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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 333-34765
IXION BIOTECHNOLOGY, INC.
(Exact Name of Small Business Issuer in Its Charter)
DELAWARE 59-3174033
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
13709 PROGRESS BLVD., BOX 13
ALACHUA, FL 32615
(Address of Principal Executive Offices) (Zip Code)
904-418-1428
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b)of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. _X__ The issuer's revenue for the most
recent fiscal year, ending December 31, 1998, was $3,722.00.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
March 23, 1999, was approximately $8,770,000 based on the most recent sales of
newly-issued common equity. There is no public market for the issuer's common
stock.
The number of shares of the Company's common stock, par value $.01 per
share, outstanding as of March 23, 1999, was 2,514,014.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT PART INTO WHICH INCORPORATED
-------- ------------------------------
The Proxy Statement to be used in Part III
connection with the annual meeting of
stockholders to be held June 11, 1999
(the "Proxy Statement"), to be filed
with the Commission prior to April 30,
1999, pursuant to Rule 14a-101, Schedule
14A of the Exchange Act.
<PAGE>
PART I
Item 1. Description of Business.
Ixion Biotechnology, Inc., is a development stage, discovery research
biotechnology company, with several product candidates in development. We are
the holder of world-wide exclusive licenses to patents and pending patents in
two key areas: diabetes and oxalate-related disorders.
We are developing diabetes products based on our islet progenitor/stem cell
technology, including a proprietary line of in vitro (in test tube) islet stem
cells for use in islet transplantation therapy. This development program is
aimed at optimizing the growth of functioning islets or islet progenitors in
vitro islet progenitor stem cells which Ixion has established in cell cultures.
The transplantation of islets or islet stem cells is the only known potential
cure for Type I diabetes. We believe that successful islet transplantation
therapy will provide better management of diabetes than conventional treatment
with insulin and other metabolic regulators. Conventional treatment can result
in hyper- and hypo-glycemic episodes which are a major cause of diabetic
complications. Ixion's technology is intended to ameliorate this condition by
implanting functional islets into the body in order to materially improve
control of blood glucose levels.
In addition to developing our cell transplantation therapy, we have an
ongoing discovery program to identify and characterize islet stem cells as well
as novel growth factors associated with them. The goal of this program is to
discover factors important in islet cell differentiation and to identify stem
cell markers to which we hope to produce antibodies useful in stem cell
isolation and research. All of our potential diabetes products are in the
discovery research stage.
Diabetes is a chronic, complex metabolic disease. Immune mediated diabetes
(often referred to as Insulin Dependent Diabetes, Juvenile Diabetes, or Type I
Diabetes) is characterized by an inability to produce insulin due to the
destruction of the insulin-producing cells of the pancreatic islets of
Langerhans. Immune mediated diabetes also leads to many serious conditions
ranging from death from diabetic coma or insulin shock, to end stage renal
disease, blindness, amputations, nerve damage, and cardiovascular and
periodontal disease. Over 16 million people in the United States have diabetes,
of whom five to ten percent (or about 800,000 patients) have immune mediated
diabetes, the most severe form of the disease, and must take insulin. An
additional one and one-half million Type II patients in the United States also
take insulin. Annual expenditures on all forms of diabetes are nearly $100
billion.
We are also developing products based on our oxalate technology for the
diagnosis and treatment of oxalate-related diseases. Our oxalate technology is
based on genes from the non-pathogenic anaerobic intestinal bacteria,
Oxalobacter formigenes. O. formigenes produces enzymes which degrade oxalate in
healthy people. Inadequate colonies of O. formigenes result in reduced ability
to degrade oxalate. Excess oxalate plays a role in a variety of disorders
including
o kidney stones,
o hyperoxaluria,
o cardiomyopathy,
o cardiac conductance disorders,
o cystic fibrosis,
o Crohn's disease,
o renal failure and toxic death, and
o vulvodynia
There are approximately one million kidney stone incidents annually in the
United States. Annual expenditures on kidney stone incidents exceed $1.8
billion. There are approximately 25,000 cystic fibrosis patients in the United
States; these patients are at materially increased risk of kidney stones as a
result of excess oxalate. There are from 5,000 to 16,000 new cases of
inflammatory bowel disease annually, resulting in 100,000 hospitalizations, 60%
from Crohn's disease which is associated with enteric hyperoxaluria. Vulvodynia,
a chronic multifactorial disorder, believed to be in some degree
oxalate-related, results in painful and debilitating symptoms affecting the
tissue surrounding the vagina and urethra. There are no population studies of
the incidence or prevalence of vulvodynia, but estimates range as high as
150,000 to 200,000 U.S. women with this condition. Very few effective
treatments, if any, exist for these disorders.
The most developed product candidate in Ixion's development pipeline is a
combination diagnostic and therapy for the management of oxalate-related
disorders.
The diagnostic component of our oxalate-related disease management product
is a DNA probe for the rapid and sensitive detection of human O. formigenes (the
XEntrIX TM Oxalobacter formigenes Monitor). The current tests for O. formigenes
are laborious, time consuming, and unreliable, and are limited by (1) the
difficulties of anaerobic culture methods, (2) the inability to standardize and
accurately quantitate the presence of the bacteria, and (3) the fact that the
tests cannot be automated. In addition, the current tests are not sensitive and
are poorly suited to a clinical setting. The XEntrIX TM Oxalobacter formigenes
Monitor, on the other hand, can accurately and reliably detect very small
numbers of O. formigenes, can be made quantitative, and is capable of
automation.
The therapeutic component of our oxalate-related disease management product
is an orally administered product consisting of a recombinant form of two
enzymes normally found in O. formigenes and responsible for oxalate degradation
(IxC1-62/47). We believe that the administration of IxC1-62/47 will greatly
diminish the recurrence of calcium oxalate kidney stones and will have positive
therapeutic effects on other oxalate-related disorders.
We intend to file an Investigational New Drug application with the Food and
Drug Administration for our IxC1-62/47 enzyme therapy for oxalate-related
diseases and an application under Section 510(k) of the Food, Drug, and Cosmetic
Act for the XEntrIX TM Oxalobacter formigenes Monitor. The date on which we will
be able to make these filings depends upon our cash resources. See "Business -
Government Regulation."
Ixion is in the development stage. We have earned only limited revenues,
the majority of which have been research and development payments, and we have
an accumulated deficit of $2,893,598 from our inception through December 31,
1998. See "Risk Factors."
Industry Description and Outlook
In 1998, the U.S. biotechnology industry was composed of approximately
1,300 companies, public and private. The public market for biotechnology
financing was very poor during 1998, particularly for smaller companies and many
companies are running low on cash. The biotechnology industry is part of the
broader health care industry in the United States, which accounts for
approximately 14%of the country's gross domestic product, or approximately $1
trillion.
Diabetes. Diabetes is the world's most common metabolic disease. In 1995,
there were over 16 million diabetics in the United States. There were 21 million
diabetics in Europe and as many as 100 million worldwide. Immune mediated
diabetes patients compose from 5% to 10% of the total number of diabetics in the
U.S., or approximately 800,000 patients. An additional 1.5 million Type II
diabetics also take insulin. There are approximately 500,000 to 600,000 new
patients annually in the U.S., of which 35,000 to 50,000 are Type I diabetics.
Approximately 25 percent of the new Type II patients (or approximately 110,000)
will also take insulin.
In 1995, diabetes accounted for over 10% of total U.S. health care
expenditures, or approximately $100 billion. In 1992, the American Diabetes
Association estimated that another $47 billion was spent in indirect costs, such
as lost wages. Other sources have estimated that indirect costs may actually
exceed the direct costs. Complications of the disease include amputations of
toes and feet, blindness, ulcers, nerve damage and cardiovascular, periodontal,
and kidney disease. Approximately 30% to 40% of people with Type I diabetes will
develop diabetic nephropathy leading to kidney dialysis and renal transplants.
Overall, diabetes is the seventh leading cause of death in the U.S.
Current therapies, including insulin shots or oral hypoglycemic medication
modulate blood glucose, but cannot consistently maintain the diabetic's blood
glucose at normal levels. The Diabetes Control and Complications trial, a
nine-year NIH study, demonstrated that maintaining blood glucose at normal
levels reduces by approximately 60% the risk of development and progression of
diabetes complications. However, there is no therapy that supplies insulin in
response to changes in blood glucose with the speed and precision of functioning
islets. We believe that approximately 500,000 insulin dependent diabetics are
candidates for islet transplantation and that successful transplantation of
islets capable of providing constant glucose control will help control the
complications of the disease. While islet transplantation is the only known
potential cure for Type I diabetes, transplant therapy is an early stage
procedure and results, as is common for early stage procedures, for the adult
islet transplants performed to date have been disappointing. Although there can
be no assurance, we believe that the success rate of transplant therapy will
improve over time.
Kidney stones. Kidney stones are a major health care problem in the United
States, and a worse one in other parts of the world. Nearly one in every 1000
residents in the United States has been hospitalized for stones, and autopsies
have revealed that one in every 100 persons have observable stone formation in
their kidneys. Between seven and ten of every 1000 hospital admissions in the
United States are for kidney stones; this is approximately 248,000 hospital
admissions annually. There are approximately one million kidney stone incidents
annually, the seventh leading cause of physician visits. Nationwide,
approximately 12% of the U.S. population will develop stones in their lifetimes,
but stones are particularly common in the region from Virginia to New Mexico,
commonly referred to as the "stone belt." In other parts of the world,
particularly the Middle-East, Asia, and India, kidney stones are an even worse
problem since hot climates seem to favor stone formation.
If a stone cannot be passed, it is surgically removed or shattered by
extracorporeal shock-wave lithotripsy. Both treatments are expensive, with the
average lithotripsy costing $4,617 and surgery costing $8,308 (including the
hospital stay). Approximately 30% of patients with kidney stones are
hospitalized, the remainder pass the stone at home, which, while not
particularly expensive, is exceedingly painful. Based on 1993 data, the total
annual cost of kidney stones in the United States was conservatively estimated
at $1.83 billion annually.
Unfortunately, kidney stones usually recur; although for most patients, the
time between episodes can be years. The majority of kidney stones are made of
oxalate, which is an end product of metabolism in the body, and an important
component of a typical diet. The intestinal oxalate degrading bacteria,
Oxalobacter formigenes, plays an important role in oxalate homeostasis, both by
regulating intestinal absorption of dietary oxalate and also its secretion into
intestinal lumen from the blood. We believe that it may be clinically important
to screen and treat patients with oxalate-associated diseases for the presence
or absence of the bacterium. Indeed, recent research indicates an increased risk
of kidney stones in patient populations with significantly decreased intestinal
colonization by O. formigenes. This appears to be particularly true of patients
with cystic fibrosis, who are at materially increased risk of kidney stones as a
result of excess oxalate.
Inflammatory Bowel Disease. Inflammatory bowel disease is a general term
which covers two primary chronic disorders that cause inflammation or ulceration
in the small and large intestine: Crohn's disease and ulcerative colitis. The
cause of inflammatory bowel disease is unknown, with many theories, none proven.
Many persons with inflammatory bowel disease also have elevated levels of
urinary oxalate, suggesting that excess oxalate may be a complicating factor in
the disease, or may lead to increased risk of kidney stones. In 1987, the latest
data available, the number of new cases of inflammatory bowel disease in the
United States annually ranged from two to six per 100,000 of population. There
were about 100,000 hospitalizations annually, approximately 64% for Crohn's.
Vulvodynia. Vulvar vestibulitis syndrome ("vulvodynia") is a complex,
multifactorial disorder with painful and debilitating symptoms affecting the
tissue surrounding the vagina and urethra, including intense burning, itching,
and inflammation. In chronic cases it is very disruptive of a person's life.
Recognition of this condition as a significant, physiological syndrome appeared
in medical journals only a decade ago. There are no population studies of the
incidence or prevalence of vulvodynia although the condition may affect from
150,000 to 200,000 American women. Because the cause is often unknown,
treatments have been aimed at symptoms and include xylocaine, acupuncture,
hypnotherapy, interferon injections, and, as a last resort in chronic cases,
surgery. Recent research suggests that vulvodynia is associated with oxalate,
with some investigators reporting significant improvement following control of
dietary oxalate.
Other Oxalate Related Markets. Two additional products which could make use
of Ixion's oxalate technology include improved kidney dialysis devices and an
improved urological catheter. As of 1996, there were approximately 287,000 U.S.
hemodialysis patients and approximately 300,000 more in Europe and Japan. The
use of the Ixion oxalate technology could significantly reduce the time that
patients spend in dialysis by increasing the efficiency of oxalate removal
during the process.
The world market for urological drains (catheters) was $675 million in
1995. Catheters often foster infection and account for the leading side effect
of an invasive hospital procedure. One major cause of catheter infection is the
build-up of oxalate crystals on the catheter. The Ixion oxalate technology would
allow an improved catheter which would inhibit or dissolve encrusted oxalate
crystals, thus reducing the potential for infection.
<PAGE>
Business Strategy
We intend to market our initial diagnostic products, while working with
strategic partners to take our planned therapeutic products through clinical
trials into the market.
Basic Research. Ixion has used and intends to continue to use cooperative
research and development agreements with the University of Florida for basic
discovery research. The University of Florida is the tenth largest university in
the nation and is the largest research institution in the Southeast. It
typically ranks in the top 10 in the United States in gross royalties received
from patent licenses, and the top 20 in the United States in the number of U.S.
patents obtained.
Technology Evaluation and Development. We plan to use our affiliation with
the University of Florida Biotechnology Program to seek out cutting-edge
university based biotechnology. Our scientific and business team will review
early stage academic inventions, identify discoveries which are commercially
promising, obtain licenses from the University, and develop the discoveries to
add value by confirming the initial observations. Discoveries that support our
core technologies will be retained for further development; the remainder will
be licensed-out.
Our relationship with the scientists at the University of Florida is based
upon personal relationships between our management and University of Florida
members of our Scientific Advisory Board, on the one hand, and other members of
the University of Florida faculty on the other. These relationships are helped
by our nearby location and by the business consulting provided by our management
to University faculty at no cost, by arrangement with the Biotechnology Program.
We have no formal agreement providing general access to rights to University
research, nor to advance notice of disclosures by University researchers.
The University's faculty has only recently begun to engage in commercial
collaborations in significant numbers, thus many promising commercial
discoveries have not been exploited. For example, we recently licensed an
anti-microbial patent from two members of the University of Florida faculty. See
"Business-Licensed Technology." In addition, academic intellectual property is
often embryonic and, therefore, too risky, expensive, and time consuming for
large pharmaceutical and biotechnology companies to acquire and develop. Ixion,
on the other hand, is in a position to perform "applied basic" research
inexpensively, either in our labs or through cooperative research agreements, in
order to add value to the technology such that it is of greater interest to
commercial licensees. By increasing the maturity stage of the technology, we
hope to capture an enhanced return upon licensing-out for royalty and milestone
payments. See Figure 1, below.
<PAGE>
Figure 1 - Ixion Technology Opportunity Strategy
Ixion intends to continue to develop collaborative arrangements with
leading researchers at the University of Florida and at other research
institutions in our core oxalate and diabetes areas to diversify and strengthen
our intellectual property estate and to establish our reputation and credibility
in the scientific and medical communities.
Collaborative Product Development and Marketing with Established Companies.
Ixion hopes to develop products in collaboration with other companies.
Collaborative agreements may call for our partners to provide research funds as
well as clinical and other support during product development, although we may
develop and test ideas independently before entering into a collaborative
agreement. We contemplate that our partners will provide an established and
trained marketing and sales force, as well as manufacturing experience, clinical
trial expertise, support for patent prosecution, and other capabilities.
Independent Product Development. The quality of our scientific team also
permits independent product development. Independently developed products will
provide us with the flexibility either to market the product directly or enter
into agreements with pharmaceutical partners on terms more favorable to us.
While independent product development is riskier than collaborative development,
we may be able to retain a higher proportion of any eventual product revenue
stream.
Contract Clinical Trial and Manufacturing Services. Initially, we have
elected to retain contract vendors to support clinical studies and product
development. Moreover, it will not initially construct our own manufacturing
facilities. By contracting with a qualified manufacturing company, Ixion will be
able to obtain immediate access to the necessary regulatory skill base at low
entry costs. We thus expect to minimize the time to market, maintain control
over development candidates, and reduce our financial risk when product risk is
the greatest.
Product Development
Our first target product for diabetes will be cell lines of cultured islet
or stem cells for use in transplantation for diabetes treatment. Our first
target product for oxalate-related diseases will be the XEntrIX TM Oxalobacter
formigenes Monitor and the IxC1-62/47 enzymatic treatment for oxalate-related
conditions. We also plan other products that will detect and measure the
presence of oxalate in urine or blood. Certain of these products may be suitable
for use in research applications and, subject to certain limitations, would not
require FDA approval prior to use in that context. (See "Business - Government
Regulation," below.)
Descriptions of Planned Diabetes Products. Ixion intends to develop
products to enhance research into the disease of diabetes, as well as
therapeutic approaches where our proprietary technology offers unique solutions.
Islet transplantation to reverse diabetes or reduce insulin dependency has
been limited by, among other things, immunological attack resulting in rapid
rejection of transplanted tissue. In addition to the immunologic difficulties,
there are significant shortages of human islets suitable for transplant or
research, with only 4,000 or fewer pancreases available for transplant annually.
About 3,000 patients die each year while waiting for a pancreas graft.
Xenotransplants using porcine islets face additional difficulties, such as the
possibility of cross-species viruses. To date, efforts to propagate commercial
quantities of human islets in vitro (in the test tube) from either fetal or
adult tissue has had minimal success. We believe that a source of reproducible
islet cells would significantly improve the speed and results of research into
transplanted islets for diabetes.
Ixion's islet technology permits the successful growth of in vitro
pancreatic-derived, pluripotent (e.g., able to differentiate) islet-producing
cells from mice. When mouse cells were implanted into clinically prediabetic
mice, the implanted mice were successfully weaned from insulin until they were
sacrificed for further studies. We have also been successful in propagating
human islet cells from children and adult donors as well, but have not
transplanted such islets at the date of this report.
The following table summarizes the current status of our islet research and
development program for diabetes products.
<PAGE>
Product Development-Diabetes Islet Technology
- - --------------- -------------------------------------- --------------------
Product Planned Research Products Status(1)
- - --------------- -------------------------------------- --------------------
Cultured Islets Implantation in vivo of encapsulated Research
or Stem Cells cells for study of protected
implantations to reverse diabetes
- - ---------------------------------------------------------------------------
Genetically Implantation in vivo without encapsulation Concept
Engineered for study of unprotected implantations to
Concept Islets or reverse diabetes
Stem Cells
- - ---------------------------------------------------------------------------
Islet Growth Promotion of cell growth and
Factors differentiation of pancreatic
explants Research
- - ---------------------------------------------------------------------------
Nucleic Acid Genetic and phenotype analysis Concept
Probes
- - ---------------------------------------------------------------------------
Surface Analysis of health or disease of Research
Antibodies biopsy specimens
Identification of cells
Enrichment of specific cell types
Isolation and identification of cells by
stage of differentiation
Production of knock-out lines of
pancreatic cells
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Product Planned Clinical Products Status(1)
- - --------------- --------------------------------------------- --------------
Cultured Islets Encapsulated implantation in vivo to Concept
or Stem Cells reverse diabetes
- - ----------------------------------------------------------------------------
Genetically Transplantation without encapsulation Concept
Engineered (or other mechanical means of immunologic
Islets or Stem protection) in vivo to reverse diabetes
Cells
- - ----------------------------------------------------------------------------
Islet Growth Correct disease deficiencies
Factors
Promote greater efficiency in culturing
cells for transplantation
Elucidation of diabetes disease process Concept
Monitor disease stages
- - -----------------------------------------------------------------------------
(1) "Concept" includes feasibility, theoretical market, and product
design studies based on laboratory or other data. "Research" includes
discovery research, development of the product's physical form and
specifications, and its initial production. "Preclinical" denotes
efficacy, pharmacology, safety, or toxicology studies in animal models.
Descriptions of Planned Oxalate Products. Except for our XEntrIX TM
Oxalobacter formigenes Monitor, there is no method of rapidly and easily
detecting the presence or absence of O. formigenes in the body. The current
tests for O. formigenes are laborious, time consuming, and unreliable.
The XEntrIX TM Oxalobacter formigenes Monitor. Our oxalate technology
consists of cloned, sequenced, and expressed genes encoding the oxalate
degrading enzymes from the intestine dwelling bacteria, Oxalobacter formigenes.
Dr. Sidhu, in collaboration with Dr. Milton Allison, a member of Ixion's
Scientific Advisory Board and the discoverer of O. formigenes, have used these
genes to construct a DNA-based diagnostic test (the XEntrIX TM Oxalobacter
formigenes Monitor) to detect the presence of O. formigenes in
easily-collectable stool samples. O. formigenes is a gram negative anaerobe
present in humans and other animals. The role of this species in intestinal
management of oxalate is supported by findings showing significantly decreased
intestinal colonization in patient populations at increased risk of kidney
stones. Research in this area has been inhibited by the difficulty of culturing
and detecting the anaerobe.
The XEntrIX TM Oxalobacter formigenes Monitor is a significant improvement
over current tests for O. formigenes and is an important potential addition to
routine diagnostic testing for several reasons.
o Our XEntrIX TM Oxalobacter formigenes Monitor is much easier to
perform and provides accurate results in a fraction of the time
required to culture and test for O. formigenes using existing
methods.
o Our DNA-based method relies upon standard DNA techniques and does
not require anaerobic cultures of organisms since it provides
direct detection of DNA extracted from fecal samples and amplified
using polymerase chain reaction ("PCR").
o Because it is based upon PCR and subsequent hybridization to
species-specific sequences, the XEntrIX TM Oxalobacter formigenes
Monitor is simple to perform and provides the required level of
sensitivity, accuracy, selectivity, and throughput necessary for a
commercial diagnostic test.
o The XEntrIX TM Oxalobacter formigenes Monitor is sensitive to the
level of 1,000 to 10,000 colony forming units/gram of fecal
material. This is approximately 100-fold lower than the number of
colony forming units in fecal material of normal, healthy adults.
We are focusing ongoing development of the XEntrIX TM Oxalobacter formigenes
Monitor on the following areas:
o Extended evaluation and enhancement of probe specificity with
respect to other intestinal organisms to assure the absence of
cross reactivity and misdiagnosis. Organisms currently evaluated
include the following: Bacteroides ovatus, Proteus vulgaris,
Enterobacter cloacae,, Eschericia coli, Enterobacter, aerogenes,
Clostridium perfringens, Closteridium sordellii, Veillonella
parvula, Streptococcus pneumoniae, Staphylococcus aureus,
Pseudomonas aerogenosa, Streptococcus bovis, Enterococcus
faecalis, Staphlycoccus epidermidis, Moorella thermoautotrop,
Shigella boydii, Proteus mirabilis, Salmonella typhimurium,
Citrobacter brakii, Lactobacillus acidophilus, Moraxella
osloensis, Moorella thermoacetica, Alcaligenes sp., and Klebsiella
oxytoca.
o Development of probes against clinically important intestinal
organisms such as those listed above. These, coupled with the
quantitative version of the XEntrIX TM Oxalobacter formigenes
Monitor, will provide for a panel of clinically important
diagnostic tests for enteric bacteria
o Development of a quantitative kit version of the XEntrIX TM
Oxalobacter formigenes Monitor.
In June of 1998, we agreed in principle with the University of Florida
Diagnostic Referral Laboratories for them to offer a service to physicians using
our XEntrIX TM Oxalobacter formigenes Monitor under the provisions of the FDA's
analyte specific reagent regulation. The Diagnostic Referral Laboratories are
responsible for marketing the new service, which costs $295 per sample. No
reimbursement is yet available for patients requesting this test. Sales to date
have been immaterial.
We expect to file an application under Section 510(k) of the FDA Act for
clearance to market the XEntrIX TM Oxalobacter formigenes Monitor directly.
There is no assurance that the Ixion Oxalobacter formigenes Monitor will qualify
for 510(k) procedure, in which case we will have to file an application for
premarket approval with the FDA. If we must follow the premarket approval route,
the approval process may be lengthy.
IxC1-62/47 Enzyme Therapy for Oxalate-Related Disease. In addition to the
XEntrIX TM Oxalobacter formigenes Monitor and other potential diagnostic
products described above, Ixion is developing IxC1-62/47, an orally administered
therapeutic product consisting of the recombinant form of two enzymes normally
found in O. formigenes: oxalyl-CoA decarboxylase ("oxc") and formyl-CoA
transferase ("frc"). The enzymatic therapy is based upon the re-establishment of
oxalate degrading mechanisms in the body. IxC1-62/47 is targeted at
oxalate-related disorders including kidney stones, enteric hyperoxaluria,
oxalosis, cardiomyopathy, cardio conductance disorders, cystic fibrosis, Crohn's
disease, and possibly vulvodynia. Very few satisfactory treatments currently
exist for these disorders.
Both the oxc and frc genes have been successfully cloned into E. coli and
expressed in active form as verified using activity assays developed by Ixion's
scientists. Physicochemical analyses such as SDS-PAGE, IEF, and N-terminal
sequence analysis have been completed. Ixion has grown the recombinant E. coli
to 80 liter scale and has initiated the process of purifying the oxc and frc
enzymes for use in a variety of preclinical studies including (1) additional
physicochemical characterization, (2) formulation and drug delivery, and (3)
further animal studies. We are also purifying the native form of the oxc and frc
enzymes from O. formigenes, to provide comparative data to the recombinant
versions. We have not determined whether the recombinant or native enzymes will
be used therapeutically. The current intention is to file an investigative new
drug application for the IxC1-62/47 enzymatic therapy for oxalate-related
disorders when resources permit.
The XEntrIX TM Oxalobacter formigenes Monitor has been performed in
preclinical studies by Ixion lab personnel on over 300 human samples from varied
populations in the Ukraine, Germany, the United States, and India. The results
of those studies include the following:
Cystic Fibrosis. Oxalate kidney stones are a known complication of
cystic fibrosis. The incidence in cystic fibrosis populations over 12
years old approaches 3% to 4% as compared to 0.2% in normal populations
Renal autopsies show >90% nephrocalcinosis. In an Ixion sponsored
clinical study conducted in collaboration with collaborators at
Northwestern University, the University Children's' Hospital, Cologne,
Germany, and University Children's Hospital, Halle, Germany, 40 (18
male and 22 female) cystic fibrosis patients (aged three to 35 years)
were examined for colonization with Oxalobacter formigenes. 33 of the
40 patients were non-colonized, and of these, 18 were hyperoxaluric and
eight had urinary oxalate levels in the upper normal range. The seven
patients who were colonized with O. formigenes all showed normal levels
of urinary oxalate.
Recurrent Stone Formers. In another currently ongoing study on O.
formigenes colonization in adult calcium oxalate stone formers,
preliminary data have revealed that the majority of recurrent stone
formers (five or more stone episodes) are non-colonized with this
bacteria. Studies in the literature suggesting a decrease in the colony
forming units of O. formigenes in patients with oxalate calculi, rather
than complete non-colonization, has led to the development by Ixion of
a Quantitative-PCR Oxalobacter formigenes Monitor. The Quantitative-PCR
Oxalobacter formigenes Monitor is now being used in additional
preclinical work to detect and quantitate O. formigenes in oxalate
stone formers to determine if the number of Colony Forming Units is a
relevant risk factor.
Vulvodynia. A new preclinical study is scheduled in cooperation with
the Diagnostic Reference Laboratory at the Shands Hospital at the
University of Florida to examine 25 to 40 vulvodynia patients for
colonization with Oxalobacter formigenes.
Over 65 percent of kidney stones are calcium-oxalate stones, and excess
oxalate is implicated in other diseases as set forth above. Oxalate is present
in many common foods, including tea, broccoli, and spinach. O. formigenes is
involved in degradation of dietary oxalate and its secretion from plasma into
the gut. We believe that a robust colony of O. formigenes prevents recurrent
calcium-oxalate kidney stone formation in persons susceptible to excess oxalate
absorption and may ameliorate other disease states. We believe that we are the
only company world-wide which is examining the role of O. formigenes in human
and animal disease states.
Blood Oxalate Assay. The combination of the oxc and frc enzymes and
cofactors also serve as the basis for a planned blood oxalate assay. The
recurrence rate of calcium oxalate kidney stone formation is very high, with
hyperoxaluria as the major predisposing factor to stone formation. Accurate
measurements of blood oxalate levels, together with the presence or absence of
O. formigenes, are important requirements for predicting the risk of
calculogenesis in an individual and stratifying urological patients for clinical
intervention. Development is planned in the future on an additional oxalate
product: a blood oxalate assay, to be designed for clinical use by hospitals,
independent labs, and doctors.
The following table summarizes the current status of our oxalate product
research and development program.
<PAGE>
Product Development-Oxalate Technology
- - ----------------- ---------------------------------------------- ---------------
Product Planned Research Products Status (1)
- - ----------------- ---------------------------------------------- ---------------
Oxalobacter Detection of O. formigenes in stool Preclinical
formigenes for vulvodynia and kidneystone research
Monitor
- - ----------------- ---------------------------------------------- ---------------
Blood Oxalate Measurement of oxalate levels in blood for Concept
Assay research in kidney stone, hyperoxaluria,
cystic fibrosis, Crohn's disease,
vulvodynia, and other oxalate-related
diseases
- - --------------------------------------------------------------------------------
Planned Clinical Products
- - ------------------ --------------------------------------------- ---------------
Oxalobacter Detection of O. formigenes in stool for Preclinical
formigenes oxalate-related and other oxalate-related
Monitor disorders
- - ------------------- -------------------------------------------- ---------------
IxC-162 Enzyme Treatment of oxalate-related disorders: Preclinical
Therapy Kidney Stones
Crohn's Disease
Cystic Fibrosis
Hyperoxaluria
Vulvodynia
Other oxalate-related diseases
- - ------------------- -------------------------------------------- ---------------
Blood Oxalate Assay Diagnostic oxalate detection kit for blood Concept
- - ------------------- -------------------------------------------- ---------------
Dialysis Cartridge Rapid removal of excess oxalate in blood Concept
- - ------------------- --------------------------------------------- --------------
Oxalate-Resistant Catheter coated to avoid oxalate Concept
Catheter encrustation as a method to reduce
the incidence of infection
- - --------------------------------------------------------------------------------
(1) "Concept" includes feasibility, theoretical market, and product
design studies based on laboratory or other data. "Research" includes
discovery research, development of the product's physical form and
specifications, and its initial production. "Preclinical" denotes
efficacy, pharmacology, safety, or toxicology studies in animal models.
"Clinical" denotes testing for safety and efficacy.
Licensed Technology
We have exclusively licensed from the University of Florida Research
Foundation, on a world-wide basis, commercial rights in two areas: in vitro
grown islet progenitor/stem cells for curing diabetes, and materials and methods
for detection of oxalate and Oxalobacter formigenes.
Under the UF Research Foundation licenses, we have been issued two US
oxalate patents and one US islet patent. We have received notice of allowances
of claims in one US oxalate patent and one US islet patent. Still pending are
five US oxalate patent applications and one islet patent application. We have
also filed internationally on each of these patent families, but no foreign
patent has issued.
The license agreements require the UF Research Foundation to file and
prosecute the patents and require us to reimburse the costs. They must also take
all steps to defend such patent rights, also at our expense. If the UF Research
Foundation fails to take any such action, we have the right to defend such
rights at our own expense.
Except for royalty rates and certain other immaterial differences, the
terms of our patent licenses with the UF Research foundation are substantially
identical. The UF Research Foundation licensed its rights under on an exclusive,
worldwide basis for the life of any patents granted thereunder. We have rights
under the UF Research Foundation licenses to all possible uses of the patent
applications, any patents issued from such applications, any divisionals and
continuations of such applications, and to any claims of U.S. and foreign
continuation-in-part applications, and of the resulting patents, which are
directed to subject matter specifically described in such applications. In order
to maintain our license, we must use our best efforts to bring one or more
licensed products or processes to market through a thorough, vigorous, and
diligent program for exploitation of the patent rights. In addition, we must
provide annual business plans showing our plan for product development.
Under the UF Research Foundation licenses, we paid a license issue fee, are
obligated to pay royalties on our net sales or net sales of our sublicensees,
and must reimburse the UF Research Foundation for patent costs. There are no
minimum annual royalties. We are also obliged to obtain product liability
insurance prior to the sale for commercial purposes of licensed products. There
is no assurance that we will be able to obtain such insurance on reasonable
terms. See "Risk Factors - Risk of Product Liability Insurance."
A number of pharmaceutical companies, biotechnology companies, universities
and research institutions, and individuals have filed patent applications or
received patents to technologies that are similar to the our licensed
technologies. We is aware of patent applications previously filed by and patents
already issued to others that could conflict with our patents or patent
applications, either by claiming the same methods or compounds or by claiming
methods or compounds that could dominate those licensed to us. In addition, we
can not assure you that we are aware of all patents or patent applications that
may materially affect our ability to make, use, or sell any products. United
States patent applications are confidential while pending in the United States
Patent and Trademark Office, and patent applications filed in foreign countries
are often first published months or more after filing. Any conflicts resulting
from third party patent applications and patents could significantly reduce the
coverage of the patents or patent applications licensed to us and limit our
ability to obtain meaningful patent protection. If patents are issued to other
companies that contain competitive or conflicting claims, we may be required to
obtain licenses to these patents or to develop or obtain alternative technology.
We can not assure you that we will be able to obtain any such license on
acceptable terms or at all. If such licenses are not obtained, we could be
delayed in or prevented from the development or commercialization of our product
candidates, which would have a material adverse effect on us.
We are aware of potentially significant risks relating to our islet
technology and to our oxalate technology, particularly bacterial oxalyl-CoA
decarboxylase, an enzyme used in the XEntrIX TM Oxalobacter formigenes Monitor
and our IxC1-62/47 enzyme therapy. We may not be able to commercialize our
proposed diabetic products based on our method of proliferating islets and stem
cells in vitro or our proposed oxalate-related disease management products, both
due to patent rights held by third parties. As a result, our position with
respect to the use of islets or stem cells or products containing oxalyl-CoA
decarboxylase are uncertain and involve legal and factual questions that are
unknown or unresolved. Although we believe our patents and patent applications
provide a competitive advantage in our efforts to discover, develop, and
commercialize useful products, if any of these questions is resolved
unfavorably, we may not have the right to commercialize products relating to
certain aspects of islet technology or products containing oxalyl-CoA
decarboxylase in the absence of a license from one or more third parties, which
may not be available on acceptable terms or at all. Our inability to
commercialize any of these products would have a material adverse effect on us.
In 1981, the Ontario Cancer Institute filed a patent application in the
United States and was issued a patent in 1984 covering a method for producing
pancreatic islet-like structures having histology and insulin-producing
properties corresponding to those of fetal pancreatic islets and islets from
adult animals maintained in culture, based on discoveries by Michael Archer. The
patented method is similar, but not identical, to our islet technology. Archer's
patent was licensed to CytoTherapeutics, Inc. in 1991. CytoTherapeutics may have
filed patent applications in foreign countries based upon Archer's patent and
may have additional patent applications on the same general subject matter
pending in the United States.
We are also aware that in 1993, Human Cell Cultures, Inc., filed a first
U.S. patent application which was rapidly abandoned in favor of a second U.S.
continuation-in-part application, and that these U.S. applications together were
the basis of an international application which claimed a cell culturing method
and medium to form pancreatic "pseudotissues" composed of "pseudoislets" to
treat blood sugar disorders in mammals, based on discoveries by Hayden Coon and
others. Subsequently, on June 7, 1995, Human Cell Cultures filed in the U.S. a
continuation of its second (now abandoned) U.S. application, and has been issued
US patents. Dr. Coon's patents claim methods which are also similar, but not
identical, to our islet technology. There may have been additional patent
applications filed in the United States or foreign countries based upon the Dr.
Coon's work.
In the United States, one must be the first to invent a subject matter in
order to be entitled to patent protection on that invention. With respect to
patent applications filed prior to January 1, 1996, United States patent law
provides that if a party invented a technology outside the United States, then
for purposes of determining the first to invent the technology, that party is
deemed to have invented the technology on the earlier of the date it introduced
the invention in the United States or the date it filed our patent application.
In foreign countries, the first party to file a patent application on an
invention, not the first to invent the subject matter, is entitled to patent
protection on that invention, assuming that the invention meets the other
requirements for patentability. We can not assure you that the owners of
Archer's patent nor the owners of Coon's patents will not challenge our islet
patents or patent or that we will succeed in defending any such challenges. We
also can not assure you that the sale of islet products by us would not be held
to infringe United States and foreign patent rights of the owners Archer's
patent and Coon's patent. Under the patent laws of most countries, a product can
be found to infringe a third party patent either if the third party patent
expressly covers the product or method of treatment using the product, or in
certain circumstances, if the third party patent, while not expressly covering
the product or method, covers subject matter that is substantially equivalent in
nature to the product or method. If it were determined that products derived
from our islet technology infringe Archer's patent or Coon's patents, we would
not have the right to make, use, or sell our islet products in one or more
countries in the absence of a license from the owners of such patents. We can
not assure you that we could obtain a license from such owners on acceptable
terms or at all.
In June, 1995, Human Genome Sciences, Inc., filed a patent application in
the United States, and thereafter in foreign countries, relating to a claimed
human oxalyl-CoA decarboxylase and the DNA(RNA) encoding such polypeptide, as
well as a procedure for producing such polypeptide and for producing an antibody
relating to such polypeptide for use in the treatment of calcium oxalate kidney
stones and hyperoxaluria. A U.S. Patent was issued on June 3, 1997. The Human
Genome patent purports to relate to a human version of oxalyl-CoA decarboxylase
which is stated to be 50% to 60% homologous to the oxalyl-CoA decarboxylase from
the anaerobic bacteria, Oxalobacter formigenes. If the use of our bacterial
oxalyl-CoA decarboxylase is found to infringe the patent owned by Human Genome
Sciences, then we would not have the right to sell such products in one or more
countries without a license from Human Genome Sciences. There can be no
assurance that we would be able to obtain a license from Human Genome Sciences
on acceptable terms or at all.
Litigation, which could result in substantial cost to us, may also be
necessary to enforce any patents to which we have rights or to determine the
scope, validity, and enforceability of other parties' proprietary rights, which
may affect our product candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. Our licensors may also have to participate in interference
proceedings declared by the Patent Office to determine the priority of an
invention, which could result in substantial cost to us. There can be no
assurance that our licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. Further, with respect to the technology licensed by us from the UF
Research Foundation, they are primarily responsible for any litigation,
interference, opposition, or other action pertaining to patents or patent
applications related to the licensed technology, and we are required to
reimburse them for the costs. As a result, we generally do not have the ability
to institute or determine the conduct of any such patent proceedings unless they
do not elect to institute or elects to abandon such proceedings. In cases where
they elect to institute and prosecute patent proceedings, our rights will be
dependent in part upon the manner in which they conduct the proceedings. The UF
Research Foundation could elect not to vigorously pursue or defend or to settle
such proceedings on terms that are not favorable to us. An adverse outcome in
any patent litigation or interference proceeding could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties, or require us to cease using such technology, any of which could have a
material adverse effect on us.
We can not assure you that any existing patent application, or any future
patent application will issue or that any patents, if issued, will provide us
with adequate patent protection with respect to the covered products, their
uses, technology, or processes. In addition, under our licenses, we are required
to meet specified diligence requirements to retain our rights. See "Risk Factors
- - - Uncertainty Regarding Patents and Proprietary Rights."
In January 1997, we entered into a patent license agreement obtaining
exclusive rights to the issued patent of Dr. Randy S. Fischer and Dr. Roy A.
Jensen, faculty members at the University of Florida, for identifying a
difference which exists between the metabolic pathway of a microbial or plant
target organism and a non-target host specie and then preparing a control agent
which perturbs the metabolic pathway of the target without significantly
perturbing the metabolic pathway of the host. This patent may be useful in the
development of microbicides for drug resistant pathogens such as staphyloccus,
enterococcus, and neisseria. Under the Fischer/Jensen license agreement, we paid
a license issue fee of 1,000 shares of our Common stock and are obligated to pay
royalties of 2% on net sales by Ixion or our sublicensees. There are no minimum
annual royalties or due diligence milestones. The Fischer/Jensen license is for
the remainder of the legal life of the patent (or over 11 years).
Because the inventions covered by our licenses were made with federal
assistance (which is typical of university-based discoveries), they are subject
to the rights of the federal government under 35 USC Title 18, "Patent Rights in
Inventions Made with Federal Assistance," including "march in" rights under
which the government has the right to require us to grant an exclusive license
under any of such inventions to a third party if the government determines that
(1) adequate steps have not been taken to commercialize such inventions, (2)
such action is necessary to meet public health or safety needs, or (3) such
action is necessary to meet requirement for public use under federal
regulations. The government's rights include a non-exclusive, paid-up, worldwide
license under such inventions for any governmental purpose. The law also
requires any licensor of an invention that was partially funded by federal
grants to obtain a covenant from our exclusive licensee to substantially
manufacture products using the invention in the United States, although this
covenant is subject to a discretionary waiver by the government.
Patents and Trade Secrets
Dr. Peck, as an employee of the University of Florida, is bound by the
terms of the University's patent policy, which requires that any invention
conceived of or developed in the area in which he is employed belongs to the
University (subject to the Government Rights described above, and to Ixion's
rights under the consulting agreement it has with him). See "Management -
Consulting Agreement With Dr. Peck" and "Business - Government Regulation -
Florida Conflicts of Interest."
It is our policy to require our directors, material investors, employees,
consultants, outside scientific collaborators, and sponsored researchers, and
other advisors to execute confidentiality agreements upon investment or upon the
commencement of employment or consulting relationships with us. These agreements
provide that all confidential information developed or made known to the
individual during the course of his or her relationship with us is to be kept
confidential and not disclosed to third parties. Ixion also requires signed
confidentiality or material transfer agreements from any company that is to
receive confidential data or proprietary compounds. In the case of employees and
consultants, the confidentiality agreements also generally provide that all
inventions conceived by the individual while rendering services to us shall be
assigned to us as our exclusive property (subject, in the case of Dr. Peck, to
the prior rights of the University of Florida). There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for our trade secrets or other proprietary information in the event of
an unauthorized disclosure or will be effective to assign inventions.
Certain of our research has been funded in part by Small Business
Innovation Research grants and may be funded in the future by such grants and by
Small Business Technology Transfer Research grants. In connection with any such
funding, the U.S. Government will have the rights described above.
In order to produce or use the XEntrIX TM Oxalobacter formigenes Monitor in
its current formulation or to produce the Blood Oxalate Assay (and other
immunodiagnostic products) in commercial quantities for resale, it will be
necessary to license certain rights from Roche Diagnostics, Inc., the holder of
patents on the nucleic acid amplification process known as the polymerase chain
reaction ("PCR") process. If Ixion finds it necessary to use PCR to produce
commercial products, it will enter into such a license with Roche, which makes
non-exclusive licenses generally available. Ixion does not anticipate that the
terms of such license will have a materially adverse effect on us.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
major pharmaceutical, chemical, and specialized biotechnology companies, many of
which have larger R&D budgets, as well as substantially greater experience in
developing products, in obtaining regulatory approvals, and in manufacturing and
marketing diagnostic and pharmaceutical products. In addition, many
biotechnology companies have formed collaborations with large, established
companies to support research, development, and commercialization of products
that may be competitive with ours. Academic institutions, governmental agencies,
and other public and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products on their
own or through joint ventures.
Our products under development are expected to address a broad range of
markets. Our competition will be determined in part by the potential indications
for which our products are developed and ultimately approved by regulatory
authorities. See "Business Government Regulation." In addition, the first
pharmaceutical product to reach the market in a therapeutic or preventive area
is often at a significant competitive advantage relative to later entrants to
the market. Accordingly, the relative speed with which Ixion or our future
corporate partners can develop products, complete the preclinical and clinical
trials and approval processes, and supply commercial quantities of the products
to the market are expected to be important competitive factors. Our competitive
position will also depend on our ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products, develop
and implement production and marketing plans, contract for and manage
third-party service providers, obtain and maintain patent protection, and secure
adequate capital resources. We expect our products, if approved for sale, to
compete primarily on the basis of product efficacy, safety, patient convenience,
reliability, value, and scope of patent rights. See "Risk Factors - Intense
Competition."
Government Regulation
In the United States, the FDA regulates distribution, manufacture,
labeling, and promotion of drugs, medical devices, and biologics. In addition,
manufacturers of these products are subject to other federal, state, and local
environmental and safety laws and regulations. Governments in other countries
may impose additional requirements.
FDA Authorization to Market. Drugs, medical devices, or biologics may not
be commercially distributed in the United States unless they have FDA
authorization. Obtaining FDA authorization to market a regulated product
generally involves the submission of preclinical, product characterization,
clinical, and manufacturing information. The process can take a number of years
and the expenditure of significant resources, and there is no guarantee that the
FDA will ever authorize marketing of the product.
Drugs and Biologics. Some of our planned products, such as the diabetes
treatment products, will be regulated as drugs and biologics. The Food, Drug,
and Cosmetic Act and the Public Health Service Act provide that drugs and
biologics may not be commercially distributed within the United States unless
they have been approved by the FDA. The process required by the FDA before drugs
and biologics may be marketed in the United States generally involves five
steps:
o preclinical laboratory and animal testing,
o submission to the FDA of an investigational new drug application which
must be effective prior to the initiation of human clinical studies,
o adequate and well-controlled clinical trials to establish safety and
efficacy for its intended use,
o submission to the FDA of a new drug application or biologics license
application, and
o review and approval of the new drug application or biologics license
application by the FDA.
Preclinical testing covers laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the safety, pharmacology,
toxicology, and efficacy of the product. The results of these tests are
submitted to the FDA as part of the investigational new drug application. If a
company is not notified by the FDA within 30 days of submission, the company may
initiate Phase I clinical trials. Clinical trials are typically conducted in
three sequential phases, although the phases may overlap.
o Phase I represents the initial administration of the drug or biologic
to a small group of humans, healthy volunteers, to test for safety,
dosage tolerance, absorption, distribution, metabolism, excretion, and
clinical pharmacology.
o Phase II involves studies in a small number of patients to assess the
efficacy of the product, to ascertain dose tolerance and the optimal
dose range, and to gather additional data relating to safety and
potential adverse effects.
o Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase
III studies are initiated to establish safety and efficacy in an
expanded patient population and multiple clinical study sites.
The FDA reviews both the clinical plans and the results of the trials and may
request that a company discontinue or expand the trials at any time if there are
significant safety issues.
The results of the preclinical tests and clinical trials of drugs and
biologics are submitted to the FDA in the form of a new drug application (in the
case of a drug) or biologic license application (in the case of a biologic). The
FDA may request additional information, including additional animal studies or
clinical trials that may extend the review process and delay marketing approval.
The manufacturer must also pass a premarket inspection of its compliance with
good manufacturing practices. There can be no assurance that the FDA will
authorize marketing of the product, or that it will do so in a timely manner.
Once granted, a new drug application or product license application may place
substantial restrictions on how the product is marketed. After FDA approval of
the new drug application or biologic license application for the initial
indications, further clinical trials may be necessary to gain approval for the
labeling of the product for additional indications.
Medical Devices. Many of our planned products (e.g., the in vitro
diagnostic products such as the XEntrIX TM Oxalobacter formigenes Monitor), will
be regulated as medical devices. The FDA regulates the clinical testing,
manufacture, labeling, distribution, and promotion of medical devices. Unless
exempted by regulation, medical devices may not be commercially distributed in
the United States unless they have been approved or cleared by the FDA.
In the United States, medical devices are classified into one of three
classes (class I, II, or III), on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations, class I devices are subject to general controls (for example,
labeling, premarket notification, and adherence to good manufacturing
practices), and class II devices are subject to general and specific controls
(for example, performance standards, patient registries and FDA guidelines).
Generally, class III devices are those which must receive a premarket approval
by the FDA to ensure their safety and effectiveness (for example, life
sustaining, life-supporting, and implantable devices, or new devices which have
not been found substantially equivalent to legally marketed devices).
There are two review procedures by which medical devices can receive such
approval or clearance. Some products may qualify for clearance under a Section
510(k) procedure, in which the manufacturer provides a premarket notification
that it intends to begin marketing the product, and shows that the product is
substantially equivalent to another legally marketed product (i.e., that it has
the same intended use and is as safe and effective as a legally marketed device
and does not raise different questions of safety and effectiveness than does a
legally marketed device). In some cases, the submission must include data from
human clinical studies. Marketing may commence when the FDA issues a clearance
letter finding such substantial equivalence.
If the medical device does not qualify for the 510(k) procedure (either
because it is not substantially equivalent to a legally marketed device or
because it is a Class III device required by the statute and implementing
regulations to have an approved application for premarket approval), the FDA
must approve a premarket approval application before marketing can begin.
Premarket approval applications must demonstrate, among other matters, that the
medical device is safe and effective. A premarket approval application is
typically a complex submission, usually including the results of preclinical and
clinical studies, and preparing an application is a detailed and time-consuming
process. Once a premarket approval application has been submitted, the FDA's
review may be lengthy and may include requests for additional data. The
manufacturer must also pass a premarket inspection of its compliance with the
quality systems regulations. There can be no assurances that the FDA will
authorize marketing of the product under a 510(k) or a premarket approval, or
that it will do so in a timely manner. After FDA approval of the initial
indication, further clinical trials may be necessary to gain approval of the
product for additional indications.
Clinical investigations of most devices are subject to the investigational
device exemption requirements, which usually involve FDA review of the
investigation before it may begin. Clinical investigations of many in vitro
diagnostic tests are exempt from the investigational device exemption
requirements, provided the testing meets certain exemption criteria, including
labeling as an "investigational use only" product. In addition, in vitro devices
may be distributed for "research use only," provided they are intended for
laboratory research and labeled for research use. The FDA's current policy is to
encourage manufacturers of in vitro devices for "investigational use only" or
"research use only" to establish a certification program under which these in
vitro devices are distributed to or utilized only by individuals, laboratories,
or health care facilities that have provided the manufacturer with a written
certification of compliance indicating that the "investigational use only" or
"research use only" product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.
Once granted, a 510(k) clearance or premarket application approval may
place substantial restrictions on how a device is marketed. Even where a device
is exempted from 510(k) clearance or premarket application approval, the FDA may
impose restrictions on marketing. For example, FDA has exempted many analyte
specific reagents not sold as finished test kits from obtaining 510(k) clearance
or premarket application approval. These reagents, however, may be marketed only
to clinical laboratories certified under the Clinical Laboratories Improvements
Act to conduct tests of high complexity and are subject to a number of labeling
requirements.
Ixion's Products. We have agreed, as discussed above, with the University
of Florida Diagnostic Referral Laboratories for them to offer a service to
urologists and other physicians based on our XEntrIX TM Oxalobacter formigenes
Monitor. We believe this agreement is permitted under the provisions of the
FDA's analyte specific reagent regulation; however, we can not assure you that
our reliance on that regulation will be accepted by the FDA.
The XEntrIX TM Oxalobacter formigenes Monitor and Blood Oxalate Assays,
when manufactured by or for us, will be distributed initially for research use
and will not require FDA review prior to distribution for those uses. To market
these products for diagnostic use, we intend to request authorization under the
510(k) procedure for the XEntrIX TM Oxalobacter formigenes Monitor and perhaps
the Blood Oxalate Assay. Premarket approval applications may, however, be
required for each of these products.
We believe that our diabetes treatment products and enzyme therapy for
treatment of oxalate-related disorders will require either a new drug
application or a biologic license application before they may be commercially
distributed. There can be no assurance that the FDA will accept our views on the
regulatory status of our products, or that the FDA will authorize marketing or
clinical investigation of any product, or that it will do so in a timely manner.
Additional studies or other information may be requested during the FDA review
period that may delay marketing authorization. The law or government regulations
may change in ways that could prevent or delay marketing authorization for our
products. Delays in receipt of, failure to receive, or loss of previously
received approvals could have a material adverse effect on our business,
financial condition, and results of operations.
Other FDA Obligations. Each manufacturing facility for drugs, medical
devices, or biologics, must be registered with the FDA, and the products
manufactured at that facility must be listed with the FDA. A manufacturer's
quality control and manufacturing procedures must conform on an ongoing basis
with good manufacturing practices. Certain adverse effects and product
malfunctions must be reported to the FDA. Product labeling and advertising must
comply with FDA requirements. In some cases, postmarket testing may be required,
or other requirements imposed. Complying with these requirements requires
substantial time, money, and effort. We intend to rely on our strategic
partners for assistance with these matters.
FDA Enforcement. The FDA inspects manufacturers of drugs, medical devices,
and biologics on a regular basis. Failure to comply with applicable requirements
can, among other consequences, result in civil penalties, injunctions,
suspensions and losses of regulatory approvals, product recalls, seizure of
products, refusal to allow us to enter into supply contracts with the
government, and criminal prosecution.
Non-U.S. Marketing. For marketing outside the United States, we is also
subject to foreign regulatory requirements. Requirements governing the conduct
of clinical trials, product licensing, pricing, and reimbursement vary widely
from country to country. The time required to obtain approvals by foreign
countries may be longer or shorter than that required for FDA approval, and
regulatory requirements for foreign countries may differ significantly from
those of the FDA. In some cases, products may not be exported until FDA approval
is obtained. We intends to rely on our strategic partners both in the United
States and abroad for assistance with these matters.
Florida Conflicts of Interest. Because Dr. Peck, our Chief Scientist, Dr.
Schuster, Dr. Khan, and Dr. Schatz, members of our Scientific Advisory Board,
are employees of the Florida State University System, they, and consequently we,
are subject to Florida statutes relating to conflicts of interest. In order for
Ixion to conduct business with the University (including licensing University
technology or entering into research support agreements), we must obtain and
maintain an exemption for Dr. Peck from the application of the Florida conflict
of interest statutes, obtain approvals for outside activities for Drs. Schuster,
Khan, and Schatz.
Exemptions for Dr. Peck are issued pursuant to a monitoring plan which
requires us, among other things, to promptly disclose every material transaction
between us and any employee of the University. Dr. Peck obtained his initial
exemption from the Florida conflict of interest statutes on January 5, 1995,
relating to the academic year ended June 30, 1995. Exemptions must be renewed
annually at the beginning of each academic year (or upon material alterations in
the terms of the relations between us and Dr. Peck). The approval of the request
for renewal for the academic year ended June 30, 1997 was received on September
29, 1997. The requests to renew Dr. Peck's exemption for the academic years
ended June 30, 1998 and June 30, 1999 have been filed and are pending. The
approval process can take 12 or more months. While we have no reason to believe
that Dr. Peck's requests for renewal will not be approved, there is no assurance
that the exemption will be renewed, or, if renewed, that it will be renewed on
reasonable terms. Furthermore, it is not clear what the effect of a non-renewal
will be should the University decline to renew the exemptions on a timely basis
or at all.
Manufacturing and Marketing
We have no experience in manufacturing or marketing products on a
commercial scale. Marketing rights for products may be licensed to corporate
partners. Co-marketing arrangements may also be feasible for some products.
Ixion intends to seek distribution arrangements for our products in other
countries outside of the United States. While using third parties for
distribution or marketing permits us to avoid the costs of establishing a
distribution or marketing network in a particular area, this strategy also makes
us more dependent on the efforts of third parties, involves a potential
reduction in profit margins, and may complicate negotiations and other matters
associated with technology licenses.
Target Markets. We believe there will be demand for the XEntrIX TM
Oxalobacter formigenes Monitor in the research market and, upon acceptance by
urologists and nephrologists as a clinically useful test, by certain specialized
kidney, nephrogenic, and urologic reference labs. The target markets for a new
blood oxalate assay include approximately 5,000 hospital labs, the several major
independent labs, and the same specialized kidney, nephrogenic, and urologic
reference labs as for the XEntrIX TM Oxalobacter formigenes Monitor.
For the use of the XEntrIX TM Oxalobacter formigenes Monitor, the blood
oxalate assay, and our IxC1-62/47 enzyme therapy in the management of kidney
stones, we plan to target the country's approximately 7,300 in-office
urologists. For the use of the XEntrIX TM Oxalobacter formigenes Monitor and
IxC1-62/47 enzyme therapy for managing kidney stone risk in cystic fibrosis
patients, we plan to target the cystic fibrosis treatment centers in the United
States. For the use of the XEntrIX TM Oxalobacter formigenes Monitor and
IxC1-62/47 enzyme therapy in the diagnosis and treatment of vulvodynia, we
intend to approach the market through the 35,000 gynecologists practicing in the
United States.
Marketing Strategy. The strategy for marketing islet-related products will
depend on collaborations with third parties with greater marketing resources
than we.
The marketing strategy for the XEntrIX TM Oxalobacter formigenes Monitor
depends upon educating urologists and nephrologists of its clinical usefulness.
Over 65% of all kidney stones are composed predominantly of calcium oxalate.
Oxalate plays a crucial role in the formation of renal stones and in this
respect hyperoxaluria constitutes a special problem in management of kidney
stones. The XEntrIX TM Oxalobacter formigenes Monitor would be used to screen
and manage known stone formers in order to assist the urologist in stratifying
and treating kidney stone patients. The use of the XEntrIX TM Oxalobacter
formigenes Monitor will allow the urologist to make a determination of which of
his or her hyperoxaluric patients have an exogenous hyperoxaluria caused by
hyperabsorption from the diet, resulting from diminished or decimated
populations of O. formigenes. The clinical relevance of the resulting data is
the urologist's capability to identify a specific cause of urolithiasis and to
treat it effectively. Ix XEntrIX TM ion Oxalobacter formigenes Monitor data will
be more meaningful than 24 hour urinary oxalate data alone in that it accurately
identifies and quantifies the high-risk population of kidney stone formers and
stratifies them with respect to cause.
Kidney stones, while prevalent, are not generally recognized as predictable
or avoidable by many physicians and their patients. Consequently, the
promotional task will be difficult. To meet this challenge, we intend to invest
in both physician education programs, and, assuming funds are available,
consumer awareness campaigns. We can reach the country's over 7,300 in-office
urologists through a direct mail campaign. In addition, working with specialized
companies in the urology market, we propose to inform urologists about our
planned new kidney stone disease management products. In addition, the
Scientific Advisory Board members and other recognized scientists will be
encouraged to write articles for peer review scientific journals to stimulate
interest and establish further credibility in the scientific and medical
communities.
A similar approach will be used to approach the gynecological market for
our vulvodynia products and the cystic fibrosis market for the management of
kidney stone risk.
In each case, we intend to participate in urology, nephrology, gynecology,
and other industry trade meetings and to exploit on-line medical databases and
our own web site. Finally, as stated above, we intend to use third-party sales
forces to amplify our efforts. See "Business - Business Strategy."
Contract Suppliers and Manufacturers. It is our present intention to enter
into agreements with contract testing and manufacturing entities to test and
manufacture commercial quantities of our planned products in order to avoid the
expenditure of significant funds to hire and train personnel and comply with the
extensive regulations, including "good manufacturing practice" requirements
applicable to such a facility.
Employees
We have five full time employees. Our six part time employees include Dr.
Peck, who is an exclusive consultant, Mr. Peck, President and Chief Financial
Officer, and Ms. Ramsey, Controller. Ixion is not subject to any collective
bargaining agreements and believes that our relationship with our employees is
good.
Scientific Advisory Board
None of the members of the Scientific Advisory Board are our employees.
Scientific advisors spend only a small portion of their time to our affairs and
have commitments to other institutions that may conflict or compete with their
obligations to us. Scientific advisors collaborate with us on research grant
applications, review and evaluate our research programs, advise us about
technical matters, consult on product planning and feasibility studies, assist
in establishing research priorities, provide guidance on clinical evaluation
programs, alert us to potential collaborators, advise us on new developments,
and recommend personnel.
The Scientific Advisory Board meets periodically as a group. In addition,
some members may meet in smaller groups or individually with our scientists.
Ixion has confidentiality agreements with each scientific advisor providing that
all confidential information shall be our exclusive property. Scientific
advisors are not paid in cash, but are reimbursed expenses, and, pursuant to the
1994 Board Retainer Plan, receive 5,000 restricted shares of Ixion's common
stock upon joining, and 1,000 restricted shares annually thereafter. They also
receive stock options for 2,500 shares annually after their initial year.
The current members of the Scientific Advisory Board are the following:
Milton J. Allison, Ph.D. Dr. Allison has long been a pioneer in oxalate
research, having discovered and named Oxalobacter formigenes. He is presently
Professor of Microbiology, Immunology, and Preventive Medicine, Iowa State
University and Microbiologist Emeritus of the National Animal Disease Center,
USDA, Ames, Iowa. He earned his Ph.D. from the University of Maryland.
Marguerite Hatch, Ph.D. Dr. Hatch is a Professor in the College of
Medicine, Nephrology Division, and Director of the Kidney Stone Center at the
University of California, Irvine College of Medicine since 1990.Previously she
was Director of the New York Kidney Stone Center, SUNY Health Science Center.
She earned her B.Sc. with Honors from the University College, Dublin, Ireland
and her Ph.D. in 1978 from Trinity College, Dublin, Ireland.
Saeedur R. Khan, Ph.D. Dr. Khan is Associate Professor of Pathology at the
University of Florida College of Medicine and a leader in the field of oxalate
research and molecular/microscopy. His current and previous committee
memberships include the NIH Ad hoc Reviewer on Urinary Stone Grants; member,
Center for the Study of Lithiasis and Pathological Calcification; and member of
the Shands Stone Center Committee. He earned his undergraduate degree from Agra
University in Agra, India, his masters of science degree from the Peshawar
University, Peshawar, Pakistan, and his Ph.D. from the University of Florida.
Desmond Schatz, M.D. Dr. Schatz is the Medical Director of the Diabetes
Center and Associate Professor of Pediatric Endocrinology at the University of
Florida Medical School. He is a Diplomate of the American Board of Pediatric
Endocrinology and a member of the American Diabetes Association, the
International Diabetes Federation, and the Immunology of Diabetes Society. He
received his undergraduate degree from St. David's College in Johannesburg,
South Africa, and his medical degree from the University of the Witwatersrand
Medical School in Johannesburg.
Sheldon M. Schuster, Ph.D. Dr. Schuster is Biotechnology Program Director
for the University of Florida's biotechnology program and Associate Director for
Research for the University of Florida Cancer Center. He is a member of the
American Association for the Advancement of Science and the American Society of
Biological Chemistry and Molecular Biology. He was a co-founder of BioNebraska,
Inc., and is a co-founder and chairman of the scientific advisory board of
AquaGene, Inc. He received his B.S. in biochemistry from the University of
California, Davis and his Ph.D. in biochemistry and pharmacology from the
University of Arizona.
Hans Wigzell, M.D., D.Sc. Dr. Wigzell is presently the Rector of
Stockholm's famed Karolinska Institute. He received his medical degree and
doctorate of science. from Karolinska. From 1982 onwards, he has been Chairman
of the Department of Immunology at Karolinska. Among his many honors was his
service as Chairman of the Nobel Committee of Karolinska from 1990 to 1992.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this report regarding the dates on which we anticipate
commencing clinical trials or filing for regulatory approval, constitute
forward-looking statements under the federal securities laws. Such statements
are subject to risks and uncertainties that could cause the actual timing of
such clinical trials or filings to differ materially from those we project. With
respect to such dates, we have made assumptions regarding, among other things,
o the successful and timely completion of preclinical tests,
o the approval of investigational new drug applications for each of our
drug candidates by the FDA,
o the availability of a simplified application way to seek market
clearance from the FDA for our molecular diagnostic test,
o the availability of adequate clinical supplies,
o the absence of delays in patient enrollment, and
o the availability of the capital resources necessary to complete the
preclinical tests and conduct the clinical trials.
Our ability to commence clinical trials or file for regulatory approval on
the dates anticipated is subject to risks, including the risks discussed under
"Risk Factors." You should not rely on the dates on which we anticipate filing
regulatory approval or commencing clinical trials.
Statements regarding our research and development plans also constitute
forward-looking statements. Actual research and development activities may vary
significantly from the current plans depending on numerous factors including
o changes in the costs of such activities from current estimates,
o the results of the programs,
o the results of clinical studies referred to above,
o the timing of regulatory submissions, technological advances,
o determinations as to commercial potential, and
o the status of competitive products.
Our projections regarding the likely effect of Year 2000 issues on our
company is also a forward-looking statement.
All of the above estimates are based on the current expectations of our
management team, which may change in the future due to a large number of
potential events, including unanticipated future developments.
<PAGE>
Item 2. Description of Property.
In October 1998, we leased approximately 3,600 rentable square feet of
equipped laboratory space and approximately 1,413 rentable square feet of office
space at 13709 Progress Blvd., Alachua, Florida, across the street from our old
location in the business incubator owned by the University of Florida at the
Biotechnology Development Institute. Our lease has a three-year term, expiring
in September 2001, with two one-year renewal options. We are developing a small
scale facility in our lab suite to produce preclinical quantities of our XEntrIX
TM Oxalobacter formigenes Monitor TM as well as IxC1-62/47. Commercial scale
production will be subcontracted to contract manufacturers. See "Business -
Business Strategy," Annual payments are approximately $72,000.
For a fee of $1,000 for 1999, we have a graduate membership agreement with
the Biotechnology Development Institute under which we have access to
specialized facilities such as animal rooms, small-scale fermentation
capabilities, and glass washing and autoclaving facilities. As a graduate
member, we may also use the specialized equipment located in the centralized
instrument lab in the Biotechnology Development Institute at no extra cost, and
we may use the services of the University's Core Laboratories including the
Recombinant Protein Expression Core, the Flow Cytometry Core, the Protein
Chemistry Core, and the Electron Microscopy Core at a special graduate
membership rate.
We believe these facilities will be adequate for the foreseeable future.
Item 3. Legal Proceedings.
We are not a party to any legal proceedings and are not aware of any
threatened litigation or regulatory action that could have a material adverse
effect on our business, financial condition, or results of operations.
Item 4. Submission of matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Set forth below is information as to securities sold by Ixion within the
past three years which were not registered under the Securities Act of 1933 (the
"Act"). No underwriters were involved in any of the sales, so there were no
underwriting discounts or commissions. All outstanding securities are deemed to
be restricted securities for the purposes of the Act. All certificates
representing such issued and outstanding restricted securities of the Company
have been properly legended and the Company has issued "stop transfer"
instructions to its transfer agent with respect to such securities, which
legends and stop transfer instructions are presently in effect unless such
securities have been registered under the Securities Act or have been
transferred pursuant to an appropriate exemption from the registration
provisions of the Securities Act.
Restricted shares of Common Stock have been issued to Members of the Board
of Directors, Members of the Scientific Advisory Board, and key employees under
the Company's Board Retainer Plan as follows:
On June 10, 1996, 34,000 shares of Common Stock (5,000 shares to each
of two directors, 5,000 shares to each of two members of the Scientific
Advisory Board, for services and 14,000 shares of Common Stock to its
Vice President - Research and Development for services) valued at an
aggregate of $92,000 (a portion of which is unearned compensation) or
$3.00 per share.
On September 15, 1996, 10,000 shares of Common Stock (5,000 shares to
each of two members of the Scientific Advisory Board) for services
valued at $100,000 (a portion of which is unearned compensation) or
$10.00 per share.
On October 10, 1996, 5,000 shares of Common Stock to a member of the
Scientific Advisory Board for services valued at $50,000 (a portion of
which is unearned compensation) or $10.00 per share.
On February 11, 1997, 10,000 shares to its Director of Research,
Oxalate Division, for services valued at $100,000 (a portion of which
is unearned compensation) or $10.00 per share.
On June 27, 1997, 7,000 shares of Common Stock (1,000 shares to each of
two directors, and 1,000 shares to each of five members of the
Scientific Advisory Board, for services) valued at $70,000 (a portion
of which is unearned compensation) or $10.00 per share.
On July 1, 1997, 3,000 shares to its Associate Director of Research,
Diabetes Division, for services (a portion of which is unearned
compensation) valued at $30,000 or $10.00 per share.
On July 1, 1998, 23,450 shares of Common Stock (1,000 shares to each of
two directors, 5,000 shares to a newly-elected director, 1,000 shares
to each of five members of the Scientific Advisory Board, 5,000 shares
to a newly-appointed member of the Scientific Advisory Board, and 6,450
shares to employees for services, in aggregate, valued at $234,500 (a
portion of which is unearned compensation) or $10.00 per share.
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement and the exemption provided by
Rule 701 promulgated under the Act.
Warrants have been issued to an institution in partial payment of rent for
the Company's facilities pursuant to the License Agreement between the
University of Florida Research Foundation, Inc., and the Company as follows:
In August, October, and November, 1996, the Company issued warrants to
purchase an aggregate of 8,022 shares of Common Stock at an exercise
price of $2.00 per share expiring in 2000, valued at $1.35 per warrant.
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as transactions to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement.
On June 30, 1996, two directors and senior officers of the Company, who may
be deemed promoters, converted an aggregate of $16,158 of cash loans made to the
Company under the terms of a subordinated convertible note agreement into a
total of 21,544 shares of Common Stock, at a price of $.75 per share. The
Company issued the above securities without registration in reliance upon the
exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement.
In October and November, 1996, the Company issued an aggregate of $787,270
of Convertible Unsecured Notes due 2001 to 35 accredited and one unaccredited
investors. The Notes are convertible at any time prior to maturity into a
maximum of 323,557 shares of Common Stock at conversion prices ranging from
$4.20 to $2.10. The conversion prices are based on the length of time the
investor holds the Notes prior to conversion. The Company issued the above
securities without registration in reliance upon the exemption provided by
Section 4(2) of the Act as a transaction to a limited number of sophisticated
investors which did not involve a public offering, general solicitation, or
general advertisement and in reliance upon the exemption provided by Rule 505 of
Regulation D of the Act as a sale of securities which, together with all sales
within 12 months, aggregated less than $5,000,000 and were made to fewer than 35
investors.
On February 11, 1997, the Company issued 1,000 shares of Common Stock to
two inventors in exchange for an exclusive license of a patent entitled "Method
for the Selective Control of Weeds, Pests and Microbes," valued at $10,000 or
$10.00 per share. The Company issued the above securities without registration
in reliance upon the exemption provided by Section 4(2) of the Act as a
transaction to a limited number of sophisticated investors which did not involve
a public offering, general solicitation, or general advertisement.
Warrants have been issued to Brandywine Consultants, Inc., pursuant to the
Consulting Agreement between the Company and Brandywine Consultants, Inc., dated
December 12, 1996, for certain milestones as follows:
On June 23, 1997, 3,000 warrants at an exercise price of $5.00 per share of
Common Stock, expiring June 2002.
On October 24, 1997, 3,000 warrants at an exercise price of $5.00 per share
of Common Stock, expiring October 2002.
The Company issued the above securities without registration in reliance upon
the exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement.
In 1997, the Company registered 400,000 newly-issued Units of its
securities for direct sale on Form SB-2 at a price of $10.00 per Unit. The
registration statement, Commission Registration No. 333-334765, was declared
effective on December 10, 1997 and Post-Effective Amendment No. 1 was declared
effective on March 19, 1998. On December 10, 1998, the Company extended the
offering, and thereafter filed Post-Effective Amendment No. 2 to reduce the
number of Units being registered to 150,000 Units (including the Units already
sold), for an aggregate offering price of $1,500,000. Each Unit consists of one
share of common stock, $0.01 par value, and .25 Charitable Benefit Warrant.
There is no minimum number of Units to be sold in the Offering, and all funds
received will go immediately to the Company. The offering has not terminated and
is not scheduled to terminate until the earliest of: the sale of all Units,
December 10, 1999, or the date on which the Company decides to close the
offering. The securities are being sold directly by the Company (except when
sales are to Florida residents, in which case sales must be made through Unified
Management Corporation, a Florida-registered broker dealer).
As of March 23, 1999, a total of 34,420 Units at an aggregate price of
$344,200 have been sold, of which 34,320 Units for an aggregate of $343,200 was
sold through December 31, 1998. From the effective date of the offering to
December 31, 1998, $200 in expenses and $1,854 in commissions have been paid to
Unified Management Company as broker and there have been no finders' fees. Other
offering related expenses through December 31, 1998, amounted to $116,561, all
of which have been offset against proceeds. No payments were made to directors,
officers, general partners of the Company, or to their associates in connection
with the offering.
Net offering proceeds as of December 31, 1998 amounted to $227,639. The net
proceeds were used entirely to fund the operations of the Company during 1998 as
reflected in the financial statements included elsewhere in this report. The use
of proceeds still to be received from the offering is not expected to vary
materially from the use of proceeds described in the amended registration
statement.
There is no public trading market for the Company's securities.
As of March 23, 1999, there were approximately 100 shareholders of record
of the Company's common stock.
The Company has never declared or paid any cash dividends on its common
stock and does not intend to pay any cash dividends on its Common Stock for the
foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes thereto included elsewhere in
this report. This report contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Special Note Regarding Forward-Looking Statements."
The following discussion and analysis should be read in conjunction with
the financial statements and the related notes thereto included elsewhere in
this prospectus. This prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and in "Special Note Regarding Forward-Looking Statements."
Overview
Ixion is a development stage, biotechnology company. We are in the
development stage because we are devoting substantially all of our efforts to
establishing our business, and our planned principal operations have not
commenced.
Since we were founded in March of 1993, we have principally been doing
research and development, securing patent protection, and raising capital. We
have not received any revenues from the sale of products. In June 1998, we
reached an agreement in principle with the University of Florida Diagnostic
Referral Laboratories for them to provide a service to physicians using our
molecular diagnostic test, the XEntrIx TM Oxalobacter formigenes Monitor. We
have received no revenue to date under this agreement. Provided the Diagnostic
Referral Laboratories markets the service and provided doctors accept the test
as useful, we may receive revenue from this test during 1999. (See "Risk Factors
- - - Our Proposed Products May Not be Accepted in the Market.") However we do not
expect any of our other product candidates to be commercially available for at
least several years. From inception through December 31, 1998, we incurred
cumulative losses of $2,893,598. These losses were due primarily to expenditures
on general and administrative activities, research and development, patent
preparation and prosecution, and interest charges.
We expect to continue to incur substantial research and development costs
resulting from
o ongoing research and development programs,
o manufacturing of products for use in clinical trials and preclinical
and clinical testing of our products.
We also expect that general and administrative costs, including
o amortization of patents,
o legal and regulatory costs necessary to support preclinical
development and clinical trials,
o SEC reporting costs, and
o the creation of a marketing and sales organization, if warranted,
will increase in the future, assuming we can finance the increased requirements.
Accordingly, we expect to incur operating losses for the foreseeable future.
We have only a limited operating history upon which you can base an
evaluation of our prospects. You should consider the risks, expenses, and
difficulties encountered by companies at an early stage of development when
evaluating our prospects. To address these risks, we must, among other things,
o successfully develop and commercialize our products,
o secure all necessary proprietary rights,
o respond to competitive developments, and
o continue to attract, retain and motivate qualified persons.
There can be no assurance that we will be successful in addressing these
risks.
Our operating expenses will depend on several factors, including the level
of research and development expenses and our success in raising capital.
Research and development expenses will depend on the progress and results of our
product development efforts, which we cannot predict. We may sometimes be able
to control the timing of development expenses in part by accelerating or
decelerating preclinical testing and clinical trial activities. As a result of
these factors, we believe that period-to-period comparisons in the future are
not necessarily meaningful and you should not rely on them as an indication of
future performance. Due to all of the foregoing factors, it is possible that our
operating results will be below the expectations of market analysts, if any, and
investors. In such event, the prevailing market price, if any, of our common
stock would likely be materially adversely affected.
Results of Operations
Years Ended December 31, 1998 and 1997
Our revenues under a research agreement with Genetic Institute decreased
from $135,922 in 1997 to $0 for 1998 because all contractual payments from
Genetics Institute have been made. Revenues under our SBIR grant declined
from $71,650 in 1997 to $0 in 1998 because the grant was fully expended.
Revenues under the Genetics Institute agreement and the SBIR ceased at
the end of 1997. We do not expect material revenues during 1999.
Interest income decreased 95% from $10,147 in 1997 to $465 in 1998. This
decrease was attributable to the expenditure of the proceeds from the sale of
our unsecured convertible notes in the last quarter of 1996, which proceeds had
been invested during 1997. Interest income relating to the investment of
proceeds of the unsecured convertible notes ceased in the first quarter of 1998.
Operating, general and administrative expenses increased 10.0% from
$336,572 in 1997 to $370,397 1998. These increased expenses reflect increased
legal expenses, increased advertising and promotion, and increased salaries,
compared to 1997. We expect our general and administrative expense to modestly
decrease during 1999 as a result of a continued reduction in the scale of
operations, offset, to some degree, by increased rent, depreciation, and
amortization of capitalized patent costs as new patents are issued.
Research and development expenditures consist primarily of
o payroll-related expenses of research and development personnel,
o laboratory supplies,
o animal supplies,
o laboratory rent,
o depreciation on laboratory equipment,
o development activities,
o payments for sponsored research, and
o payments to scientific and regulatory consultants.
Research and development expenses decreased 23.5% from $554,751 in 1997 to
$424,606 in 1998, primarily as a result of a reduction in the scale of research
and development and concomitant reduction in lab supplies, together with the
termination of our consulting contract with our regulatory advisor, and a
reduction in the stock compensation expense relating to our scientific advisors,
offset, to some degree by an increase in lab rent. Future research and
development expenses are dependent on our success in raising capital.
Interest expense increased 9.7% from $112,083 in 1997 to $122,958 in 1998
due primarily to interest on bridge loans from officers, and the compounding of
interest on deferred fees and salaries, including deferred interest, payable to
related parties. Interest expense will continue to increase during 1999, as a
result of the continued compounding of interest on deferred fees and salaries
accounts and additional bridge loans from officers.
Liquidity and Capital Resources
In December, 1997, we commenced the public offering of 400,000 Units of
newly issued securities, for an aggregate of $4,000,000. Each Unit consists of
one share of common stock and .1/4 of a Charitable Benefit Warrant. Each whole
Charitable Benefit Warrant entitles you to purchase one share of common stock at
a price of $20.00 per share. Ixion is directly (except in Florida where sales
must be made through a broker) making the offering in ten states, primarily over
the Internet. There is no minimum number of Units to be sold in the offering,
and all funds received have gone and will go immediately to us. On December 10,
1998, we extended the offering through the earliest of:
o the sale of all Units,
o December 10, 1999, or
o the date we decide to close the offering.
In addition, we have reduced the size of the offering from 400,000 Units to
150,000 Units, including the 34,320 Units we sold during 1998. At March 23,
1999, we have sold a total of 34,420 Units in the offering. We must file a new
post-effective amendment to the registration statement to include our audited
financials for the periods ended December 31, 1998 before sales of units may be
resumed.
During 1998, our development activities were funded primarily by the
proceeds from the offering and bridge loans from the Chairman and Chief
Executive Officer and the President. The bridge loans total $385,000 at March
23, 1999. Interest on the bridge loans from officers is currently at 8% but can
be reset annually, at the election of either party, to the prime rate in effect
on January 1 of any given year, plus 3%. We have no agreement with the officers
to advance further funds, however, the officers have continued to fund operating
requirements voluntarily to meet working capital needs. We can not assure you
that the officers will continue to voluntarily fund bridge loans during 1999. We
do not have any bank financing arrangements. Our long-term indebtedness consists
primarily of deferred fees and salaries payable to related individuals and our
unsecured convertible notes.
At December 31, 1998, we had $18,633 in cash and cash equivalents. Until
required for operations, our policy is to invest any excess cash reserves in
bank deposits, money market funds, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade quality
instruments.
On January 1, 1996, we purchased laboratory equipment pursuant to a chattel
mortgage agreement in the amount of $32,309. The agreement calls for monthly
payments of $897, commencing August 1, 1996. At December 31, 1998, $6,282 in
principal remains outstanding under this agreement..
In connection with the Genetics Institute sponsored research agreement
referred to above, some patent-related expenses were reimbursed by Genetics
Institute. We may be contractually obligated to repay these reimbursed expenses
in installments over a 36 month period upon a notice to or by Genetics Institute
to the effect that their option contained in the sponsored research agreement
has expired. We have not given such notice, and, accordingly, reimbursement has
not commenced. We have accrued $42,317 as a long term liability pending final
notice under the agreement.
Through December 31, 1998, we have paid offering-related expenses of
$116,561 which have been applied against the proceeds of the public offering. We
expect further offering-related expenses to be modest.
On October 8, 1998, upon the expiration of our lease at the Biotechnology
Development Institute, we moved to comparable rental facilities across the
street from our former location. The new lease will be for increased space and
rent and for a three-year term, with two one-year renewal options. We expect
that annual payments under the new lease (including repayment of funds provided
by lessor for tenant improvements and an emergency generator) will be
approximately $84,000 per year. We will continue to have access, as a graduate
affiliate, to the Biotechnology Development Institute's specialized facilities,
centralized equipment, and core laboratories. Relocation will not materially
affect our research and development operations; however, we incurred relocation
expenses and have been obliged to purchase or lease laboratory and office
furnishings and equipment. We expect to purchase or lease additional lab
equipment in the amount of approximately $80,000 in the future.
We have incurred negative cash flows from operations since our inception.
We have spent and expect to continue to spend, substantial funds to complete our
planned product development efforts, commence clinical trials, and diversify our
technology. Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including
o the success of the continuing public offering of our securities,
o the successful commercialization of the XEntrIx (TM) Oxalobacter
formigenes Monitor (our new diagnostic test) and IxC1-62/47 (our lead
therapeutic compound),
o progress in our product development efforts,
o the magnitude and scope of development efforts,
o progress with preclinical studies and clinical trials,
o the cost of contract manufacturing and research organizations,
o cost of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights,
o competing technological and market developments, and
o the development of strategic alliances for the development and
marketing of our products.
We require all of the proceeds of this offering to meet our planned
operating requirements through December 31, 1999. Shortfalls in the proceeds of
the public offering to date have forced a curtailment in our planned operating
requirements to adjust to reduced resources. In the event our plans change or
our assumptions change or prove to be inaccurate or the proceeds of the offering
continue to be insufficient to fund operations at the planned level (due to
further unanticipated expenses, delays, problems or otherwise), we will require
additional financing. We will be required to obtain additional funds in any
event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our products through regulatory approval
to commercialization. The terms and prices of any equity or debt financings or
corporate combination may be significantly more favorable to new investors than
those of the Units sold in the offering, resulting in significant dilution to
current investors. We do not have any material committed sources of additional
financing. We can not assure you that additional funding, consolidation, or
alliance, if necessary, will be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to further delay,
scale-back, or eliminate certain aspects of our operations or attempt to obtain
funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products, or potential markets. If adequate funds are not available,
our business, financial condition, and results of operations will be materially
and adversely affected.
Product Research and Development Plan
Our plan of operation for 1999 consists primarily of research and
development and related activities, resources permitting, including:
o further research into the biology of islet and islet stem cell growth
and differentiation, aimed at developing cell lines of functioning
islets for transplantation into diabetic patients;
o further research into identifying and characterizing novel growth
factors associated with islets to discover factors important in islet
cell differentiation and possible regulation of diabetes and to
identify stem cell markers to which we hope to produce monoclonal
antibodies useful in stem cell isolation
o research into differential gene expression studies on differentiated
islet cells;
o further research into encapsulation materials for transplantation of
islets;
o further preclinical development of a quantitative version of our
molecular diagnostic test, the XEntrIx (TM) Oxalobacter formigenes
Monitor,
o further preclinical development of our oxalate therapeutic compound,
IxC1-62/47;
o continuing the prosecution and filing of patent applications; and
o hiring additional employees.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial potential, the status of competitive products, and, most important,
our success in raising capital. The focus and direction of our operations will
also be dependent upon the establishment of collaborative arrangements with
other companies, and other factors.
We can not assure you that we will be able to commercialize our
technologies or that profitability will ever be achieved. We expect that our
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, most of which are outside our
control.
Year 2000 Compliance
Many computer systems and computer chips embedded in equipment are unable
to tell the difference between the year 1900 and the year 2000. This is know as
the Year 2000 issue. Many businesses are at risk for possible miscalculations or
systems failures as a result of their computers, software, or equipment's not
being Year 2000 compliant.
Our assessment of Year 2000 compliance issues is not complete.
Software and Computers. Our computers all run Windows operating systems
which are or will be Year 2000 compliant according to our tests and information
received from Microsoft. We have been assured by the vendors that our office
applications programs are Year 2000 compliant. We have been also been assured by
the vendor that our finance and accounting software, our only mission-critical
software, is Year 2000 compliant.
Equipment. Most of our laboratory equipment does not use a computer or
embedded chip. Our policy is that all equipment that we purchase must be Year
2000 compliant. Our assessment of our laboratory equipment is not complete.
With respect to equipment made available to us as a result of our
affiliation with the Biotechnology Development Institute, we have requested a
statement of compliance.
Suppliers. We are contacting key suppliers regarding their Year 2000
compliance in order to determine if there might be any effect on our operations.
In general, our suppliers (primarily scientific reagent and disposable equipment
vendors), have developed or are in the process of developing plans to address
Year 2000 issues. We will continue to monitor and evaluate the progress of our
suppliers.
In general our review of the potential consequences of Year 2000 compliance
issues on us leads us to believe that those issues will prove to be immaterial
to our business, operations, and financial condition. Accordingly, we do not
have contingency plans and have no plans to develop any unless our further
assessment indicates one is necessary. No material expenses have been incurred
to date and none are anticipated.
Item 7. Financial Statements.
The financial statements of the Company are set forth beginning on page
F-1, immediately following the signature page of this report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
The information required under Part III, Items 9, 10, 11, and 12, has been
omitted from this report since the Company intends to file with the Securities
and Exchange Commission (the "Commission"), not later than 120 days after the
close of its fiscal year, a definitive proxy statement prepared pursuant to
Regulation 14A, which information is hereby incorporated by reference.
Item 13. Exhibits and Reports on Form 8-K.
Exhibits marked by asterisk(s) are included with this Report on Form
10-KSB; other exhibits have been incorporated by reference to other documents
filed by the Company with the SEC.
Exhibit
Number Description
3.1 Certificate of Incorporation of Registrant (1)
3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant(1)
3.3 Certificate of Amendment to Certificate of Incorporation of Registrant
(1)
3.4 Bylaws of Registrant, as amended and restated (5)
4.1 Form of Registrant's Common Stock Certificate (2)
4.2 Form of Registrant's Charitable Benefit Warrant Certificate (5)
4.3 Charitable Benefit Warrant Agreement, dated (5)
4.4 Warrant Agreement with Jeffrey W. Seel, dated November 7, 1995 (1)
4.5 Warrant Agreement with the University of Florida Research Foundation,
Inc., dated November 7, 1995 (1)
4.6 Warrant Agreement with the University of Florida Research Foundation,
Inc., dated August 1, 1996 (1)
4.7 Warrant Agreement with the University of Florida Research Foundation,
Inc., dated October 1, 1996 (1)
4.8 Warrant Agreement with the University of Florida Research Foundation,
Inc., dated November 7, 1996 (1)
4.9 Warrant Agreement with Brandywine Consultants, Inc., dated June 23,
1997 (2)
4.10 Warrant Agreement with Brandywine Consultants, Inc., dated October 24,
1997 (2)
10.1 Chattel Mortgage Agreement with Carl Therapeutic, Inc., dated as of
January 1, 1996 (1)
10.2 Consulting Agreement with Brandywine Consultants, Inc., dated December
12, 1996 (1)
10.3 Consulting Agreement with Ammon B. Peck, dated February 21, 1997 (1)
10.4 Consulting Agreement with David C. Peck, dated July 1, 1996 (1)
10.5 Convertible Promissory Note with Weaver H. Gaines, dated March 31, 1993
(1)
10.6 Convertible Promissory Note with David C. Peck, dated October 15, 1993
(1)
10.7 Demand Promissory Note, Bridge Loan with Weaver H. Gaines, dated April
15, 1996 (1)
10.8 Demand Promissory Note, Bridge Loan with David C. Peck, dated April 15,
1996 (1)
10.9 Deferred Compensation Plan Agreement with Weaver H. Gaines, dated
January 1, 1994 (1)
10.10 Deferred Compensation Plan Agreement with Ammon B. Peck, dated June 1,
1994(1)
10.11 Deferred Compensation Plan Agreement with David C. Peck, dated April
1, 1994(1)
10.12 Agreement to Purchase Shares, dated as of October 10, 1994 (1)
10.13 Note Purchase Agreement, dated as of September 13, 1996 (1)
10.14 Incubator License Agreement with the University of Florida Research
Foundation, Inc., dated June 26, 1995 (1)
10.15 Amendment No. 1, dated July 31, 1996 to Incubator License Agreement
with the University of Florida Research Foundation, Inc. (1)
10.16 Amendment No. 2, dated October 1, 1996 to Incubator License Agreement
with the University of Florida Research Foundation, Inc. (1)
10.17 Amendment No. 3, dated November 7, 1996 to Incubator License Agreement
with the University of Florida Research Foundation, Inc. (1)
10.18 Amendment No. 4, dated January 21, 1997 to Incubator License Agreement
with the University of Florida Research Foundation, Inc. (1)
10.19 Patent License Agreement with Randy S. Fischer and Roy A. Jensen for
U.S. Patent No. 5,187,071, "Method for the Selective Control of
Weeds, Pests, and Microbes," dated February 11, 1997 (1)
10.20 Patent License Agreement with Research Component with the University
of Florida Research Foundation, Inc. relating to Oxalobacter
formigenes, dated January 11, 1995 (4) (a)
10.21 Amendment No. 1 to Patent License Agreement with Research Component
with the University of Florida Research Foundation, Inc. relating to
Oxalobacter formigenes, dated December 20, 1995 (4)
10.22 Amendment No. 2 to Patent License Agreement with Research Component
with the University of Florida Research Foundation, Inc. relating to
Oxalobacter formigenes, dated October 9, 1996 (4) (a)
10.23 Patent License Agreement with Research Component with the University
of Florida Research Foundation, Inc. relating to Pancreatic Stem
Cells, dated February 17, 1995 (4) (a)
10.24 Amendment No. 1 to Patent License Agreement with Research Component
with the University of Florida Research Foundation, Inc. relating to
Pancreatic Stem Cells, dated October 9, 1996 (4) (a)
10.25 Patent License Agreement with Milton J. Allison, dated June 23, 1997.
(4) (a)
10.26 Sponsored Research Agreement with Genetics Institute, Inc., dated June
5, 1996 (4) (a)
10.27 Employment Agreement with Weaver H. Gaines, dated August 31, 1994 (1)
10.28 Employment Agreement with David C. Peck, dated August 31, 1994 (1)
10.29 1994 Stock Option Plan, as amended (1)
*10.30 1994 Board Retainer Plan, as amended
10.31 Consulting Agreement with Ammon Peck, dated October 6, 1994 (1)
10.32 Amendment No. 5 to Incubator License Agreement dated July 19, 1997 (1)
10.33 Office Lease agreement with Echelon International Corporation dated as
of September 18, 1998 (6)
10.34 Amendment No. 3 to Patent License Agreement with Research Component
with the University of Florida Research Foundation, Inc. relating to
Oxalobacter formigenes, dated December 17, 1998 (6) (a)
10.35 BDI Graduate Membership Agreement with the Biotechnology Development
Institute dated November 5, 1998. (6)
10.36 Consulting Agreement with Amersham Pharmacia Biotech, Inc., dated
January 3, 1999 (6)
*10.37 Interinstitutional Agreement with The University of Florida Research
Foundation, dated February 4, 1999 (a)
*10.38 Finders' Agreement with East Coast Angels, LLC, dated March 15, 1999.
*11.1 Statement regarding computation of earnings per share (included as
Note 1 in financial statements)
*27 Financial Data Schedule (6)
(a) Confidential information has been omitted from these document and
filed separately with the Commission pursuant to a request for
Confidential Treatment.
* Filed herewith.
(1) Incorporated by reference to Form SB-2, File No. 333-334765, dated August
29, 1997.
(2) Incorporated by reference to Amendment 1 to Form SB-2, File No. 333-334765,
dated November 7, 1997.
(3) Incorporated by reference to Amendment 2 to Form SB-2, File No. 333-334765,
dated December 2, 1997.
(4) Incorporated by reference to Amendment 3 to Form SB-2, File No. 333-334765,
dated December 9, 1997.
(5) Incorporated by reference to Post Effective Amendment No. 1 to Form SB-2,
File No. 333-34765, dated January 23, 1998.
(6) Incorporated by reference to Post Effective Amendment No. 2 to Form SB-2,
File No. 333-33475, dated February 17, 1999.
Item 13(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Ixion Biotechnology, Inc.
By: /S/ Weaver H. Gaines
Weaver H. Gaines, Chairman and Chief Executive
Officer
In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the Company and in the
capacities indicated on March 30, 1999.
SIGNATURE TITLE
/S/ Weaver H. Gaines Chairman of the Board, Chief Executive
Weaver H. Gaines Officer, and Director
/S/ David C. Peck President, Chief Financial Officer and
David C. Peck Director
/S/ Kimberly A. Ramsey Controller
Kimberly A. Ramsey
/S/David M. Margulies Director
David M. Margulies
/S/ Vincent P. Mihalik Director
Vincent P. Mihalik
/S/ Karl-E. Arfors Director
Karl-E. Arfors
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997 and
for the Period March 25, 1993 (Date of Inception)
through December 31, 1998
<PAGE>
Ixion Biotechnology, Inc.
Contents
Page
--------
Report of Independent Accountants 1
Financial Statements:
Balance Sheet 2
Statements of Operations 3
Statements of Capital Deficiency 4
Statements of Cash Flows 6
Notes to Financial Statements 8
<PAGE>
Report of Independent Accountants
The Board of Directors
Ixion Biotechnology, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of capital deficiency and of cash flows present fairly, in all
material respects, the financial position of Ixion Biotechnology, Inc. (A
Development Stage Company) at December 31, 1998 and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997 and
for the period March 25, 1993 (date of inception) through December 31, 1998, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company requires additional financing to continue its
development stage activities which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
March 12, 1999
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1998
Assets
Current Assets:
Cash and cash equivalents $ 18,633
Accounts receivable 1,916
Prepaid expenses 1,076
Other current assets 500
-----------
Total current assets 22,125
Property and Equipment, net 61,087
Patents and Patents Pending, net 289,913
Other 7,015
-----------
$ 380,140
===========
Liabilities and Capital Deficiency
Current Liabilities:
Accounts payable $ 30,478
Current portion of notes payable 340,099
Accrued expenses 64,216
-----------
Total current liabilities 434,793
-----------
Long-Term Liabilities:
Notes payable 650,256
Liability under research agreement 42,317
Deferred rent 22,095
Deferred fees and salaries, including accrued interest, payable to 719,278
-----------
Total long-term liabilities 1,433,946
-----------
Total liabilities 1,868,739
-----------
Commitments (Notes 1 and 11)
Capital Deficiency:
Common stock, $.01 par value; authorized 4,000,000, issued and
outstanding 2,513,914 shares 25,139
Additional paid-in capital 1,664,458
Deficit accumulated during the development stage (2,893,598)
Less unearned compensation (284,598)
-----------
Total capital deficiency (1,488,599)
-----------
Total Liabilities and Capital Deficiency $ 380,140
===========
See accompanying notes to financial statements.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Operations
For the Period
March 25,
1993 (Date
Year Ended of Inception)
December 31, through
1998 1997 December 31, 1998
==============================================
Revenues:
Income under research agreement $ - $ 135,922 $ 275,001
Income from SBIR grant - 71,650 91,650
Interest income 465 10,147 23,432
Other income 3,257 3,733 17,805
----------------------------------------------
Total revenues 3,722 221,452 407,888
----------------------------------------------
Expenses:
Operating, general and
administrative 370,397 336,572 1,468,507
Research and development 424,606 554,751 1,510,737
Interest 122,958 112,083 322,242
----------------------------------------------
Total expenses 917,961 1,003,406 3,301,486
----------------------------------------------
Net Loss $ (914,239) $ (781,954) (2,893,598)
==============================================
Net Loss per Share (Basic) $ (0.37) $ (0.32)
==============================================
Weighted Average Common Shares 2,489,677 2,458,440
==============================================
See accompanying notes to financial statements.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency
For the Period March 25, 1993 (Date of Inception) through December 31, 1998
<TABLE>
Deficit
Accumulated
Additional During the Unearned
Common Stock Paid-In Development Note Compen-
Shares Amount Capital Stage Receivable sation Total
============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Initial sale of common stock, $.01
per share 100,000 $ 1,000 $ - $ - $ - $ - $ 1,000
Sale of common stock, $.01 per share 50,000 500 - - - - 500
Net loss for the period March 25, 1993
(date of inception) through December
31, 1993 - - - (54,268) - - (54,268)
-------------------------------------------------------------------------------------------
Balance, December 31, 1993 150,000 1,500 - (54,268) - - (54,768)
Conversion of subordinated notes
payable, $0.02 per share 900,000 9,000 9,000 - - - 18,000
Issuance of stock under Board Retainer
Plan, $0.02 per share 5,000 50 50 - - - 100
Sale of stock, $0.02 per share 5,000 50 50 - - - 100
Issuance of stock in exchange for
certain intellectual property, $0.02
per share 650,000 6,500 6,500 - - - 13,000
Conversion of deferred consulting
fees, $0.10 per share 10,000 100 900 - - - 1,000
Sale of stock, $0.10 per share 140,000 1,400 12,600 - - - 14,000
Net loss - - - (215,286) (215,286)
-------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,860,000 18,600 29,100 (269,554) - - (221,854)
Sale of stock, $0.75 per share 500,000 5,000 370,000 - - - 375,000
Issuance of stock under Board Retainer
Plan, $0.75 per share 10,000 100 7,400 - - - 7,500
Issuance of 9,608 common stock
warrants - - 9,608 - - - 9,608
Sale of stock, $3.00 per share 3,000 30 8,970 - - - 9,000
Note received from shareholder for common
stock and warrants - - - - (6,000) - (6,000)
Net loss - - - (374,212) - - (374,212)
-------------------------------------------------------------------------------------------
Balance, December 31, 1995 2,373,000 23,730 425,078 (643,766) (6,000) - (200,958)
Issuance of stock under Board
Retainer Plan, $3.00 per share 20,000 200 59,800 - - (26,166) 33,834
Issuance of stock, $3.00 per share 14,000 140 41,860 - - (36,540) 5,460
Issuance of stock under Board Retainer
Plan, $10.00 per share 15,000 150 149,850 - - (50,000) 100,000
Issuance of 8,022 common stock
warrants - - 10,857 - - - 10,857
Conversion of subordinated notes
payable to related parties, $0.75
per share 21,544 215 15,943 - - - 16,158
Issuance of variable notes with
beneficial conversion feature - - 285,835 285,835
Net loss - - - (553,639) - - (553,639)
------------------------------------------------------------------------------------------
Balance, December 31, 1996 2,443,544 24,435 989,223 (1,197,405) (6,000) (112,706) (302,453)
</TABLE>
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency - Continued
For the Period March 25, 1993 (Date of Inception) through December 31, 1998
<TABLE>
Deficit
Accumulated
Additional During the Unearned
Common Stock Paid-In Development Note Compen-
Shares Amount Capital Stage Receivable sation Total
=========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,443,544 24,435 989,223 (1,197,405) (6,000) (112,706) (302,453)
Issuance of stock, $10.00 per share 14,000 140 139,860 - - (111,382) 28,618
Issuance of stock under Board Retainer
Plan, $10.00 per share 7,000 70 69,930 - - (43,000) 27,000
Payment received from shareholder for
note received for common stock
and warrants - - - - 6,000 - 6,000
Amortization of unearned compensation
over service period - - - - - 64,400 64,400
Stock warrants issued for seervices - - 30,000 - - - 30,000
Sale of stock, $10.00 per share 1,000 10 9,990 - - - 10,000
Net loss - - - (781,954) - - (781,954)
-----------------------------------------------------------------------------------------
Balance, December 31, 1997 2,465,544 24,655 1,239,003 (1,979,359) - (202,688) (918,389)
Issuance of stock, $10.00 per share 6,450 65 64,435 - - (58,050) 6,450
Issuance of stock under Board Retainer
Plan, $10.00 per share 17,000 170 169,830 - - (113,000) 57,000
Forfeiture of issued stock, $10.00
per share (8,400) (84) (25,116) - - 25,200 -
Amortization of unearned compensation
over service period - - - - - 63,940 63,940
Sale of stock, $10.00 per share 33,320 333 332,867 - - - 333,200
Offering costs - - (116,561) - - - (116,561)
Net loss - - - (914,239) - - (914,239)
-----------------------------------------------------------------------------------------
Balance, December 31, 1998 2,513,914 $ 25,139 $ 1,664,458 $ (2,893,598) $ - $ (284,598)$(1,488,599)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1998 1997 1998
========================================
Cash Flows from Operating Activities:
Net loss $ (914,239) $ (781,954) $ (2,893,598)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 13,455 11,471 37,855
Amortization 3,156 3,019 7,000
Stock warrants issued under
license agreement - - 20,465
Amortization of debt discount 57,168 57,168 133,392
Stock warrants/options issued
for consulting services - 30,000 30,000
Stock compensation 127,390 110,018 384,203
Decrease (increase) in prepaid
expenses and other current assets 326 6,376 (1,401)
Decrease (increase) in accounts
receivable (146) 6,389 (1,916)
Increase (decrease) in deferred
revenue - (100,000) -
Increase in liability under research
agreement - 42,317 42,317
Increase in accounts payable and
accrued expenses 172 28,881 95,365
Increase in deferred fees and
salaries 242,862 91,378 692,726
Increase in deferred rent 15,609 6,486 22,095
Increase in interest payable - - 33,198
-----------------------------------------
Net cash used in operating
activities (454,247) (488,451) (1,398,299)
-----------------------------------------
Cash Flows from Investing Activities:
Purchase of property and equipment (12,397) (5,757) (44,294)
Organization costs - - (436)
Payments for patents and patents
pending (74,345) (90,289) (284,115)
-----------------------------------------
Net cash used in investing
activities (86,742) (96,046) (328,845)
-----------------------------------------
Cash Flows from Financing Activities:
Loans from officers 250,000 75,000 355,307
Proceeds from issuance of
convertible not - - 787,270
Proceeds from sale of common stock 333,200 10,000 755,900
Proceeds from collection of
note receivable - 6,000 -
Payment of loan costs and other
assets (1,114) - (12,194)
Payment of offering costs (53,932) (62,629) (116,561)
Principal reductions in note payable (12,975) (10,970) (23,945)
----------------------------------------
Net cash provided by financing
activities 515,179 17,401 1,745,777
----------------------------------------
Net Increase (Decrease) in Cash
and Cash Equivalents (25,810) (567,096) 18,633
Cash and Cash Equivalents at
Beginning of Period 44,443 611,539 -
Cash and Cash Equivalents at End
of Period $ 18,633 $ 44,443 $ 18,633
See accompanying notes to financial statements.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Cash Flows - Continued
For the Period
March 25,
1993 (Date
of Inception)
Year Ended through
December 31, December 31,
1998 1997 1998
========================================
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for:
Interest $ 27,590 $ 21,887 $ 55,746
------------------------------------------
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Common stock issued for subordinated
notes payable $ - $ - $ 34,158
------------------------------------------
Common stock, stock warrants and
stock options issued for services
or technology $ - $ 30,000 $ 49,457
------------------------------------------
Common stock issued for note
receivable $ - $ - $ (6,000)
------------------------------------------
Common stock issued for purchase
of patent $ - $ 10,000 $ 10,000
------------------------------------------
Equipment purchased under an
installment note arrangement
or lease agreement $ 26,450 $ - $ 53,442
------------------------------------------
Common stock issued under Board
Retainer Plans $ 170,000 $ 70,000 $ 457,500
------------------------------------------
Other common stock issued as
compensation $ 65,000 $ 130,000 $ 237,000
------------------------------------------
Offering costs included in
accounts payable $ - $ 16,345 $ 16,345
------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the Period March 25, 1993 (Date of
Inception) through December 31, 1998
1. Significant Accounting Policies:
Organization - Ixion Biotechnology, Inc., a Delaware corporation (the
"Company"), was incorporated on March 25, 1993 and has been in the
development stage since its formation. The Company is in business to
develop pharmaceutical products and medical devices to detect, diagnose,
treat or prevent diabetes and oxalate-induced diseases. The Company has
not generated significant revenues to date and has experienced operating
losses since its inception. The Company expects to incur additional
operating losses for the next several years as the Company expands its
research and development and regulatory activities and prepares for the
manufacturing and marketing of its products.
Basis of Presentation - The Company is in the development stage since it
is devoting substantially all of its efforts to establishing its
business and its planned principal operations have not commenced.
Successful completion of the Company's development program, and its
transition to profitable operations, is dependent upon obtaining
approval to market its products from the United States Food and Drug
Administration and achieving revenues from the commercial development of
its products. Obtaining regulatory authorization involves, among other
things, lengthy and detailed laboratory and clinical testing,
manufacturing validation, and other complex procedures. The approval
process is costly, time-consuming, and subject to unexpected delays.
The Company's financial statements for the year ended December 31, 1998
have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments
in the normal course of business. The Company incurred a net loss of
$914,239 for the year ended December 31, 1998 and, as of December 31,
1998, had a total capital deficiency of $2,893,598. The Company had
deficit cash from operations of $454,247 and $488,451 for 1998 and
1997, respectively.
In December, 1997, the Company commenced the public offering of 400,000
units of newly issued securities for an aggregate of $4,000,000. Each
unit consists of one share of Common Stock, $.01 par value, and a .25
Charitable Benefit Warrant. Each whole Charitable Benefit Warrant
entitles the holder to purchase one share of the Common Stock at a price
of $20.00 per share. There is no minimum number of units to be sold in
the offering. In December, 1998, the Company extended the offering and
reduced the size from 400,000 units to 150,000 units. The Company had
received proceeds of $343,200 as of December 31, 1998. During 1998, the
Company was funded primarily by the proceeds from the offering and
bridge loans from the Chairman/Chief Executive Officer and the
President. If the proceeds from the offering prove to be insufficient,
then the Company would be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners,
or through other sources. If adequate funds are not available, the
Company will have to curtail or defer research and development programs.
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1998 and 1997 and the Period March 25, 1993 (Date of
Inception) through December 31, 1998
1. Significant Accounting Policies - Continued:
Basis of Presentation - Continued - There can be no assurance that the
Company will be successful in obtaining the required financing. Under
current circumstances, the Company's ability to continue as a going
concern depends upon obtaining additional financing.
Cash and Cash Equivalents - The Company considers all highly liquid
instruments with a maturity of three months or less at time of purchase
to be cash equivalents.
Income Taxes - Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
year end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Property and Equipment - Property and equipment are stated at cost.
Gains and losses on disposition are recognized in the year of the
disposal. Expenditures for maintenance and repairs are expensed as
incurred.
Depreciation is computed using the straight-line method over the
estimated lives of the assets (5 years).
Patents and Patents Pending - Patents pending consist of direct costs
incurred in connection with the applications for patents. Amortization
of these costs over the estimated life will begin upon issuance or they
will be expensed immediately if rejected. At December 31, 1998, the
Company had been issued three U.S. patents and purchased another through
the issuance of 1,000 shares of common stock. Patents are being
amortized over 13-17 years. The Company periodically evaluates the
recoverability of intangibles and measures any impairment by comparison
to estimated undiscounted cash flows from future operations. The factors
considered by management in performing this assessment include trends
and prospects as well as the effects of obsolescence, demand,
competition and other economic factors.
Research and Development - Research and development costs are charged to
expense as incurred.
<PAGE>
1. Significant Accounting Policies - Continued:
Other Assets - Other assets consists of loan costs associated with the
issuance of convertible notes. Loan costs are being amortized on a
straight-line basis, which approximates the interest method, over the
term of the notes.
Deferred Rent - Deferred rent represents a portion of the rent payable
under the Company's former facilities license with the Biotechnology
Development Institute ("BDI") and accrued interest thereon. The deferred
amount bears non-cash interest at 12% on the outstanding balance,
compounded annually. The Company will repay the liability through a 1%
royalty on net sales of any products developed during its tenancy at the
BDI, such royalty not to exceed the outstanding balance.
Net Loss Per Share - Basic net loss per share is computed using the
weighted average number of common shares outstanding for the period.
Diluted net loss per share is not presented, as the effects of including
common equivalent shares from stock options, warrants and convertible
notes payable in the computation is antidilutive.
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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Property and Equipment:
Property and equipment consists of the following as of December 31,
1998:
Computers and lab equipment $ 77,196
Computer software 515
Library 1,423
Leasehold improvements 17,652
-------------
96,786
Less accumulated depreciation (35,699)
-------------
$ 61,087
=============
<PAGE>
3. Notes Payable:
On March 15, 1996, the Company entered into a written agreement to
purchase certain laboratory equipment for a sales price of $32,309,
payable in 36 monthly installments of $897, including interest,
beginning August 1, 1996. As of December 31, 1998, $6,282 in principal
remains outstanding under this agreement.
In September, 1996, the Company completed the private placement of
$787,270 in Convertible Unsecured Notes due 2001. The private placement
provided investors with the option of either 10% Convertible Unsecured
Notes ("10% Notes") or Variable Conversion Rate Convertible Unsecured
Notes ("Variable Notes"). The 10% Notes accrue interest at the stated
rate until maturity, or conversion, and pay interest quarterly
commencing on November 30, 1996. The 10% Notes are convertible into
shares of the Company's common stock, at any time prior to maturity, at
a conversion price of $4.20 per share. The Variable Notes are
non-interest bearing and are convertible into shares of the Company's
common stock, at any time prior to maturity, at variable conversion
prices ranging from $4.20 to $2.10. The variable conversion prices are
based on the length of time the investor holds the notes prior to
conversion, declining at the rate of $.10 per quarter commencing
November, 1996 from the initial conversion price of $4.20 which is
greater than the market value of the common stock at the date of
issuance. The fair value of the beneficial conversion feature of
$285,835 at September, 1996 has been recorded as debt discount, reducing
notes payable and increasing additional paid-in capital. The debt
discount is being amortized using the effective interest method over the
term of the Variable Notes and to the date of the deepest discount. As
of December 31, 1998, there were $215,600 of 10% Notes and $571,670 of
the Variable Notes outstanding ($419,227 net of unamortized debt
discount of $152,443 at December 31, 1998). Accrued interest on the 10%
Notes totalled $1,796 as of December 31, 1998.
The Company entered into short-term loan agreements with officers of the
Company for working capital purposes. Amounts outstanding were $325,000
and $75,000 at December 31, 1998 and 1997, respectively. The loans
accrue interest at 8% and are due on demand (Note 8).
In October, 1998, upon the expiration of its lease at the Biotechnology
Development Institute, the Company entered into a new lease agreement at
a new facility (see Note 11). As part of this new agreement, the Company
acquired $26,450 of leasehold improvements and lab equipment from the
lessor. Amounts due for these capital additions are to be repaid over 36
months, the term of the lease, with interest at 10%. The balance due
under this agreement was $24,246 at December 31, 1998.
<PAGE>
3. Notes Payable - Continued:
Future principal maturities of notes payable for each of the five years
subsequent to December 31, 1998 are as follows:
Year Ending
1999 $ 340,099
2000 8,817
2001 793,882
-------------
1,142,798
Less: Unamortized debt discount (152,443)
-------------
Total $ 990,355
=============
4. Income Taxes:
The components of the Company's net deferred tax asset and the tax
effects of the primary temporary differences giving rise to the
Company's deferred tax asset are as follows as of December 31, 1998:
Deferred compensation $ 284,000
Net operating loss carryforward 851,000
-------------
Deferred tax asset 1,135,000
Valuation allowance (1,135,000)
-------------
Net deferred tax asset $ -
=============
Any tax benefits for the years ended December 31, 1998 and 1997 and the
period March 25, 1993 (date of inception) through December 31, 1998
computed based on statutory federal and state rates are completely
offset by valuation allowances established since realization of the
deferred tax benefits are not considered more likely than not.
<PAGE>
5. Common Stock Warrants:
During 1997, the Company issued warrants to purchase 6,000 shares of
common stock to a consulting firm as part of a consulting agreement
(Note 8). The warrants are accounted for under the provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation. The value assigned was $5.00 per warrant,
based on the difference between the exercise price of $5.00 and a $10.00
market value at date of grant, for a total of $30,000 to consulting
expense. The value assigned approximates that derived from a
Black-Scholes valuation model assuming an average discount rate of 5.5%,
a volatility factor of 30% and an expected term of one year.
There were no common stock warrants issued during 1998.
Common stock warrants outstanding at December 31, 1998 are as follows:
Number Exercise Price Expiration Date
------------------------------------------------------------------
17,630 $2.00 August 31, 2000
6,000 $5.00 February, 2002 - October, 2002
As discussed in Note 1, as part of the public offering commenced in
December, 1997, the Company has sold units which consist of one share of
common stock, $.01 par value, and a .25 Charitable Benefit Warrant. Each
whole Charitable Benefit Warrant entitles the holder to purchase one
share of common stock at a price of $20 per share. Four units are
required to acquire one whole Charitable Benefit Warrant. Approved
qualified charitable organizations may exercise Charitable Benefit
Warrants at any time until the expiration date (December 9, 2007, unless
extended); holders other than approved qualified charitable
organizations may not exercise except between December 9, 2006 and
December 9, 2007. The Charitable Benefit Warrants, will be detached from
the common stock immediately on purchase. At December 31, 1998, there
were 8,580 Charitable Benefit Warrants outstanding.
<PAGE>
6. Stock Option Plan:
In August, 1994, the Board of Directors adopted the 1994 Stock Option
Plan, under which 250,000 shares of common stock were reserved for
issuance upon exercise of options granted to non-employee directors,
officers, employees, members of the Scientific Advisory Board and
consultants of the Company. Generally, options vest at the rate of 20%
per year and are exercisable within ten years after date of grant.
Activity under the Company's stock option plan is set forth below:
Exercise
Shares Price
-------------------------------------
Outstanding at January 1, 1994 - -
Granted 2,000 $0.02
Exercised - -
-------------------------------------
Outstanding at December 31, 1994 2,000 $0.02
Granted 3,500 $0.75
Exercised - -
-------------------------------------
Outstanding at December 31, 1995 5,500 $0.02 - $0.75
Granted 13,000 $3.00
Exercised - -
-------------------------------------
Outstanding at December 31, 1996 18,500 $0.02 - $3.00
Granted 25,400 $6.00 - $10.00
Exercised -
-------------------------------------
Outstanding at December 31, 1997 43,900
Granted 62,500 $10.00
Exercised -
Forfeited (5,500) $3.00 - $10.00
-------------------------------------
Outstanding at December 31, 1998 100,900
=====================================
<PAGE>
6. Stock Option Plan - Continued:
The status of options outstanding at December 31, 1998 is as follows:
Weighted Weighted
Exercise Average Average Number
Price Shares Remaining Life Exercise Price Exercisable
-------------------------------------------------------------------------------
$ 0.02 2,000 5.5 years $ 0.02 1,800
$ 0.08 3,500 6.5 years $ 0.08 2,450
$ 3.00 8,000 7.5 years $ 3.00 4,000
$ 6.00 3,000 8.33 years $ 6.00 1,000
$ 7.50 2,000 8.4 years $ 7.50 640
$10.00 19,900 8.5 years $ 7.50 14,700
$10.00 62,500 9.5 years $ 10.00 6,250
-------- ---------
100,900 30,840
======== =========
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for stock issued to employees under this plan. Compensation
expense resulting from stock options is measured at the grant date based
upon the difference between the exercise price and the market value of
the common stock. All stock options issued to employees were granted at
an exercise price equal to the market value at the date of grant.
Given the limited time period that the Company's stock has been publicly
registered, as well as the lack of history to estimate patterns of
exercise and option term, fair value disclosures required under FASB
Statement No. 123 are provided as a range from low to high for the
expected term and volatility. Fair value is estimated using the
Black-Scholes option pricing model and the following assumptions:
1998 1997
---------------------------
Low High Low High
--------------------------------------
Discount Rate 5.46% 5.52% 6.09% 6.38%
Volatility 30% 60% 30% 60%
Option Life (Years) 5 9 5 9
<PAGE>
6. Stock Option Plan - Continued:
The weighted average fair value of options granted to other than
non-employee consultants during fiscal year 1998 and 1997 was in the
range of $3.67 to $7.16 and $3.82 to $7.31 per option, respectively. Had
compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for these awards
consistent with the method of FASB Statement No. 123, the Company's
reported net loss and loss per share for fiscal year 1998 and 1997 would
have been as follows:
Low High
-----------------------------
1998 Net Loss $ 968,169 $ 1,030,751
1998 Loss Per Share (0.39) 0.41)
1997 Net Loss 792,985 802,995
1997 Loss Per Share (0.32) (0.33)
The Company applies Statement of Financial Accounting Standards No. 123
for stock options issued to non-employee consultants. In 1997, the
Company granted 5,000 options at exercise prices of $6.00 - $7.50 per
share and will record consulting expense as the options vest for the
difference between the exercise price and the market values at grant
date of $10.00.
7. Board Retainer Plan:
The Company does not pay cash compensation to outside members of the
Board of Directors or to members of the Company's Scientific Advisory
Board. Accordingly, in August, 1994, the Board of Directors adopted the
1994 Board Retainer Plan, under which 75,000 shares of common stock were
reserved for non-employee directors and members of the Scientific
Advisory Board.
New outside members of the Board or the Scientific Advisory Board
receive 5,000 shares upon joining, and all will receive 1,000 shares
annually during the pendency of the Board Retainer Plan. Shares either
vest upon delivery or time of service. For the shares which vest over
time of service, unearned compensation equivalent to the fair value at
the date of grant is charged against capital deficiency and amortized
over the service period to compensation expense. Shares which vest upon
delivery are recorded as compensation expense upon issuance. At December
31, 1998, a total of 74,000 shares had been granted to members of the
Scientific Advisory Board under this Plan. Compensation expense
recognized in connection with such awards for the years ending December
31, 1998 and 1997 was $92,000 and $83,000, respectively. Total unearned
compensation related to Board Retainer Plan awards was $141,166 at
December 31, 1998 and will be recognized as expense over future periods
of service.
<PAGE>
8. Related-Party Transactions:
Commencing with the founding of the Company, two executives, the
Chairman/Chief Executive Officer and the President, made loans to the
Company pursuant to the terms of a convertible promissory note (the
"Subordinated Note Agreement"). Under the terms of the Subordinated
Notes, principal amounts were convertible into common stock at a price
per share not greater than the lowest price per share (adjusted for
stock splits, stock dividends, or other dilution) at which shares of the
Company's common stock have been issued during the 12-month period
immediately prior to the notice of election to convert.
On September 30, 1994, these officers each converted $9,000 of
Subordinated Notes into an aggregate of 900,000 shares of the Company's
common stock, at a price of $0.02 per share. On June 30, 1996, the
remaining obligation on these notes was converted by the officers into a
total of 21,544 shares of the Company's common stock, at a price of
$0.75 per share.
In April, 1996, the Chairman/Chief Executive Officer and President each
entered into a revolving agreement to extend the Company up to $25,000
in the form of bridge loans. Under these agreements, the Company
borrowed a total of approximately $32,000, all of which was repaid in
June, 1996. In addition, in June, 1996, these officers agreed to
increase their loan commitments to operations. Interest on bridge loans
is at 8%, but can be reset annually, at the election of either party, to
prime rate in effect on January 1 of any given year, plus 3%. At
December 31, 1998, there are total loans of $325,000 outstanding to
these officers of the Company (Note 3). These officers have no
commitment to lend additional funds in the future.
In addition, the Company has agreed to defer the payment of the 1993,
1994 and part of the 1995, 1996, 1997 and 1998 salaries of the
Chairman/Chief Executive Officer and the President pursuant to
agreements between the Company and such executives. Similar agreements
are in effect with the Company's Senior Vice President and Chief
Scientist. Payments are to be made only upon termination of employment
(which may be by death, disability, or otherwise) and may be in a lump
sum or as an annuity. Amounts bear interest, compounded annually, at a
rate established by the Board of Directors, and is reset annually at the
rate on 30-year treasury bonds in effect on January 1 of any given year
plus 1%. The rate during 1998 was 6.54%. These obligations are unfunded
recorded liabilities of the Company.
On October 10, 1994, Dr. A.B. Peck, who is an executive officer and
consultant, assigned to the Company all his interest in certain oxalate
technology (subject to prior rights of the University of Florida) and
agreed to an exclusive consulting agreement with the Company in exchange
for an aggregate of 650,000 shares of common stock at a price of $0.02
per share. The Company has a consulting agreement with Dr. Peck for 48
days of service per year for $50,000 per year which expires on December
31, 1999.
<PAGE>
8. Related-Party Transactions - Continued:
On November 10, 1994, members of the immediate families of the founders
of the Company, including a partnership in which the Chairman/Chief
Executive Officer has an undivided 25% interest, purchased an aggregate
of 140,000 shares of the Company's common stock pursuant to an Agreement
to Purchase Shares dated as of such date, for a price of $0.10 per
share, or $14,000 in the aggregate.
In December, 1996, the Company entered into a consulting agreement with
a company whose president is an officer of the Company. The company is
to be paid $5,000 monthly and could receive warrants for up to 20,000
shares of Common Stock upon the achievement of certain milestones.
Through December 31, 1998, the consultants had been paid $70,000 and
were issued warrants for 6,000 shares of Common Stock in 1997 (Note 5).
This agreement was terminated in March, 1998.
In 1997, the Company engaged the services of a printer in connection
with the offering. The printer is partially owned by the Company's Chief
Executive Officer. Through December 31, 1998, the printer has been paid
a total of $11,533.
9. Sponsored Research Agreement:
On June 5, 1996, the Company entered into an agreement with Genetics
Institute, Inc. ("GI") relating to Islet Producing Stem Cells
Technology. Under the agreement, GI sponsored certain research by the
Company and provided funding of $275,000 over a 12-month period, plus
patent expenses of approximately $35,000. The agreement with GI was not
extended after the initial 12-month period. The revenue under this
contract was recognized on a pro rata basis consistent with the period
over which the research was conducted as well as upon delivery of
certain research reports. Under the agreement, the Company is required
to reimburse GI for certain patent costs if GI does not exercise its
option for an exclusive license for the technology. As of December 31,
1998, GI has not exercised their right for an exclusive license to this
technology and costs of $42,317 are recorded as a liability.
<PAGE>
10. Risks and Uncertainties:
Approximately 61% of 1997 revenues consisted of revenues related to a
single sponsored research agreement which expired in 1997. There were no
such revenues in 1998.
The Company's product candidates are in an early stage of development.
The Company has not completed the development of any products and,
accordingly, has not received any regulatory approvals or commenced
marketing activities. No revenues have been generated from the sale of
its products.
The Company's development and commercialization rights for its proposed
products are derived from its license agreements with the University of
Florida and others. A deterioration in the relationship between the
Company and the University of Florida could have a material adverse
effect on the Company.
The Company is aware of potentially significant risks regarding the
patent rights licensed by the Company relating to Islet Progenitor/Stem
Cells and to its oxalate technology. The Company may not be able to
commercialize its proposed diabetic products due to patent rights held
by third parties other than the Company's licensors.
11. Commitments:
Lease - In October, 1998, the Company entered into a lease for
approximately 5,000 square feet of laboratory and office space. Rents
consist of a base rent plus an amount designated for the Company's share
of operating costs in excess of a certain base level. The lease has a
three-year term expiring in September, 2001, with two one-year renewal
options. Total rent expense under this lease was approximately $16,900
during 1998. Future minimum rental payments under this lease, including
an estimate of excess operating costs, at December 31, 1998 are as
follows:
Year Ending
1999 $ 70,395
2000 72,497
2001 55,588
Other - The Company issued 1,000 shares of restricted common stock in
exchange for a patent in February, 1997. In addition to the issuance of
stock, the Company will be required to pay royalties of 2% of net sales,
if any, generated from the patented technology.
The Company has licensed the exclusive rights to technology in two areas
from the University of Florida Research Foundation. The Company is
obligated to pay royalties on net sales of the Company or their
sublicensees on products in these areas. As there have been no product
sales to date, there have been no amounts owed under these license
agreements.
<PAGE>
12. Subsequent Events:
From January 1, 1999 through March 12, 1999, the Company has received
proceeds of $1,000 by selling 100 units of Common Stock and Charitable
Benefit Warrants in their initial public offering.
From January 1, 1999 through March 12, 1999, the Company received
additional bridge loans from officers of the Company for $60,000.
Ixion Biotechnology, Inc.
1994 Board Retainer Plan
as amended March 22, 1999 and June 27, 1997
1. Purpose of Plan. The purpose of the Ixion Biotechnology, Inc. 1994
Board Retainer Plan (the "Plan") is to provide a means by which Ixion
Biotechnology, Inc. (the "Company") may attract and retain Outside Directors,
Members of the Scientific Advisory Board, and certain key employees, and key
consultants by providing those personnel with an opportunity to participate in
the growth, development and financial success of the Company which their
efforts, initiative, and skill have helped produce.
2. Definitions. Wherever the following capitalized terms are used in
the Plan, they shall have the following respective meaning:
2.1 "Award" means a grant of fully-paid and non-assessable shares of
Common Stock under the Plan.
2.2 "Board of Directors" means the board of directors of the Company.
2.3 "Change in Control" shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the Common Stock, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding securities which vote
generally in the election of Directors (referred to herein as "Voting
Securities"); or
(b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors and any
new Directors whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who either were Directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or
<PAGE>
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other entity, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of surviving
entity) more then 50% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of (in one transaction or a series of transactions) all or substantially
all of the Company's assets.
2.4 "Committee" means the Audit and Benefits Committee of the Company.
2.5 "Common Stock" means the Common Stock of the Company, par value
$0.01 per share.
2.6 "Company" means Ixion Biotechnology, Inc., a Delaware corporation.
2.7 "Director" or "Outside Director" means a member of the Board of
Directors who is not an officer or employee of the Company.
2.8 "Disability" or "disabled" means, with respect to a Participant a
physical or mental condition resulting from any medically determinable physical
or mental impairment that renders such person incapable of engaging in any
substantial gainful employment and that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not less
than six consecutive months.
2.9 "Exchange Act" means the Securities Exchange Action of 1934, as
amended.
2.10 "Fair Market Value" means the per share value of the Common Stock
as of a given date, determined as follows:
(a) If the Common Stock is listed or admitted for trading on
any national securities exchange, the Fair Market Value of the Common Stock is
the closing quotation for such stock on the day preceding such date, or, if
shares were not traded on the day preceding such date, then on the next
preceding trading day during which a sale occurred.
(b) If the Common Stock is not traded on any national
securities exchange, but is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System (Nasdaq System) or any similar system
of automated dissemination of quotations of prices in common use, the Fair
Market Value of the Common Stock is the last sales price (if the stock is then
listed as a national market issue under the Nasdaq System) or the mean between
the closing representative bid and asked prices (in all other cases) for the
stock on the day preceding such date as reported by Nasdaq System (or such
similar quotation system).
<PAGE>
(c) If neither clause (a) nor clause (b) of this Section 2.9
is applicable, the Fair Market Value of the Common Stock is the fair market
value per share as of such valuation date, as determined by the Board of
Directors in good faith and in accordance with uniform principles consistently
applied. Such Fair Market Value shall be determined on a regular basis, not less
than annually.
2.11 "Member of the Scientific Advisory Board" means a member of the
Company's Scientific Advisory Board.
2.12 "Officer" means an officer of the Company, as defined in Rule
16a-1(f) under the Exchange Act, as such rule may be amended
from time to time.
2.13 "Participant" means an Director, or Member of the Scientific
Advisory Board, key employee, or key consultant to whom an
award is granted under this Plan.
2.14 "Plan" means the Ixion Biotechnology, Inc. 1994 Board Retainer
Plan, as it may be amended from time to time.
2.15 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as such rule may be amended from time to time.
2.16 "Secretary" means the Secretary of the Company.
2.17 "Securities Act" means the Securities Act of 1933, as amended.
2.18 "Termination of Relationship" means with respect to any Director,
Member of the Scientific Advisory Board, or employee, or consultant, the time
when such person ceases to be a Director, Member of the Scientific Advisory
Board, or employee, or consultant of the Company for any reason, with or without
cause, including without limitation, a termination by resignation, removal,
death, disability, or failure to be nominated or reelected by the Company's
stockholders. Nothing in this Plan shall confer upon any such person Director,
Member of the Scientific Advisory Board, or employee, any right to continue his
or her association with the Company or shall interfere with or restrict in any
way the rights of the Company and its stockholders, which are hereby expressly
reserved, to remove any such person at any time for any reason whatsoever, with
or without cause.
3. Stock Subject to Plan.
3.1 Stock Subject to Plan. The stock subject to an Award shall be
shares of the Company's Common Stock. The aggregate number of such shares issued
and outstanding Directors or Members of the Scientific Advisory Board pursuant
to Awards shall not exceed 250,000.
<PAGE>
3.2 Changes in Company Capitalization. In the event that (i) the
outstanding shares of Common Stock are hereafter changed into or exchanged for a
different number or kind of shares or other securities of the Company, or of
another entity, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, or (ii) the number of shares is increased or
decreased by reason of a stock split, stock dividend, combination of shares or
any other increase or decrease in the number of such shares of Common Stock
effected without receipt of consideration by the Company (provided, however,
that conversion or exchange of any convertible or exchangeable securities of the
Company shall not be deemed to have been "effected without receipt of
consideration"), then the Committee shall make appropriate adjustments in the
number and kind of shares available for Awards, including adjustments to the
limitations in Section 3.1 on the maximum number and kind of shares which may be
issued and outstanding pursuant to Awards.
4. Granting of Awards
4.1 Eligibility. Any serving Outside Director or, Member of the
Scientific Advisory Board, and any or newly-hired key employee or consultant,
shall be eligible for Awards.
4.2 Grants. Each person who is an Outside Director or Member of the
Scientific Advisory Board of the Company at the date of the adoption of this
Plan shall be granted an Award of 5,000 shares of Common Stock. Thereafter,
immediately following the Annual Meeting of the Company, the Committee shall
grant a further Award of 1,000 shares of Common Stock to each Participant (so
long as he or she is an Outside Director or Member of the Scientific Advisory
Board on each such date). Employees and consultants may be granted Awards in
connection with employment or otherwise upon recommendation by the Committee and
approval by the Board.
4.3 Administration of the Plan.
(a) The Plan shall be administered by the Committee. The
Committee shall consist of at least two Outside Directors (if there are such)
selected by the Board of Directors. Committee members may resign by delivering
written notice to the Secretary. Vacancies on the Committee shall be filled by
the Board of Directors.
<PAGE>
(b) Except as otherwise provided in the Plan and except as
otherwise expressly stated to the contrary in the Company's Certificate of
Incorporation, Bylaws, or elsewhere, the Committee shall have the sole
discretionary authority (i) to impose such conditions and restrictions on Awards
as it determines appropriate, (ii) to interpret the Plan, (iii) to prescribe,
amend, and rescind rules and regulations relating to the Plan, (iv) to determine
Fair Market Value in accordance with Section 2.9 (c), and (v) to take any other
actions in connection with the Plan and to make all determinations under the
Plan as it may deem necessary or advisable for the administration of the Plan.
The determinations of the Committee on the matters referred to in this Section 4
shall be binding and conclusive on all persons.
(c) A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by all of the members of the Committee shall be fully effective as if it
had been made by a majority vote at a meeting duly called and held.
(d) The Committee may delegate to one or more persons any of
its powers, or designate one or more persons to do or perform those matters to
be done or performed by the Committee, including administration of the Plan. Any
person or persons delegated or designated by the Committee shall be subject to
the same obligations and requirements imposed on the Committee and its members
under the Plan.
(e) Members of the Committee shall receive such compensation
for their services as members as may be determined by the Board of Directors.
All expenses and liabilities incurred by members of the Committee in connection
with the administration of the Plan shall be borne by the Company. The Committee
may employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company, and its Officers and Directors shall be
entitled to rely upon the advice, opinions, or valuations of any such persons.
All elections taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Participants, the
Company, and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan. Members of the Committee and each person or
persons designed or delegated by the Committee shall be entitled to
indemnification by the Company for any action or any failure to act in
connection with services performed by or on behalf of the Committee for the
benefit of the Company to the fullest extent provided or permitted by the
Company's Certificate of Incorporation, Bylaws, any insurance policy, or other
agreement intended for the benefit of the Committee, or by any applicable law.
5. Terms of Grants
5.1 Grant Agreement. Each Grant shall be evidenced by a written Grant
Agreement , which shall be signed by the Participant and by an authorized
Officer of the Company and which shall refer to such terms and conditions as the
Committee shall determine, consistent with the Plan.
5.2 Issuance of Shares. Participants shall be issued a certificate for
fully-paid and nonassessable shares of Common Stock for the number of shares
covered by the Award, which certificate may contain a legend referring to
restrictions on vesting and transfer and such other terms and conditions as the
Committee shall determine, consistent with the Plan.
<PAGE>
5.3 Forfeiture of Unvested Shares. Shares which have been awarded but
not yet vested under this Section 5.3 shall be forfeited if the Participant
ceases to be a Director, Member of the Scientific Advisory Board, or employee,
or consultant of the Company for any reason, with or without cause, including
without limitation, a termination by resignation, removal, death, disability, or
failure to be nominated or reelected by the Company's stockholders, unless
provided to the contrary in any Grant Agreement approved by the Committee
between the Participant and the Company, which Agreement shall govern any
further vesting of shares pursuant to Awards.
5.4 Fair Market Value. The Company shall provide to each Participant
who receives an Award information regarding the Fair Market Value of the
Company's shares on the date such Award is granted. Such information shall be
provided to permit the Participant to determine his or her federal income tax
liability, if any, for such Award, or to permit the Participant to make the
election contemplated by Section 78 of the Internal Revenue Code.
5.5 Transfer Restrictions; Vesting.
(a) Unless otherwise approved in writing by the Committee, no
shares of Common Stock issued pursuant to an Award may be sold, assigned,
pledged, encumbered, or otherwise transferred until (i) they have vested, and
(ii) either the Company has made an offering of its shares to the public
pursuant to a registration statement under the Securities Act or there has been
a Change of Control of the Company, except as may be provided in Section 5.5(c)
or as may otherwise be provided for in an Grant Agreement which has been
approved by the Committee. The Committee, in its absolute discretion, may impose
such other restrictions on the transferability of the shares granted pursuant to
an Award as it deems appropriate. Any such other restriction shall be set forth
in the respective Grant Agreement and may be referred to on the certificates
evidencing such shares.
(b) Shares issued to members of the Board of Directors, or
employees, or consultants pursuant to Awards shall vest 20% at the end of the
first year of service after the date of the Award and 1/12 of 20% at the end of
each month thereafter. Subject to the provisions of Sections 5.3, 5.5(c), and
5.5(d), Awards shall otherwise become vested at such times and in such
installments (which may be cumulative) as the Committee shall provide in the
terms of each individual Grant Agreement; provided, however, that by resolution
adopted after an Award is granted the Committee may, on such terms and
conditions as it may determine to be appropriate and subject to Sections 5.3,
5.5(c), and 5.5(d), accelerate the time at which such Award or any portion
thereof may be vested, or such rights may be set forth in an agreement between
the Participant and the Company which has been approved by the Committee. Shares
issued to members of the Scientific Advisory Board shall vest 25% at the end of
each three months of service after the date of the award.
<PAGE>
(c) No portion of an Award which is unvested at Termination of
Relationship shall thereafter become vested; provided, however, that provision
may be made that such Award shall become vested in the event of a Termination of
Relationship as may be determined by the Committee, or such rights may be set
forth in a Grant Agreement between the Participant and the Company which has
been approved by the Committee.
(d) Subject to the provisions of Section 5.5(a), the Committee
shall provide, in terms of each individual Grant Agreement when such Award
becomes vested, and (without limiting the generality of the foregoing) the
Committee may provide in the terms of individual Grant Agreements that unvested
shares shall be forfeited immediately upon a Termination of Relationship;
provided, however, that provision may be made that such shares shall become
vested in the event of a Termination of Relationship because of the
Participant's retirement, death, disability, or as may otherwise be determined
by the Committee.
5.6 No Right to Continued Relationship. Nothing in this Plan or in any
Grant Agreement issued hereunder shall confer upon any Participant, any right to
continue his or her association with the Company or shall interfere with or
restrict in any way the rights of the Company and its stockholders, which are
hereby expressly reserved, to remove any such person at any time for any reason
whatsoever, with or without cause.
6. Additional Provisions.
6.1 Nontransferability. No unvested shares issued pursuant to an Award
or interest or right therein or part thereof shall be liable for the debts,
contracts or engagements of the Participant or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment, or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy
and divorce proceeding), and any attempted disposition thereof shall be null and
void and of no effect.
<PAGE>
6.2 Securities Act. Upon issuance of Common Stock of the Company to the
Participant, or his heirs, the recipient of that stock shall represent that the
shares of stock are taken for investment and not resale and shall make such
other representations as may be necessary to qualify the issuance of the shares
as exempt from the Securities Act and applicable federal and state securities
laws and regulations, and shall represent that he or she shall not dispose of
those shares in violation of the Securities Act or of applicable federal and
state securities laws and regulations. The Company reserves the right to place a
legend on any stock certificate issued pursuant to the Plan to assure compliance
with this Section and with the vesting and transferability requirements of
Section 5. No shares of Common Stock of the Company shall be required to be
distributed until the Company shall have taken such action, if any, as is then
required to comply with the provisions of the Securities Act or any other then
applicable federal or state securities law or regulation.
6.3 Withholding of Tax. The Company shall have the right to deduct from
any Award made under the Plan any federal, state or local income or other taxes
required by law to be withheld with respect to such Award. It shall be a
condition to the obligation of the Company to deliver Common Stock upon an Award
that the Participant pay to the Company such amount as may be requested by the
Company for the purpose of satisfying any liability for such withholding taxes.
Any grant under this Plan may provide by its terms that the Participant may
elect, in accordance with any applicable regulations, to pay a portion or all of
the amount of such minimum required or additional permitted withholding taxes in
shares of Common Stock, subject to the timing restrictions set forth in Section
6 hereof. The Participant shall authorize the Company to withhold, or shall
agree to surrender back to the Company, on or about the date such withholding
tax liability is determinable, shares of Common Stock previously owned by such
Participant or a portion of the shares that were or otherwise would be
distributed to such Participant pursuant to such award having a Fair Market
Value equal to the amount of such required or permitted withholding taxes to be
paid in shares.
6.4 Termination and Amendment of Plan. The Committee may at any time
suspend or terminate the Plan, or make such modifications of the Plan as it
shall deem advisable, provided that the Plan not be changed to increase the cost
of the Plan to the Company. Notwithstanding anything to the contrary contained
herein, the Committee shall not amend or modify the Plan more than once every
six (6) months or in any other manner inconsistent with the requirements of Rule
16b-3(c)(2)(ii) except to the extent required by changes in the Internal Revenue
Code, the Employee Retirement Income Security Act of 1974, or regulations and
rules issued thereunder. No termination or amendment of the Plan may, without
the consent of a Participant, adversely affect the rights of such Participant
notwithstanding anything to the contrary herein. No Award may be granted during
any period of suspension of the Plan nor after termination of the Plan, and in
no event may any Award be granted under this Plan after August 30, 2004.
6.5 Duties of the Company. The Company shall pay all original issue
taxes with respect to the issuance or delivery of shares pursuant to an Award
and all other fees and expenses necessarily incurred by the Company in
connection therewith.
6.6 Absence of a Committee. Should the Board of Directors fail to
appoint the Committee or should there be no Committee for any other reason, then
the Plan shall be administered by the Board of Directors. In the absence of a
Committee, the Board of Directors (or that portion thereof comprised in
accordance with this Section 6.6) shall have all the powers of the Committee as
set forth herein in administration of the Plan.
7. General Provisions.
<PAGE>
7.1 No Rights. Neither the adoption and maintenance of the Plan, the
granting of Awards pursuant to the Plan, nor issuance of shares pursuant to
Awards shall be deemed to constitute a contract of employment between the
Company and any Participant or to be a condition of the employment of any
person. The Plan and any Awards granted under the Plan shall not confer upon any
Participant any right with respect to a continued relationship with the Company,
nor shall they interfere in any way with the right of the Company or its
shareholders to terminate the relationship of any Participant with the Company
at any time, and for any reason, with or without cause.
7.2 Costs of Administration. The Company shall pay all costs and
expenses of administering the Plan.
7.3 Controlling Laws. The issuance of shares of Common Stock under the
Plan shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required. The provisions of this Plan shall be interpreted so as to comply
with the conditions and requirements of the Securities Act, the Exchange Act,
and rules and regulations issued thereunder, including without limitation Rule
16b-3, unless a contrary interpretation of any such provisions otherwise
required by applicable law. Except to the extent preempted by Federal law, this
Plan and all Stock Option Agreements entered into pursuant hereto shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware, determined without regard to its conflict of laws rules.
NOTE: Certain portions of this document have been omitted based on a request
for confidential treatment. The non-public information has been filed
with the Securities and Exchange Commission. Omitted portions are
designated with asterisks ("*").
Interinstitutional Agreement Between The University of Florida
Research Foundation, Inc. and Ixion Biotechnologies Inc.
----------------------------------------------------
This Interinstitutional Agreement ("Agreement"), is effective this 4th
day of February, 1999, between the University of Florida Research Foundation,
Inc. ("UFRF"), a direct support organization of the University of Florida
(AUF@), having an address at 223 Grinter Hall, Gainesville, Florida 32611 and
Ixion Biotechnology, Inc.(AIxion@), a corporation of the State of Delaware
having an address at 13709 Progress Blvd., Alachua Florida 32615.
RECITALS
Whereas, certain inventions were made by Dr. Ammon B. Peck of the
University of Florida and Dr. Harmeet Sidhu of Ixion ("inventors");
Whereas, Dr. Peck, in accordance with his employment agreement with the UF,
is required to assign his interest in any Patent Rights (as hereafter defined)
covering inventions made during the course of his employment with UF, and has
assigned such rights in the Inventions to UF;
Whereas, UF, in turn has assigned its Patent Rights in the inventions to
UFRF;
Whereas, Dr. Sidhu has assigned her interest in any Patent Rights to Ixion;
Whereas, Ixion and UFRF intend that Ixion will assume exclusive
responsibility for administering , commercializing and licensing Patent Rights
in the Diagnostic Field, and that UFRF will not license its interests in Patent
Rights in the Diagnostic Field during the term of this Agreement;
Whereas, UFRF and Ixion want the inventions to be commercialized to the
fullest extent so that commercial products and other benefits from licensing can
be enjoyed by the general public;
<PAGE>
AGREEMENT
Now, therefore, the parties agree as follows:
1. Definitions
The terms used in this Agreement shall have the following meaning:
1.1 "Patent Rights" shall mean U.S. patent application No. 60/064,823,
entitled "DNA-based Quantitation of Enteric Bacteria", identified by UFRF as
UF#1797 and by Ixion as UF-210.X.C1, and all patents and patent applications
that claim the priority of this application, including any continuations,
divisionals, foreign patents and/or reissues thereof.
1.2 "License Agreement(s)" shall mean any agreement(s) entered into by
Ixion that grants Licensee(s) the right to make, use, or sell products or use
processes, covered by Patent Rights.
1.3 "Licensee(s)" shall mean any party that enters into a License
Agreement(s) with Ixion.
1.4 "Qualified Payments" shall mean any royalties, license fees,
milestone payments or other payments or consideration except Research Support
Payments and Qualified Equity Investments.
1.5 "Research Support Payments" shall mean any payment other than a
royalty or license fee that is made to Ixion by a Licensee for which either: (i)
Ixion has an obligation to the party paying the funds to apply such funds to the
research and development of a product that is intended to generate Royalty
Income; or (ii) the agreement provides that Ixion is being reimbursed for past
costs incurred in the research and development of a product that is intended to
generate Royalty Income and Ixion has provided a breakdown of the past research
and development costs to the party paying it such funds and to UFRF. For
purposes of this definition, allocable general overhead costs may be included in
the research and development costs covered by the applicable payment, provided
that such costs do not exceed 44% of the specific research and development
costs.
1.6 "Qualified Equity Investments" shall mean amounts paid to Ixion as
consideration for an equity interest in Ixion, but only to the extent that such
consideration does not exceed the fair market value of the shares received by
the other party. Any excess shall be included in Qualified Payments, except to
the extent that the excess is a Research Support Payment as described above.
<PAGE>
1.7 "Royalty Income" shall mean any Qualified Payments that are
received by Ixion with respect to any of the following:
(a) any Qualified Payments received pursuant to a license
agreement under which any Patent Rights are licensed;
(b) any Qualified Payments received from any person or
entity that has been granted a license under the
Patent Rights, without regard to whether such
payments or other forms of compensation are made with
respect to the Patent Rights or are made with respect
to any other patents, intellectual property or other
rights or obligations, unless such Qualified Payment
is received solely with respect to products other
than a Licensed Product, or development or milestones
that are not related to a Licensed Product; or
(c) any Qualified Payments received from any person or
entity with respect to or in settlement of any
infringement to the same extent that such payments
would have been considered Royalty Income under
paragraphs (a) or (b) of this definition if the
payments had been received under a license agreement
with the party.
1.8 "Net Royalty Income" shall mean Royalty Income less Permitted
Royalty Payments.
1.9 "Permitted Royalty Payments" shall mean: (a) royalties and other
payments made by Ixion to an unrelated third party pursuant to an arms-length
agreement to the extent such royalties are payable with respect to the use of an
intellectual property right that is required in order to sell a Licensed Product
for which Royalty Income is recognized under the definition of Royalty Income;
(b) any damages or settlement amounts paid by Ixion to an unrelated third party,
or costs of Ixion incurred in connection therewith, with respect to the
infringement of intellectual property rights other than the Patent Rights to the
extent the infringement of such intellectual property right resulted from the
manufacture use or sale of a Licensed Product for which Royalty Income is
recognized under the definition of Royalty Income.
1.10 "Licensed Product" and "Licensed Process" shall mean:
1.10.1 In the case of a Licensed Product, any product or part
thereof developed by or on behalf of Licensee which:
<PAGE>
(i) is covered in whole or in part by an issued,
unexpired claim or a pending claim contained
in the Patent Rights in any country in which
any product is made, used or sold; or
(ii) is manufactured by using a process which is
covered in whole or in part by an issued,
unexpired claim or a pending claim contained
in the Patent Rights in any country in which
any such process is used or in which any
such product is used or sold.
1.10.2 In the case of a Licensed Process, any process which is
covered in whole or in part by an issued, unexpired claim or a pending claim
contained in the Patent Rights in any country in which such process is
practiced.
1.11 "Net Sales" shall mean Ixion's gross sales (excluding Royalty
Income) from the sale or lease of Licensed Products and Licensed Processes less
the sum of the following:
1.11.1 discounts allowed in amounts customary in the trade
and brokers' or agents' commissions, if any, allowed
and paid to independent parties in arms-length
transactions;
1.11.2 excise, value-added, or sales taxes, tariff duties or
use taxes directly imposed and with reference to
particular sales;
1.11.3 outbound transportation prepaid or allowed;
1.11.4 amounts allowed or credited on returns; and
1.11.5 packing costs and insurance costs if itemized
separately.
No deductions shall be made for commissions paid to individuals regularly
employed by Ixion and on its payroll, or for cost of collections.
1.12 "Diagnostic Field" shall mean the field of Licensed Products used
for the purpose of diagnosing diseases in animals, including humans.
1.13 "Other Field" shall mean any field of use other than the
Diagnostic Field.
<PAGE>
2. Grant of Rights.
2.1 UFRF grants to Ixion the exclusive right to negotiate, execute, and
administer License Agreement(s) in the Diagnostic Field. Unless this Agreement
is terminated and there are no License Agreement(s) in effect or in negotiation,
in accordance with Article 6 (Termination): (a) UFRF will not license Patent
Rights in the Diagnostic Field; and (b) UFRF will, to the extent it is permitted
under applicable agreements with other parties, notify Ixion of applications of
the Patent Rights in Other Fields of which it becomes aware and consult with
Ixion concerning such Other Fields before granting any license under the Patent
Rights in such Other Fields. This Agreement and any License Agreement(s) shall
be subject to the reservation of a right by UFRF, on behalf of the University of
Florida to practice under the Patent Rights for research purposes only,
including research for any sponsors.
2.2 Ixion will use its best efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous, and
diligent program for exploitation of the Patent Rights to attain
commercialization of Licensed Products and Licensed Processes, or at its
election, will actively and diligently seek Licensee(s) for the commercial
development of Patent Rights and will administer all License Agreement(s) for
the mutual benefit of the parties to this Agreement.
2.3 Ixion will have the final authority to enter into negotiations and
execute License Agreement(s) in the Diagnostic Field. Ixion will provide UFRF
with copies of all License Agreements(s) issued. UFRF will keep these documents
and related documentation confidential in accordance with Article 7
(Confidentiality), except that UFRF may disclose the existence of any License
Agreement(s), but only to the extent of the granting clause.
2.4 For as long as this Agreement is in effect, Ixion shall pay to UFRF
twenty-five percent (**%) of Net Royalty Income.
2.5 During the life of this Agreement, each party will be solely
responsible for calculating and distributing to its respective inventors named
on patents contained in Patent Rights its share of Net Royalty Income in
accordance with its own policy.
2.6 Any respective License Agreement will include provisions, or
substantially similar provisions, as follows:
2.6.1 "Nothing in this Agreement will be construed as: an
obligation to bring or prosecute actions or suits
against third parties for patent infringement;
conferring by implication, estoppel, or otherwise any
license or rights under any patents of University of
Florida Research Foundation, Inc. ("UFRF") other than
Patent Rights, regardless of whether such patents are
dominant or subordinate to Patent Rights; or an
obligation to furnish any know-how not provided in
Patent Rights."
2.6.2. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, UFRF MAKES NO REPRESENTATIONS AND EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
VALIDITY OF PATENT RIGHTS CLAIMS."
2.6.3 "Licensee will (and requires its sublicensees to)
indemnify, hold harmless and defend UFRF, the
University of Florida ("UF"), their officers,
employees, and agents; the sponsors of the research
that led to the Invention; the inventors of any
invention covered by Patent Rights (including the
Licensed Products and methods contemplated thereunder)
and their employers against any and all claims, suits,
losses, damage, costs, fees, and expenses resulting
from or arising out of exercise of this license or any
sublicense. This indemnification will include, but not
be limited to, any product liability."
2.6.4 "Because this Agreement grants the exclusive right to
make, use or sell the Licensed Products in the United
States, Licensee acknowledges that any Licensed
Products embodying the Invention or produced through
the use thereof will be manufactured substantially in
the United States."
2.6.7 "Nothing in this Agreement will be deemed to limit
the right to publish any and all technical data of
UFRF or UF resulting from any research performed by
UFRF relating to the invention, and to make and use
the invention, Licensed Product(s), method(s), and
associated technology solely for educational and
research purposes, and for purposes not covered by
this Agreement."
<PAGE>
2.6.8 "Nothing contained in this Agreement will be
construed as conferring any right to use in
advertising, publicity, or other promotional
activities, any name, trade name, trademark, or other
designation of UF or UFRF (including contraction,
abbreviation, or simulation of any of the foregoing).
Unless required by law, the use by Licensee of the
names "UF", "UFRF", AUniversity of Florida@ or
"University of Florida Research Foundation" is
expressly prohibited."
3. Other Consideration and Reports
3.1 Ixion shall deliver to UFRF on or before a date 90 days from the
date hereof a business plan, prospectus, or annual report containing a plan for
further research and development of a product relating to the Patent Rights.
Such document (or extract from such document) shall show generally for the
forthcoming fiscal year the amount of money, number and kind of personnel, and
time budgeted for such product development. Ixion shall provide similar plans or
extracts to UFRF on an annual basis on or before the ninetieth (90th) day
following the close of each fiscal year. All development activities and
strategies and all aspects of product design and decisions to market and the
like are entirely at the discretion of Ixion, and Ixion shall rely entirely on
either its own expertise or on the expertise of its own consultants with respect
thereto. UFRF's review of Licensee's business plan, prospectus, or annual report
is solely to verify the existence of Ixion's commitment to development activity
and to ensure compliance with Ixion's obligations to commercialize the
inventions of the Patent Rights, as set forth above.
3.2 Ixion agrees that the first commercial sale of Licensed Products by
Ixion or its Licensee to the retail customer shall occur on or before ten years
from the date of this Agreement or this Agreement shall terminate pursuant to
Section 6.5 hereto.
3.3. In addition to any other consideration hereunder, Ixion agrees to
pay to UFRF a royalty calculated as a percentage of the Net Sales in accordance
with the terms and conditions of this Agreement. The royalty is deemed earned as
of the earlier of the date the Licensed Product and/or Licensed Process is
actually sold and paid for, the date an invoice is sent by Ixion, or the date a
Licensed Product and/or Licensed Process is transferred by Ixion to a third
party for any promotional reasons. The royalty shall remain fixed while this
Agreement is in effect at a rate of four percent (4%) of the Net Sales.
3.4. Accounting; Payments.
<PAGE>
3.4.1 Amounts owing to UFRF under this Agreement shall be
paid on a quarterly basis, with such amounts due and
received by UFRF on or before the thirtieth day
following the end of the calendar quarter ending on
March 31, June 30, September 30 or December 31 in which
such amounts were earned. The balance of any amounts
which remain unpaid more than thirty (30) days after
they are due to UFRF shall accrue interest until paid
at the rate of the lesser of one and one-half percent
(1.5%) per month or the maximum amount allowed under
applicable law. However, in no event shall this
interest provision be construed as a grant of
permission for any payment delays.
3.4.2 Except as otherwise directed, all amounts owing to
UFRF under this Agreement shall be paid in U.S.
dollars to UFRF at the address provided in Section
8.1. All royalties owing with respect to Net Sales
stated in currencies other than U.S. dollars shall be
converted at the rate shown in the Federal Reserve
Noon Valuation - Value of Foreign Currencies on the
day preceding the payment.
3.4.3 A full accounting showing how any amounts payable to
UFRF under this Agreement have been calculated shall be
submitted to UFRF on the date of each such payment.
With respect to payments under Section 3.3, such
accounting shall be on a per-country and product line,
model or trade name basis and shall be summarized on
the form shown in Appendix A of this Agreement. With
respect to payments made under Section 2.4, such
accounting shall be on a per Licensee, per-country
basis. In the event no payment is owed to UFRF for any
reason, an accounting demonstrating that fact shall be
supplied to UFRF.
3.4.4 UFRF is exempt from paying income taxes under U.S.
law. Therefore, all payments due under Section 3.3 of
this Agreement shall be made without deduction for
taxes, assessments, or other charges of any kind
which may be imposed on UFRF by any government
outside of the United States or any political
subdivision of such government with respect to any
amounts payable to UFRF pursuant to this Agreement.
All such taxes, assessments, or other charges shall
be assumed by Ixion.
<PAGE>
3.4.5 Ixion will keep accurate accounts of all Royalty
Income received by it from each Licensee(s) and all
Permitted Royalties deducted to derive the Net Royalty
Income. Ixion shall also keep books and records
sufficient to verify the accuracy and completeness of
Ixion's accounting with respect to Net Sales, including
without limitation inventory, purchase and invoice
records, manufacturing records, sales analysis, general
ledgers, financial statements, and tax returns relating
to the Licensed Products and/or Licensed Processes. All
such books and records shall be preserved for a period
not less than six years after they are created, both
during and after the term of this Agreement. Ixion will
permit UFRF to employ a certified public accounting
firm, reasonably acceptable to Ixion, to examine its
books and records at reasonable time, but not more than
once a year, in order to verify the payments due or
owing under this Agreement. Said books and records of a
given fiscal year may be examined only once. The fees
and expenses of the certified public accounting firm
will be borne by UFRF. If a payment deficiency under
this Agreement for a calendar year exceeds five percent
(5%) of the amounts paid for that year, then Ixion
shall be responsible for paying UFRF's out-of-pocket
expenses incurred with respect to such review.
4. Patent Prosecution and Protection
4.1 Ixion shall have the exclusive right to maintain Patent Rights,
subject to UFRF's rights in Section 4.4. Ixion shall be responsible for all
costs and expenses with respect to prosecuting and maintaining Patent Rights and
with respect to any re-examinations, interferences, oppositions or invalidity
litigation.
4.2 Ixion and UFRF will use all reasonable efforts to cooperate with
each other with respect to patent maintenance, licensing, and execution of
assignments of Patent Rights contemplated under this Agreement.
4.3 Ixion will reimburse UFRF for any past and future costs and charges
it may have incurred or may in the future incur with respect to any filing,
prosecuting and maintaining Patent Rights or the pursuit of any reexamination,
interference, opposition or invalidity litigation proceedings related to Patent
Rights, provided that for future costs Ixion shall have approved the incurrence
of such cost in advance. Ixion will reimburse UFRF for all of these costs and
charges within 30 days following receipt of an itemized invoice from UFRF.
<PAGE>
4.4 Ixion agrees that UFRF shall have the right to contact Ixion's
patent counsel with respect to any matters relating to the Patent Rights and
Ixion shall direct such counsel to provide any information concerning the
filing, prosecution or maintenance of any Patent Rights at the same time such
information is provided to Ixion. At least 30 days before Ixion abandons any
Patent Right (including any application), Ixion will first notify UFRF of such
intention. UFRF shall have the right to assume the prosecution or maintenance of
such Patent right at its own expense. In such event, with regard to any Patent
Rights issuing out of such application, the rights and obligations of the
parties under this Agreement with respect to the use and licensing of such
rights shall be reversed unless the parties agree in writing otherwise. By way
of example but not limitation, UFRF shall then have the right to license such
rights to others and Ixion shall have agreed not to license such rights to
others in the Diagnostic Field and UFRF will pay Ixion 25% of the Net Royalty
Income received by UFRF.
5. Legal Actions.
5.1. Ixion shall have the sole and exclusive right to determine whether
or not the parties hereto shall engage in and prosecute any legal actions
involving Patent Rights, including without limitation interferences,
oppositions, reissues, reexaminations, or infringement or validity actions
including appeal proceedings in any of them. Such actions shall be at Ixion's
cost and shall be under the exclusive control of Ixion. Upon request by Ixion,
UFRF shall join in an action and otherwise provide Ixion with such assistance
and information as may be useful to Ixion in connection with Ixion's taking such
action. Ixion shall reimburse UFRF for UFRF's reasonable out-of-pocket expenses
incurred in providing such assistance. Ixion shall have the right to assign its
rights under this Section 5 to any of Ixion's licensees under Patent Rights.
5.2. Any monetary recoveries actually received and retained by Ixion
from actions referred to in Section 5.1 shall be treated as Royalty Income.
6. Termination
6.1. The term of this Agreement shall begin on the Effective Date of
this Agreement and continue until such time as no patent comprising the Patent
Rights remains an enforceable patent.
6.2 If Ixion at any time defaults in the timely payment of any monies
due to UFRF or commits any breach of any other covenant herein contained, and
Ixion fails to remedy any such breach or default within ninety (90) days after
written notice thereof by UFRF, UFRF may, at its option, terminate this
Agreement by giving thirty (30) days notice of termination to Ixion.
6.4 UFRF may terminate this Agreement upon the occurrence of the third
separate default by Ixion within any consecutive three-year period for failure
to pay any amounts under this Agreement when due.
6.5 UFRF may terminate this Agreement by giving Ixion at least ninety
(90) days written notice if the date of first commercial sale does not occur on
or before the date specified in Section 3.2.
<PAGE>
6.6 If this Agreement has been in effect for at least five (5) years
and if a License Agreement(s) is not in effect or in negotiation, then either
party may terminate this Agreement for any reason upon at least 60 day=s written
notice (ANotice of Termination@) to the remaining party, but in any event not
less than 60 days before the date that responses to any pending Patent Office
actions need to be taken to preserve Patent Rights.
6.7 If UFRF terminates this Agreement, then Ixion's obligation to pay
all costs related to Patent Rights and incurred in accordance with Article 4
(Patent Prosecution and Protection) will terminate, but shall not relieve Ixion
of any obligation to pay expenses which accrued prior to the date of
termination.
6.8 Termination of this Agreement will not relieve either party of any
obligation or liability accrued under this Agreement before termination or
rescind any payments made or due before termination. In addition, termination
will not relieve Ixion of paying royalties to UFRF for Net Royalty Income
received by Ixion under License Agreements entered into prior to the date of the
termination.
6.9 Any termination of this Agreement will not affect the rights and
obligations set further in the following Articles:
Article 6 Termination
Article 7 Confidentiality
7. Confidentiality
7.1 Ixion and UFRF respectively will treat and maintain the proprietary
business, patent prosecution, software, engineering drawings, process and
technical information, and other proprietary information (AProprietary
Information@) of the other party in confidence using at least the same degree of
care as that party uses to protect its own Proprietary Information of a like
nature for a period from the date of disclosure until three (3) years after the
date of termination of this Agreement.
7.2 Proprietary Information will be labeled or marked confidential or
as otherwise similarly appropriate by the disclosing party, or if the
Proprietary Information is orally disclosed, it will be reduced to writing or
some other physically tangible form, marked and labeled as specified above by
the disclosing party, and delivered to the receiving party within 30 days after
the oral disclosure as a record of the confidential nature.
7.3 Nothing contained herein will in any way restrict or impair the
right of Ixion or UFRF to use, disclose, or otherwise deal with any Proprietary
Information:
<PAGE>
7.3.1 that recipient can prove by written records was
previously known to it;
7.3.2 that is now, or becomes in the future, public knowledge
other than through acts or omissions of recipient;
7.3.3 that is lawfully obtained without restrictions by
recipient from sources independent of the disclosing faculty;
7.3.4 that is required to be disclosed to a governmental entity or agency in
connection with seeking any governmental or regulatory approval, or in
accordance with the lawful requirement or request of a governmental entity or
agency;
7.3.5 that Ixion or UFRF is required to disclose in accordance
with applicable laws of their respective states.
7.4 Nothing under this Agreement or any other agreement between Ixion
and UFRF shall be construed to restrict the rights of the Inventors to publish
in scientific journals, make presentations at public meetings, symposia, or at
regional or national meetings documents that may contain Proprietary
Information.
7.5 Upon termination of this Agreement by either party, Ixion and UFRF
will destroy or return to the disclosing party Proprietary Information received
from the other in its possession within 15 days following the effective date of
termination. If the Proprietary Information is destroyed, then the parties will
provide to the disclosing party, within 30 days following termination, a written
notice that the Proprietary Information has been destroyed. Ixion and UFRF may,
however, retain one copy of the Proprietary Information of the other party
(solely for archival purposes in non-working confidential files for the sole
purpose of verifying the ownership of the Proprietary Information), except that
this Proprietary Information will be subject to the confidentiality provisions
in Section 7.1 above.
8. Notices
8.1 Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to another address as may be designated by written notice given to the
other party.
<PAGE>
To Ixion: Ixion Biotechnology, Inc.
Attn.: General Counsel
13709 Progress Blvd., Box 13
Alachua, Florida 32615
Tel.: 904-418-1428
Fax.: 904-418-1583
To UFRF: University of Florida Research Foundation, Inc.
Attn: Managing Director
223 Grinter Hall
Gainesville, FL 32611
With a copy to:
Dr. Ron Kudla
Director, Office of Technology Licensing
University of Florida Research Foundation, Inc.
1938 West University Ave.
Gainesville, Florida 32611
Tel: (352) 392-8929
Fax: (352) 392-6600
9. Warranties and Representations.
9.1 UFRF and Ixion each warrant and represent that the policy of their
respective institutions requires the inventor of the Patent Rights to assign to
that institution all of his right, title and interest in and to any and all
Patent Rights. UFRF and Ixion further warrants that it has not granted any
licenses or other rights to any other party under any of Patent Rights.
<PAGE>
9.2 In the event either party now or in the future holds or acquires an
interest in technology that can compete in the marketplace or otherwise with all
or any part of any inventions or patents held by either of the parties, whether
as a consequence of this Agreement or otherwise, the parties hereto agree that
each of them may so proceed in its efforts to commercialize its technology
(other than the Patent Rights) as, in its sole and best judgment, each deems
appropriate. Furthermore, this Agreement in no way restricts either party from
cooperating with or receiving cooperation from other public and private
agencies, organizations, and individuals with respect to any of the normal
activities of either of the parties.
9.3 Neither party to this Agreement makes any other warranties or
representation of any kind unless expressly stated in writing in this agreement
or in an amendment thereto signed by both parties.
10. Use of Names.
Neither party may use the name of the other party in any way for
advertising or publicity without the express written consent of the other party,
provided, however, that Ixion has the right to use the name of UFRF within the
context of a License Agreement and in filings and other disclosures required to
be made under the law.
11. Miscellaneous.
Waiver by either party of any breach or default of any of the covenants
or provisions of this Agreement will not be deemed a waiver of any other or
similar breach or default. Nothing in this Agreement confers by implication,
estoppel, or otherwise any license or rights under any patents of either party
other than Patent Rights, regardless of whether such patents are dominant or
subordinate to Patent Rights. This Agreement shall be governed by and
interpreted--and its performance enforced--in accordance with Florida law,
except that the scope and validity of any patent application or patent will be
governed and enforced by the laws of the applicable country of the patent
application or patent. If any part of this Agreement is for any reason found to
be unenforceable, all other parts nevertheless remain enforceable. The parties
hereto are independent contractors and not joint venturers or partners.
12. Contract Formation and Authority.
A. No agreement between the parties shall exist unless the duly
authorized representative of Ixion and the Director of the Office of Technology
Licensing of UFRF have signed this document within thirty (30) days of the
effective date written on the first page of this Agreement.
B. The persons signing on behalf of UFRF and Ixion hereby warrant and
represent that they have authority to execute this Agreement on behalf of the
party for whom they have signed.
<PAGE>
13. Assignability
This Agreement binds and inures to the benefit of the parties, their
successors or assigns, but may not be assigned by either party without the prior
written consent of the other party, which consent will not be unreasonably
withheld.
14. Implied License
NOTHING IN THIS AGREEMENT CONFERS BY IMPLICATION, ESTOPPEL, OR
OTHERWISE ANY LICENSE OR RIGHTS UNDER ANY PATENTS OF EITHER PARTY OTHER THAN
PATENT RIGHTS, REGARDLESS OF WHETHER THESE PATENTS ARE DOMINANT OR SUBORDINATE
TO PATENT RIGHTS.
15. Complete Agreement
15.1 It is understood between Ixion and UFRF that this Agreement
constitutes their entire agreement, both written and oral, and that all prior
agreements respecting the subject matter of this Agreement, either written or
oral, expressed or implied, are canceled.
15.2 No amendment or modification of this Agreement will be binding
upon the parties unless made in writing and signed on behalf of each party.
15.3 If any part of this Agreement is for any reason found to be
unenforceable, all other parts nevertheless remain enforceable.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the dates indicated below.
UNIVERSITY OF FLORIDA IXION BIOTECHNOLOGY, INC.
RESEARCH FOUNDATION, INC.
/s/ Ronald M. Kudla /s/ Weaver H. Gaines
Ronald M. Kudla, Ph.D., MBA Weaver H. Gaines
Director Chairman and Chief Executive Officer
Office of Technology Licensing
Date: 3/2/99 Date: 3/4/99
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
UFRF ROYALTY REPORT
Licensee: Agreement No.:
Inventor: P# : P
---------------------------------------- ---
Period Covered: From: / / 199 Through: / / 199
----------------------------- -----
Prepared By: Date:
Approved By: Date:
If license covers several major product lines, please
prepare a separate report for each line. Then combine
all product lines into a summary report.
Report Type: |_| Single Product Line Report:
|_| Multiproduct Summary Report. Page 1 of ______ Pages
|_| Product Line Detail. Line: Tradename:
--------------------------
Page:
Report Currency:|_| U. S. Dollars |_| Other
<S> <C> <C> <C> <C> <C>
- - ------------ ----------------- ----------------- ---------------- ----------------- ==================================
Gross * Less: Net Royalty Period Royalty Amount
- - ------------ ----------------- ----------------- ---------------- ----------------- ==================================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
Country Sales Allowances Sales Rate This Year Last Year
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
U.S.A.
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
Canada
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
Europe:
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
Japan
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
Other:
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
TOTAL:
- - ------------ ----------------- ----------------- ---------------- ----------------- ---------------- =================
</TABLE>
Total Royalty: _____ Conversion Rate: ______ Royalty in U.S. Dollars: $
The following royalty forecast is non-binding and for UFRF's internal
planning purposes only:
Royalty Forecast Under This Agreement: Next Quarter:__________ Q2:__________
Q3:__________ Q4:__________
------------------------------------------------------------------------
* On a separate page, please indicate the reasons for returns or other
adjustments if significant.
- - --------------------------------------------------------------------------------
Also note any unusual occurrences that affected royalty amounts
during this period. To assist UFRF's forecasting, please comment on any
significant expected trends in sales volume.
- - --------------------------------------------------------------------------------
* On a separate page, please indicate the reasons for returns or other
adjustments if significant.
- - --------------------------------------------------------------------------------
Also note any unusual occurrences that affected royalty amounts
during this period. To assist UFRF's forecasting, please comment on any
significant expected trends in sales volume.
AGREEMENT
AGREEMENT made and entered into as of the 15th day of March, 1999 by
and between East Coast Angels, L.L.C. ("East Coast"), a Florida Limited
Liability Company, and IXION BIOTECHNOLOGY, INC., a Delaware corporation
("Company").
WHEREAS, Company intends to (a) obtain additional financing by making
an offering ("Offering") consisting of a private placement of the Company's
stock or other securities with investors introduced to Company solely by East
Coast (each an "Investor"); (b) enter into a strategic alliance with an entity
introduced to Company solely by East Coast ("Strategic Alliance") which may
include, but is not limited to, a relationship with a corporate partner, a
commitment to provide funding, or the sale of equity or other securities; and
(c) enter into a merger, consolidation or sale of all or substantially all of
the Company's assets with an entity introduced to Company solely by East Coast
("Business Combination"); and
WHEREAS, East Coast is willing to assist Company with Transactions;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the undersigned agree as follows:
1. TERM OF AGREEMENT. This Agreement shall have a term ("Agreement Term") of six
months, beginning on the date first above written, 1999, unless extended by the
mutual written agreement of both parties.
2. DUTIES OF EAST COAST. East Coast's sole function shall be to:
a. Act as a nonexclusive finder, that is to identify prospective
Resources and make introductions of such Resources to Company. Such
introductions shall be in writing. However, in performing such duties East Coast
shall not evaluate or endorse the merits of any investment, Strategic Alliance
or Business Combination opportunity presented to Company and makes no
recommendations or endorsements regarding the appropriateness of particular
investment, Strategic Alliance or Business Combination opportunities for
particular Resources. Potential Resources must rely on their own judgment
regarding the merits of a particular opportunity. Potential resources shall
conduct their own independent investigation of the Company and the facts
submitted by the Company to make an informed decision. East Coast shall not
become involved with any negotiations between Company and Resources or with
structuring any transaction. Additionally, East Coast will not handle any funds
or securities involved in completing the transaction.
3. RIGHTS OF EAST COAST. If at any time during a period of one year after the
expiration of the Agreement Term, including extensions, Company closes a
Transaction with any Resource or any "Affiliate" (as defined below) of any such
Resource that was introduced solely (or if not solely, then introduced first) by
East Coast, East Coast shall be entitled to remuneration as provided in this
Agreement with respect to such Transaction with such Resource or Affiliate.
"Affiliate" for purposes of this Agreement shall mean a person or entity who
controls, is controlled by, or is under common control with a Resource.
<PAGE>
4
3
4. EXPENSES. You agree to pay us an initial retainer deposit of One-thousand
dollars ($1,000) upon execution of this Agreement. You authorize us to use those
funds to pay costs and expenses in connection with performing our services
including, but not limited to: outside consulting fees, messenger and other
delivery fees, overnight delivery fees, and travel expenses. Such expenses will
be itemized. Un-expended funds shall be returned to the Company upon
termination. Any other charges above this amount shall be subject to Company's
approval.
5. REMUNERATION.
a. Upon closing of a transaction consistent with the time and rights
pursuant to paragraph 3 of this Agreement, with a Resource or an Affiliate, East
Coast shall be entitled to receive at closing from funds provided through the
transaction a finder's fee equal to Ten (10) percent of the funds raised
("Fee"). If there is more than one closing, East Coast shall receive a Fee at
each closing. The Fee shall be in the same form as the funds raised.
b. If a Transaction is not consummated with a Resource, or with any of
their Affiliates, East Coast shall not be entitled to a Fee under this
Agreement.
c. In the event that the Company consummates a Strategic Alliance, the
total consideration upon which the Fee is based shall include, but shall not be
limited to: (a) payments made for assets, (b) payments made for equity or other
securities, (c) future payments for which the partner is obligated either
absolutely or upon the attainment of expressly specified milestones, (d) funding
by the partner (through reimbursement or otherwise) of any expenditures of the
Company and (e) all future profits for any services provided by the Company for
the Strategic Alliance which are purchased over a period of time. Each Fee
received shall be aggregated with previous Fees received under this Agreement.
The Fee shall be calculated using the sum of the above categories, (a) through
(e), commencing on the first day of the Strategic Alliance using the following
percentages over the specified time periods:
1. 5% for the first twelve months (1st day through 12th month);
2. 4% for the next twelve months (12th month plus one day
through 24th month);and
3. 3% for the next twelve months (24th month plus one day
through the 36th month).
6. REPRESENTATIONS. The acts, statements and representations made by Company to
Resources and East Coast are the sole responsibility of Company, and Company
agrees to indemnify East Coast for any liability, claims, losses and expenses,
including legal expenses, incurred by East Coast that result from Company's
representations which are materially incomplete, false, or misleading. Company
represents that all materials provided to East Coast regarding the Transaction
are truthful and accurate in all material respects. East Coast warrants that it
will be the only finder entitled to a fee in connection with a Transaction,
unless other finders are disclosed in advance and accepted by Company.
7. AUTHORITY. Company represents that it has the authority to enter into this
Agreement, and all parties executing this Agreement have been duly authorized by
the Company.
8. ADR; WAIVER OF JURY TRIAL. Neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiations with
the other party. If the dispute is not resolved within three weeks after a
demand for direct negotiation, the parties shall attempt to resolve the dispute
through mediation under the Center for Public Resources ("CPR") Model Procedure
for Mediation of Business Disputes in effect on the date of this agreement. The
parties will select a mediator with the assistance of the CPR. Unless otherwise
agreed, the parties will select a mediator from the CPR Panels of Distinguished
Neutrals. Any controversy or claim arising out of or relating to this agreement,
or the breach, termination, or validity thereof, shall be settled by arbitration
by a sole arbitrator in accordance with the CPR Rules for Non-Administered
Arbitration, and judgement upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. All parties to this Agreement
agree to waive the right either may have to a trial by jury with respect to any
litigation in any way related to this Agreement.
<PAGE>
9. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement of, and
supersedes any prior agreements or understandings between, the parties. No
amendment, alteration or withdrawal of this Agreement shall be valid or binding
unless made in writing and signed by the parties. Any purported amendment,
modification or withdrawal which is oral shall be void and of no effect
whatsoever.
10. CHOICE OF LAWS; VENUE. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, exclusive of its choice-of-law
principles; and any suit, action or proceeding arising out of or relating to
this Agreement may be commenced and maintained in any court of competent
jurisdiction in Palm Beach County, Florida, and each party waives all objections
to such jurisdiction and venue.
11. CONTINUING EFFECT. Sections 6 and 10 shall survive the expiration or
termination of this Agreement.
12. ENFORCEABILITY AND SEVERABILITY. In the event that any term or provision of
this Agreement is found to be invalid, illegal or unenforceable, such event
shall in way impair the other terms and provisions of this Agreement.
13. NOTICES. All legal notices required under this Agreement shall be deemed
sufficient if forwarded to the parties by certified mail, and shall be deemed
received upon the third business day after mailing. Such notices shall be mailed
as follows:
If to East Coast:
Edwards & Angell, LLP
Attention: Michael Heller
250 Royal Palm Way, Suite 300
Palm Beach, Florida 33480
If to Company:
Ixion Biotechnology, Inc.
13709 Progress Blvd., Box 13
Alachua, Florida 32615
14. EXECUTION OF AGREEMENT. This Agreement may be executed in counterparts.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
EAST COAST ANGELS, L.L.C.
By:
Lanny K. Marks, Secretary
By:
Weaver H. Gaines
Chairman and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Financial
Statements for the year ended December 31, 1998, and is qualified in its
entirety by reference to such Financial Statements filed with form 10KSB and for
the annual period ended December 31, 1998.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-START> JAN-01-1998
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,633
<SECURITIES> 0
<RECEIVABLES> 1,916
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,125
<PP&E> 96,786
<DEPRECIATION> (35,699)
<TOTAL-ASSETS> 380,140
<CURRENT-LIABILITIES> 434,793
<BONDS> 0
<COMMON> 1,689,597
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 380,140
<SALES> 0
<TOTAL-REVENUES> 3,722
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 795,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,950
<INCOME-PRETAX> (914,239)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (914,239)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> 0
</TABLE>
