PHS, such consent not to
be withheld unreasonably; or b) as part of a sale or
transfer of substantially the entire business of LICENSEE
relating to operations which concern this Agreement.
LICENSEE shall notify PHS within ten (10) days of any
assignment of this Agreement by LICENSEE.
14.08 LICENSEE agrees in its use of any PHS-supplied materials
to comply with all applicable statutes, regulations, and
guidelines, including Public Health Service and National
Institutes of Health regulations and guidelines. LICENSEE
agrees not to use the materials for research involving
human subjects or clinical trials in the United States
without complying with 21 CFR Part 50 and 45 CFR Part 46.
Licensee agrees not to use the materials for research
involving human subjects or clinical trials outside of the
United States without notifying PHS, in writing, of such
research or trials and complying with the applicable
regulations of the appropriate national control
authorities.. Written notification to PHS of research
involving human subjects or clinical trials outside of the
United States shall be given no later than sixty (60) days
prior to commencement of such research or trials.
14.09 LICENSEE acknowledges that it is subject to and agrees to
abide by the United States laws and regulations (including
the Export Administration Act of 1979 and Arms Export
Control Act) controlling the export of technical data,
computer software, laboratory prototypes, biological
material, and other commodities. The transfer of such
items may require a license from the cognizant Agency of
the U.S. GOVERNMENT or written assurances by LICENSEE that
it shall not export such items to certain foreign
countries without prior approval of such agency. PHS
neither represents that a license is or is not required or
that, if required, it
<PAGE>
shall be issued.
14.10 LICENSEE agrees to mark the LICENSED PRODUCTS or their
packaging sold in the United States with all applicable
U.S. patent numbers and similarly to indicate "Patent
Pending" status. All LICENSED PRODUCTS manufactured in,
shipped to, or sold in other countries shall be marked in
such a manner as to preserve PHS patent rights in such
countries.
14.11 By entering into this AGREEMENT, PHS does not directly or
indirectly endorse any product or service provided, or to
be provided, by LICENSEE whether directly or indirectly
related to this Agreement. LICENSEE shall not state or
imply that this AGREEMENT is an endorsement by the
GOVERNMENT, PHS, any other GOVERNMENT organizational unit,
or any GOVERNMENT employee. Additionally, LICENSEE shall
not use the names of NIH, CDC, PHS, or DHHS or the
GOVERNMENT or their employees in any advertising,
promotional, or sales literature without the prior written
consent of PHS.
14.12 The Parties agree to attempt to settle amicably any
controversy or claim arising under this Agreement or a
breach of this Agreement, except for appeals of
modifications or termination decisions provided for in
Article 13. LICENSEE agrees first to appeal any such
unsettled claims or controversies to the designated PHS
official, or designee, whose decision shall be considered
the final agency decision. Thereafter, LICENSEE may
exercise any administrative or judicial remedies that may
be available.
14.13 Nothing relating to the grant of a license, nor the grant
itself, shall be construed to confer upon any person any
immunity from or defenses under the antitrust laws or from
a charge of patent misuse, and acquisition and use of
rights pursuant to 37 CFR Part 404 shall not be immunized
from the operation of state or Federal law by reason of
the source of the grant.
14.14 Paragraphs 4.03, 8.01, 9.06-9.08, 12.01-12.05, 13.08,
13.09, and 14.12 of this AGREEMENT shall survive
termination of this AGREEMENT.
SIGNATURES BEGIN ON NEXT PAGE
<PAGE>
PHS PATENT LICENSE AGREEMENT -- EXCLUSIVE
SIGNATURE PAGE
For PHS:
/s/ 9/23/97
Signature of Authorized PHS Official Date
Printed Name
Title
Mailing Address for Notices:
For LICENSEE (Upon, information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of LICENSEE made or referred to
in this document are truthful and accurate.):
by:
/s/
Signature of Authorized Official Date
John N. Kapoor, Ph.D.
Printed Name
Chairman
Title
Mailing Address for Notices:
225 East Deerpath Rd.
Suite 250
Lake Forest, IL 60045
<PAGE>
APPENDIX A -- PATENT(S) OR PATENT APPLICATION(S)
PATENT(s) OR PATENT APPLICATION(s) THAT ARE LICENSED PATENT RIGHTS:
U.S. Patent 5,614,191 issued March 25, 1997
USSN 08/821,840 (div of 08/404,685) filed March 21, 1997
PATENT(s) OR PATENT APPLICATION(s) THAT ARE BACKGROUND PATENT RIGHTS:
U.S. Patent 4,892,827 issued January 9, 1990
<PAGE>
APPENDIX B -- LICENSED FIELDS OF USE AND TERRITORY
LICENSED FIELDS OF USE: Use of the chimeric molecule hIL-13-PE38QQR or
cphIL-13-PE38QQR to treat cancer.
LICENSED TERRITORY: World-wide
<PAGE>
APPENDIX C -- ROYALTIES
ROYALTIES:
1. LICENSEE agrees to pay to PHS a noncreditable, nonrefundable license issue
royalty in the amount of seventy-five thousand dollars ($75,000).
2. LICENSEE agrees to pay to PHS a nonrefundable minimum annual royalty in the
amount of ten thousand dollars ($10,000) prior to the FIRST COMMERCIAL SALE or
twenty-five thousand dollars ($25,000.00) after the FIRST COMMERCIAL SALE.
3. LICENSEE agrees to pay PHS an earned royalty of four percent (4%) on NET
SALES; provided however that LICENSEE shall be entitled to a credit of one-half
percent (0.5%) against the earned royalty rate for each percent point in excess
of two percent (2.0%) that LICENSEE must pay to an unaffiliated licensor for the
manufacture and sale of LICENSED PRODUCTS. Said credit, however, shall not
reduce the earned royalty due to PHS for LICENSED PRODUCTS below two percent
(2.0%).
4. LICENSEE agrees to pay PHS benchmark royalties as follows:
<TABLE>
<S> <C>
1. Submission of first IND $ 25,000
2. Completion of first Phase I Clinical Trial $ 50,000
3. Completion of first Phase II Clinical Trial $ 75,000
4. Completion of each additional Phase II Clinical Trial $ 35,000
5. Completion of first Phase III Clinical Trial $100,000
6. Completion of each additional Phase III Clinical Trial $ 50,000
7. Approval of first BLA/ELA/PLA/NDA $300,000
8. Approval of each additional BLA/PLA/ELA/NDA $150,000
</TABLE>
5. LICENSEE agrees to pay PHS sublicensing royalties as follows:
(a) Twenty-five percent (25%) of earned royalties paid by a
sublicensee on NET SALES or two percent of the NET SALES of a
sublicensee, whichever is greater; and
(b) Twenty percent (20%) of all non-creditable and non-refundable
consideration received for granting a sublicense, if the
technology is sublicensed on or before the one year
anniversary of this AGREEMENT; or ten percent (10%) of all
non-creditable and non-refundable consideration received in
granting a sublicense, if the technology is sublicensed after
the one year anniversary of this AGREEMENT. Fees paid
expressly for research and development of LICENSED PRODUCT and
LICENSED PROCESSES, such as clinical trial support, shall be
excluded.
6. In the event that Licensee shall transfer, in a separate and distinct
transaction, that aspect of its business involving this AGREEMENT, Licensee
agres to pay PHS an assignment royalty of fifteen-percent (15%) of any cash
consideration received as part of such sale or transfer, provided, however, that
no such royalty shall be owned to PHS in the event that the foregoing transfer
is part of or results from a merger, consolidation or other reorganization of
the LICENSEE or from a sale, exchange or other transfer of all or substantially
all of its assets.
<PAGE>
APPENDIX D -- BENCHMARKS AND PERFORMANCE
LICENSEE agrees to the following BENCHMARKS, for its performance under this
AGREEMENT and, within ten (10) days of achieving a BENCHMARK, shall notify PHTS
that the BENCHMARK has been achieved.
<TABLE>
<CAPTION>
BENCHMARK DEADLINE
--------- --------
<S> <C>
1. Pilot Scale Up Production 1. within one year of executing
this Agreement but no
later than August 1, 1998
2. Initiation of In Vivo Efficacy Studies 2. December 1, 1998
3 Completion of In Vivo Efficacy Studies 3. October 1, 1999
4 Initiation of Toxicological end 4. April 1, 2000
Pharmacological Studies
5. Completion of Toxicological and 5. April 1, 2001
Pharmacological Studies
6. IND Submission 6. November 1, 2001
7 Initiation of Phase I Clinical Trial 7. March 1, 2002
8 Completion of Phase I Clinical Trial 8. March 1, 2003
9. Initiation of Small Phase II Clinical 9. September 1, 2003
Trials for Renal Cell Carcinoma
(use 20 patients)
10. Completion of Small Phase II Clinical 10. March 1, 2004
Trial in patients with Renal Cell
Carcinoma
11. Initiation of Large Phase II Clinical 11. September, 2004
Trials in Renal Cell Carcinoma (use
at least 150 patients)
12. Election of 2nd cancer type* for 12. March, 2005
development
13. Initiation of Small Phase II Clinical 13. September, 2005
Trial on 2nd Cancer type to be
developed
14. Completion of Large Phase II in 14. March, 2006
patients with Renal Cell Carcinoma
15. Completion of Small Phase II Clinical 15. June, 2006
Trial on 2nd Cancer to be developed
16. Initiation of Phase III Clinical 16. September, 2006
Trial for Renal Cell Cancer
17. Initiation of Large Phase II Clinical 17. January, 2007
Trial for 2nd Cancer type to be
developed
18. Submission of a Revised Development 18. June, 2007
Plan which includes election of 3rd
indication to be developed and
benchmarks for development
19. Completion of Large Phase II Clinical 19. June, 2008
Trial for 2nd Cancer type to be
developed
20. Completion of Phase III Clinical 20. September, 2008
Trial Renal Cell Cancer
21. Initiation of Phase III Clinical 21. January, 2009
Trial for 2nd Cancer type to be
developed
22 BLA Submission for Renal Cell Cancer 22. March, 2009
23 Product Launch for Renal Cell Cancer 23. March, 2010
24. Completion of Phase III Clinical Trial 24. January, 2011
for 2nd Cancer type in development
25 BLA Submission for 2nd Cancer Type 25. June, 2011
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Developed
26 Product Launch for 2nd Cancer Type
Developed 26. June, 2012
</TABLE>
* The next therapy to be developed will treat either brain, pancreatic, ovarian,
prostate, breast or colon cancer or Karposi's sarcoma.
<PAGE>
APPENDIX E -- COMMERCIAL DEVELOPMENT PLAN
SEE ATTACHED
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 16th day of March, 1998,
by and between NEOPHARM, INC., a Delaware corporation (the "Company") and JAMES
M. HUSSEY ("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Employment. Throughout the Term (as defined in Section 2 below), the
Company shall employ Executive as provided herein, and Executive hereby
accepts such employment. In accepting such employment, Executive states
that, to the best of his knowledge, he is not now, and by accepting such
employment, will not be, under any restrictions in the performance of the
duties contemplated under this Agreement as a result of the provisions of
any prior employment agreement or non-compete or similar agreement to
which Executive is or was a party.
2. Term of Employment. The term of Executive's employment by the Company
hereunder shall commence on March 16, 1998 (the "Effective Date") and
shall continue thereafter unless sooner terminated as a result of
Executive's death or in accordance with the provisions of Section 7 below
(the "Term").
3. Duties. Throughout the Term, and except as otherwise expressly provided
herein, Executive shall be employed by the Company as the President and
Chief Executive Officer ("CEO") of the Company. In such capacity,
Executive shall devote his full time to the performance of his duties as
President and CEO of the Company in accordance with the Company's By-laws,
this Agreement and the directions of the Company's Board of Directors. In
addition, the Company shall promptly appoint Executive to the Board and
thereafter nominate Executive as a nominee for election to the Board and
solicit proxies for his election for so long as this Agreement is in
effect. Without limiting the generality of the foregoing, throughout the
Term Executive shall faithfully perform his duties as President and CEO at
all times so as to promote the best interests of the Company.
4. Compensation.
(a) Salary. For any and all services performed by Executive under
this Agreement during the Term, in whatever capacity, the
Company shall pay to Executive an annual salary of Two Hundred
Fifty Thousand Dollars ($250,000) per year (the "Salary") less
any and all applicable federal, state and local payroll and
withholding taxes. The Salary shall be paid in the same
increments as the Company's normal payroll, but no less
frequent than monthly and prorated, however, for any period of
less than a full month. The Salary will be reviewed annually
by the Compensation Committee of the Board and a determination
shall be made at that time as to the appropriateness of an
increase, if any, thereto.
(b) Bonus. In addition to the Salary, Executive shall be eligible
to receive from the Company an incentive compensation bonus
(the "Bonus") based on a percentage of his Salary. The Bonus,
if any, shall be determined based on the achievement by the
Company of certain specific strategic plans and goals
1
<PAGE>
(the "Performance Goals") during the preceding calendar year
(the "Measurement Period") as shall be determined by the Board
in consultation with the Executive. The initial Performance
Goals will be established by the Board within ninety (90) days
of Executive's employment hereunder. Thereafter, the
Performance Goals for each Measurement Period shall be
established as promptly as possible in each such Measurement
Period, with the expectation that the Performance Goals be in
place each year prior to distribution of the Company's annual
proxy materials. Following each Measurement Period, the
Compensation Committee of the Board shall review the
Performance Goals for the prior Measurement Period in light of
the Company's actual performance during such Measurement
Period as reflected on the Company's audited financial
statements. Achievement of various levels of the Performance
Goals shall result in the following payments as a percentage
of Salary:
<TABLE>
<CAPTION>
BONUS AS PERCENT
LEVEL OF ACHIEVEMENT OF SALARY
<S> <C>
Below Threshold 0%
Threshold Goal 20-50%
TargetGoal 50%
Stretch Goal 50-80%
</TABLE>
Payment of each year's Bonus, if any, shall be made
within thirty (30) days after the Company's performance for
the Measurement Period is established on the basis of the
Company's audited financial statements. In addition, and at
its sole discretion, the Board may award additional
compensation to Executive based on Executive's contributions
to the Company.
5. Benefits and Other Rights. In consideration for Executive's performance
under this Agreement, the Company shall provide to Executive the
following benefits:
(a) The Company will provide Executive with cash advances for or
reimbursement of all reasonable out-of-pocket business
expenses incurred by Executive in connection with his
employment hereunder; provided, Executive adheres to any and
all reasonable policies established by Company from time to
time with respect to such reimbursements or advances,
including, but not limited to, a requirement that Executive
submit supporting evidence of any such expenses to the
Company.
(b) The Company will provide Executive with a monthly car
allowance in the amount of Seven Hundred and Fifty Dollars
($750.00) subject to standard payroll withholding for taxes.
(c) The Company will provide Executive and his family with group
medical coverage under the terms of the Company's health
insurance plan, but subject to completion of normal waiting
periods. During any such waiting period, or in the event that
at the date of this Agreement the Company's group medical
coverage is not yet in effect, then, in either case, Company
will pay, or reimburse Executive for, the cost of COBRA
coverage for Executive and his family under his prior health
plan.
(d) During the Term the Executive shall be entitled to three (3)
weeks paid vacation, it being understood and agreed that
unused vacation shall not be carried over from one year to the
next.
(e) As a one time benefit, the Company will reimburse, or pay
directly on Executive's behalf, the expenses, including, but
not limited to, realtor fees, associated with moving
Executive's family and household possessions
2
<PAGE>
from Naperville, Illinois to the northern suburbs of the
Chicago metropolitan area ("Moving Expenses"); provided, in
each case, that Executive shall provide such documentation of
all Moving Expenses as the Company shall reasonably request.
6. OPTIONS.
(a) The Company shall grant to Executive options pursuant to the
Company's 1995 Stock Plan (the "Option Plan"), as amended, to
purchase 400,000 shares of the Company's common stock at an
option exercise price of $4.75 per share of common stock (the
"Options") which was the fair market value (as determined
under the Option Plan) of the Company's common stock as of
January 12, 1998, which was the date of Executive's acceptance
of employment with the Company and which date shall be the
date of grant of the Options for purposes of the Option Plan
(the "Date of Grant"). The Options shall vest in equal
installments of 100,000 Options per year on each of the first
four anniversaries of the Date of Grant. The Options shall not
be exercisable subsequent to the date ten (10) years after the
Date of Grant. In all other respects the Options shall be
governed by the terms and conditions of the Option Plan.
(b) In the event the Company shall elect to obtain additional
capital investment in the future, after the completion of any
such capital investment program by the Company, the Board will
evaluate the awarding of additional stock options to Executive
based on the success of such fundraising endeavors and
Executive's contributions to that success.
7. TERMINATION OF THE TERM.
(a) The Company shall have the right to terminate the Term,
effective upon delivery of written notice of termination to
Executive setting forth the basis of such termination, under
the following circumstances:
(i) Executive shall die; or
(ii) With or without cause, effective ninety (90) days
after delivery of written notice to Executive by the
Company or, in lieu of said ninety (90) day notice,
upon payment to Executive of three months
compensation based on his then current Salary.
(b) This Agreement may be terminated by the Executive at any time
upon ninety (90) days prior written notice to the Company.
8. Effect of Expiration or Termination of the Term. Promptly following the
termination of the Term, and except as provided in Section 7 or as
otherwise expressly agreed by the Company, Executive shall
(a) provide the Company with all reasonable assistance necessary
to permit the Company to continue its business operations
without interruption and in a manner consistent with
reasonable business practices; provided, however, that such
transition period shall not exceed thirty (30) days after
termination nor require more than forty (40) hours of
Executive's time per week. In the event that the Company shall
request Executive to provide transitional assistance after the
effective date of termination, Executive shall be paid at any
hourly rate based on an 8 hour work day, a 2,080 hour work
year and his then current Salary, based upon time sheets
submitted by Executive specifying the services performed and
the amount of time expended;
(b) deliver to the Company possession of any and all property
owned or leased
3
<PAGE>
by the Company which may then be in Executive's possession or
under his control, including without limitation any and all
such keys, credit cards, automobiles, equipment, supplies,
books, records, files, computer equipment, computer software
and other such tangible and intangible property of any
description whatsoever. If, following the expiration or
termination of the Term, Executive shall receive any mail
addressed to the Company, then Executive shall immediately
deliver such mail, unopened and in its original envelope or
package, to the Company; and
(c) Other than as provided in Section 7, upon a termination of
employment all other benefits and/or entitlements to
participate in programs or benefits, if any, will cease as of
the effective date medical insurance coverage at his own
expense as provided by applicable law or written Company
policy.
9. CONFIDENTIALITY. The Executive acknowledges that during the period of
his employment by the Company, and in his performance of services
hereunder, he will be placed in a relationship of trust and confidence
regarding the Company and its affairs. In the course of and due to that
relationship he will have contact with the Company's customers,
suppliers, affiliates, and distributors and their personnel. In the
course of the aforesaid relationship, he will have access to and will
acquire confidential information relating to the business and
operations of the Company, including, without limitation, information
relating to processes, plans and methods of operation of the Company.
The Executive acknowledges that any such information that is not a
trade secret, nonetheless constitutes confidential information as
between himself and the Company, that the disclosure thereof (or of any
information which he knows relates to confidential, trade, or other
secret aspects of the Company's business) would cause substantial loss
to the goodwill of the Company, and will continue to be made known to
Executive only because of the position of trust and confidence which he
will continue to occupy hereunder. In view of the foregoing, and in
consideration of the covenants and premises of this Agreement, the
Executive agrees that he will not, at any time during the term of his
employment, and for a period of twelve months thereafter, disclose to
any person, firm or Company any trade secrets or confidential
information or such ideas which he may have acquired or developed or
may acquire or develop relating to the Business of the Company while
serving the Company as an Executive.
10. REMEDIES.
(a) The covenants of Executive set forth in Section 9 are separate
and independent covenants for which valuable consideration has
been paid, the receipt, adequacy and sufficiency of which are
acknowledged by Executive, and have also been made by
Executive to induce the Company to enter into this Agreement.
The aforesaid covenants may be availed of, or relied upon, by
the Company in any court of competent jurisdiction, and shall
form the basis of injunctive relief and damages including
expenses of litigation (including, but not limited to,
reasonable attorney's fees upon trial and appeal) suffered by
the Company arising out of any breach of the aforesaid
covenants by Executive. The covenants of Executive set forth
in this Section 10 are cumulative to each other and to all
other covenants of Executive in favor of the Company contained
in this Agreement and shall survive the termination of this
Agreement for the purposes intended.
(b) The covenants contained in Section 9 above shall be construed
as agreements which are independent of any other provision of
this Agreement, and the existence of any claim or cause of
action by any party hereto against any other party hereto, of
whatever nature, shall not constitute a defense to the
enforcement of such covenants. If any of such covenants shall
be deemed unenforceable by virtue of its scope in terms of
geographical area, length
4
<PAGE>
of time or otherwise, but may be made enforceable by the
imposition of limitations thereon, Executive agrees that the
same shall be enforceable to the fullest extent permissible
under the laws and public policies of the jurisdiction in
which enforcement is sought. The parties hereto hereby
authorize any court of competent jurisdiction to modify or
reduce the scope of such covenants to the extent necessary to
make such covenants enforceable.
11. ENFORCEMENT COSTS. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any
provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees, court
costs and all expenses even if not taxable as court costs (including,
without limitation, all such fees, costs and expenses incident to
appeal and other post-judgment proceedings), incurred in that action or
proceeding, in addition to any other relief to which such party or
parties may be entitled. Attorney's fees shall include, without
limitation, paralegal fees, investigative fees, administrative costs,
sales and use taxes and all other charges billed by the attorney to the
prevailing party.
12. NOTICES. Any and all notices necessary or desirable to be served
hereunder shall be in writing and shall be
(a) personally delivered, or
(b) sent by certified mail, postage prepaid, return
receipt requested, or guaranteed overnight delivery
by a nationally recognized express delivery Company,
in each case addressed to the intended recipient at
the address set forth below.
(c) For notices sent to the Company:
NeoPharm, Inc.
100 Corporate North
Bannockburn, Illinois 60015
Telephone No.: (847) 295-8678
Facsimile No.: (847) 295-8654
With a copy to:
Burke, Warren, Mackay & Serritella, P.C.
330 N. Wabash, Suite 2200
Chicago, Illinois 60611
Attn: Christopher R. Manning
(d) For notices sent to Executive:
James M. Hussey
4111 Kingshill Circle
Naperville, Illinois 60564
Either party hereto may amend the addresses for notices to such party
hereunder by delivery of a written notice thereof served upon the other
party hereto as provided herein. Any notice sent by certified mail as
provided above shall be deemed delivered on the third (3rd) business
day next following the postmark date that it bears.
13. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the
parties
5
<PAGE>
hereto with respect to the subject matter hereof, and all prior
negotiations, agreements and understandings are merged herein. This
Agreement may not be modified or revised except pursuant to a written
instrument signed by the party against whom enforcement is sought.
14. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall not affect the enforceability of any other provision
hereof, and except as otherwise provided in Section 11 above, any such
invalid or unenforceable provision shall be severed from this
Agreement.
15. WAIVER. Failure to insist upon strict compliance with any of the terms
or conditions hereof shall not be deemed a waiver or such term or
condition, and the waiver or relinquishment of any right or remedy
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or remedy at any other time or times.
16. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to its conflicts of
laws provisions. Each party hereto hereby (a) agrees that any
litigation which may be initiated with respect to this Agreement or to
enforce rights granted hereunder shall be initiated in a court located
in Cook County, Illinois and (b) consents to personal jurisdiction of
such courts for such purpose.
17. BENEFIT AND ASSIGNABILITY. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The
rights and obligations of Executive hereunder are personal to him, and
are not subject to voluntary or involuntary alienation, transfer,
delegation or assignment.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
NEOPHARM, INC.
By:
Its:
EXECUTIVE:
JAMES M. HUSSEY
7
<PAGE>
Exhibit 10.15
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT is dated and is effective as of the
twelfth (12th) day of May 1997,
BY AND BETWEEN: BIOCHEM THERAPEUTIC INC., a corporation incorporated under
the laws of Canada, with its principal place of business
located at 275 Armand-Frappier Boulevard, Laval, Quebec,
Canada H7T 4A7;
(hereinafter referred to as "BioChem"),
AND: NEOPHARM INCORPORATED, a corporation incorporated under the
laws of the State of Delaware, with a place of business at
225 East Deerpath, Suite 250, Lake Forest, Illinois, United
States of America, 60045
(hereinafter referred to as "NeoPharm")
RECITALS:
A. NeoPharm holds certain rights to a product currently known as BUdR (the
"Product", as defined herein below) and is conducting a program to
develop the Product for use as a radiosensitizing agent for the
treatment of cancer in humans and as a prognostic marker for breast
cancer;
B. NeoPharm has the Know-How necessary for the development of the Product
and has prepared and filed a New Drug Application ("NDA") with respect
thereto with the proper regulatory authorities in the United States;
C. BioChem has development, sales and marketing expertise in the human
pharmaceutical field;
D. BioChem wishes to obtain and NeoPharm is willing and has the
unrestricted right to grant to BioChem in accordance with the terms and
conditions set forth herein, the exclusive right to commercialize the
Product in Canada (the "Territory");
E. As of the effective date of this Agreement, no patent has been granted
for the Product in any jurisdiction in the Territory or elsewhere in
the world either to NeoPharm or any of its Affiliates;
NOW, THEREFORE, in consideration of the various premises and undertakings set
forth herein, the Parties agree as follows:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS. Unless otherwise specifically provided herein, or in the
Manufacturing and Supply Agreement attached hereto as Exhibit 5.1, the following
terms shall have the following meanings:
(a) "AFFILIATE" shall mean any Person which is directly or indirectly
controlled by, or controls or is under common control with, another Person,
provided that "control" shall mean ownership of more than fifty percent (50%)
of another Person or the power to direct decisions of another Person,
including, without limitation, the power to direct management and policies of
another Person, whether by reason of ownership or by contract.
(b) "AGREEMENT" shall mean this Collaboration Agreement and all
instruments supplemental hereto or in amendment or confirmation hereof;
"herein", "hereof", "hereto", "hereunder" and similar expressions mean and
refer to this Agreement and not to any particular Article, Section,
Subsection or other subdivision; "Article", "Section", "Subsection" or other
subdivision of this Agreement means and refers to the specified Article,
Section, Subsection or other subdivision of this Agreement.
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(c) "BIOCHEM KNOW-HOW" shall mean all inventions, technical data,
techniques, knowledge and other information, whether or not patented or
patentable, which are owned or controlled by BioChem (excluding that
developed by NeoPharm) during the course of, and in connection with clinical
development or commercialization of the Product for use in the Field in the
Territory pursuant to this Agreement.
(d) "BUDR NDA" shall mean the NDA for the Product; as more fully described
in Exhibit " 1.1 (d)" hereto.
(e) "CALENDAR QUARTER" shall mean any period of three (3) consecutive
months ending on the last day of March, June, September or December, as the
case may be.
(f) "DOLLARS" and "$" shall mean lawful money of the United States, unless
otherwise indicated.
(g) "DUE DILIGENCE" shall mean all reasonable efforts consistent with
prudent business judgment.
(h) "FIELD" shall mean use as a therapeutic, diagnostic and/or prognostic
agent for any disease indication in humans.
(i) "FDA" means the United States Food and Drug Administration or any
successor or replacement entities thereof.
(j) "GOVERNMENTAL BODY" shall mean (i) any domestic or foreign national,
federal, provincial, state, municipal or other government or body, (ii)
any international or multilateral body, (iii) any subdivision,
ministry, department, secretariat, bureau, agency, commission, board,
instrumentality or authority of any of the foregoing governments or
bodies, (iv) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account
of any of the foregoing governments or bodies, or (v) any domestic,
foreign, international, multilateral, or multinational judicial, quasi
judicial, arbitration or administrative court, grand jury, tribunal,
commission, board or panel.
(k) "HPB" shall mean the Health Protection Branch of Health Canada or any
successor or replacement entities thereof.
(l) "IMPROVEMENTS" shall mean advances in or modifications to the Product,
developed by or on behalf of, acquired by or made available to NeoPharm and/or
BioChem prior to or during the term of this Agreement.
(m) "LAWS" SHALL MEAN:
(i) all constitutions, treaties, laws, statutes, codes, ordinances,
orders, decrees, rules, regulations, and municipal by-laws,
whether domestic, foreign or international;
(ii) all judgments, orders, writs, injunctions, decisions, rulings,
decrees, and awards of any Governmental Body; and
(iii) all policies, practices and guidelines of any Governmental Body;
in each case binding on or affecting the Party or Person referred to in the
context in which such word is used; and "Law" shall mean any one of them.
(n) "MANAGEMENT COMMITTEE" shall mean that entity organized and acting
pursuant to Article III hereof.
(o) "NDA" shall mean any New Drug Application required to be filed with
the FDA, with respect to the Product, including any amendments or supplements
("sNDA") thereto.
(p) "NDS" shall mean any New Drug Submission, required to be filed with
the HPB, with respect to the Product, including any amendments or supplements
("sNDS") thereto.
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(q) "NEOPHARM KNOW-HOW" shall mean all inventions, technical data,
techniques, knowledge and other information, whether or not patented or
patentable, which are owned or controlled by NeoPharm and are useful in the
manufacture, use or sale of the Product, including the BUdR NDA.
(r) "NET SALES" shall mean the aggregate arms' length gross invoiced sales
price charged for sale for commercial use of the Product sold by BioChem and, if
applicable, BioChem's Affiliates and sublicensees, to non-Affiliated third
Persons in the Territory after deduction of the following items, provided and to
the extent that such items were actually incurred and included in the gross
price charged and do not exceed customary amounts in the market in which such
sale occurred:
(i) trade, quantity and cash discounts or rebates;
(ii) credits or allowances for rejection or return of previously
sold goods;
(iii) any tax or charge (other than an income tax) levied on the
sale, transportation or delivery of a product and borne by
the seller thereof; and
(iv) any charge for freight or insurance.
In determining Net Sales, no allowances or deductions shall be made for any
commissions or sales fees. To the extent that BioChem uses a third Person sales
or marketing organization to sell the Product to wholesalers or dispensers of
the Product, Net Sales shall be calculated starting from the aggregate arm's
length gross invoice sales price charged for sale for commercial use to such
wholesaler or such dispenser, less the deductions listed in items (i) to (iv);
it being understood that "Net Sales" shall be calculated on the basis of the
first arm's length sale of each such Product by BioChem, BioChem's Affiliates or
its sublicensees (as the case may be) to a non-Affiliated third Person.
(s) "PARTY" shall mean NeoPharm or BioChem and, when used in the plural,
shall mean NeoPharm and BioChem.
(t) "PERSON" shall mean an individual, corporation, company, cooperative,
partnership, organization or any similar entity.
(u) "PRODUCT" shall mean any and all pharmaceutical products containing the
chemical agent BUdR, as licensed to BioChem by NeoPharm for the Territory
pursuant to Article II hereof; the whole as more fully described in Exhibit 1.1
(u)" hereto.
(v) "TERRITORY" shall mean Canada and its territories and possessions, as
recognized on the effective date hereof.
1.2 EXHIBITS. The following are the exhibits annexed to and incorporated
in this Agreement by reference and deemed to be a part hereof:
Exhibit "1.1(d)" - Table of Contents and Executive Summary of BUdR NDA;
Exhibit "1.1(u)" - Product Description;
Exhibit "3.1" - Initial Nominees for the Management Committee; and
Exhibit "5.1" - Manufacturing and Supply Agreement.
In the event of any conflict between the provisions of any Exhibit to this
Agreement and the main text of the Agreement, the main text shall prevail.
1.3 RECITALS. The recitals are incorporated herein by reference and
deemed to be part hereof
ARTICLE II
LICENCES
2.1 LICENSE TO BIOCHEM.
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(a) NeoPharm hereby grants to BioChem, and BioChem hereby accepts, the
exclusive right and license to seek regulatory approval for the manufacture,
marketing and sale of and, following such approval, to market, sell and have
marketed and sold, the Product in the Territory for use as a radiosensitizing
agent in the treatment of brain tumors and as a prognostic marker for use in
breast cancer (the "Primary Indications"), and, subject to Subsection 2.1(c),
for use in all other indications in the Field. NeoPharm hereby grants BioChem,
and BioChem hereby accepts, the exclusive right and license to use the NeoPharm
Know-How and Improvements in connection with the foregoing. Promptly following
the execution hereof, and continuously thereafter during the term of this
Agreement as the NeoPharm Know-How and Improvements become available, NeoPharm
shall use Due Diligence in furnishing the NeoPharm Know-How and Improvements to
BioChem. Without limiting the generality of the foregoing, NeoPharm shall use
Due Diligence in providing BioChem with copies of and the right to reference all
NeoPharm Know-How at any time during the term hereof BioChem shall have the
right to use such data solely for the purposes contemplated by this Agreement.
(b) Without limiting the generality of Subsection 2.1(a), NeoPharm agrees
to use Due Diligence in providing additional technical and scientific assistance
to BioChem in connection with BioChem's efforts to obtain HPB approval for any
use of the Product in the Field; provided that such assistance shall not result
in NeoPharm having to conduct any additional clinical trials or other activities
or having to make any additional expenditures not provided for by NeoPharm with
respect to research and development of the Product outside the Territory under
the BUdR NDA. NeoPharm shall, concurrently with any submissions regarding
approval of the Product for use and sale in any indications made by NeoPharm,
its Affiliates or licensees to the FDA or similar Governmental Bodies outside
the Territory, unless prohibited from doing so by a written agreement with a
third Person, provide BioChem with a copy of and the right to reference any and
all NeoPharm Know-How contained in such submissions, as well as of additional
NeoPharm Know- How supplied to such Governmental Bodies. Should NeoPharm be
prohibited from providing BioChem with copies of and a right to reference any
NeoPharm Know-How due to a written confidentiality agreement as aforesaid,
NeoPharm shall use its best efforts to obtain BioChem such copies and right to
reference. BioChem shall be entitled to incorporate data contained in any such
NDA or other application for regulatory approval in any documents BioChem is
required to file with the HPB in an attempt to seek approval to commercialize
the Product in the Territory. At the written request of BioChem, NeoPharm shall
provide, shall cause its Affiliates to provide, or shall use its Due Diligence
to obtain from any of its licensees outside the Territory, written notification
to HPB of BioChem's right to reference any such NDA or other application for
regulatory approval in any NDS filed by BioChem with respect to use of the
Product in the Territory. The Parties acknowledge that, in reviewing BioChem's
NDS for the Product, HPB may require additional information to that which is
contained in the BUdR NDA and/or made available to BioChem pursuant to the
forgoing provisions of this Subsection 2.1(b). Should HPB request such
additional information, and NeoPharm is in possession of or has access to such
information, NeoPharm shall, unless prohibited from doing so by a written
agreement with a third Person, provide copies thereof to BioChem for use
hereunder. BioChem shall be required to reimburse NeoPharm for all reasonable
out-of-pocket expenses NeoPharm incurs in providing such additional information
to BioChem.
(c) Except as otherwise specifically provided for herein, BioChem is under
no obligation, but shall have the right, to conduct research and development
activities in respect of the Product in the Territory. BioChem agrees to use its
Due Diligence in preparing and filing an NDS for the use of the Product in the
Primary Indications. Such NDS shall be based on and filed subsequent to the BUdR
NDA filed by NeoPharm or its licensees outside the Territory. Subject to Section
4.3, BioChem shall assume all expenses relating to the preparation and filing of
the NDS. Subject to Section 2.6, BioChem shall be also be entitled, upon advance
written notice to NeoPharm, to prepare and file NDS(s) for the use of the
Product in the Territory in any one (1) or more additional indications in the
Field (the "Additional Indications").
(d) NeoPharm hereby grants to BioChem the right to conduct clinical trials
and compassionate drug release programs with respect to the Product in the
Territory should BioChem so desire. Should BioChem elect to exercise either of
these options, NeoPharm will provide BioChem with a reasonable amount of Product
for use as clinical trial materials, at no cost to BioChem. Subject to Section
4.3, the costs of carrying out such clinical trials or compassionate release
programs with respect to the Product in the Territory shall be borne by BioChem.
(e) At any time prior to approval by HPB of the Product for use in the
Territory in the Primary Indications, BioChem shall have the right, at BioChem's
sole option:
(i) upon receipt of prior written approval of NeoPharm of the form
and content of any proposed clinical
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trials (which approval shall not be unreasonably withheld or
delayed), to have additional specific clinical trials relating
to the Product (the "Additional Trials") effected within
NeoPharm's overall clinical development program at sites in
the Territory and NeoPharm shall use Due Diligence in
providing assistance to BioChem in this regard. Subject to
Section 4.3, the costs of carrying out Additional Trials with
respect to the Product in the Territory shall be borne by
BioChem; or
(ii) to discontinue all efforts with respect to seeking regulatory
approval of the Product in the Territory, with the result that
the license granted to BioChem hereunder with respect to use of
the Product in the Territory shall terminate, without any payment
or penalty owed from either Party to the other.
BioChem shall notify NeoPharm in writing, at least thirty (30) days in advance
of exercising its option under this Subsection 2.1(e), of BioChem's intention to
exercise such option, which notice shall identify the option BioChem intends to
exercise.
(f) In the event that NeoPharm and/or NeoPharm's licensees elect not to
pursue or continue pursuing FDA approval for the Product in the Primary
Indications in the United States, NeoPharm shall so advise BioChem in writing,
and BioChem shall, within sixty (60) days of receipt of NeoPharm's notice,
advise NeoPharm whether BioChem will use its Due Diligence to pursue HPB
approval for the sale of the Product in the Territory for use in the Field (in
which case, all licenses granted hereunder shall continue in full force and
effect) or terminate its license with respect to such use of the Product,
without further liability in respect thereof.
2.2 SUBLICENSING. BioChem's license rights hereunder shall include the
right to grant sublicenses within the Territory; provided that the granting of
any such sublicense shall not relieve BioChem of its obligations toward NeoPharm
hereunder; including, without limitation, the obligation of BioChem to make the
Net Sales Payment referred to in Article IV hereof with respect to the first
arm's length sale of each product by BioChem's sublicensee. Prior to granting
any such sublicense, BioChem shall consult with NeoPharm in good faith, and
shall pay due consideration to any concerns NeoPharm may have with respect to
the identity of any proposed sublicensee, it being understood however, that any
final decisions to be taken with respect to the granting of sublicenses
hereunder shall be at the sole discretion of BioChem.
2.3 ADVERSE DRUG REACTION REPORTING.
(a) ADVERSE DRUG REACTIONS. Each Party shall promptly advise the other
Party and provide the other Party with a copy by telecopier or overnight
delivery service addressed to the attention of its Vice President, Clinical and
Regulatory Affairs, of any reports of unexpected side effects, adverse reactions
or injury ("ADR Reports") which have been brought to that Party's attention at
any place within or outside the Territory and which are alleged to have been
caused by the Product. ADR Reports shall include publications in journals or
other media. NeoPharm shall use Due Diligence in monitoring all media for
information on factors adversely or positively affecting the Product and shall
promptly advise BioChem of the existence of same. Serious ADR Reports and
unexpected ADR Reports (according to CIOMS criteria) shall be forwarded without
delay by each Party to the other Party as soon as such reports come to either
Party's attention. Any other ADR Reports shall be reported by each Party to the
other on a quarterly basis. The informing Party may, and is invited to, give in
writing its professional evaluation of such reports, in particular with regard
to suspected causality, either together with such reports or as soon as possible
at a later date. NeoPharm shall report such side effects and adverse reaction or
injury to Governmental Bodies and others outside the Territory as appropriate or
necessary within the time limits required by applicable Laws and BioChem shall
report same to the HPB.
(b) REGULATORY AND OTHER INQUIRIES. Upon being contacted by the HPB or any
other Governmental Body in connection with the Product or any other matter which
might reasonably be expected to affect the rights or obligations of either Party
under this Agreement, the Parties shall immediately notify each other. BioChem
shall respond to all inquiries from Governmental Bodies located in the
Territory, including HPB, and NeoPharm shall provide BioChem with reasonable
assistance in this regard. NeoPharm shall respond to all inquiries from
Governmental Bodies outside the Territory regarding the benefits, side effects
and other characteristics of the Product, which responses shall be provided by
NeoPharm on a timely basis. A copy of all such responses shall be provided to
BioChem by NeoPharm
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promptly following their sending to such Governmental Bodies.
(c) PRODUCT RECALL. In the event that either Party determines that an
event, incident or circumstance has occurred which may result in the need for a
recall or other removal of the Product, or any lot or lots thereof, from the
market, such Party shall advise and consult with the other Party as to the
appropriate measures to be taken.
2.4 PERIODIC REPORTS. NeoPharm shall provide BioChem with periodic reports
on NeoPharm's and NeoPharm's licensees' progress in seeking regulatory approvals
for the Product and of plans for commercializing the Product outside the
Territory. As soon as NeoPharm intends to, or as soon as NeoPharm receives a
notice from NeoPharm's licensee that such licensee intends to commence clinical
trials for the Product outside the Territory, NeoPharm shall provide BioChem
with notice thereof. BioChem shall advise NeoPharm of its decision whether or
not to participate in the clinical trials within ninety (90) days of receiving
such notice.
2.5 COMMERCIALIZATION BY BIOCHEM. BioChem agrees to use Due Diligence to
file an NDS for use of the Product in the Primary Indications in the Territory
and, following receipt of a Notice of Compliance ("NOC") from HPB in relation to
such NDS, to market and sell the Product for such indication in the Territory.
BioChem shall also have the right to pursue regulatory approval to commercialize
the Product for any indication in the Field. Accordingly, BioChem shall:
(a) within six (6) months of receipt from NeoPharm of the completed
BUdR NDA, prepare and file an NDS with respect to the use of the
Product in the Primary Indications;
(b) within three (3) months of receipt of an NOC for the Product in
any indication, introduce the Product for sale for use in such
indication in the Territory;
(c) subject to applicable Laws, use Due Diligence to advertise,
promote the sale of and otherwise employ marketing and sales
techniques reasonably designed to develop a demand for the
Product in the approved indications. Such sale, advertising and
promotional efforts shall be consistent with those undertaken by
other companies similarly situated within the industry for
similar products to treat similar indications. BioChem shall be
entitled to use a third Person marketing or sales agency to carry
out the obligations of BioChem under this Subsection 2.5(c); and
(d) upon the reasonable written request of NeoPharm, furnish NeoPharm
with copies of advertising, sales and promotional materials
relating to the Product;
provided that, in the event of any delay by NeoPharm or any third Person in
supplying Product pursuant to the Manufacturing and Supply Agreement referred to
in Article V hereof, the time periods allotted to BioChem for commercialization
under this Subsection 2.5 shall be extended by the duration of such delay in
supply.
2.6 BIOCHEM KNOW-HOW. BioChem hereby grants NeoPharm a royalty-free
license to use the BioChem Know How in NeoPharm's applications for Governmental
Approvals outside of the Territory during the term hereof NeoPharm shall not be
entitled to sublicense any right granted to it under this Section 2.6 unless the
sublicensee or sublicensees provide their Know-How on the same terms as
described herein. From time to time while this Agreement is in force, BioChem
shall use Due Diligence in providing NeoPharm with the BioChem Know-How.
ARTICLE III
MANAGEMENT COMMITTEE
3.1 CREATION OF THE MANAGEMENT COMMITTEE. The Parties hereby agree to the
creation of a Management Committee made up of three (3) representatives of each
Party to facilitate the collaboration contemplated herein. The initial nominees
are shown on Exhibit "3.1" attached hereto. Each Party may change its
representatives on written notice to the other Party.
3.2 REGULAR MEETINGS. During the term of this Agreement, the Management
Committee shall meet at least twice
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annually. Meetings may be called by either Party on thirty (30) days' notice to
the other and, unless otherwise agreed, occur by telephone conference call. A
designated representative of the Party hosting the meeting shall chair that
meeting and a designated representative of the other Party shall act as
secretary of the meeting.
3.3 RESPONSIBILITIES OF THE MANAGEMENT COMMITTEE. Subject to the
recognition by NeoPharm that BioChem possesses the expertise necessary for the
development, sales and marketing of the Product in the Territory and to the
exclusive rights granted to BioChem hereunder, the Management Committee shall be
the primary vehicle for interaction between the Parties with respect to the
collaboration contemplated herein. Without limiting the foregoing, the
Management Committee shall be responsible for:
(a) reviewing and coordinating any NDS for the Product in the
Territory;
(b) reviewing and commenting on clinical trial publications proposed
to be circulated in the Territory by BioChem with respect to the
Product;
(c) monitoring the progress of development (including preclinical and
clinical trials) outside and in the Territory by NeoPharm or its
licensees (other than BioChem) of the Product; and
(d) reviewing and commenting on any proposed alignment of strategies
and/or commercial activities with respect to the use of the
Product in the Field.
Each Party shall disclose proposed agenda items to the other in writing, at
least fifteen (15) days in advance of each meeting of the Management Committee.
3.4 DECISIONS OF THE MANAGEMENT COMMITTEE. Except as specifically provided
for in this Section 3.4, decisions made by the Management Committee will be by
mutual agreement of the members. If disputes arise regarding matters properly
before the Management Committee, which disputes cannot be resolved by the
members of the Management Committee, the Parties will attempt to resolve those
disputes by direct discussions, in person if appropriate, between the Chief
Executive Officers of BioChem and NeoPharm. Notwithstanding anything to the
contrary herein contained, any disagreements with respect to overall development
and commercialization strategy of Product in the Territory which remain
unresolved after following the aforementioned procedure shall be finally
resolved by BioChem, acting reasonably and in good faith.
ARTICLE IV
CONSIDERATION
4.1 INITIAL PAYMENT. As partial consideration for the rights transferred to
BioChem under Article II, upon signature of this Agreement by the Parties
BioChem will pay to NeoPharm a nonrefundable amount of five hundred thousand
Dollars ($500,000) (the "Initial Payment").
4.2 MILESTONE PAYMENTS. In addition to the other payments to NeoPharm
provided for herein, and subject to fulfillment of preconditions to payment
referred to in this Section 4.2, as partial consideration for the rights granted
by NeoPharm hereunder, BioChem shall make payments to NeoPharm in the amounts
and at the times set forth below:
(a) Subject to Subsection 4.2(c), Two Hundred Fifty Thousand Dollars
($250,000), in the form of a nonrefundable payment made within
thirty (30) days of receipt by NeoPharm (or its licensee) of THE
FIRST (and only the first) notice of acceptance from the FDA of
the Product for further review for use as a radiosensitizing
agent for the treatment of brain cancer in humans.
(b) Subject to Subsection 4.2(c), One Hundred Fifty Thousand Dollars
($150,000), in the form of a nonrefundable payment made within
thirty (30) days of receipt by BioChem of THE FIRST (and only the
first) notice of compliance ("NOC") from the HPB for the Product
for use as a radiosensitizing agent for the treatment of brain
cancer in humans.
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(c) Should BioChem receive an NOC for the Product for use as a
radiosensitizing agent for the treatment of brain cancer in
humans prior to the receipt by NeoPharm (or its licensee) of a
notice of acceptance from the FDA for such indication, the Two
Hundred Fifty Thousand Dollar ($250,000) and One Hundred Fifty
Thousand Dollar ($150,000) payments referred to in subsections
(a) and (b) above shall be combined, in the form of a
nonrefundable payment in the amount of Four Hundred Thousand
Dollars ($400,000), to be made by BioChem to NeoPharm within
thirty (30) days of receipt by BioChem of such NOC. Upon payment
of the amount referred to in this Subsection (c), BioChem shall
have no further obligations to NeoPharm with respect to the
payments referred to in Subsections (a) and (b).
(d) Subject to Subsection 4.2(f), Fifty Thousand Dollars ($50,000),
in the form of a nonrefundable payment made within thirty (30)
days of receipt by NeoPharm (or its licensee) of THE FIRST (and
only the first) notice of acceptance from the FDA for the Product
for use as a prognostic marker in the treatment of breast cancer
in humans.
(e) Subject to Subsection 4.2(f), Fifty Thousand Dollars ($50,000),
in the form of a nonrefundable payment made within thirty (30)
days of receipt by BioChem of THE FIRST (and only the first)
notice of compliance ("NOC") from the HPB for the Product for use
as a prognostic marker in the treatment of breast cancer in
humans.
(f) Should BioChem receive an NOC for the Product for use as a
prognostic marker in the treatment of breast cancer in humans
prior to the receipt by NeoPharm (or its licensee) of a notice of
acceptance from the FDA for such indication, the Fifty Thousand
Dollar ($50,000) payments referred to in subsections (d) and (e)
above shall be combined, in the form of a nonrefundable payment
in the amount of One Hundred Thousand Dollars ($100,000), to be
made by BioChem to NeoPharm within thirty (30) days of receipt by
BioChem of such NOC. Upon payment of the amount referred to in
this Subsection (f), BioChem shall have no further obligations to
NeoPharm with respect to the payments referred to in Subsections
(d) and (e).
IT BEING UNDERSTOOD BETWEEN THE PARTIES THAT THE MAXIMUM AMOUNT POTENTIALLY
PAYABLE BY BIOCHEM TO NEOPHARM AS MILESTONE PAYMENTS FOR THE PRODUCT USE IN THE
ALL INDICATIONS IS FIVE HUNDRED THOUSAND DOLLARS ($500,000).
4.3 BUDR CLINICAL TRIALS. Subject to Subsection 2.1(b), NeoPharm will
provide BioChem with all data and results from ongoing clinical trials carried
out with respect to the Product. In addition, on terms and subject to conditions
(including the preparation of a draft budget) to be agreed upon between the
Parties acting reasonably and in good faith and submitted to the Management
Committee for review and approval, BioChem shall be permitted to participate in
any ongoing NeoPharm clinical trial program with respect to the Product. BioChem
shall be entitled to deduct fifty percent (50%) of its costs associated with
such participation against Net Sales payments made by BioChem to NeoPharm under
Section 4.4 hereof
4.4 NET SALES PAYMENT. Subject to Section 4.5, as further consideration
for the rights granted by NeoPharm hereunder, BioChem shall pay to NeoPharm a
portion of the Net Sales of the Product in the Territory (the "Net Sales
Payment"), to be calculated as follows:
(a) Except as otherwise provided for in Subsections 4.4(b) to (d),
BioChem shall pay to NeoPharm, within thirty (30) days following
each Calendar Quarter, an amount equivalent to thirty-five
percent (35%) of Net Sales of the Product in the Territory for
the Calendar Quarter.
(b) Notwithstanding the reference to thirty-five percent (35%) in
Subsection 4.4(a), BioChem shall pay to NeoPharm an amount
equivalent to twenty-five percent (25%) of Net Sales in excess of
Nine Million Canadian dollars (CDN$ 9,000,000) in any given
calendar year.
(c) Notwithstanding the reference to thirty-five percent (35%) in
Subsection 4.4(a), in the event that a
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generic version of the Product is sold in the Territory, the
Net Sales Payment shall be decreased to twenty-five percent
(25%) for Net Sales following the date of entry of the generic
product on the market.
(d) Notwithstanding anything to the contrary herein contained, after
the fifteenth (15th) anniversary date of the first commercial
sale of the Product in the Territory, the Net Sales Payment shall
be decreased to fifteen percent (15%).
4.5 LIMITATIONS ON NET SALES PAYMENT. NOTWITHSTANDIng anything to the
contrary herein contained, the Net Sales Payment otherwise payable by BioChem to
NeoPharm hereunder shall be adjusted as follows:
(a) Should competition for the Product by another product (the "New
Entry Product") which is commercialized, directly or indirectly
by NeoPharm and/or any of its sublicensees in the Territory for
the same indications as the Product cause a reduction in Net
Sales of the Product in the Territory by BioChem, BioChem's
Affiliates or BioChem's sublicensees of twenty percent (20%) or
more from the previous calendar year, then the Net Sales Payment
rate otherwise payable hereunder shall automatically be reduced
by the same percentage as the percentage decrease in Net Sales;
provided that the Parties shall first consult in good faith with
respect to matters which may effect the Net Sales of the Product
in the Territory. Notwithstanding anything to the contrary herein
contained, any final decisions to be taken with respect to the
commercialization of the Product in the Territory shall be at the
sole discretion of BioChem. In no event shall the provisions of
this Subsection 4.5(a) alone operate to reduce the Net Sales
Payment rate otherwise payable with respect to Net Sales of the
Product by more than twenty-five percent (25%);
(b) If the effect on Net Sales of the Product caused by the New Entry
Product in the Territory ceases to exist and the Net Sales of the
Product are restored to the levels which existed immediately
prior to arrival of the New Entry Product on the market in the
Territory, then the Net Sales Payment rate adjustment which
resulted from the application of paragraph (a) shall cease to
apply with respect to the Product, on a going-forward basis;
(c) If NeoPharm is in default of its obligation to supply or procure
supply of the Product under the Manufacturing and Supply
Agreement referred to in Article V hereof, such that BioChem
incurs costs and/or expenses to locate a replacement source of
supply of the Product to BioChem, BioChem may set-off the costs
and expenses of locating such replacement source against Net
Sales Payments due hereunder; and
(d) The effects of all Net Sales Payments rate adjustments hereunder
shall be cumulative. Accordingly, notwithstanding the occurrence
of any one (1) event which results in a reduction or limitation
of Net Sales Payments with respect to the Product, the Net Sales
of the Product shall remain subject to all other Net Sales
Payments rate adjustments set forth in this Agreement.
4.6 MODE OF PAYMENT. All Net Sales Payments to NeoPharm hereunder shall be
made by deposit of a cheque in Canadian dollars made payable to NeoPharm in the
requisite Canadian dollar amount to such bank account as NeoPharm may from time
to time designate by written notice to BioChem. Payments shall be free and clear
of any fees and charges (other than applicable taxes which BioChem is required
to pay or withhold with respect to Net Sales Payments or to pay with respect to
all other payments to be made to NeoPharm under this Agreement).
4.7 RECORDS RETENTION. (5) years after each sale of the Product, BioChem
shall keep (and shall assure that its relevant Affiliates and sublicensees
shall keep) records of such sales in sufficient detail to confirm the accuracy
of the Net Sales calculations hereunder, provided that, in the event BioChem is
required by applicable Law to keep such records for a period of longer than five
(5) years, such longer period shall apply. At the request of NeoPharm, BioChem
shall (and shall assure that BioChem's relevant Affiliates and sublicensees
shall) permit an independent certified or chartered accountant appointed by
NeoPharm (which accountant shall be acceptable to BioChem, acting reasonably),
at reasonable times and upon reasonable notice, to examine these records solely
to the extent necessary to verify such
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calculations. Such investigation shall be at the expense of NeoPharm unless it
reveals an error on the part of BioChem resulting in NeoPharm having received
less than ninety-five percent (95%) of the Net Sales Payments due to NeoPharm on
BioChem's sales of the Product occurring at any time during the time period
covered by such investigation, in which event BioChem shall pay the reasonable
costs of such investigation. Any such investigation occurring within six (6)
months of a previous investigation shall be at the expense of NeoPharm unless it
reveals an error on the part of BioChem resulting in NeoPharm having received
less than ninety-six percent (96%) of the Net Sales Payments due to NeoPharm on
BioChem's sales of the Product occurring at any time during the time period
covered by such investigation, in which event BioChem shall pay the reasonable
costs of such investigation. Net Sales Payments covering a particular time
period shall not be subject to investigation more than once hereunder.
4.8 NO NON-MONETARY CONSIDERATION FOR SALES. Without the prior written
consent of NeoPharm, BioChem and its Affiliates and agents shall not accept or
solicit any non-monetary consideration for the sale of the Product other than as
would be reflected in Net Sales.
4.9 TAXES. Any tax which BioChem is required to pay or withhold with
respect to royalty payments and to pay with respect to all other payments to be
made to NeoPharm hereunder shall be deducted from the amount otherwise due,
provided that, in regard to any such deduction, BioChem and/or its Affiliates
shall give NeoPharm such assistance as may reasonably be necessary to enable or
assist NeoPharm to claim exemption therefrom or a reduction thereof and shall,
upon request, provide documentation from time to time so as to confirm the
payment by BioChem of such tax to the appropriate Governmental Body.
ARTICLE V
MANUFACTURE AND SUPPLY
5.1 PRODUCT SUPPLY. NeoPharm shall manufacture for and supply or ensure the
manufacture of and supply to BioChem, BioChem's Affiliates and BioChem's
sublicensees of all of their requirements of the Product pursuant to the terms
and conditions of the Manufacturing and Supply Agreement attached hereto as
Exhibit "5.1 ". BioChem desires a secure source of long-term supply of Product
for use in the Territory and NeoPharm wishes to provide BioChem with such a
source of supply and NeoPharm shall use its best efforts to enter into one or
more contracts with material suppliers and contract manufacturers as required in
order to assure the availability of Product for commercialization by BioChem in
the Territory on terms and conditions set forth in the Manufacturing and Supply
Agreement. NeoPharm shall provide a progress report to BioChem on an ongoing
basis of the state of negotiations with such contract manufacturers and
suppliers. NeoPharm agrees to be subject to the penalty provided for in Article
II of Exhibit 5.1 hereto in the event a secure source of supply is not assured
according to the terms of said Article II.
ARTICLE VI
TRADEMARKS
6.1 TRADE MARKS. NeoPharm shall apply in the Territory for the
registration, and, to the extent available, BioChem shall use on all Product
sold in the Territory, trade marks currently in use or substantially similar to
those being used on the same or similar products incorporating the chemical
agent BUdR being sold by NeoPharm, its Affiliates, licensees outside the
Territory. In the event of a third Person action alleging trade mark
infringement, the Parties may agree to adopt another trade mark for use with the
Product. BioChem shall be consulted by NeoPharm with respect to NeoPharm's
choice of trade mark counsel for the Territory and shall also be consulted with
respect to and kept informed of all matters relating to the preparation, filing,
prosecution and maintenance of trade marks for use with the Product in the
Territory. NeoPharm shall afford due consideration to BioChem's comments and
concerns with respect to trade mark matters relating to use of the Product in
the Territory.
ARTICLE VII
CONFIDENTIALITY: ETC.
7.1 CONFIDENTIALITY; NON-DISCLOSURE; RESTRICTED USE. Except to the extent
expressly authorized by this Agreement or otherwise agreed in writing, the
Parties agree that the receiving Party shall keep confidential, shall not
publish or otherwise disclose and shall not use directly or indirectly for any
purpose, any information furnished to the
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receiving Party by the other Party pursuant to this Agreement. The foregoing
obligations shall not apply to any information which the receiving Party can
establish by competent proof:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving
Party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act
or omission of the receiving Party in breach of this Agreement;
or
(d) was subsequently disclosed to the receiving Party, other than
under an obligation of confidentiality, by a third Person who had
no obligation to the disclosing Party not to disclose such
information to others;
(e) was independently developed by the receiving Party or its
Affiliates;
The obligations of confidentiality, non-disclosure and non-use hereunder shall
continue until the relevant information falls within the exceptions provided for
in paragraphs (a) to (e) above. Each Party may disclose the other Party's
confidential information to the extent such disclosure is reasonably necessary
in filing or prosecuting patent applications, prosecuting or defending
litigation, complying with applicable Laws, making a permitted sublicense of or
otherwise entering into business relationship with respect to, or exercising,
its rights hereunder, or in conducting clinical trials; provided, however, that
prior to making any such disclosure the Party intending to do so will give
reasonable advance notice to the other Party of such disclosure requirement and
will use its best efforts to secure confidential treatment of such information
prior to its disclosure.
7.2 INFORMATION STORAGE. Without limiting the generality of Section 7.1,
each Party shall retain all the other Party's information in a secure place,
separate from any other information, data, reports, or other documents not
relating hereto, with access to such information limited to those persons who
have a "need to know" such information, for the purposes of carrying out the
retaining Party's obligations under this Agreement.
7.3 RETURN OF INFORMATION. Subject to Article IX, upon termination of this
Agreement, the receiving Party shall promptly return all of the disclosing
Party's information, including all reproductions and copies thereof and shall
immediately delete all references thereto stored electronically, provided that
the receiving Party shall be entitled to retain one copy of the information for
its legal counsel for the purposes of determining its rights and obligations
undo this Article VII.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY NEOPHARM. NeoPharm shall defend, indemnify and hold
harmless, BioChem and BioChem's Affiliates, directors, officers, employees,
shareholders and agents (individually, a "BioChem Indemnified Party", and
collectively, the "BioChem Indemnified Parties"), from and against any and all
liabilities, losses, damages, fines, costs, claims, actions and expenses
incurred by the BioChem Indemnified Parties (including the reasonable fees,
costs and expenses of attorneys and other professional and court costs), based
on any civil, criminal, statutory, regulatory or other claims of liability
(referred to collectively as "Liabilities"), asserted at any time arising out of
or involving a breach or misstatement by NeoPharm of its representations,
warranties, covenants or obligations under this Agreement (including under the
Exhibits hereto).
8.2 GOVERNMENT RESTRICTIONS. Subject to Section 8.1, NeoPharm will not be
liable for any damages on account of any restrictions imposed by any
Governmental Body in the Territory on the use, sale or distribution of the
Product. NeoPharm will not be responsible for any recall, confiscation or other
restriction on the use or sale of the Product by any Governmental Body in the
Territory for any reason other than the negligent acts or omissions of NeoPharm,
its
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Affiliates, Contract Manufacturers or agents.
8.3 INDEMNIFICATION BY BIOCHEM. BioChem shall defend, indemnify and hold
harmless, NeoPharm and NeoPharm's Affiliates, directors, officers, employees,
shareholders and agents (individually, a "NeoPharm Indemnified Party", and
collectively, the "NeoPharm Indemnified Parties"), from and against any and all
liabilities, losses, damages, fines, costs, claims, actions and expenses
incurred by the NeoPharm Indemnified Parties (including the reasonable fees,
costs and expenses of attorneys and other professional and court costs), based
on any civil, criminal, statutory, regulatory or other claims of liability
(referred to collectively as "Liabilities"), asserted at any time arising out of
or involving (i) a breach or misstatement by BioChem of its representations,
warranties, covenants or obligations under this Agreement (including under the
Exhibits hereto), (ii) the development, use, manufacture, promotion, sale or
other disposition, of any other products which incorporate the Product (herein
"Other Product") by BioChem; or (iii) BioChem's use of any NeoPharm Know-How or
Improvements in Other Products. Without limiting the foregoing, BioChem will
defend, indemnify and hold harmless the NeoPharm Indemnified Parties, from and
against any Liabilities resulting from:
8.3.1 Any product liability claim or other claim of any kind related to
the use by a third Person of any Other Product that was manufactured,
sold or otherwise disposed of by BioChem;
8.3.2 Clinical trials or studies conducted by or on behalf of BioChem
and any of its Affiliates, sublicensees, or assignees to whom NeoPharm
and its Affiliates, sublicensees, Contract Manufacturers or assignees
supplies CTM, including, without limitation, any claim by or on behalf
of a human subject of any such clinical trial or study, and any claim
or deviation, authorized or unauthorized, from the protocols of any
such clinical trial or study and any claim resulting from, or arising
out of, the manufacture or quality by a third Person of any substance,
other than the CTM, administered in any clinical trial or study,
provided, however, that BioChem will not be obligated to indemnify and
hold harmless NeoPharm with respect to claims resulting solely from, or
arising solely out of NeoPharm's negligent or intentional acts or
omissions with respect to the manufacture or quality of the CTM
supplied by NeoPharm and its Affiliates, sublicensees, Contract
Manufacturers or sublicensees.
8.4 EXCEPTIONS. No indemnification shall be made to a BioChem Indemnified
Party or NeoPharm Indemnified Party to the extent any Liabilities arise out of,
result from or involve (i) the breach or misstatement by such Person of its
representations, warranties or obligations under this Agreement or the Exhibits
hereto or (ii) the negligence or willful misconduct of such Person.
Notwithstanding anything to the contrary herein contained, neither Party shall
be liable hereunder to defend, indemnify or hold harmless, any Person for any
claim for indirect, special or consequential damages of any kind.
8.5 INDEMNIFICATION PROCEDURES. A Party (the "indemnitee") which intends to
claim indemnification under this Article VIII shall promptly notify the other
Party (the "indemnitor") in writing of the Liability with respect to which the
claim of indemnification relates. The indemnitee shall permit, and shall cause
its employees and agents to permit, the indemnitor, at its discretion, to settle
any such Liability, the defense and settlement of which shall be under the
complete control of the indemnitor; provided, however, that such settlement
shall not adversely affect the indemnitee's rights hereunder or impose any
obligations on the indemnitee in addition to those set forth herein in order for
it to exercise those rights. No such Liability shall be settled without the
prior written consent of the indemnitor, and the indemnitor shall not be
responsible for any legal fees or other costs incurred other than as provided
herein. The indemnitee, its employees and agents shall co-operate fully with the
indemnitor and its legal representatives in the investigation and defense of any
Liability covered by this indemnification. The indemnitee shall have the right,
but not the obligation, to be represented by counsel of its own selection and
expense.
ARTICLE IX
TERM; TERMINATION
9.1 TERM OF AGREEMENT. This Agreement shall commence as of the date first
above written and shall continue in force until terminated in accordance with
the provisions of this Article IX.
9.2 RETENTION OF LICENSE. Subject to Sections 9.4 and 9.6, upon the
expiration or termination of this Agreement
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for any reason other than (a) termination by NeoPharm under Section 9.3
following a default by BioChem, (b) termination on notice by BioChem under
Section 9.4 or (c) termination by NeoPharm under Section 9.5 (i.e. bankruptcy,
insolvency, etc. of BioChem), BioChem shall retain a paid-up, royalty-free,
exclusive license (with the right to sublicense) to the NeoPharm Know-How and
Improvements to continue to use, sell and have manufactured and sold, the
Product in the Territory, without any further consideration whatsoever being
payable by BioChem to NeoPharm. Subject to Sections 9.4 and 9.6, upon the
expiration or termination of this Agreement for any reason other than (a)
termination by BioChem under Section 9.3 following a default by NeoPharm, or (b)
termination by BioChem under Section 9.5 (i.e. bankruptcy, insolvency, etc. of
NeoPharm), NeoPharm shall retain a paid-up, royalty-free, nonexclusive license
(with the right to sublicense) to use the BioChem Know-How in NeoPharm's
applications for Governmental Approvals outside of the Territory, without any
further consideration whatsoever being payable by NeoPharm to BioChem.
9.3 TERMINATION ON DEFAULT.
(a) Failure by a Party to comply with its material obligations
contained herein shall entitle the Party not in default to give
to the Party in default notice specifying the nature of the
default and requiring it to make good such default. If such
default is not cured within ninety (90) days after the receipt of
such notice (which period shall be decreased to thirty (30) days
for defaults relating to the payment of sums of money due
hereunder), or diligent steps taken to cure if by its nature such
default could not be cured in ninety (90) days (or thirty (30)
days for defaults relating to the payment of sums of money due
hereunder), the Party not in default shall be entitled, without
prejudice to any of its other rights conferred on it by this
Agreement, and in addition to any other remedies available to it
by Law, to terminate this Agreement.
(b) Failure by a Party to comply with its material obligations
contained in the Manufacturing and Supply Agreement shall entitle
the Party not in default to give to the Party in default notice
specifying the nature of the default and requiring it to make
good such default. If such default is not cured within the cure
period provided for in the Manufacturing and Supply Agreement or
diligent steps taken to cure if by its nature such default could
not be cured in such period, the Party not in default shall be
entitled, without prejudice to any of its other rights conferred
on it by this Agreement or the Manufacturing and Supply
Agreement, and in addition to any other remedies available to it
by Law, to terminate this Agreement.
(c) Any right to terminate arising under Subsections 9.3(a) or (b)
shall be stayed if, during the relevant cure period, the Party
alleged to have been in default shall:
(i) have initiated arbitration in accordance with Section 10.10
below, with respect to the alleged default; and
(ii) be diligently and in good faith cooperating in the prompt
resolution of such arbitration proceedings.
(d) The right of a Party to terminate this Agreement shall not be
affected in any way by its waiver or failure to take action with
respect to any prior default.
9.4 TERMINATION ON NOTICE BY BIOCHEM. Upon one hundred eighty (180) days
notice delivered to NeoPharm at any time following the first (1st) anniversary
of the effective date of this Agreement, BioChem may terminate its participation
in the commercialization program that is the basis of the Agreement. In such
event, all rights granted to BioChem under the Agreement will terminate and
BioChem will make any payments then due or owing or which may become due during
the one hundred eighty (180) day notice period. Subject to Section 9.6, upon
delivery of the notice by BioChem, NeoPharm will have access to the regulatory
filings of BioChem relating to the Product in order that NeoPharm may continue
the commercialization of the Product in a timely manner within the Territory.
9.5 TERMINATION ON BANKRUPTCY: INSOLVENCY; ETC. Either Party may, in
addition to the other remedies available
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to it at Law, terminate this Agreement by written notice to the other Party, if
the other Party shall have become bankrupt or insolvent, or shall have made an
assignment for the benefit of its creditors, or shall have sought protection or
relief under any bankruptcy, insolvency reorganization or other similar statute,
or there shall have been appointed a trustee or receiver of the other Party. In
the event of termination of this Agreement by BioChem pursuant to and in
accordance with this Section 9.5 (i.e. upon bankruptcy, insolvency etc. of
NeoPharm), BioChem shall retain a paid-up, royalty-free, exclusive license (with
the right to sublicense) to the NeoPharm Know-How and Improvements to continue
to use, sell and have manufactured and sold, the Product in the Territory.
Subject to Section 9.6, in the event of termination of this Agreement by
NeoPharm pursuant to and in accordance with this Section 9.5 (i.e. upon
bankruptcy, insolvency etc. of BioChem), NeoPharm shall retain a paid-up,
royalty-free, non-exclusive license (with the right to sublicense) to use the
BioChem Know-How in NeoPharm's applications for Governmental Approvals outside
of the Territory.
9.6 BIOCHEM KNOW-HOW: SPECIAL PROVISIONS.
(a) The license granted to NeoPharm pursuant to Section 2.6 hereof
shall terminate immediately upon termination of this Agreement by
BioChem pursuant to, and in accordance with, the terms of Section
9.3 and/or Section 9.5.
(b) In the event of termination of this Agreement for any reason
other than by BioChem pursuant to, and in accordance with, the
terms of Section 9.3 and/or Section 9.5, BioChem shall, at
NeoPharm's sole option, but subject to the Parties' agreement as
to the amount payable to BioChem by NeoPharm as provided below,
upon written request of NeoPharm, (i) provide NeoPharm with a
copy of all written data and information then in BioChem's
possession relating to the development of the Product by BioChem
up to that time; and (ii) to the extent permitted by Law,
transfer any NOC or other evidence of HPB approval of the Product
to NeoPharm; provided that any such requests shall be made within
one (1) year following the date as of which the Agreement
terminates.
(c) In consideration of the transfer of such development data and of
the transfer of the NOC or other evidence of HPB approval
referred to in Subsection 9.6(b), NeoPharm agrees to pay BioChem,
promptly upon occurrence of such transfers, the following:
(i) if termination of this Agreement occurs prior to BioChem's
submission of an NDS for the Product, an amount equal to one
hundred percent (100%) of BioChem's, BioChem's Affiliates'
and BioChem's sublicensees' fully absorbed, allocable costs
and expenses in connection with the development of the
Product;
(ii) if termination of this Agreement occurs after to BioChem's
submission of an NDS for the Product but before an NOC is
obtained therefore, an amount equal to one hundred percent
(100%) of BioChem's, BioChem's Affiliates' and BioChem's
sublicensees' fully absorbed, allocable costs and expenses
in connection with the development of the Product; and
(iii) if termination of this Agreement occurs after an NOC has
been obtained for the Product, an amount to be mutually
agreed upon between the Parties with respect to the Product,
which amount shall at least reflect the costs and expenses
incurred by BioChem, BioChem's Affiliates and BioChem's
sublicensees in connection with the development,
commercialization and marketing of the Product.
(d) Notwithstanding anything to the contrary herein contained,
NeoPharm shall not be required to pay BioChem the amounts
described in Subsection 9.6(c) in respect of any transfer of
data, NOC or other evidence of HPB approval, following
termination by NeoPharm under (i) Section 9.3 (default by
BioChem), or (ii) Section 9.5 (bankruptcy, insolvency, etc.
of BioChem).
9.7 RETURN OF KNOW-HOW. Subject to the licenses granted under this Article
IX which are expressly stated to survive termination of this Agreement, upon
termination hereof, each Party shall return other Party, and shall thereafter
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cease making use of , all of such other Party's Know-How.
9.8 ACCRUED RIGHTS; SURVIVING OBLIGATIONS..
(a) Termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights
which shall b have accrued to the benefit of a Party prior
to such termination, relinquishment or expiration. Further,
any such termination, relinquishment or expiration shall not
relieve a Party from obligations which are expressly
indicated to survive termination, relinquishment or
expiration.
(b) Without limiting the foregoing, the provisions of Section
4.6, Article VII, Article VIII, Article IX, Section 10.3 and
Section 10.10 of this Agreement shall survive the expiration
or termination of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency or employer-employee
relationship between Parties and/or any of their respective Affiliates or
employees. Neither Party shall incur any debts or make any commitments for the
other.
10.2 ASSIGNMENTS. Except as expressly provided herein, neither this Agreement
nor any interest hereunder shall be assignable, nor any other obligation
delegable, by a Party without the prior written consent of the other; provided,
however, that a Party may assign this Agreement to any Affiliate of it or to any
successor by law or by sale of substantially all of its assets to which this
Agreement relates provided that he assigning Party shall guarantee and remain
liable and responsible for the performance and observance of all its duties and
obligations hereunder. This Agreement shall be binding upon the successors and
permitted assigns of the Parties including assignees of any rights with respect
to the Product, NeoPharm Know-How, BioChem Know-How or Improvements. Any
assignment not in accordance with this Section 10.2 shall be void. Nothing in
this Section 10.2 shall restrict BioChem's right to sublicense under Article II
hereof.
10.3 REPRESENTATIONS AND WARRANTIES. NeoPharm and BioChem each represents and
warrants to the other that:
(a) it is free to enter into this Agreement;
(b) its execution, delivery and performance of this Agreement do
not and will not violate or conflict with any provision of
Law or any other agreement to which it is a party and n o
consents, approval or authorizations, registrations or
filings are required in connection with the execution,
delivery, performance, validity or enforceability of this
Agreement, except as have been obtained or made or set forth
hemin;
(c) (in respect of NeoPharm only) to the best of NeoPharm's
knowledge, after due inquiry, there is no outstanding claim
or allegation that the Product, NeoPharm Know-How and/or
Improvements infringe upon any rights of a third Person nor
any potential claim or allegation that the Product, NeoPharm
Know-How and/or Improvements infringe upon the rights of a
third Person;
(d) (in respect of NeoPharm only) to the best of NeoPharm's
knowledge, after due inquiry, NeoPharm has informed BioChem
about all information in NeoPharm's possession or of which
NeoPharm otherwise has knowledge concerning side effects,
injury, toxicity or sensitivity reactions and incidents (in
each case provided same are material), associated with all
uses, studies, investigations or tests involving the Product
(animal or human) throughout the world, whether or not
determined to be attributable to the Product;
(e) it is a corporation duly organized and validly existing
under the Laws of the jurisdiction indicated
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above and, by virtue of such jurisdiction's Laws, is in good
standing as a domestic corporation of such jurisdiction;
(f) it is qualified to do business in all jurisdiction in which
such qualification is necessary in order to perform its
obligations hereunder;
(g) the execution, delivery and performance by it of this
Agreement have been duly authorized by all requisite
corporate action and each such document, when signed, will
constitute its legal, valid and binding obligation,
enforceable according to its terms and condition.
10.4 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver
such further instruments and to do all such other acts as may be reasonably
necessary or reasonably appropriate in order to carry out the purposes and
intent of this Agreement.
10.5 NO TRADE MARK RIGHTS. Except Party as otherwise specifically provided
for herein (including in the Exhibits hereto), no right, express or implied, is
granted hereby to a Party to use in any manner the name or any other trade name
or trade mark of the other Party.
10.6 PUBLIC ANNOUNCEMENTS. If either Party wishes to make a public disclosure
concerning this Agreement or the terms hereof, the other Party shall be provided
with an advance copy of the proposed disclosure and shall have three (3)
business days within which to approve or disapprove thereof unless the law
requires immediate disclosure in which case the Party will endeavor to give
notice thereof as soon as possible to the other Party. Approval shall not be
unreasonably withheld by either Party. Absent approval, no public disclosure
concerning this Agreement or the terms hereof shall be made by either Party,
except to the extent required to Law.
10.7 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement (including
the Exhibits hereto), together with the Confidentiality and Non-Disclosure
Agreement signed by the Parties on May 12, 1997, constitutes and
contains the entire understanding and agreement of the Parties and cancels and
supersedes any and all prior negotiations, correspondence, understandings and
agreements between the Parties, whether oral or written, respecting the subject
matter hereof, including, without limitation, the letter agreement between
Parties dated February 10, 1997. No waiver, modification or amendment of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.
10.8 APPLICABLE LAW. This Agreement shall be governed by and interpreted in
accordance with the Laws of the State of New York and shall be treated in all
respects as a New York contract.
10.9 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or
consent required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been sufficiently given if delivered
personally, transmitted by telecopier (confirmation of receipt by confirmed
facsimile transmission being deemed receipt of communication sent by telecopy)
or five (5) days after it was sent, by registered letter (or its equivalent) to
the party to which it is directed as its address shown below or such other
address as such Party shall have last given by notice delivered in accordance
herewith to the other Party:
(a) If to BioChem, addressed to:
BIOCHEM THERAPEUTIC INC.
275 Armand, Frappier Boulevard
Laval, Quebec, Canada
H7V 4A7
Attention: Mr. Michael Grey
Telecopier: (514) 978-7767;
with a copy to:
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BIOCHEM PHARMA, INC.
at the same address
Attention: Mr. Charles Tessier, VP, Legal Affiairs and
Corporate Secretary
Telecopier: (514) 978-7755
(b) If to NeoPharm, addressed to:
NEOPHARM INCORPORATED
225 East Deerpath
Suite 250
Lake Forest, Illinois, USA 60045
Attention: Mr. Mahendra G. Shah, PH.D., Vice President,
Corporate
Telecopier: (847) 295-8854
with a copy to:
BURKE, WARREN, MACKAY & SERRITELLA, P.C.
22nd Floor, IBM Plaza
330 North Wabash Avenue
Chicago, Illinois USA 60611-3607
Attention: Christopher R. Manning, Esq.
Telecopier: (312) 840-7900
10.10 DISPUTES.
(a) The Parties shall mutually consult in good faith in an attempt to
settle amicably in the spirit of cooperation any and all disputes
arising out of or in connection with this Agreement or questions
regarding the interpretation of the provisions hereof.
(b) Subject to Section 3.4, each dispute arising out of or in
connection with this Agreement or question regarding the
interpretation hereof which cannot be settled amicably within
sixty (60) days from the date of notification of either Party to
the other of such dispute or question, which notice shall specify
the details of such dispute or question, shall be finally settled
by binding arbitration, conducted, in English, in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association, by one (1) arbitrator appointed in accordance with
such Rules. If the Parties cannot agree on the arbitrator to be
so appointed, each Party shall be entitled to appoint one (1)
arbitrator, and the two (2) arbitrators so appointed shall agree
upon a third. The arbitrator(s) shall have the technical
expertise required to understand and arbitrate the dispute. The
arbitration carried out hereunder shall apply to the exclusion of
regular legal means, provided that the rights of the Parties in
urgent situations in which time is of the essence to obtain
proper remedies in court of Law shall remain unimpaired.
(c) Any arbitration referred to herein shall be held in Lake Forest,
Illinois if initiated by BioChem an din Montreal, Quebec, if
initiated by Neo Pharm.
(d) The costs of any arbitration hereunder, including administrative
and arbitrator(s) fees, shall be shared equally by the Parties,
but each Party shall bear its own costs and attorneys' and
witness' fees, provided however, that the prevailing Party, if
determined by the arbitrator(s), shall be entitled to an award
against the other Party in the amount of the prevailing Party's
costs (including arbitration costs) and reasonable attorneys' and
witness' fees.
(e) There shall be no appeal from the decision or findings of the
arbitrator(s), which shall be final and binding upon the Parties
and may be entered in any court having proper jurisdiction.
17
<PAGE>
10.11 NO THIRD PARTY BENEFICIARIES. Except as specifically provided in this
Agreement, no Person not a Party to this Agreement, including any employee of
any Party to this Agreement, shall have or acquire any rights by reason of this
Agreement, nor shall any Party hereto have any obligations or liabilities to
such other Person solely by reason of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their respective duly authorized officers as of the day and year first above
written, each copy of wich shall for all purposes be deemed to be an original.
NEOPHARM INCORPORATED
witness /s/ David Riggs /s/ Mahendra G. Shah
-------------------- ------------------------------------------
per: Dr. Mahendra G. Shah, Ph.D., Vice President,
Corporate Development
witness
--------------------
BIOCHEM THERAPEUTIC INC.
witness
-------------------- /s/ Michael Grey
-------------------------------------------
per: Michael Grey, President
/s/ Mario Thomas
-------------------------------------------
per: Dr. Mario Thomas, Vice-President,
witness /s/ Lucy Ameuol Business Development
--------------------
18
<PAGE>
EXHIBIT 1(d)
TO THE
COLLABORATION AGREEMENT
DATED MAY 12, 1997
BETWEEN
BIOCHEM THERAPEUTIC INC. ("BIOCHEM") AND NEOPHARM INCORPORATED ("NEOPHARM")
TABLE OF CONTENTS OF BUDR NDA
19
<PAGE>
EXHIBIT 1(u)
TO THE
COLLABORATION AGREEMENT
DATED MAY 12, 1997
BETWEEN
BIOCHEM THERAPEUTIC INC. ("BIOCHEM") AND NEOPHARM INCORPORATED ("NEOPHARM")
PRODUCT DESCRIPTION
20
<PAGE>
EXHIBIT 3.1
TO THE
COLLABORATION AGREEMENT
DATED MAY 12, 1997
BETWEEN
BIOCHEM THERAPEUTIC INC. ("BIOCHEM") AND NEOPHARM INCORPORATED ("NEOPHARM")
INITIAL NOMINEES FOR THE MANAGEMENT COMMITTEE
BIOCHEM: MICHAEL GREY; LOUISE PROULX; AND CAROLINE FORTIER
NEOPHARM: DR. MAHENDRA G. SHAH; DR. AQUILAR RAHMAN; AND DR. WILLIAM C. GOVIER
21
<PAGE>
EXHIBIT 5.1
TO THE
COLLABORATION AGREEMENT
DATED MAY 12, 1997
BETWEEN
BIOCHEM THERAPEUTIC INC. ("BIOCHEM") AND NEOPHARM INCORPORATED ("NEOPHARM")
MANUFACTURING AND SUPPLY AGREEMENT
[see Attached]
22
<PAGE>
MANUFACTURING AND SUPPLY AGREEMENT
This MANUFACTURING and SUPPLY AGREEMENT is dated and effective as of the 12th
day of May 1997;
BY AND BETWEEN: BIOCHEM THERAPEUTIC INC., a corporation
incorporated under the laws of Canada, with its
principal place of business located at 275
Armand-Frappier Boulevard, Laval, Quebec, Canada, H7T
4A7:
(hereinafter referred to as "BioChem"),
AND: NEOPHARM INCORPORATED, a corporation incorporated
under the laws of the State of Delaware, with a place
of business at 225 East Deerpath, Suite 250, Lake
Forest, Illinois, United States of America, 60045
(hereinafter referred to as "NeoPharm")
RECITALS:
A. NeoPharm manufactures and supplies Product (as defined in the
Collaboration Agreement of even date herewith between the
Parties (the "Collaboration Agreement"));
B. BioChem has been granted certain rights from NeoPharm under
the Collaboration Agreement to the Product for use as a
radiosensitizing agent for the treatment of cancer in humans
and as a prognostic marker for breast cancer;
C. BioChem wishes to purchase from NeoPharm and NeoPharm wishes
to manufacture for and supply to BioChem, the Product on the
terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the various premises and undertakings set
forth herein, the Parties agree as follows:
ARTICLE I
INTERPRETATION
1.1 Unless otherwise specifically provided herein, the following terms shall
have the following meanings:
(a) "AGREEMENT" shall mean this Manufacturing and Supply Agreement and all
instruments supplemental hereto or in amendment or confirmation hereof;
"herein", "hereof", "hereto", "hereunder"
<PAGE>
and similar expressions mean and refer to this Agreement and not to any
particular Article, Section, Subsection or other subdivision; "Article",
"Section", "Subsection" or other subdivision of this Agreement means and refers
to the specified Article, Section, Subsection or other subdivision of this
Agreement.
(b) "CGMP" shall mean U.S. Current Good Manufacturing Practices, as established
from time to time by the FDA.
(c) "COLLABORATION AGREEMENT" shall mean the agreement entered into of even date
between the Parties, to which this Agreement forms EXHIBIT "5.1".
(d) "CONTRACT MANUFACTURER" shall mean any Person designated now or hereafter
under Section 2.4 hereof to manufacture Product.
(e) "DELIVERY DATE" shall mean a date for which delivery of Product to BioChem
by NeoPharm is requested by BioChem in a purchase order and confirmed by
NeoPharm pursuant to Article V hereof.
(f) "DOLLARS" AND "$" shall mean lawful money of the United States of America,
unless otherwise indicated.
(g) "FDA" shall mean the United States Food and Drug Administration, or any
successor or replacement entity thereto.
(b) "GAAP" shall mean United States generally accepted accounting practices,
consistently applied.
(I) "MANUFACTURING COSTS" shall mean NeoPharm's manufacturing costs for Product,
which shall consist of (i) to the extent Product is manufactured by NeoPharm,
NeoPharm's fully-allocated manufacturing cost (including overhead, as determined
and allocated in accordance with customary accounting practices of NeoPharm),
but excluding costs for excess manufacturing capacity not reasonably related to
projected demand for Product, the whole as computed using standard accounting
procedures of NeoPharm, applied on a consistent basis in accordance with GAAP,
and (ii) to the extent Product is manufactured by a third Person on behalf of
NeoPharm, reasonable amounts actually paid to the third person for such Product,
which shall, in any event, be no more than which would be paid to an independent
third Person in an arm's length transaction; in each case, supported by
appropriate documentation.
(j) "SPECIFICATIONS" shall mean, collectively, the procedures, requirements,
standards and other information relating to Product set forth in EXHIBIT "6.1"
hereto, as the same may be amended from time to time in accordance with Section
6.2 hereof.
1.2 All other capitalized terms herein shall have the meaning ascribed thereto
in the Collaboration Agreement, as the case may be.
1.3 The following are the exhibits annexed to and incorporated in this Agreement
by reference and deemed to be a part hereof:
<PAGE>
EXHIBIT "4.4" - BioChem Standard Purchase Order Form;
EXHIBIT "6.1" - Specifications; and
EXHIBIT "9.1" - Trade Mark License.
In the event of any conflict between the provisions of any exhibit to this
Agreement and the main text of the Agreement, the main text shall prevail.
1.4 The recitals are incorporated herein by reference and deemed to be part
hereof.
ARTICLE II
SUPPLY
2.1 NeoPharm hereby agrees to manufacture for and supply to BioChem, and BioChem
hereby agrees to obtain from NeoPharm, BioChem's total requirements of Product
for:
(a) use in seeking HPB approval to commercialize the Product in
the Territory, including the carrying out of preclinical or
clinical trials for the purpose of obtaining or maintaining
such approval ("Clinical Trial Material" or "CTM"); and
(b) following receipt of HPB approval of the Product, sale in the
Territory ("Commercial Material").
2.2 Notwithstanding the foregoing, NeoPharm shall not supply, and BioChem shall
not be obligated to obtain from NeoPharm, Product, unless and until NeoPharm or
NeoPharm's Contract Manufacturer, as the case may be, shall have complied with
all Laws governing the manufacturing and supply of products such as the Product.
2.3 BioChem desires a secure source of long-term supply of Product and NeoPharm
has agreed to arrange such secure source of long-term supply, NeoPharmn agrees
to use its best efforts to enter into one or more contracts with material
suppliers and contract manufacturers as required in order to assure the
availability of Product for BioChem's requirements as stipulated in this
Agreement. NeoPharm shall provide a progress report to BioChem on an ongoing
basis of the state of negotiations with such contract manufacturers and
suppliers.
2.4 NeoPharm agrees to assure BioChem, pursuant to the terms of this Agreement,
of the adequate supply of Product throughout the term of this Agreement
2.5 In the event that NeoPharm is unable, despite having used its best efforts,
to secure such manufacture and supply of Product within a period of one hundred
eighty (180) days from the date of this Agreement, then NeoPharm shall be
subject to and agrees to pay a penalty for each day beyond said one hundred
eighty (180) days of: (i) for the first thirty (30) days beyond one hundred
eighty (180) days, one thousand dollars ($1,000) per day; (ii) for each day
beyond thirty (30) days but less than sixty-one (61) days, two thousand dollars
($2,000) per day; (iii) for each day beyond sixty (60) and less than ninety-one
(91) days, three thousand dollars ($3,000) per day; (iv) for each day beyond
ninety (90) days and less than one hundred twenty-one (121) days, five thousand
dollars ($5 000) per
<PAGE>
day; and (v) for each day beyond one hundred twenty (120) days, seven thousand
dollars ($7,000) per day until the execution of the Contract Manufacturer supply
agreement; provided, however, that in no event shall the aggregate amount of the
penalty payable hereunder exceed the sum of five hundred thousand dollars
($500,000).
2.6 Should the penalty provision provided for in Section 2.5 hereof be found
invalid or unenforceable for any reason whatsoever, NeoPharm agrees that the
total amounts accrued and which otherwise have been owing pursuant to such
penalty provision shall represent a debt owing by NeoPharm to BioChem which
BioChem may offset against any amount owed or owing by BioChem to NeoPharm at
any time.
2.7 In addition, during the term of this Agreement, in the event that NeoPharm
enters into further manufacturing and supply agreements with Contract
Manufacturers and/or material suppliers of Product, NeoPharm shall use its best
efforts to include BioChem as a third party beneficiary of same on terms as
favorable as those offered to NeoPharm in respect of Product.
2.8 NeoPharm agrees, during the term of this Agreement, not to manufacture for,
distribute, sell or otherwise provide, directly or indirectly, any Product to
any Person other than BioChem, anywhere in the Territory. To the extent not
inconsistent with applicable Laws, NeoPharm further agrees not to manufacture
for, distribute, sell or otherwise provide any Product to any Person as
aforesaid, where NeoPharm or BioChem has reasonable grounds to believe that such
Person may, directly or indirectly, sell or cause to be sold in the Territory,
such Product; provided that, should NeoPharm exercise its right hereunder to
supply Product to BioChem through a Contract Manufacturer, NeoPharm shall use
its best efforts to ensure that such Contract Manufacturer shall agree in
writing to terms substantially similar to those contained in this Section 2.8.
2.9 Subject to Section 2.8, throughout this Agreement, all references to
"NeoPharm" that relate to its rights and duties as a manufacturer or supplier of
Product shall be deemed to include any Contract Manufacturer designated by
NeoPharm to manufacture Product for supply to BioChem hereunder provided,
however, that any such Contract Manufacturer has complied with all relevant
Governmental Bodies as well as all applicable Laws and provided further, that,
notwithstanding any such designation, NeoPharm shall remain liable along with
any such Contract Manufacturer, to BioChem under this Agreement for any breach
by such Contract Manufacturer of its obligations hereunder.
ARTICLE
PRICE
3.1 The Parties hereby acknowledge and agree that all Product to be supplied to
BioChem by NeoPharm hereunder shall be supplied at no charge to BioChem, the
consideration for such supply being included in the Net Sales Payment to be made
under the Collaboration Agreement.
ARTICLE IV
FORECASTS: ORDERING
4.1 In order to permit NeoPharm to regularly supply BioChem with Commercial
Material for sale in the Territory, at least four (4) months prior to the first
expected date of delivery of such Commercial Material, BioChem shall provide
NeoPharm with a non-binding forecast of BioChem's estimated
<PAGE>
requirements of Commercial Material for the twelve (12) month period following
said expected date of delivery. Such twelve (12) month forecast shall be updated
on a monthly basis.
4.2 A firm, binding purchase order shall be provided by BioChem to NeoPharm with
respect to Products to be supplied hereunder other than in accordance with
Section 4.3, at least four (4) months prior to the scheduled delivery date of
such Products. NeoPharm shall promptly acknowledge the acceptance of such orders
by pro forma invoice or similar written instrument, and shall advise BioChem of
the anticipated shipment date of the quantity of Products so ordered. Upon
acceptance by NeoPharm, each such order shall become firm and binding on the
Parties, and, except as specifically provided for herein, may not be modified
without the prior written approval of the Parties. If BioChem requires
quantities of Products exceeding those mentioned in the relevant forecast
referred to in Section 4.1 by more than fifteen percent (15%), NeoPharm shall
use reasonable efforts to supply same within the aforementioned four (4) month
period, unless NeoPharm has informed BioChem in writing within thirty (30) days
of receipt of BioChem's purchase order of NeoPharm's inability to supply the
quantities referred to in such order. If NeoPharm so informs BioChem, the
Parties shall, without delay and in good faith, negotiate a delivery plan for
the excess amounts set out in such order.
4.3 BioChem shall order a sufficient quantity of Product in the form of CTM from
NeoPharm, for use in seeking HPB approval of the Product and for use in
accordance with the terms of the Collaboration Agreement. The first such order
for CTM shall be placed within one hundred and twenty (120) days following the
date of execution hereof. Subsequent orders shall be placed by BioChem at least
ninety (90) in advance of the required delivery date for such CTM, as stated on
BioChem's purchase order.
4.4 All orders for Product to be purchased hereunder shall be placed on
BioChem's standard purchase order form, a copy of which is attached hereto as
EXHIBIT "4.4". Such purchase order shall specify an anticipated delivery date,
which, once confirmed as acceptable by NeoPharm by pro forma invoice or other
similar written instrument, shall be binding on the Parties (the "Delivery
Date"). In the event of any inconsistency between this Agreement and the terms
of any such purchase order, the terms of this Agreement shall prevail. BioChem
shall have the right, without prejudice to any other rights it may have under
Law, to cancel any orders placed hereunder which have not been filled within
twenty (20) days following the Delivery Date applicable to such order.
4.5 Notwithstanding anything to the contrary herein contained, after receipt by
BioChem of an NOC for the Product in the Territory, should a Net Sales Payment
not be made under the Collaboration Agreement with respect to a particular
shipment of Product within six (6) months of delivery of such Product to BioChem
hereunder, NeoPharm shall invoice BioChem for, and BioChem agrees to advance to
NeoPharm within ten ( 10) days following receipt of such invoice, an amount
equal to the Manufacturing Cost of such Product. Any amounts advanced by BioChem
to NeoPharm under this Section 4.5 shall be deducted, on a Dollar for Dollar
basis, from Net Sales Payments subsequently made with respect to such Product
under Section 4.4 of the Collaboration Agreement.
ARTICLE V
SHIPMENTS
5.1 Delivery of Product to be supplied by NeoPharm to BioChem hereunder shall be
made FOB (per Incoterms, ICC Ed. 1990) NeoPharm's plant in Lake Forest,
Illinois, or such Contract Manufacturer's plant as agreed in writing between the
Parties. BioChem shall arrange for insurance
<PAGE>
for all Product supplied hereunder, covering the journey from NeoPharm's
shipping dock in Lake Forest, Illinois (or from any Contract Manufacturer's
shipping dock, as the case may be), until acceptance by BioChem in Quebec, which
insurance shall be at the sole expense of BioChem. All shipments shall be made
pursuant to written instructions received by NeoPharm from BioChem. NeoPharm
shall provide shipping documentation in accordance with that requested in
BioChem's purchase order, as well as a certificate of analysis and such other
documentation relating to the Product as BioChem may request in writing from
time to time, for each production lot included in a- shipment.
5.2 NeoPharm shall package Product for shipment hereunder in accordance with
NeoPharm's current (as at the date of shipment) standard practices and in
accordance with the Specifications and all applicable Laws.
5.3 Product shipped by NeoPharm hereunder shall have a remaining shelf-life as
of the date of such shipment equal to at least three-quarters (3/4) of the total
approved shelf-life of such Product, as listed in the Specifications. NeoPharm
shall fill each purchase order placed by BioChem hereunder from the same batch
of Product.
5.4 In the event of a lost or damaged shipment of Product hereunder, NeoPharm
shall use best efforts to replace said shipment within sixty (60) days of
notification of such loss or damage by BioChem.
ARTICLE VII
SPECIFICATIONS; OUALI 1Y CONTROL: RECORDS
6.1 Product supplied by NeoPharm to BioChem hereunder shall be manufactured,
labeled, stored and shipped by or on behalf of NeoPharm in compliance with all
applicable Laws and in accordance with the Specifications set forth in the
document attached hereto as EXHIBIT "6.1"; provided that BioChem shall be
responsible for supplying NeoPharm with artwork and sample materials for
finished labeling of the Product appropriate for use in the Territory. The
Parties hereby agree that NeoPharm shall be responsible for ensuring that
finished labels correspond to the artwork and samples provided by BioChem
hereunder, and that such labels shall be properly affixed to the Product, and
that BioChem shall be responsible for the content of the artwork and sample
materials. Without limiting the generality of the foregoing, NeoPharm shall
obtain and maintain all licenses, permits and registrations necessary to
manufacture and supply Product hereunder.
6.2 Neither Party may supplement or amend the Specifications without the other
Party's prior written approval, which approval shall not be unreasonably
withheld or delayed; provided, however, that the Specifications shall be amended
or supplemented if required by the FDA or any other Governmental Body. Unless
otherwise specifically required by Law, all such changes shall be approved in
writing at least sixty (60) days prior to their implementation.
6.3 NeoPharm shall be responsible for performing all quality control tests and
assays on raw and packaging materials used in preparing and shipping the
Product, as well as on the Product, all in a manner consistent with the
Specifications and with NeoPharm's internal quality control procedures.
<PAGE>
NeoPharm shall retain records pertaining to such testing and shall, upon written
request from BioChem, provide BioChem with copies of such records. Without
limiting the generality of the foregoing, NeoPharm shall prepare and maintain
batch records and file samples, properly stored, from each lot or batch of
Product supplied to BioChem hereunder. Upon termination of this Agreement for
any reason other than a default on the part of BioChem, NeoPharm shall transfer
the originals or certified true copies of the originals of such batch records
and file samples to BioChem.
6.4 NeoPharm shall make available to BioChem all records pertaining to complaint
investigations and/or inspections by Governmental Bodies relating to any site
where Product is manufactured or packaged for shipment, including a record of
any actions taken by or on behalf of NeoPharm in response to such investigations
and/or inspections. Each Party agrees to promptly (i.e. within two (2) business
days of being notified of such complaints or inquiries, or sooner as provided by
Law) inform the other Party of any complaints or inquiries that raise
potentially serious quality, health or safety concerns regarding the Product.
6.5 Each Party shall keep complete and accurate records pertaining to the
manufacture and supply of Product for at least five (5) years, or for such
longer period if and as required by Law. Each Party shall make such records
available to the other Party, for such lawful purpose as the other Party may
reasonably request in writing.
6.6 BioChem shall have the right, upon reasonable notice to NeoPharm, during
normal business hours, no more frequently than reasonably necessary and under
appropriate confidentiality agreements, to send authorized representatives to
manufacturing facilities where Product is manufactured, to audit any
manufacturing and testing operations that BioChem deems reasonably appropriate
to confimn that production of each batch of Product is in compliance with cGMP.
Upon request, NeoPharm agrees to notify BioChem of the next scheduled production
run of Product. NeoPharm agrees to co-operate with BioChem's authorized
representatives in their conduct of such audits. Nothing in this Section 6.6
shall limit or detract from NeoPharm's obligation to manufacture and supply
Product in compliance with all applicable Laws and in accordance with the
Specifications.
ARTICLE VII
NONCONFORMING PRODUCT
7.1 BioChem shall inspect each shipment of Product received hereunder as soon as
practicable following receipt thereof. BioChem shall be deemed to have accepted
delivery of the Product in good order and condition, unless BioChem has notified
NeoPharm in writing of any short delivery or nonconformity in respect of a
shipment of Product within thirty (30) days following receipt of same.
Notwithstanding the foregoing, in the case of any nonconformity which is not
readily apparent or discoverable upon reasonable inspection within such thirty
(30) day period, any claim of nonconformity with respect thereto shall not be
deemed waived and delivery of the Product shall not be deemed to have been
accepted if BioChem notifies NeoPharm as soon as practicable, but no later than
fifteen (15) days, following the date on which BioChem learns of such
nonconformity.
7.2 Any claim of nonconformity hereunder shall be accompanied by a report of
analysis of the allegedly nonconforming Product, which report shall be prepared
by or on behalf of BioChem. If,
<PAGE>
after analyzing a sample of such Product, NeoPharm confirms BioChem's claim of
nonconformity, NeoPharm shall, at BioChem's election, replace the nonconforming
Product with conforming Product at NeoPharm's expense or refund the entire
purchase price therefore to BioChem. Pursuant to written directions from
NeoPharm, BioChem shall either return the nonconforming Product to NeoPharm, or
destroy same, in each case, at NeoPharm's expense. If NeoPharm's analysis does
not confirm BioChem's claim of nonconformity, the Parties shall commence good
faith discussions with a view to resolving the issue. In the event the issue
cannot be resolved within thirty (30) days following the start of such
discussions, a sample of the Product in dispute shall be submitted to an
independent laboratory, mutually accepted by the Parties, for testing. The
results of such testing shall be binding upon the Parties. The Party whose
assertion as to the Product in question was not borne out by the results of the
testing by the independent laboratory shall bear all costs relating to such
testing.
7.3 Notwithstanding anything to the contrary contained in this Article VII,
NeoPharm's warranties and indemnification obligations hereunder shall survive
the failure by BioChem to reject any shipment of Product.
ARTICLE VIII
CONFIDENTIALITY: ETC.
8.1 CONFDENTIALITV: NON-DISCLOSURE: RESTRICTED USE. The Parties agree that the
provisions of Article VII of the Collaboration Agreement shall apply, MUTATIS
MUTANDIS, to any information furnished by one Party to the other Party pursuant
to this Agreement.
ARTICLE IX
TRADE MARKS
9.1 NeoPharm shall apply in the Territory for the registration, and, to the
extent available, BioChem shall use on all Product sold in the Territory, trade
marks currently in use or substantially similar to those being used on the same
or similar products incorporating the chemical agent BUdR being sold by
NeoPhartn, its Affiliates, or licensees outside the Territory. In the event of a
third Person action alleging trade mark infringement, the Parties may agree to
adopt another trade mark for use with the Product. BioChem shall be consulted by
NeoPharm with respect to NeoPharm's choice of trade mark counsel for the
Territory and shall also be consulted with respect to and kept informed of all
matters relating to the preparation, filing, prosecution and maintenance of
trade marks for use with the Product in the Territory. NeoPharm shall afford due
consideration to BioChem's comments and concerns with respect to trade mark
matters relating to use of the Product in the Territory, provided that NeoPharm
shall have the ultimate authority and responsibility for decisions relating to
such matters. In exercising such authority with respect to the choice of trade
mark counsel throughout the Territory, NeoPharm undertakes to consider any
BioChem concerns with respect to actual or perceived conflicts of interest
BioChem may have with such counsel. BioChem shall have the right to use any one
(l) or more trade marks of its choosing in conjunction with its sale of the
Product in the Territory, provided such trade mark(s) is (are) not confusingly
similar with the NeoPharm Trade Marks. As between the Parties, NeoPharm, acting
reasonably and in good faith, shall have the ultimate authority for determining
what constitutes a confusingly similar mark.
<PAGE>
The Parties agree to be bound by the terms and conditions contained in the Trade
mark License Agreement attached hereto as Exhibit 9. l with respect to BioChem s
use of the NeoPharm Trade Marks.
ARTICLE X
WARRANTIES
10.1 NeoPharm hereby covenants, represents and warrants to BioChem, and
acknowledges that BioChem has relied on such covenants, representations and
warranties in entering this Agreement, as follows:
(a) On the date of shipment, all Product supplied hereunder shall
be manufactured, stored and shipped by NeoPharm in accordance
with the Specifications and in conformance with all applicable
Laws;
(b) NeoPharm shall have good and marketable title to all Product
supplied hereunder, which title shall pass to BioChem free and
clear of any lien, encumbrance or other conflicting interest
of any kind;
(c) NeoPharm has provided BioChem with true and complete copies of
any current agreements relating to the Product that NeoPharm
has with Contract Manufacturers. All such agreements are in
full force and effect, with no breach thereunder by any party
thereto, and no event, failure or condition has occurred
which, with the passage of time and/or the giving of notice,
would result in a default or breach by either party thereto or
permit the termination, modification or acceleration of any
obligations or rights thereunder; and
(d) To the best of NeoPharm's knowledge after due inquiry,
NeoPharm has informed BioChem about all information in
NeoPharm's possession or control concerning side effects,
injury, toxicity or sensitivity reactions and incidents
associated with all uses, studies, investigations or tests
involving the Product (animal or human) throughout the world,
whether or not determined to be attributable to the Product.
10.2 . EXCEPT AS SPECIFICALLY PROVIDED FOR IN SECTION 10.1 AND SUBJECT TO
ARTICLE XI, NEOPHARM MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED
(i) OF COMMERCIAL UTILITY; (ii) OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE; OR (iii) EXCEPT AS SPECIFICALLY PROVIDED FOR IN SECTION 10.1, THAT
BioChem's USE OF THE PRODUCT OR NeoPharm's Know-How OR Improvements WILL NOT
INFRINGE ANY PATENT, COPYRIGHT OR TRADEMARK OR OTHER PROPRIETARY OR PROPERTY
RIGHTS OF OTHERS. EXCEPT AS SPECIFICALLY PROVIDED FOR IN SECTION 10.1 AND
SUBJECT TO ARTICLE XI, NeoPharm WILL NOT BE LIABLE TO BioChem, BioChem's
SUCCESSORS OR ASSIGNS OR ANY THIRD PARTY WITH RESPECT TO: ANY CLAIM ARISING FROM
BioChem's USE OF THE Product OR THE NeoPharm Know-How OR Improvements, ANY CLAIM
ARISING FROM THE MANUFACTURE, USE OR SALE OF OTHER PRODUCTS (i.e. OTHER THAN THE
Products) CONTAINING COMMERCIAL MATERIALS SUPPLIED PURSUANT TO THIS AGREEMENT;
OR ANY CLAIM FOR LOSS OF PROFITS, FOR LOSS OR INTERRUPTION OF BUSINESS OR FOR
INDIRECT, SPECIAL OR CONSEQUENTIAL
<PAGE>
DAMAGES OF ANY KIND. BioChem ACCEPTS ALL RISK AND RESPONSIBILITY FOR DETERMINING
THE MANNER IN WHICH BioChem WILL USE THE COMMERCIAL MATERIALS IN OTHER PRODUCTS,
IF ANY, AND NeoPharm AND ITS Affiliates MAKE NO WARRANTIES OR REPRESENTATIONS
CONCERNING, AND ASSUME NO RESPONSIBILITY FOR, THE PERFORMANCE OF ANY OTHER
PRODUCT (i.e. OTHER THAN THE Product) INTO WHICH THE COMMERCIAL MATERIALS MAY BE
INCORPORATED.
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION BVNEOPHARM. NeoPharm shall defend, indemnify and hold
harmless, BioChem and BioChem's Affiliates, directors, officers, employees,
shareholders and agents (individually, a "BioChem Indemnified Party", and
collectively, the "BioChem Indemnified Parties"), from and against any and all
liabilities, losses, damages, fines, costs, claims, actions and expenses
incurred by the BioChem Indemnified Parties (including the reasonable fees,
costs and expenses of attorneys and other professional and court costs), based
on any civil, criminal, statutory, regulatory or other claims of liability
(referred to collectively as "Liabilities"), asserted at any time arising out of
or involving a breach or misstatement by NeoPharm of its representations,
warranties, covenants or obligations under this Agreement (including under the
Exhibits hereto).
11.2 GOVERNMENT RESTRICTIONS. Subject to Section ll.l, NeoPharm will not be
liable for any damages on account of any restrictions imposed by any
Governmental Body in the Territory on the use, sale or distribution of the
Product. NeoPharm will not be responsible for any recall, confiscation or other
restriction on the use or sale of the Product by any Governmental Body in the
Territory for any reason other than the negligent acts or omissions of NeoPharm,
its Affiliates, Contract Manufacturers or agents.
11.3 INDEMNIFICATION BV BIOCHEM. BioChem shall defend, indemnify and hold
harmless, NeoPharm and NeoPharm's Affiliates, directors, officers, employees,
shareholders and agents (individually, a "NeoPharm Indemnified Party", and
collectively, the "NeoPharm Indemnified Parties"), from and against any and all
liabilities, losses, damages, fines, costs, claims, actions and expenses
incurred by the NeoPharm Indemnified Parties (including the reasonable fees,
costs and expenses of attorneys and other professional and court costs), based
on any civil, criminal, statutory, regulatory or other claims of liability
(referred to collectively as "Liabilities"), asserted at any time arising out of
or involving (i) a breach or misstatement by BioChem of its representations,
warranties, covenants or obligations under this Agreement (including under the
Exhibits hereto), (ii) the development, use, manufacture, promotion, sale or
other disposition, of any other products which incorporate the Product (herein
"Other Product") by BioChem; or (iii) BioChem's use of any NeoPharm Know-How or
Improvements in Other Products. Without limiting the foregoing, BioChem will
defend, indemnify and hold harmless the NeoPharm Indemnified Parties, from and
against any Liabilities resulting from:
11.3.1 Any product liability claim or other claim of any kind related to the use
by a third person of any Other Product that was manufactu red , sold or
otherwise disposed of by Bio Chem.
<PAGE>
11.3.2 Clinical trials or studies conducted by or on behalf of BioChem and any
of its Affiliates, sublicensees, or assignees to whom NeoPharm and its
Affiliates, sublicensees, Contract Manufacturers or assignees supplies CTM,
including, without limitation, any claim by or on behalf of a human subject of
any such clinical trial or study, and any claim or deviation, authorized or
unauthorized, from the protocols of any such clinical trial or study and any
claim resulting from, or arising out of, the manufacture or quality by a third
Person of any substance, other than the CTM, administered in any clinical trial
or study; provided, however, that BioChem will not be obligated to indemnify and
hold harmless NeoPharm with respect to claims resulting solely from, or arising
solely out of NeoPharm's negligent or intentional acts or omissions with respect
to the manufacture or quality of the CTM supplied by NeoPharm and its
Affiliates, sublicensees, Contract Manufacturers or sublicensees.
11.4 EXCEPTIONS. No indemnification shall be made to a BioChem Indemnified Party
or NeoPharm Indemnified Party to the extent any Liabilities arise out of, result
from or involve (i) the breach or misstatement by such Person of its
representations, warranties or obligations under this Agreement or the Exhibits
hereto or (ii) the negligence or willful misconduct of such Person.
Notwithstanding anything to the contrary herein contained, neither Party shall
be liable hereunder to defend, indemnify or hold harmless, any Person for any
claim for indirect, special or consequential damages of any kind.
11.5 INDEMNIFICATION PROCEDURES. A Party (the "indemnitee") which intends to
claim indemnification under this Article XI shall promptly notify the other
Party (the "indemnitor") in writing of the Liability with respect to which the
claim of indemnification relates. The indemnitee shall permit, and shall cause
its employees and agents to permit, the indemnitor, at its discretion, to settle
any such Liability, the defense and settlement of which shall be under the
complete control of the indemnitor; provided, however, that such settlement
shall not adversely affect the indemnitee's rights hereunder or impose any
obligations on the indemnitee in addition to those set forth herein in order for
it to exercise those rights. No such Liability shall be settled without the
prior written consent of the indemnitor, and the indemnitor shall not be
responsible for any legal fees or other costs incurred other than as provided
herein. The indemnitee, its employees and agents shall cooperate fully with the
indemnitor and its legal representatives in the investigation and defense of any
Liability covered by this indemnification. The indemnitee shall have the right,
but not the obligation, to be represented by counsel of its own selection and
expense.
ARTICLE XII
INSURANCE
12.1 INSURANCE. Prior to the date of manufacture of any Product for sale to the
public by BioChem hereunder, NeoPharm shall have and maintain such type and
amounts of liability insurance covering the manufacturing, supply, use and sale
of products such as the Product as is normal and customary in the pharmaceutical
industry generally for persons similarly situated, which shall, in any event,
provide for a minimum coverage amount of Three Million Dollars for any one
occurrence; and NeoPharm will provide BioChem with a copy of its policies of
insurance in that regard. NeoPharm shall not be entitled to amend or replace any
such insurance without the prior written consent of BioChem, which consent shall
not be unreasonably withheld or delayed.
ARTICLE XIII
TERM: TERMINATION
<PAGE>
13.1 TERM. This Agreement shall commence as of the date first above written and,
unless earlier terminated in accordance herewith, shall remain in effect for the
period during which the Collaboration Agreement shall remain in effect.
13.2 TERMINATION FOR DEFAULT.
(a) Failure by a Party to comply with any of the material
obligations contained herein or in the Collaboration Agreement
shall entitle the Party not in default to give to the Party in
default notice specifying the nature of the default and
requiring it to make good such default. If such default is not
cured within sixty (60) days after the receipt of such notice,
or, if applicable, within the cure period provided for in the
Collaboration Agreement, or diligent steps taken to cure if by
its nature such default could not be cured in sixty (60) days
or in the cure period provided for in the Collaboration
Agreement, as the case may be, the Party not in default shall
be entitled, without prejudice to any of its other rights
conferred on it by this Agreement or the Collaboration
Agreement, and in addition to any other remedies available to
it by Law or in equity, to terminate this Agreement.
(b) Any right to terminate arising under Subsection 13.2(a) shall
be stayed if, during the relevant cure period, the Party
alleged to have been in default shall:
(i) have initiated arbitration in accordance with Section l 5.8,
below, with respect to the alleged default; and
(ii) be diligently and in good faith co-operating in the prompt
resolution of such arbitration.
13.3 BANKRUNTCV; INSOLVENCY; ETC. Either Party may, in addition to the other
remedies available to it at Law, terminate this Agreement by written notice to
the other Party, if the other Party shall have become bankrupt or insolvent, or
shall have made an assignment for the benefit of its creditors, or shall have
sought protection or relief under any bankruptcy, insolvency, reorganization or
other similar statute, or there shall have been appointed a trustee or receiver
of the other Party.
13.4 ACCRUED RIGHTS. SURVIVING OBLIGATIONS.
(a) Termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of a Party prior to such
termination, relinquishment or expiration. Further, any such
termination, relinquishment or expiration, shall not relieve a
Party from obligations which are expressly indicated to
survive termination, relinquishment or expiration of this
Agreement.
(b) Without limiting the generality of Subsection 13.4 (a), the
provisions of Sections 6.3, 6.5 and 6.6 and of Articles IX,
XI, XII and XIII of this Agreement shall survive the
expiration or termination of this Agreement.
13.5 Notwithstanding anything to the contrary herein contained, BioChem may
terminate this Agreement at any time by written notice to NeoPharm, in the event
BioChem is unable to obtain FDA and HPB approval of NeoPharm or a Contract
Manufacturer as the manufacturer and supplier of Product provided, however, that
from the time it is determined that FDA or HPB approval (as the case may be)
will not be obtained, NeoPharm shall have six (6) months to address any concerns
raised by
<PAGE>
FDA and HPB, so as to enable BioChem to obtain such approval.
13.6 The right of either Party to terminate this Agreement shall not be affected
in any way by the failure of such Party to take any action with respect to any
prior circumstance or default which mavhave given rise to a right to terminate.
ARTICLE XIV
FORCE MAJEURE
14.1 Neither Party shall be liable to the other for failure or delay in the
performance of any of its obligations under this Agreement for the time and to
the extent such failure or delay is caused by riots, civil commotions, wars,
hostilities between nations, Laws, embargoes, actions by any Government Body,
acts of God, storms, fires, accidents, labor disputes or strikes, sabotage,
explosions or other similar or different contingencies, in each case, beyond the
reasonable control of the respective Parties. The Party affected by Force
Majeure shall provide the other Party with full particulars thereof as soon as
it becomes aware of the same (including its best estimate of the likely extent
and duration of the interference with its activities), and will use its best
endeavors to overcome the difficulties created thereby and to resume performance
of its obligations as soon as practicable. If the performance of any obligation
under this Agreement is delayed owing to a Force Majeure for any continuous
period of more than six (6) months, the parties shall consult with respect to an
equitable solution, including the possible termination hereof.
14.2 In the event a cause described in Section 14.1 restricts NeoPharm from
supplying Product, in whole or in part, to BioChem, NeoPharm shall treat and
supply BioChem in the same equitable manner as all of NeoPharm's other major
customers.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or shall
be deemed to constitute a partnership, agency or employer-employee relationship
between the Parties and/or any of their respective Affiliates or employees.
Neither Party shall incur any debts or make any commitments for the other. Both
Parties are independent contractors under this Agreement. Neither Party shall
have any express or implied right or authority to assume or create any
obligations on behalf of or in the name of the other Party or to bind the other
Party to any other contract, agreement, or undertaking with any third Person.
15.2 ASSIGNMENTS. Except as expressly provided herein, neither this Agreement
nor any interest hereunder shall be assignable, nor any other obligation
delegable, by a Party without the prior written consent of the other; provided,
however, that a Party may assign this Agreement to any Affiliate of it or to any
successor by Law or by sale of all or substantially all of its assets, provided
that the assigning Party shall guarantee and remain liable and responsible for
the performance and observance of all the assigning Party's duties and
obligations hereunder. Nothing in this Section 15.2 shall be construed to
restrict BioChem 's right to sublicense referred to in Article II of the
Collaboration Agreement. This Agreement shall be binding upon the successors and
permitted assigns of the Parties including assignees of any rights respect to
the Product. Any assignment not in accordance with this Section 15.2 shall be
<PAGE>
void.
15.3 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such
further instruments and to do all such other acts as may be reasonably necessary
or reasonably appropriate in order to carry out the purposes and intent of this
Agreement.
15.4 NO TRADE MARK RIGHTS. Except as otherwise specifically provided for herein,
no right, express or implied, is granted hereby to a Party to use in any manner
the name or any other trade name or trade mark of the other Party.
15.5 PUBLIC ANNOUNCEMENTS. If either Party wishes to make a public disclosure
concerning this Agreement or the terms hereof, the other Party shall be provided
with an advance copy of the proposed disclosure and shall have three (3)
business days within which to approve or disapprove thereof unless the Law
requires immediate disclosure in which case the Party will endeavor to give
notice thereof as soon as possible to the other Party. Approval shall not be
unreasonably withheld by either Party. Absent approval, no public disclosure
concerning this Agreement or the terms hereof shall be made by either Party,
except to the extent required by Law.
15.6 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement (including the
Exhibits hereto) constitutes and contains the entire understanding and agreement
of the Parties and cancels and supersedes any and all prior negotiations,
correspondence, understandings and agreements between the Parties, whether oral
or written, respecting the subject matter hereof, including, without limitation,
the letter agreement between the Parties dated February 10, 1997. No waiver,
modification or amendment of any provision of this Agreement shall be valid or
effective unless made in writing and signed by a duly authorized officer of each
Party.
15.7 APPLICABLE LAW. This Agreement shall be governed by and interpreted in
accordance with the Laws of the State of New York, and shall be treated in all
respects as a New York contract. The Parties hereby expressly agree that the
provisions of the United Nations Convention on the International Sale of Goods
shall not apply to this Agreement.
15.8 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or consent
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been sufficiently given if delivered in accordance with
Section 10.9 of the Collaboration Agreement.
15.9 DISPUTES. Subject to Section 7.2 hereof, any dispute arising out of or in
connection with this Agreement shall be handled in accordance with Section 10.10
of the Collaboration Agreement.
15.10 NO THIRD PARTV BENEFICIARIES. Except as specifically provided in this
Agreement, no Person not a Party to this Agreement, including any employee of
any Party to this Agreement, shall have or acquire any rights by reason of this
Agreement, nor shall any Party hereto have any obligations or liabilities to
such other Person solely by reason of this Agreement.
15.11 STATUTE OF LIMITATIONS. Should either Party allege that the other Party is
in breach of its obligations under this Agreement' the nonbreachingParty must
bring any action it may have against the other Party with respect to such
alleged breach within two (2) years from the date on which the nonbreaching
Party first became aware of the alleged breach.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their respective duly authorized officers as of the day and year first above
written, each copy Of which shall for all purposes be deemed to be an original.
NEOPHARM INCORPORATED
Witness
----------------------
Witness By: /S/ Maherdra G. Shah
---------------------- --------------------------------
per: Dr. Mahendra G. Shah, Ph.D., Vice
President, Corporate Development
BIOCHEM THERAPEUTIC INC.
/S/Michael Grey
------------------------------------
witness per: Michael Grey, President
----------------------
/S/.MARIO THOMAS
------------------------------------
witness per: Dr. Mario Thomas, Vice-President,
---------------------- Business Development
<PAGE>
Exhibit 10.18
AMENDMENT NO. 1
TO AGREEMENT DATED JULY, 1990
THIS AMENDMENT NO. 1 is made and entered into this 22nd day of January,
1999, by and between Georgetown University, a federally chartered corporation
("Georgetown"), having a principal place of business at 37th and O Streets N.W.,
Washington, D.C. 20057 and NeoPharm, Inc., a Delaware corporation ("NeoPharm"),
having a principal place of business at 100 Corporate North, Suite 215,
Bannockburn, Illinois 60015.
RECITALS:
WHEREAS, Georgetown and NeoPharm entered into an agreement dated July,
1994 (the "Agreement") providing for NeoPharm's sponsoring of certain research
by Georgetown and Georgetown granting to NeoPharm an exclusive license in the
"Field" under the "Georgetown Patents" to make, have made, use and sell the
"Products" anywhere in the world and an exclusive license to use the "Georgetown
Inventions" and "Georgetown Information" in the Field anywhere in the world (as
those terms are defined in the Agreement), including the right to grant
sublicenses; and
WHEREAS, Section 11.3 of the Agreement provides that the parties may
amend, modify and supplement the Agreement in such manner as may be agreed upon
by them in writing; and
WHEREAS, Georgetown and NeoPharm wish to amend the Agreement to reflect
certain changed terms;
NOW, THEREFORE, in consideration of the party's mutual agreements
herein contained, it is hereby agreed between the parties as follows:
1. Throughout the Agreement the name "OncoMed" is deleted and there is
substituted therefore the name "NeoPharm".
2. Existing Section 4.2 of the Agreement is hereby designated as
subsection "(a)" and there is added a new subsection as follows:
"(b) SUBLICENSE PAYMENT. Within 30 days of NeoPharm entering
into any sublicense with a Sublicensee, NeoPharm shall pay to
Georgetown a one time sublicense fee of $400,000."
3. The following sentence shall be added at the end of Section 5.1:
"At such time as any Sublicensee shall receive approval from
the U.S. Food and Drug Administration of a New Drug
Application with respect to any Product, then, within 30 days
of the date of notification of such approval, NeoPharm shall
make a one time payment to Georgetown of $250,000."
4. In Subsection 6.1(a), in the third line, the words "and its
Sublicensees" are hereby deleted and in Subsection 6.1(b), in the third line,
the words "or Sublicensees" are hereby deleted.
<PAGE>
5. There is added at the end of Section 6.1(a) the following:
"In addition, NeoPharm agrees to pay royalties on the Net
Sales of each Product sold by its Sublicensees at a royalty
rate of 1.5%."
6. There is added at the end of Section 6.1(b) the following:
"In addition, NeoPharm agrees to pay royalties on the Net
Sales of each Product sold by its Sublicensees during the
ten-year period as provided in Section 4.1(ii) commencing on
the date of such sale which does not obligate NeoPharm to pay
royalties under Section 6.1(a), at the royalty rate of 0.75%."
7. In all other respects, the Agreement is hereby ratified and
confirmed.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Amendment No. 1 as of
the day and date first above written:
GEORGETOWN UNIVERSITY
By: S/Jack Kolosky
---------------------------------
Its: Chief Financial Officer
---------------------------------
By: S/William J. Hartman
---------------------------------
Its: Director, Research & Technology
---------------------------------
NEOPHARM, INC.
By: S/Mahendra Shah
---------------------------------
Its: Vice President
---------------------------------
3
<PAGE>
Exhibit 10.19
AMENDMENT NO. 1
TO AGREEMENT DATED APRIL 18, 1994
THIS AMENDMENT NO. 1 is made and entered into this 22nd day of January,
1999, by and between Georgetown University, a federally chartered corporation
("Georgetown"), having a principal place of business at 37th and O Streets N.W.,
Washington, D.C. 20057 and NeoPharm, Inc., a Delaware corporation ("NeoPharm"),
having a principal place of business at 100 Corporate North, Suite 215,
Bannockburn, Illinois 60015.
RECITALS:
WHEREAS, Georgetown and NeoPharm entered into an agreement dated April
18, 1994 (the "Agreement") providing for NeoPharm's sponsoring of certain
research by Georgetown and Georgetown granting to NeoPharm an exclusive license
in the "Field" under the "Georgetown Patents" to make, have made, use and sell
the "Products" anywhere in the world and an exclusive license to use the
"Georgetown Inventions" and "Georgetown Information" in the Field anywhere in
the world (as those terms are defined in the Agreement), including the right to
grant sublicenses; and
WHEREAS, Section 11.3 of the Agreement provides that the parties may
amend, modify and supplement the Agreement in such manner as may be agreed upon
by them in writing; and
WHEREAS, Georgetown and NeoPharm wish to amend the Agreement to
incorporate the amendments and modifications herein set forth;
NOW, THEREFORE, in consideration of the party's mutual agreements
herein contained, it is hereby agreed between the parties as follows:
1. Throughout the Agreement the name "OncoMed" is deleted and there is
substituted therefore the name "NeoPharm".
2. Existing Section 4.2 of the Agreement is hereby designated as
subsection "(a)" and there is added a new subsection as follows:
"(b) Sublicense Payment. Within 30 days of NeoPharm entering into any
sublicense with a Sublicensee, NeoPharm shall pay to Georgetown a one
time sublicense fee of $400,000."
3. The following sentence shall be added at the end of Section 5.1:
"At such time as any Sublicensee shall receive approval from
the U.S. Food and Drug Administration of a New Drug
Application with respect to any Product, then, within 30 days
of the date of notification of such approval, NeoPharm shall
make a one time payment to Georgetown of $250,000."
<PAGE>
4. In Section 6.3(a), in the last sentence, the reference to 5% is
hereby deleted and replaced with "2 1/2%."
5. In Section 6.3(b), in the last sentence, the reference to "2 1/2%"
is hereby deleted and replaced with "1 1/4%."
6. In all other respects, the Agreement is hereby ratified and
confirmed.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Amendment No. 1 as of
the day and date first above written:
GEORGETOWN UNIVERSITY
By: /s/ Jack Kolosky
-----------------------------------
Its: Chief Financial Officer
By: /s/ William J. Hartman
-----------------------------------
Its: Director, Research & Technology
NEOPHARM, INC.
By: /s/ Mahendra Shah
-----------------------------------
Its: Vice President
3
<PAGE>
EXHIBIT 11.1
NEOPHARM, INC.
CALCULATION OF EARNINGS PER SHARE
FOR DECEMBER 31, 1998
<TABLE>
<CAPTION>
12/31/96 12/31/97 12/31/98
------------ ------------ ------------
<S> <C> <C> <C>
Net loss for the period $(1,865,645) $(2,021,677) $(1,573,723)
Weighted average shares outstanding 7,803,412 8,146,746 8,213,980
------------ ------------ ------------
------------ ------------ ------------
Net loss per share ($0.24) ($0.25) ($0.19)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 40,681
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,680,681
<PP&E> 161,567
<DEPRECIATION> 60,700
<TOTAL-ASSETS> 1,781,548
<CURRENT-LIABILITIES> 603,426
<BONDS> 0
0
0
<COMMON> 1,789
<OTHER-SE> 1,176,333
<TOTAL-LIABILITY-AND-EQUITY> 1,781,548
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,213,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,213,723)
<INCOME-TAX> (1,640,000)
<INCOME-CONTINUING> (1,573,723)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,573,723)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
