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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/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, 1996
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/ / Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
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Commission file number 0-26422
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ANSAN PHARMACEUTICALS, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 94-3171943
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
400 OYSTER POINT BOULEVARD, SUITE 435, SOUTH SAN FRANCISCO, CA 94080
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(Address of Principal Executive Offices Including Zip Code)
(415) 635-0200
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value Class A Warrants Class B Warrants
- ----------------------------- ---------------- ----------------
(Title of Class) (Title of Class) (Title of Class)
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 NO X
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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 the 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/
State issuer's revenues for its most recent fiscal year. $ 0.00
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 24, 1997: $3,483,513
State the number of shares outstanding of each of the issuer's common equity as
of March 24, 1997: 2,851,954 shares of Common Stock, $.001 par value.<PAGE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Ansan Pharmaceuticals, Inc. ("Ansan" or the "Company") is a development
stage, biopharmaceutical company engaged in the acquisition and further
development of drugs intended to treat cancer, blood disorders and other
serious diseases. The Company attempts to in-license product candidates that
are past the initial discovery stage. Such products have already undergone
preliminary toxicity testing and have demonstrated some level of biological
activity in animal experiments. The Company believes that acquiring products
that meet such requirements may allow it to reduce product development time
frames, reduce the research rejection rate due to safety and toxicity
concerns, and achieve a higher probability of ultimate commercialization.
The Company was incorporated in Delaware in November 1992 and has been funded
through private placements of its securities, as well as an initial public
offering of its securities (the "IPO") in August and September 1995.
The Company will require substantial additional funds in order to conduct the
several phases of clinical testing in human subjects necessary to complete
development and to commercialize any of its present or future products.
There can be no assurance that additional funding will be available to the
Company on acceptable terms, if at all. The Company's strategy may be to
seek joint venture, licensing or other collaborative arrangements with one or
more pharmaceutical companies which will bear certain costs of further
development and the regulatory approval process necessary to commercialize
therapeutics in the United States and in foreign markets. It is not
anticipated that any of the Company's current product candidates will receive
the requisite regulatory approval for commercialization in the United States
for several years, if at all.
The statements in this report which are not historical facts are
forward-looking statements that involve risks and uncertainties, including, but
not limited to, the results of research and development efforts, the results of
preclinical and clinical testing, the effect of regulation by the United States
Food and Drug Administration ("FDA") and other agencies, the impact of
competitive products, product development, commercialization and technological
difficulties, the results of financing efforts, the effect of the Company's
accounting policies, and other risks detailed in the Company's Securities and
Exchange Commission filings.
PRODUCTS AND APPLICATIONS UNDER DEVELOPMENT
The Company's initial product candidates are novel synthetic analogs of
butyric acid, a molecule occurring naturally in certain foods. The Company
believes that these drugs may ultimately prove to be useful in the areas of
oncology and hematology, and for the treatment of diseases and disorders
characterized by abnormal cellular proliferation. Also, in May 1996, the
Company signed a licensing agreement with Boehringer Ingelheim GmbH to
acquire the rights in the United States and the European Union to develop a
new intravenous formulation of the drug apafant for all clinical indications.
The Company believes that apafant may ultimately prove to be useful in the
treatment of acute pancreatitis.
AN9
Chemotherapy, a major component of cancer treatment today, is increasingly
used as an adjunct to other cancer therapies, such as radiation and surgery,
to improve the efficacy of treatment. In addition, chemotherapy is usually
the primary treatment against metastases, solid tumors, and cancers such as
hematologic malignancies, which cannot be excised by surgery. Traditional
chemotherapeutic agents are cytotoxic, that is, they function by killing
actively dividing cells. Traditional cytotoxic chemotherapeutics, therefore,
tend to kill cancer cells preferentially because cancer cells divide more
often and more rapidly than most normal cells. Unfortunately, such agents
may also kill rapidly dividing normal cells, including blood cells and cells
of the intestinal lining, which may lead to side effects such as anemia,
nausea, vomiting and risk of infection.
Cells change as they mature and differentiate, that is, reach their final
shape, size and function. Cancer cells, however, often tend to be relatively
immature or undifferentiated, which may lead to unregulated growth. Unlike
traditional cytotoxic chemotherapy, "differentiation therapy" represents a
relatively new direction in cancer research. It involves the development of
agents that, in contrast to the function of cytotoxic agents, induce cancer
cells to differentiate, mature and exhibit more normal growth properties.
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Differentiation therapy may also lead to apoptosis, or what is known as
normal "programmed cell death," resulting in the destruction of the cancer
cells while, it is believed, sparing normal cells (whether or not they are
rapidly dividing). Many members of the oncology community believe apoptosis
to be a highly promising approach to cancer therapy, although it has yet to
be confirmed as a therapeutic approach applicable across a broad range of
tumor types. Consequently, there has been a concentrated effort to find
"apoptotic drugs."
The Company believes AN9 may be such a drug. The Company also believes that
apoptotic agents will reduce the debilitating side effects associated with
traditional cancer therapies, including bone marrow depression,
gastrointestinal effects, mucositis and alopecia (hair loss), and thus permit
more extensive treatment. However, there can be no guarantee that any
putative apoptotic agent will ultimately prove to be as broadly efficacious
across different types of tumors as cytotoxic agents have proven to be in the
past.
Preliminary experiments have suggested that the natural substance butyric
acid might be a potential therapy with effects on differentiation and,
potentially, apoptosis. IN VITRO testing has demonstrated butyric acid to be
an effective anticancer agent, as reflected in differentiation of tumor cells
and growth arrest, against a variety of human tumor cells, but, historically,
its clinical utility has been hampered by rapid clearance and metabolism in
tissue cell cultures, resulting in relatively low potency IN VIVO. In an
effort to overcome the disadvantages associated with butyric acid, the
Company's founding scientists undertook research designed to identify novel
analogs of butyric acid which would show both better IN VIVO potency and
possibly less rapid metabolic clearance than butyric acid itself. This
effort led to the development of the Company's first novel analog of butyric
acid, AN9, which in laboratory studies has exhibited significant IN VITRO
potency and which also has useful pharmacokinetic properties such as rapid
tissue uptake and uniform tissue distribution (including the ability to cross
the blood brain barrier). Moreover, AN9 has also been shown to modulate the
expression of the "cancer genes," C-MYC and C-JUN and to activate the
expression of the putative tumor suppressor genes, RB and P53.
AN9 appears to demonstrate broad anticancer activity IN VITRO and to promote
cellular differentiation, suggesting that AN9 may also lead to the cessation
of growth and then apoptosis in cancer cells. The Company has also tested
AN9 IN VITRO against a broad range of human cancer types and has documented
its activity against numerous tumor cell lines, including, among others,
leukemia, lung and colon carcinoma, melanoma, pancreatic carcinoma, breast
and ovarian carcinoma. AN9 has also demonstrated anticancer activity in
preclinical studies completed by Clinical Trials Research Center, an
organization headed by Dr. Daniel Von Hoff. Dr. Von Hoff, who has advised
the Company in scientific matters, evaluated AN9 for its anticancer activity
against a number of clinical specimens collected from patients with solid
tumors, including breast cancer, ovarian cancer and melanoma resistant to
existing cytotoxic agents. These studies indicated that AN9 was more
effective at inhibiting tumor cell growth in a substantially larger
percentage of these specimens than were several currently marketed cytotoxic
agents. While not active in all IN VIVO experimental settings, the efficacy
of AN9 has also been demonstrated in animal models of lung cancer, melanoma
and moncytic leukemia.
Because of their toxicity, traditional anticancer chemotherapeutic agents
often must be given in cycles with prolonged "rest periods" between doses.
This toxicity is often a limiting factor that prevents successful eradication
of cancer cells. The Company believes that the potential for lower toxicity
of AN9 may permit its administration for extended periods, thus potentially
allowing a more successful eradication of cancer cells and prevention of
recurrence.
PIVANEX-TM- INJECTION
Pivanex-TM- Injection ("Pivanex"), is an injectable formulation of AN9. While
butyric acid has been shown to be an effective anticancer agent IN VITRO,
clinical testing of butyric acid has been hindered by its low potency, rapid
metabolic clearance and the suspected inability to achieve therapeutic levels
in target tissues. The Company believes that Pivanex may have
characteristics that overcome certain of these problems. Preclinical studies
of Pivanex have demonstrated a reduction in metastatic spread of cancer
cells, without unacceptable IN VIVO toxicity in animal studies. Furthermore,
IN VITRO studies have shown anticancer activity of Pivanex against a broad
range of animal cancer cell lines (lung, skin, white blood cell) and against
certain human cancer cell lines (breast, ovarian, lung, colon and pancreatic
cancers and melanoma). Positive results have been observed in certain IN VIVO
animal studies as well although not in all models. Taken together, the data
suggest that Pivanex development efforts could potentially result in an
effective anticancer therapeutic agent with low toxicity. Clinical testing
of Pivanex in cancer
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patients began in November 1995 pursuant to an Investigational New Drug
Application ("IND") approved by the United States Food and Drug
Administration ("FDA").
Animal data generated in parallel with the current clinical study of Pivanex
have suggested that when Pivanex is administered by vein the highest
concentrations of drug may be available to treat tumors that are located in
the lungs. Substantially less drug is available after intravenous
administration to treat tumors located outside of the lung. As a consequence
of these findings, an effort has been made to enroll patients with lung
cancer in the current clinical study. The Company performed an interim
analysis of the current Pivanex clinical study in November 1996. Nine
patients had been enrolled and no serious adverse events had been reported.
Of the nine patients three had lung cancer. The other six patients enrolled
previously had cancers located in sites other than the lungs (such as the
colon or liver), and there was no objective evidence of response to treatment
in these six patients.
Of the three patients with lung cancer, one had squamous cell carcinoma. This
patient was enrolled in August 1996, and subsequently received two courses of
therapy with Pivanex. Following the first course, there was approximately a
50% reduction in the tumor volume, as measured by an x-ray technique known as
computerized tomography. A repeat x-ray after the second course showed no
further decrease in tumor size.
The Company and the principal investigator of the clinical trial find this
reported result encouraging. There can be no assurance, however, that the
observed shrinkage of the tumor resulted from the administration of Pivanex,
can be maintained for any meaningful duration or can be reproduced in other
patients. Substantial additional clinical testing will be required to
establish and verify the safety and efficacy of Pivanex. These trials will
require at least two or more years to complete, and there can be no assurance
that such trials will result in the regulatory approval required for the
commercialization of Pivanex.
Because of the animal findings regarding the availability of drug to treat
tumors located in various tissues, the company is currently evaluating
additional routes of administration for Pivanex, including:
1. intraperitoneal administration for treatment of malignancies such as
ovarian cancer (The Company has recently shown in laboratory testing
that a solution of AN9 given by intraperitoneal administration
improves the survival of animals having human ovarian cancers
implanted in the peritoneal cavity.)
2. intra-arterial infusions for the treatment of primary or metastatic
livers cancers
AN9 TOPICAL
It has been previously shown in laboratory testing that direct application of a
solution of AN9 to human melanoma cells can inhibit growth of this type of
cancer. Pursuant to this observation, the Company has been performing certain
experiments to enable the filing of an IND for a newly developed topical
formulation of AN9 ("AN9 Topical"). The Company has met with the FDA regarding
such an effort. As a result, the Company may decide to file an IND to proceed
with clinical testing of AN9 Topical in the future. However, the Company must
complete certain additional toxicology studies before an IND can be submitted,
and there can be no assurance that these studies can be concluded successfully
or in a timely manner. Accordingly, there can be no assurance that the IND will
be filed in a timely manner or at all and no assurance that the FDA will
ultimately approve the IND if one is filed.
AN10
NOVAHEME-TM- INJECTION
Novaheme Injection ("Novaheme") is an intravenous formulation of AN10,
another novel analog of butyric acid, that the Company is developing for the
treatment of -Beta--hemoglobinopathies. These are genetic disorders that
impair one's ability to produce adult hemoglobin ("HbA"), the oxygen-carrying
protein of red blood cells. The most common of the -Beta--hemoglobinopathies
are -Beta--thalassemia and sickle-cell anemia. In normal
adults, HbA comprises more than 99% of hemoglobin. Patients suffering from
- -Beta--thalassemia produce little or no HbA, while those with
sickle-cell anemia produce structurally aberrant HbA. Complications of
sickle-cell anemia include stroke, aplastic crisis, pain and swelling,
bacterial infections and organ damage. Currently, medical efforts to treat
sickle-cell anemia are directed towards intervention in acute crises and
prevention of respiratory infections. Patients with
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severe symptoms may require several hospitalizations a year. Patients with
- -Beta--thalassemia require transfusions to sustain life, but the onset of
iron overload may result in disability or death in many patients by early
adulthood. To date, no effective conventional therapy exists for
- -Beta--thalassemia, and treatment is limited to management of symptoms and
complications of both the disease and its treatments.
Limited clinical studies have demonstrated that agents which increase
cellular levels of fetal hemoglobin ("HbF") reduce disease symptoms in
patients with sickle-cell anemia. Whether the change in HbF levels is the
proximate cause of, or in any way a contributing factor to, the reduction in
symptoms is not certain. In laboratory tests, Novaheme appears to markedly
increase levels of HbF expression, as well as the percentage of blood cells
that express HbF, and is distributed widely when given intravenously, with
certain dosing regimens. In addition, EX VIVO studies conducted on a human
red blood cell line have shown Novaheme to be more potent than butyric acid,
hydroxyurea, and isobutyramide in increasing HbF levels. While these results
are encouraging, there can be no assurance that EX VIVO increases in HbF will
predict similar changes IN VIVO, will predict improvement in symptoms, or
that patients will otherwise benefit from such changes.
The Company was recently awarded U. S. Patent No. 5,569,675 covering the use
of Novaheme for the treatment of serious blood disorders such as sickle cell
disease or -Beta--thalassemia. The Company is currently seeking a
development partner for this product. There can be no assurance that the
Company will be successful in identifying a suitable partner.
AN10 TOPICAL
The Company is also pursuing a development program with a topical formulation
of AN10 ("AN10 Topical"). Recent animal studies suggest that AN10 Topical
may prove to have potential utility in reducing chemotherapy-induced
alopecia, or hair loss, in patients with cancer. The Company expects to
complete certain animal and laboratory testing, and plans to file an IND for
AN10 Topical during the first half of 1997. There can be no assurance that
the ongoing animal and laboratory testing will be successful or will be
completed in a timely manner. Accordingly, there can be no assurance that the
IND will be filed in a timely manner or at all, and no assurance that the FDA
will approve the IND if one is filed.
APAFANT
Apafant was originally developed by Boehringer Ingelheim as an oral treatment
for asthma. Boehringer Ingelheim has previously conducted extensive clinical
trials in the US and in other countries using the oral form of the drug.
Ansan is now pursuing a development program for an injectable formulation of
apafant for the treatment of acute pancreatitis. Acute pancreatitis is an
inflammation of the pancreas. Its causes include gallstones, alcohol abuse
and infection. Patients with moderate to severe pancreatitis receive only
supportive care in an intensive care unit. During an episode of
pancreatitis, patients are at risk of organ failure, including loss of lung,
kidney and liver function. In a significant number of cases pancreatitis is
fatal. There is currently no FDA approved therapy for the treatment of
pancreatitis.
Apafant is a platelet activating factor ("PAF") antagonist. PAF is an
inflammatory substance produced in the body that is known to play a role in
acute pancreatitis. In certain experiments, acute pancreatitis, and the
resulting end organ damage and failure, can be induced in laboratory animals
by the injection of PAF. Treatment with apafant has been demonstrated to
protect laboratory animals in certain models of PAF-induced organ damage, as
well as other models of multiple organ system failure. The Company believes
that a drug that can prevent organ damage and failure could be beneficial in
treating patients with pancreatitis.
The Company plans file an IND for apafant for acute pancreatitis during 1997.
There can be no assurance that the IND will be filed in a timely manner or at
all and no assurance that the FDA will approve the IND if one is filed.
LICENSE AGREEMENTS
The Company has obtained, from Bar-Ilan Research and Development Co., Ltd.
("Bar-Ilan") in Israel, an exclusive worldwide license (the "Bar-Ilan License"),
to a United States patent and corresponding foreign patents and patent
applications covering AN9 and other butyric acid analogs, and a United States
patent directed to the use of AN10 and other butyric acid analogs to treat
hemaglobinopathies. The Bar-Ilan License provides for the payment by the
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Company to Bar-Ilan of royalties based on sales of products and processes
incorporating the licensed technology, subject to minimum annual amounts
which commenced in 1995, as well as a percentage of any income derived from
any sublicense of the licensed technology. The Company must also pay all
costs and expenses incurred in patent prosecution and maintenance. The
minimum annual royalty for 1996 was $15,000, and will increase annually.
The minimum annual royalty will be $20,000 and $25,000 for 1997 and 1998
respectively and $60,000 per annum for 1999 and beyond.
The Company must also satisfy certain other terms and conditions set forth in
the Bar-Ilan License in order to retain its license rights thereunder,
including the use of reasonable best efforts to bring any products developed
under the License Agreement, to market and to continue diligent marketing
efforts for the life of the license, the timely commencement of toxicology
testing on small and large animals, the development of and compliance with a
detailed business plan and the timely payment of royalty fees. If the
Company fails to comply with such terms and conditions as set forth in the
License Agreement, its rights thereunder for individual product opportunities
could be terminated.
In May of 1996, the Company signed a licensing agreement with Boehringer
Ingelheim to acquire the rights in the United States and the European Union
to develop a new intravenous formulation of the drug apafant for all clinical
indications. Pursuant to the agreement, the Company may be obligated to make
future milestone and royalty payments to Boehringer Ingelheim. However,
under certain circumstances, Boehringer Ingelheim may participate in the
further development and commercialization of apafant and, in such
circumstances, would be obligated to make milestone and royalty payments to
Ansan.
SCIENTIFIC ADVISORS
Since the Company's inception, the Company has sought the advisory services
of a number of scientists, researchers and clinicians with extensive
experience in the Company's fields of interest (the "Scientific Advisors").
The Scientific Advisors have assisted the Company in identifying scientific
and product development opportunities, in reviewing and evaluating with
management the progress of research programs, and in recruiting and
evaluating scientists and other employees. It is expected that the
Scientific Advisors will continue to meet with management and key scientific
employees of the Company in groups or individually on an informal basis.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in part, on its ability, and the ability
of its licensor(s), to obtain protection for its products and technologies
under United States and foreign patent laws, to preserve its trade secrets,
and to operate without infringing the proprietary rights of third parties.
The Company has obtained rights to certain patents and patent applications
and may, in the future, seek rights from third parties to additional patents
and patent applications. There can be no assurance that patent applications
relating to the Company's potential products which have been licensed by the
Company from Bar-Ilan, or that it may license from others in the future, will
result in patents being issued, that any issued patents will afford adequate
protection to the Company or not be challenged, invalidated, infringed or
circumvented, or that any rights granted thereunder will afford additional
competitive advantages to the Company. Furthermore, there can be no
assurance that others have not independently developed, or will not
independently develop, similar products and/or technologies, duplicate any of
the Company's products or technologies, or, if patents are issued to, or
licensed by, the Company, design around such patents. There also can be no
assurance that the validity of any of the patents licensed to the Company
would be upheld if challenged by others in litigation or that the Company's
activities would not infringe patents owned by others. The Company could
incur substantial costs in defending itself in suits brought against it or
any of its licensors, or in suits in which the Company may assert, against
others, patents in which the Company has rights. Should the Company's
products or technologies be found to infringe patents issued to third
parties, the manufacture, use, and sale of the Company's products could be
enjoined and the Company could be required to pay substantial damages. In
addition, the Company may be required to obtain licenses to patents or other
proprietary rights of third parties, in connection with the development and
use of its products and technologies. No assurance can be given that any
licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all.
The Company is aware of the existence of prior art references which may
affect the validity of certain claims in the issued patent, which claims
broadly cover AN10, among other compounds. Reexamination of such patent by
the U.S. Patent and Trademark Office ("PTO"), in light of these references,
may be necessary in order to obtain valid
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claims which are both free of the prior art and which specifically cover
AN10. In the course of preparing for reexamination or otherwise, additional
prior art may be uncovered which might affect the validity of such proposed
narrow claims. Such art would need to be brought to the attention of the
PTO, in connection with any reexamination. Moreover, there can be no
assurance that the PTO will grant a request for reexamination, or if granted,
that such reexamination will result in the issuance of the desired claims.
In any event, given that the already-uncovered prior art references relate to
compounds but not to methods of treatment, the existence of such references
would not, as a matter of U.S. patent law, be expected to affect any claims
directed to the use of AN10 to treat fetal hemoglobinopathies as covered in
U.S. Patent No. 5,569,675 issued in October 1996, which the Company has
licensed from Bar-Ilan.
The Company is also aware of other patents (the "Perrine patents") which
appear to cover the administration of butyric acid, during gestation or
infancy, to ameliorate -Beta--globin disorders, including sickle cell anemia
and -Beta--thalassemia, by increasing the level of fetal hemoglobin. To the
extent that AN10 converts to butyric acid and in the event the Company's
commercial activities include administration of AN10 during gestation and/or
infancy, such activities could give rise to issues of infringement of the
Perrine patents.
The Company also relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, advisors, and others. There can be no assurance that employees
of the Company, consultants, advisors, or others, will maintain the
confidentiality of such trade secrets or proprietary information, or that the
trade secrets or proprietary information of the Company will not otherwise
become known or be independently developed by competitors in such a manner
that the Company will have no practical recourse.
SUPPLIERS
The Company currently obtains from outside suppliers the supplies (I.E., drug
substance) of Pivanex and Novaheme necessary to create the formulations for
use in its research and development efforts. The Company believes that such
drug substances are relatively easy and inexpensive to synthesize when
compared with many other products on the market or currently in development
by others and that there are numerous vendors that could manufacture Pivanex
and Novaheme. Nevertheless, there can be no assurance that such vendors will,
in fact, agree to perform the requested activities for the Company. There can
be no assurance, furthermore, that the Company will not experience delays or
other supply problems that may materially adversely affect the Company's
research and development efforts or that the Company will be able to obtain
an alternate source of supply on a timely basis.
MANUFACTURING AND MARKETING
The Company neither has nor may have in the foreseeable future the resources
to manufacture or directly market on a commercial scale any products that it
may develop. In connection with its research and development activities, the
Company may seek to enter into collaborative arrangements with larger
pharmaceutical, health care or chemical companies to assist in funding the
substantial development costs associated with bringing drug products to
market. These entities may also be responsible for commercial scale
manufacturing, which will be subject to applicable FDA regulations (see
"Government Regulation"). The Company anticipates that such arrangements may
involve the granting by it of exclusive or semi-exclusive rights to sell
specific products to specified market segments or in particular geographic
territories in exchange for a royalty or other financial considerations.
To date, the Company has not entered into any commercial manufacturing or
marketing agreements for any of its proposed products. There can be no
assurance that the Company will be able to enter into any such arrangements
on favorable terms, or at all. Such collaborative marketing arrangements,
whether licenses, joint ventures or otherwise, may result in lower revenues
than would otherwise be generated if the Company conducted the marketing of
its own products. To the extent that the Company ultimately determines to
undertake commercial scale manufacturing or direct marketing activities, it
will require substantial additional personnel and financial resources.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. Many companies of all sizes,
including major pharmaceutical companies and specialized biotechnology
companies, are engaged in the development and commercialization of therapeutic
agents designed
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for the treatment of the same diseases and disorders targeted by the Company.
Many of the competitors of the Company have substantially greater financial
and other resources, larger research and development staffs and more
experience in the regulatory approval process.
The Company is aware that Alpha Therapeutics Corporation ("Alpha") is
currently developing, through technology covered by the Perrine patents, a
butyrate-related treatment for blood disorders that would directly compete
with the Company's Novaheme product. The Company has also become aware of
recently published clinical results regarding arginine butyrate, another
butyrate-related treatment for blood disorders that would directly compete
with the Company's Novaheme product, which results suggest that when arginine
butyrate is given intravenously for several weeks to a small number of
patients, it does not significantly increase blood hemoglobin levels. There
can be no assurance that Novaheme will prove to be more efficacious in the
treatment of blood disorders than the drug under development by Alpha or than
arginine butyrate or that, in the event that Novaheme is approved for
commercialization, that Novaheme will gain wider market acceptance than the
Alpha product. In addition, Novaheme will face competition from hydroxyurea,
a therapeutic agent currently marketed for other indications and which has
just completed clinical testing for the treatment of blood disorders.
Although the Company believes that hydroxyurea will only have limited
effectiveness in the treatment of hemoglobinopathies since initial studies
have shown it to be toxic and, in certain experimental models, less effective
than Novaheme at increasing the EX VIVO expression of HbF levels, there can
be no assurance that Novaheme will ultimately prove to be more efficacious at
treating blood disorders than hydroxyurea or that, in the event that Novaheme
is approved for commercialization, that it will gain wider market acceptance
than hydroxyurea.
In addition, colleges, universities, governmental agencies and other public
and private research organizations are likely to continue to conduct research
and are becoming more active in seeking patent protection and licensing
arrangements to collect royalties for use of technology that they have
developed, some of which may be directly competitive with the technologies
being developed by the Company. These institutions also compete with the
Company in recruiting highly qualified scientific personnel. The Company
expects therapeutic developments in the areas of oncology and hematology to
occur at a rapid rate and competition to intensify as advances in this field
are made. Accordingly, the Company will be required to continue to devote
substantial resources and efforts to research and development activities.
GOVERNMENT REGULATION
The Company's research and development activities are, and the production and
marketing of the Company's products will be, subject to regulation for safety
and efficacy by numerous governmental authorities in the United States and
other countries. In the United States, pharmaceutical products are subject
to rigorous FDA review. The Federal Food, Drug, and Cosmetic Act and other
federal statutes and regulations govern or influence the research, testing,
manufacture, safety, labeling, storage, record keeping, approval, advertising
and promotion of such products. Noncompliance with applicable requirements
can result in fines, recall or seizure of products, refusal to permit
products to be imported into or exported out of the United States, refusal of
the government to approve product approval applications or to allow the
Company to enter into government supply contracts, withdrawal of previously
approved applications and criminal prosecution.
In order to obtain FDA approval of a new drug, the Company generally must submit
proof of purity, potency, safety and efficacy, among others. In most cases,
such proof entails extensive clinical and preclinical laboratory tests. The
testing and preparation of necessary applications is expensive and may take
several years to complete. There is no assurance that the FDA will act
favorably or quickly in reviewing submitted applications, and significant
difficulties or costs may be encountered by the Company in its efforts to obtain
FDA approvals, which difficulties or costs could delay or preclude the Company
from marketing any products it may develop. The processing of those
applications by the FDA is a lengthy process and may also take several years.
Any future failure to obtain or delay in obtaining such approvals could
adversely affect the ability of the Company to market its proposed products.
Moreover, even if regulatory approval is granted, such approval may include
significant limitations on indicated uses for which any such products could be
marketed. Further, a marketed drug and its manufacturer are subject to
continued review, and later discovery of previously unknown problems may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. In addition, new government regulations may be
established that could delay or prevent regulatory approval of the products
under development.
8
<PAGE>
The FDA may also require post-marketing testing and surveillance of approved
products, or place other conditions on its approvals. These requirements
could cause it to be more difficult or expensive to sell the products, and
could therefore restrict the commercial applications of such products.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems occur following initial marketing. With
respect to patented products or technologies, delays imposed by the
governmental approval process may materially reduce the period during which
the Company will have the exclusive right to exploit such technologies.
The Federal Food, Drug, and Cosmetic Act and the regulations promulgated
thereunder govern the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of new drugs.
The procedure for obtaining FDA approval to market a new drug involves
several steps. Initially, the manufacturer must conduct preclinical animal
testing to demonstrate that the product does not pose an unreasonable risk to
human subjects in clinical studies. Upon completion of such animal testing,
an IND must be filed with the FDA before clinical studies may begin. An IND
application consists of, among other things, information about the proposed
clinical trials. Once the IND is approved (or if FDA fails to act within 30
days), the clinical trials may begin.
Human clinical trials on drugs are typically conducted in three sequential
phases, although the phases may overlap. Phase I trials typically consist of
testing the product in a small number of healthy volunteers or in patients,
primarily for safety in one or more doses. During Phase II, in addition to
safety, the efficacy of the product is evaluated in up to several hundred
patients and sometimes more. Phase III trials typically involve additional
testing for safety and efficacy in an expanded patient population at multiple
test sites. The FDA may order the temporary or permanent discontinuation of
a clinical trial at any time.
The results of the preclinical and clinical testing on new drugs are
submitted to the FDA in the form of a new drug application ("NDA") for new
drugs. The NDA approval process requires substantial time and effort and
there can be no assurance that any approval will be granted on a timely
basis, if at all. The FDA may refuse to approve an NDA if applicable
regulatory requirements are not satisfied. Product approvals, if granted,
may be withdrawn if compliance with regulatory standards is not maintained or
problems occur following initial marketing.
There can be no assurance that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, cause the Company to undertake costly procedures and
furnish a competitive advantage to more substantially capitalized companies
with which the Company expects to compete. In addition, the extent of
potentially adverse government regulations which might arise from future
administrative action or legislation cannot be predicted.
RELATIONSHIP WITH TITAN PHARMACEUTICALS, INC.
The Company was founded as a wholly-owned subsidiary of Titan
Pharmaceuticals, Inc. ("Titan"). Certain officers and directors of Titan
serve as directors of the Company. Since the Company's inception, Titan has
provided certain executive, administrative, financial, business development
and regulatory services to the Company.
In March 1997, the Company entered into a financing agreement with Titan.
The agreement included an initial payment to the Company of $1,000,000 in
exchange for a one-year note issued to Titan. Titan may convert the note
into Ansan common stock at a predetermined price for a period of ninety days.
In conjunction with the financing agreement, Titan was issued an option to
purchase additional common stock of the Company at a predetermined price for
a period of ninety days. As part of the financing agreement Titan will,
under certain circumstances, acquire additional rights to purchase Ansan
common stock, and under other circumstances, be obligated to purchase Ansan
common stock. (See "Item 12 - Certain Relationships and Related
Transactions" and "Item 11 - Security Ownership of Certain Beneficial Owners
and Management.")
EMPLOYEES
The Company currently has seven full-time employees. The Company's future
success depends in significant part upon the continued service of its key
scientific personnel and executive officers and its continuing ability to
attract and retain highly qualified scientific and managerial personnel.
Competition for such personnel is intense and there can be no assurance that
the Company can retain its key employees or that it can attract, assimilate
or retain other highly qualified technical and managerial personnel in the
future.
9
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
The Company occupies approximately 3,000 square feet of leased administrative
space at 400 Oyster Point Boulevard, South San Francisco, California 94080,
pursuant to a lease that expires in January 1999. The monthly lease payment is
approximately $4,500.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On October 22, 1996, the Company held its Annual Meeting of shareholders.
Matters voted upon at the meeting and the number of affirmative votes, negative
votes, withheld votes and abstentions cast with respect to each such matter
were as follows:
<TABLE>
<CAPTION>
Affirmative Withheld
Votes Votes
----------- --------
<S> <C> <C>
1. Election of the Company's Directors:
Louis R. Bucalo, M.D. 2,346,793 7,700
S. Mark Moran, M.D. 2,346,793 7,700
Lindsay A. Rosenwald, M.D. 2,346,793 7,700
Peter M. Kash 2,346,793 7,700
Richard Sperber 2,346,793 7,700
Alan R. Timms, Ph.D. 2,346,793 7,700
Ilan Cohn, Ph.D. 2,346,793 7,700
David Naveh, Ph.D. 2,346,793 7,700
<CAPTION>
Affirmative Withheld
Votes Votes Abstentions
----------- -------- -----------
<S> <C> <C> <C>
2. Approval of an amendment to the
Company's Certificate of Incorporation
to change the name of the Company
to Ansan Pharmaceuticals, Inc: 2,344,993 3,500 6,000
3. Approval and ratification of the
appointment of Ernst & Young LLP as
independent auditors: 2,340,993 5,500 8,000
</TABLE>
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Units, Common Stock and Warrants trade on The
Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbols
ANSNU, ANSN, ANSNW and ANSNZ respectively, since August 8, 1995. The
following sets forth, for the periods indicated, the high and low sales
prices of the Company's Common Stock as reported by The Nasdaq Stock Market:
HIGH LOW
---- ---
1996
----
First Quarter . . . . . . . . . .$5.250 $3.625
Second Quarter. . . . . . . . . .$5.125 $4.000
Third Quarter . . . . . . . . . .$4.750 $2.500
Fourth Quarter. . . . . . . . . .$3.125 $2.000
1997
----
First Quarter (through March 24).$3.000 $2.000
(b) The number of holders of record of the Company's Common Stock as
of March 24, 1997 is twelve.
(c) The Company has never paid a cash dividend on its Common Stock
and does not anticipate the payment of cash dividends to holders of Common
Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion contains certain forward-looking statements, within
the meaning of the "safe harbor" provisions of the Private Securities Reform
Act of 1995, the attainment of which involves various risks and
uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue," or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may
differ materially from those described in these forward-looking statements
due to, among other factors, the results of ongoing research and development
activities and preclinical testing, the results of clinical trials and the
availability of additional financing through corporate partnering
arrangements or other sources.
RESULTS OF OPERATIONS
Since its inception in November 1992, the Company's efforts have been
principally devoted to research and development, securing patent protection
and raising capital. From the inception through December 31, 1996, the
Company has incurred an accumulated deficit of $9,080,000. These losses have
resulted from expenditures for research and development and general
administrative activities including legal and professional activities, and
are expected to continue for the foreseeable future. Through December 31,
1996, research and development expenses totaled $5,584,000, and general and
administrative expenses totaled $2,914,000.
Research and Development expenses for 1996 were $1,181,000, as compared to
$1,421,000 for 1995, a decrease of $240,000, or 17%. The higher level of
expenditures in 1995 is attributed to costs incurred in anticipation of the
Company's clinical trial that commenced in the first quarter of 1996. These
costs included expenditures for preparation and compilation of the IND,
toxicology studies and manufacturing. Also, during the second of half of
1995, the Company reorganized much of its research and development activities
that are performed by outside vendors by establishing new vendor
relationships, and moving certain functions in-house. This reorganization
has resulted in a cost savings to the Company.
General and administrative expenses for 1996 were $1,257,000, as compared to
$1,048,000 for 1995, an increase of $209,000, or 20%. The increase can be
attributed to an issuance of stock to a member of management, a portion of
11
<PAGE>
which was allocated to general and administrative expenses. In addition, the
1996 expenses reflect post-IPO expenditures such as investor relations and
directors and officers insurance.
As a result of the foregoing expenses, the Company incurred an operation loss
of $2,438,000 during 1996 compared with $2,469,000 during 1995. The Company
expects to continue to incur substantial research and development costs in
the future as a result of funding ongoing (i) research and development
programs, (ii) manufacturing of products for use in clinical trials, (iii)
patent and regulatory related expenses, and (iv) preclinical and clinical
testing. The Company also expects that general and administrative costs
necessary to support such research and development activities will increase.
Accordingly, the Company expects to incur increasing operating losses for the
foreseeable future. There can be no assurance that the Company will ever
achieve profitable operations.
Other income includes interest income of $157,000 during 1996 as compared to
$78,000 during 1995. The increase was a result of a substantial increase in
the amount of cash and short-term investments subsequent to the Company's IPO
in August 1995. Interest expense was $431,000 during 1995 which included a
non-cash charge of $400,000 relating to a discount attributed to Class A
Warrants issued in a bridge financing of debt securities prior to the
Company's IPO.
In May 1996, the Company signed a license agreement with Boehringer Ingelheim
GmbH to acquire the rights in the United States and the European Union to
develop a new intravenous formulation of the drug apafant for all clinical
indications.
The Company's business is subject to significant risks including, but not
limited to, the success of its research and development efforts, obtaining
and enforcing patents important to the Company's business, competition from
other products and lengthy as well as expensive regulatory approval process.
It is not anticipated that the Company will have the resources necessary to
conduct the several phases of clinical testing in human subjects necessary to
complete development and to commercialize any products. The Company's
strategy will continue to seek public or private financing through the sale
of securities or corporate partnering arrangements. There can be no
assurance that financing through the sale of securities or corporate
partnering arrangements. There can be no assurance that financing from such
sources or others will be available. Additional expenses, delays, or losses
of opportunity that may arise out of these and other risks could have a
materiel adverse impact on the Company's financial condition and results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Ansan is party to a master capital equipment lease, and the Company and three
other majority-owned subsidiaries of Titan have entered into a sublease and
assignment with Titan under such lease for which the Company is jointly and
severally liable. At December 31, 1996, the amount outstanding under the
equipment lease was $747,000, with monthly payments of $30,459.
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for a debenture
(the "Debenture") which is convertible at any time prior to June 21, 1997
into 333,333 shares of common stock. The Debenture bears interest at prime
plus 2% and is due in March 1998. In connection with the issuance of the
Debenture, Ansan granted Titan an option (the "First Option") to acquire an
additional 333,333 shares of Ansan common stock for an aggregate purchase
price of $1,000,000. The First Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant Titan two
additional options (respectively, the "Second Option" and the "Third
Option"). The Second Option will be exercisable for two years from the date
to purchase up to 1,630,000 shares of Ansan common stock at an exercise price
of $3.75 per share. The Third Option will be exercisable through August 8,
2000 to purchase up to 500,000 additional shares at an exercise price of
$6.50 per share. Titan will be obligated to exercise the Second Option for
the purchase of specified numbers of shares in the event Titan's outstanding
Class A Warrants are exercised, provided Ansan has not completed public or
private equity financings resulting in specified gross proceeds prior to the
date such a purchase obligation arises.
The Company expects to continue to incur substantial additional operating losses
from costs related to continuation and expansion of research and development,
clinical trials, and increased administrative and fundraising activities over at
least the next several years. While the Company believes that its current
capital resources will be sufficient
12
<PAGE>
to sustain its planned operations for approximately one year, the company
will be required to seek additional financing to continue its activities
beyond that period. However, the Company's capital requirements may change
depending on numerous factors including, but not limited to, the progress of
research and development programs, the results of clinical studies, the
timing of regulatory approvals, technological advances, determinations as to
the commercial potential of the Company's products, and the status of
competitive products. In addition, expenditures will be dependent upon the
establishment of collaborative relationships with other companies, the
availability of financing, and other factors. In any event, the Company
anticipates that it will require substantial additional financing in the
future. There can be no assurance as to the availability or terms of any
required additional financing, when and if needed. In the event that the
Company fails to raise any funds it requires, it may be necessary for the
Company to out-license rights it would prefer to retain, or to significantly
curtail its activities or cease operations.
ITEM 7. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company.
Name Age Position
------ --- --------
Louis R. Bucalo, M.D.(1)........ 38 Chairman of the Board of
Directors
Vaughan H.J. Shalson............ 51 President, Chief Executive
Officer and Director
Lindsay A. Rosenwald, M.D. ..... 41 Director
Richard Sperber(1)(2)........... 55 Director
Ilan Cohn, Ph.D. ............... 42 Director
David Naveh, Ph.D. ............. 44 Director
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
LOUIS R. BUCALO, M.D., is a co-founder of the Company and has served as a
director of the Company since its inception in November 1992. Dr. Bucalo has
served as Chairman of the Board since May 1994. He served as President of
the Company from November 1992 until December 1993. Dr. Bucalo also serves
as Titan's President and Chief Executive Officers and is a member of Titan's
Board of Directors. Dr. Bucalo serves as Chairman of the Board of each of
Titan's affiliated companies, except Theracell, and as Chief Executive
Officer of ProNeura. From July 1990 to April 1992, Dr. Bucalo was Associate
Director of Clinical Research at Genentech, Inc., a biotechnology company.
Dr. Bucalo holds an M.D. from Stanford University and a B.A. in biochemistry
from Harvard University.
VAUGHAN H.J. SHALSON has served as the Company's President and Chief
Executive Officer and as a director since February 1997. From December 1991
until May 1993, Mr. Shalson served as President and Chief Executive Officer
of Molecular Devices Corporation, a manufacturer of bio-analytical
instrumentation. From June 1993 until January 1997, Mr. Shalson was an
independent consultant, providing service to early-stage biopharmaceutical
companies. Mr. Shalson holds an M.B.A from Harvard University and a B.A. in
mechanical engineering from Cambridge University.
LINDSAY A. ROSENWALD, M.D., is a co-founder of the Company and has served as
a director of the Company since its inception in November 1992. Dr.
Rosenwald co-founded Interneuron Pharmaceuticals, Inc. in October 1988 and
has served as its Chairman since February 1989. Dr. Rosenwald has been the
Chairman and President of The Castle Group, Ltd., a New York medical venture
capital firm ("Castle"), since October 1991, and the Chairman and President
of Paramount Capital, Inc., an investment banking firm, since February 1992.
Prior thereto, Dr. Rosenwald was a Managing Director, Corporate Finance at
D.H. Blair & Co., Inc. Dr. Rosenwald also is a director of BioCryst
Pharmaceuticals, Inc. and Sparta Pharmaceuticals, Inc., both of which are
public companies, and is Chairman of the Board or a director of a number of
privately held companies founded by Castle in the biotechnology or
pharmaceutical fields.
RICHARD SPERBER has been a director of the Company since May 1994. Mr.
Sperber has been President and Chief Executive Officer of The Global
Medicines Group Inc., a consulting firm, since 1991. Mr. Sperber served as
Director, Business Development and Strategic Planning and as a member of the
Board of Directors of Glaxo Pharmaceuticals U.K., Ltd. from 1988 to 1991.
ILAN COHN, PH.D., has been a director of the Company since October 1995. Dr.
Cohn is a principal in the law firm of Reinhold Cohn and Partners in Tel
Aviv, Israel.
DAVID NAVEH, PH.D., has been a director of the Company since May 1996. Dr.
Naveh has served as Director of Process Technology for Bayer Corporation
since September 1992. From 1988 to September 1992, Dr. Naveh
14
<PAGE>
served as Director of Biotechnology Operations of Centocor, Inc., a
biotechnology company which manufactures antibodies.
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment. (See
"Item 10 - Executive Compensation - Employment Agreements.")
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors has a Compensation Committee which makes
recommendations to the Board concerning salaries and incentive compensation
for officers and employees of the Company and may administer the Company's
stock option plans. The Board of Directors also has an Audit Committee which
reviews the results and scope of the audit and other accounting related
matters.
The Company has agreed, if requested by D.H. Blair Investment Banking Corp.,
the underwriter of the IPO, to nominate a designee to the Company's Board of
Directors for a period of five years ending August 8, 2000.
DIRECTOR COMPENSATION
Non-employee directors receive $1,000 for each Board and committee meeting
attended and are reimbursed for their expenses in attending such meetings.
Directors are not precluded from serving the Company in any other capacity
and receiving compensation therefor. In addition, directors are entitled to
receive options ("Director Options") pursuant to the Company's 1995 Stock
Option Plan. Director Options are exercisable in four equal annual
installments commencing six months from the date of grant and expire the
earlier of 10 years after the date of grant or 90 days after the termination
of the director's service on the Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who beneficially own
more than 10% of a registered class of the Company's equity securities to
file with the Securities and Exchange Commission (the "SEC") initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Such executive officers, directors, and
greater than 10% beneficial owners, are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms filed by such reporting
persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and greater than 10% beneficial owners were complied
with.
15
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The following Summary Compensation Table sets forth the compensation earned
by S. Mark Moran, the Company's Chief Executive Officer, for the fiscal year
ended December 31, 1995 and 1996 (the "Named Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and ------------------- ----------------------
Principal Stock Stock
Position Year Salary Bonus Awards ($) Options (#)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S. Mark Moran, M.D.(1).. 1995 $138,750 $120,000 - 62,846
President and CEO..... 1996 $190,657 $157,185 155,000 82,317
</TABLE>
(1) Dr. Moran resigned from the Company effective February 14, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option
grants made to the Named Officer for the fiscal year ended December 31, 1996.
No stock appreciation rights were granted to this individual during such
year.
<TABLE>
<CAPTION>
Individual Grant
--------------------------------------
Number of
Securities
Underlying % of Total Exercise
Options Options Granted or Base
Expiration Granted to Employees in Price
NAME Date (#)(1) Fiscal Year ($/sh)(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S. Mark Moran, M.D. ............... 7/06 82,317 77.0% $2.88
</TABLE>
(1) Vesting with respect the above grant commenced upon the date of grant in
July 1996. A total of 6,860 were vested immediately upon the date of
grant. The balance of the option vests as to 1/48 of the remaining shares
at the commencement of each of the first 48 months following the grant.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
the fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares, together with any
federal and state income tax liability incurred by the optionee in
connection with such exercise.
16
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1996 with respect
to the Named Officer. No stock appreciation rights were exercised during
such year or were outstanding at the end of that year.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-The-Money
Shares Options at FY-End (#) Options at FY-End(1)
Acquired ------------------------------------------------------------------
Name on Exercise(#) Exercisable Unexercisable(2) Exercisable Unexercisable(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S. Mark Moran, M.D.... 22,040 18,320 104,803 $2,088 $21,579
</TABLE>
(1) Based on the fair market value of the Company's Common Stock at year-end,
$2.00 per share, less the exercise price payable for such shares.
(2) Options are immediately exercisable for some option shares; however, since
a portion of the shares purchasable upon exercise of the options are
subject to repurchase by the Company at the original exercise price per
share upon the optionee's cessation of service, such options are deemed
unexercisable for purposes of this table.
EMPLOYMENT AGREEMENTS
In February 1997, the Company entered into an employment agreement with
Vaughan H.J. Shalson, the President and Chief Executive Officer of the
Company (the "Shalson Employment Agreement"), pursuant to which the Company
is obligated to pay Mr. Shalson an annual base salary of $185,000, subject to
annual increases in accordance with Company policies, in addition to an
automatic cost of living adjustment based upon the consumer price index. In
addition, under the terms of the Shalson Employment Agreement, the Company is
obligated to pay Mr. Shalson a bonus equal to 4% of the net proceeds paid to
the Company by institutional investors and corporate partners he secures
within the first two years of his employment. Such payments are subject to a
limitation of 8% of the total net proceeds received by the Company for any
such investment when combined with other fees payable to third parties in
connection with any such financing and certain other exceptions contained in
the agreement. The Company also issued to Mr. Shalson, pursuant to the
Shalson Employment Agreement, options to purchase an aggregate of 132,000
shares of the Company's Common Stock, at an exercise price of $3.00 per
share. The options granted will vest as to 16,500 shares on August 15, 1997
and the balance of 115,500 shares will vest in forty-two equal monthly
installments thereafter. The Shalson Employment Agreement provides that in
the event Mr. Shalson's employment is terminated without good cause (as
defined), the Company will pay Mr. Shalson severance equal to six months'
base salary if the termination occurs during the first two years and 12
months' base salary for a termination thereafter, subject in the latter case
to offset by other salary received by Mr. Shalson.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board is comprised of Dr. Bucalo
and Mr. Sperber. Mr. Sperber was not at any time during the fiscal year
ended December 31, 1996, or at any other time, an officer or employee of the
Company. Mr. Sperber does not serve as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee. Dr. Bucalo, who serves as Chairman of the Board of Directors of
the Company, is also President, Chief Executive Officer and a member of the
Board of Directors of Titan.
17
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 21, 1997
regarding the ownership of Common Stock by (i) each person known by the Company
to own beneficially more than 5% of each class of outstanding Common Stock, (ii)
each director of the Company, (iii) each executive officer of the Company, and
(iv) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Shares Beneficially Percent of Shares
Name and Address of Beneficial Owner (1) Owned Beneficially Owned
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Titan Pharmaceuticals, Inc.(2) 1,879,320 53.4%
Louis R. Bucalo, M.D.(3)(4) 1,894,372 53.6%
Vaughan H.J. Shalson(3) - *
Lindsay A. Rosenwald, M.D.(4)(6)(7) 1,879,655 53.4%
Richard Sperber(5) 8,223 *
Ilan Cohn, Ph.D.(5) 3,200 *
David Naveh,Ph.D.(5) 1,950 *
All executive officers and directors
as a group (six persons) 1,908,080 53.8%
*less than 1%.
</TABLE>
(1) Includes such individuals' or entity's escrowed shares. In computing the
number of shares beneficially owned by a person and the percentage
ownership of a person, shares of Common Stock of the Company, subject to
options (including escrowed options) held by that person that are currently
exercisable or exercisable within 60 days are deemed outstanding. Such
shares, however, are not deemed outstanding for purposes of computing the
percentage ownership of each other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock.
(2) Includes 333,333 shares issuable upon the conversion of the Debenture.
Also includes 333,333 shares issuable upon the exercise of the First
Option. See "Item 6. Management's Discussion and Analysis or Plan of
Operation--Liquidity and Capital Resources."
(3) The address of such individual is c/o Ansan, Inc., 400 Oyster Point
Boulevard, Suite 435, South San Francisco, California 94080.
(4) Includes 1,212,654 shares owned of record by Titan and includes
333,333 shares issuable upon the conversion of the Debenture.
Also includes 333,333 shares issuable upon the exercise of the First
Option. See "Item 6. Management's Discussion and Analysis or Plan of
Operation--Liquidity and Capital Resources." Dr. Bucalo is President and
Chief Executive Officer and a member of Titan's Board of Directors and Dr.
Rosenwald is a member of Titan's Board of Directors. As a result, each of
Drs. Rosenwald and Bucalo may be deemed to share voting or investment power
with respect to such shares. Each of these individuals, however, disclaims
beneficial ownership with respect to such shares.
(5) Represents shares issuable on the exercise of outstanding options.
(6) Includes 335 shares issuable on the exercise of outstanding options.
(7) The address of such individual is c/o Paramount Capital Ltd., 375 Park
Avenue, New York, New York 10152.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Louis R. Bucalo, Chairman of the Company's Board of Directors, is also
President, Chief Executive Officer and a member of the Board of Directors of
Titan, the majority stockholder of the Company. Lindsay A. Rosenwald, a
director of the Company, is also a member of the Board of Directors of Titan.
In 1992, Titan purchased 327,446 shares of Common Stock of the Company for
nominal consideration. In May 1994, Titan purchased 532,651 shares of the
Company's Series A Preferred Stock for $992,592 in cash and the forgiveness
of a debt in the amount of $1,449,064, which shares were converted into
532,651 shares of Common Stock upon completion of the IPO. In connection
with Titan's purchase of the Series A Preferred Stock of the Company, Titan
was granted the right, exercisable in prescribed circumstances, to demand or
to participate in certain registrations of the Company's securities under the
Securities Act of 1933.
18
<PAGE>
From its inception in November 1992 until May 1995, the Company received
loans from Titan to enable it to fund its operations. At March 31, 1995, the
aggregate amount of such loans outstanding was $1,551,252. Upon the closing
of the IPO, the March 31, 1995 balance was converted into shares of the
Company's Common Stock at the conversion rate of $4.40 per share. From April
1995 through May 1995, Titan made additional non-interest bearing working
capital advances to the Company in the aggregate amount of $108,280, which
amount were repaid with cash.
Since the Company's inception, Titan has provided certain executive,
administrative, financial, business development and regulatory services to
the Company. The Company pays Titan for such services on a quarterly basis.
The Company also pays for any out-of-pocket expenses incurred by Titan in
providing the services to the Company. During the period from inception
through December 31, 1993, the year ended December 31, 1994, the year ended
December 31, 1995, and the year ended December 31, 1996, the Company incurred
expenses in the aggregate of approximately $205,000, $523,000, $376,000 and
$57,000 respectively, pursuant to the services arrangement. Furthermore, the
Company uses certain facilities and equipment leased by Titan and reimburses
Titan on a quarterly basis for the expenses incurred by Titan with respect to
such use, in addition to having entered an assignment and sublease with
Titan, along with the other subsidiaries of Titan, under the equipment lease
to which Titan is a party. At December 31, 1996, the amount outstanding
under the equipment lease was approximately $747,000.
In July 1994, Louis R. Bucalo, Chairman of the Board of the Company, received
options to purchase 15,052 shares of Common Stock at an exercise price of
$.29 per share.
In May 1994, nine members of Titan's Board of Directors, including Lindsay A.
Rosenwald a director of the Company, each received options under the
Company's 1993 Stock Option Plan to purchase 335 shares of Common Stock at an
exercise price of $.29 per share.
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for a debenture
(the "Debenture") which is convertible at any time prior to June 21, 1997
into 333,333 shares of common stock. The Debenture bears interest at prime
plus 2% and is due in March 1998. In connection with the issuance of the
Debenture, Ansan granted Titan an option (the "First Option") to acquire an
additional 333,333 shares of Ansan common stock for an aggregate purchase
price of $1,000,000. The First Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant Titan two
additional options (respectively, the "Second Option" and the "Third
Option"). The Second Option will be exercisable for two years from the date
to purchase up to 1,630,000 shares of Ansan common stock at an exercise price
of $3.75 per share. The Third Option will be exercisable through August 8,
2000 to purchase up to 500,000 additional shares at an exercise price of
$6.50 per share. Titan will be obligated to exercise the Second Option for
the purchase of specified numbers of shares in the event Titan's outstanding
Class A Warrants are exercised, provided Ansan has not completed public or
private equity financings resulting in specified gross proceeds prior to the
date such a purchase obligation arises.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions, including loans, between the Company and its officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent
and disinterested outside directors on the Board of Directors, and will
continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
19
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
3.1* -- Amended and Restated Certificate of Incorporation of the
Registrant
3.2* -- Form of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant
3.3* -- By-laws of the Registrant
4.1* -- Form of Bridge Note
4.2* -- Bridge Warrant Agreement
4.3* -- Form of Warrant Agreement
4.4* -- Form of Underwriter's Unit Purchase Option
4.5* -- Investor Rights Agreement, dated May 31, 1994, between the
Registrant and Titan Pharmaceuticals, Inc.
4.6* -- Form of Option Agreement between the Registrant and Titan
Pharmaceuticals, Inc.
10.1* -- License Agreement between the Registrant and Bar-Ilan
Research and Development Company, Ltd. dated October 31, 1992
10.2* -- Restated 1993 Stock Option Plan
10.3* -- 1995 Stock Option Plan
10.4* -- Employment Agreement between the Registrant and S. Mark
Moran dated February 24, 1995, amended as of May 4, 1995
10.5* -- Master Equipment Lease between Titan Pharmaceuticals, Inc.
and Phoenix Leasing Incorporated, dated February 15, 1995 and
Sublease and Acknowledgment of Assignment between Titan
Pharmaceuticals, Inc. and Registrant, dated February 10, 1996
10.6* -- Employment Agreement between Registrant and Ada Rephaeli
dated March 30, 1993; amended by letter as of December 22, 1994
10.7* -- Form of Escrow Agreement by and between the Registrant,
Continental Stock Transfer & Trust Company and certain
securityholders of the Registrant
10.8* -- Form of Indemnification Agreement
10.9* -- Conversion Agreement, dated May 23, 1995, between the
Registrant and Titan Pharmaceuticals, Inc.
10.10**-- Lease for Registrant's facility
+10.11***-- License Agreement dated May 31, 1996, between Boehringer
Ingelheim GmbH and the Registrant
11.1 -- Statement of Computation of Net Loss Per Share
27 -- Financial Data Schedule
- --------------------
* Incorporated by reference from the Company's Registration Statement on
Form SB-2 (File No. 33-92886)
** Incorporated by reference from the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1995.
*** Incorporated by reference from the Registrant's Quarterly Report on
Form 10-QSB for the period ended June 30, 1996.
+ Confidential treatment has been granted with respect to portion of this
exhibit.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the
three months ended December 31, 1996.
20
<PAGE>
ANSAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS . . . . . . . . . . F-2
FINANCIAL STATEMENTS
BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . F-4
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) . . . . . F-5
STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . F-7
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . F-8
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ansan Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Ansan
Pharmaceuticals, Inc. (a development stage company) as of December 31, 1995
and 1996, and the related statements of operations, stockholders' equity (net
capital deficiency), and cash flows for the years then ended and for the
period from incorporation (November 6, 1992) to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ansan
Pharmaceuticals, Inc. (a development stage company) at December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended and for the period from incorporation (November 6, 1992) to December
31, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 21, 1997
F-2
<PAGE>
ANSAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1995 1996
-------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 45,202 $ 245,778
Short-term investments 3,809,110 1,500,000
Prepaid expenses and other current assets 108,089 83,760
-------------- ------------
Total current assets 3,962,401 1,829,538
Furniture and equipment, net 18,244 93,936
-------------- ------------
$ 3,980,645 $ 1,923,474
-------------- ------------
-------------- ------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 80,276 $ 91,041
Payable to Titan Pharmaceuticals, Inc. 57,791 117,881
Accrued sponsored research 32,890 36,330
Accrued legal fees 50,000 26,327
Other accrued liabilities 117,006 62,457
-------------- -----------
Total current liabilities 337,963 334,036
Commitments
Stockholders' Equity
Common stock, $0.001 par value per share; 20,000,000
shares authorized: 2,768,164 and 2,845,108 shares
issued and outstanding at December 31, 1995 and
1996, respectively 10,678,061 10,850,017
Deferred compensation (236,118) (180,561)
Deficit accumulated during the development stage (6,799,261) (9,080,018)
-------------- -----------
Total stockholders' equity 3,642,682 1,589,438
-------------- -----------
$ 3,980,645 $ 1,923,474
-------------- -----------
-------------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ANSAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Incorporation
(November 6
Year Ended December 31, 1992) to
---------------------------------------- December 31,
1995 1996 1996
---------------- ----------------- ------------------
<S> <C> <C> <C>
Costs and expenses:
Research and development (1) $ 1,410,762 $ 1,181,089 $ 5,583,853
Sponsored research and development
and license fees- stockholder 10,000 - 396,689
General and administrative (1) 1,047,795 1,257,365 2,914,197
---------------- ---------------- -----------------
Total costs and expenses and
loss from operations (2,468,557) (2,438,454) (8,894,739)
Other income (expense):
Interest income 77,891 157,697 249,870
Interest expense (430,740) - (435,149)
---------------- ---------------- -----------------
Other income (expense) - net (352,849) 157,697 (185,279)
---------------- ---------------- -----------------
Net loss $ (2,821,406) $ (2,280,757) $ (9,080,018)
---------------- ---------------- -----------------
---------------- ---------------- -----------------
Pro forma net loss per share $ (1.93)
----------------
----------------
Shares used in computing pro forma net loss per share 1,464,713
----------------
----------------
Net loss per share $ (0.94)
---------------
---------------
Shares used in computing net loss per share 2,431,447
---------------
---------------
</TABLE>
(1) See Note 6 for description of related party transactions.
See accompanying notes.
F-4
<PAGE>
ANSAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Amount Deficit Stockholders'
Receivable Accumulated Equity
Preferred Stock Common Stock from During the (Net
----------------- -------------------- Deferred Stock- Development Capital
Shares Amount Shares Amount Compensation Holders Stage Deficiency)
-------- ---------- -------- ----------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
parent for amount
receivable in November
1992 at $0.0058
per share - $ - 327,446 $ 1,900 $ - $ (1,900) $ - $ -
Issuance of common stock
for amount receivable
in January 1993 at
$0.0058 per share - - 17,234 100 - (100) - -
Forgiveness of note payable
to related party - - - 30,000 - - - 30,000
Net loss, inception through
December 31, 1993 - - - - - - (849,963) (849,963)
-------- ---------- ----------- ----------- ----------- --------- --------- ----------
Balances at December 31, 1993 - - 344,680 32,000 - (2,000) (849,963) (819,963)
Cash received in April 1994
for settlement of
stockholder receivable - - - - - 1,900 - 1,900
Issuance of common stock in
May 1994 at $0.46 per share
in exchange for amount
receivable and services - - 43,276 20,089 - (105) - 19,984
Issuance of Series A preferred
stock to parent for cash
and conversion of debt in
May 1994 for $4.58 per share 532,651 2,441,656 - - - - - 2,441,656
Net loss - Year ended
December 31, 1994 - - - - - - (3,127,892) (3,127,892)
-------- ---------- ----------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1994 532,651 $2,441,656 387,956 $ 52,089 $ - $ (205) $ (3,977,855) $ (1,484,315)
Issuance of warrants associated
with bridge financing
in June of 1995 - - - 400,000 - - - 400,000
Deferred compensation - - - 277,784 (277,784) - - -
Amortization of deferred
compensation - - - - 41,666 - - 41,666
Issuance of common stock to
parent upon conversion of
debt in August 1995 for
$4.40 per share - - 352,557 1,551,252 - - - 1,551,252
Conversion of Series A
preferred stock to common
stock in August 1995 (532,651) (2,441,656) 532,651 2,441,656 - - - -
Issuance of common stock and
warrants at $5.00 per unit
in initial public offering
in August 1995 net of
issuance costs of $1,393,100 - - 1,300,000 5,106,900 - - - 5,106,900
Issuance of common stock and
warrants at $5.00 per unit
from exercises of
underwriter's over-
allotment option in
September 1995 - - 195,000 848,250 - - - 848,250
Cash received from underwriter
purchase of 130,000 common
stock options at $0.001
per share - - - 130 - - - 130
Forgiveness of stockholder
receivable in December 1995 - - - - - 205 - 205
Net loss - Year ended
December 31, 1995 - - - - - - (2,821,406) (2,821,406)
-------- ---------- ----------- ----------- ----------- --------- ---------- ----------
Balances at December 31, 1995 - - 2,768,164 10,678,061 (236,118) - (6,799,261) 3,642,682
</TABLE>
See accompanying notes
F-5
<PAGE>
ANSAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Amount Deficit Stockholders'
Receivable Accumulated Equity
Preferred Stock Common Stock from During the (Net
----------------- -------------------- Deferred Stock- Development Capital
Shares Amount Shares Amount Compensation Holders Stage Deficiency)
-------- ---------- -------- ----------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
employee in September 1996
as compensation - - 40,000 155,000 - - - 155,000
Issuance of shares of common
stock for cash upon
exercise of stock option
grants at $0.06 to $0.58
per share in July through
December 1996 - - 36,944 16,956 - - - 16,956
Amortization of deferred
compensation - - - - 55,557 - - 55,557
Net loss - Year ended
December 31, 1996 - - - - - - (2,280,757) (2,280,757)
-------- -------- --------- ----------- ----------- --------- ----------- ----------
Balance at December 31, 1996 - $ - 2,845,108 $10,850,017 $ (180,561) $ - $(9,080,018) $1,589,438
-------- -------- --------- ----------- ----------- --------- ----------- ----------
-------- -------- --------- ----------- ----------- --------- ----------- ----------
</TABLE>
See accompanying notes
F-6
<PAGE>
ANSAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Incorporation
Year Ended December 31, (November 6,
--------------------------------- 1992 to
1995 1996 December 31, 1996)
------------- ------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,821,406) $ (2,280,757) $ (9,080,018)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation expense 1,659 22,324 23,983
Amortization of debt discount 400,000 - 400,000
Amortization of deferred compensation 41,666 55,557 97,223
Forgiveness of stockholder receivable 205 - 205
Issuance of common stock in exchange
for consulting services - - 19,984
Grant of common stock to employee - 155,000 155,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (108,089) 24,329 (83,760)
Accounts payable (18,630) 10,765 91,041
Accrued sponsored research (143,110) 3,440 36,330
Accrued legal fees 50,000 (23,673) 26,327
Other accrued liabilities 103,853 (54,549) 62,457
------------ ----------- ---------------
Net cash used in operating activities (2,493,852) (2,087,564) (8,251,228)
------------ ----------- ---------------
Cash flows from investing activities
Purchase of furniture and equipment (19,903) (98,016) (117,919)
Purchase of short-term investments (3,809,110) (4,940,890) (8,750,000)
Sales of short-term investments - 7,250,000 7,250,000
------------ ----------- ---------------
Net cash provided by (used in) investing activities (3,829,013) 2,211,094 (1,617,919)
------------ ----------- ---------------
Cash flows from financing activities
Proceeds from issuance of Series A preferred stock - - 992,592
Proceeds from issuance of common stock 5,955,280 16,956 5,972,236
Proceeds from related party notes - - 220,000
Payment on related party notes - - (190,000)
Issuance of notes payable 1,025,000 - 1,025,000
Repayment of note payable (1,425,000) - (1,425,000)
Issuance of warrants to purchase common stock 400,000 - 400,000
Proceeds from stockholder receivable - - 1,900
Payable to Titan Pharmaceuticals, Inc. 316,083 60,090 3,118,197
------------ ----------- ---------------
Net cash provided by financing activities 6,271,363 77,046 10,114,925
------------ ----------- ---------------
Net increase (decrease) in cash and cash equivalents (51,502) 200,576 245,778
Cash and cash equivalents, beginning of period 96,704 45,202 -
------------ ----------- ---------------
Cash and cash equivalents, end of period $ 45,202 $ 245,778 $ 245,778
------------ ----------- ---------------
------------ ----------- ---------------
Supplemental cash flow disclosure
Forgiveness of note payable to related party $ - $ - $ 30,000
------------ ----------- ---------------
------------ ----------- ---------------
Interest paid on related party notes $ - $ - $ 4,409
------------ ----------- ---------------
------------ ----------- ---------------
Conversion of payable to Titan into Series A preferred stock $ - $ - $ 1,449,064
------------ ----------- ---------------
------------ ----------- ---------------
Interest paid on bridge notes $ 29,694 $ - $ 29,694
------------ ----------- ---------------
------------ ----------- ---------------
Conversion of payable to Titan into common stock $ 1,551,252 $ - $ 1,551,252
------------ ----------- ---------------
------------ ----------- ---------------
</TABLE>
See accompanying notes
F-7
<PAGE>
ANSAN PHARMACEUTICALS, INC
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Ansan Pharmaceuticals, Inc. (the "Company") was incorporated in the
State of Delaware on November 6, 1992 to engage in the development of analogs
of butyric acid for the treatment of cancer, blood disorders and other
serious diseases.
RELATIONSHIP WITH TITAN PHARMACEUTICALS, INC.
Titan Pharmaceuticals, Inc. ("Titan"), a biopharmaceutical company
engaged, through the operations of its subsidiaries and affiliates, in the
development of new proprietary therapeutic products for use in the fields of
cancer, immunology, viral diseases, and disorders of the central nervous
system, was the Company's parent until the Company's initial public offering
(the "Offering") in August 1995 (see Note 5). Immediately subsequent to the
Offering, Titan's interest was reduced to a 44%. Through December 31, 1996,
the Company contracted with Titan for facilities and equipment, and certain
administrative, financial, regulatory, business development and human
resource services. Titan has previously supplied working capital financing to
the Company and may in the future provide such financing. At December 31,
1996, Titan owned approximately 43% of Ansan. Certain members of Titan's
management and/or Board of Directors are also members of the Company's Board
of Directors.
BASIS OF PRESENTATION
The Company's activities since incorporation have primarily consisted of
recruiting personnel, conducting research and development, preclinical and
clinical studies, performing business and financial planning and raising
capital. Accordingly, the Company is considered to be in the development
stage, and expects to incur increasing losses and require additional
financial resources to achieve commercialization of its products.
The Company is engaged in a number of long-term development projects which
involve experimental technologies. The Company has incurred losses since
inception of $9.1 million and expects such losses to continue for at least
the next several years. The projects may require substantial expenditures
and take a number of years to develop prior to commercialization. Therefore,
the Company will need to obtain additional funds to continue its research and
development activities, fund operating expenses, pursue regulatory approval,
and build production, sales, and marketing activities, as necessary. Sources
of capital may include the issuance of equity or debt securities to Titan or
others (See Note 8), and collaborative agreements. Management believes
sufficient capital will be available to achieve planned business objectives
through at least 1997.
In May 1995, the board of directors and stockholders of the Company
authorized a 0.1723399-for-one reverse stock split. Prior to the Offering,
each share of Series A preferred stock and common stock were split into
0.1723399 shares of preferred stock and common stock, respectively. The
accompanying financial statements are adjusted to reflect the stock split on
a retroactive basis.
F-8
<PAGE>
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents. Cash
equivalents included $11,808 in money market funds at December 31, 1996.
At December 31, 1995 and 1996, the Company had $3,809,000 and
$1,500,000, respectively, of auction rate preferred stock (preferred stock in
money market mutual funds), classified as "available for sale." These
amounts are stated at cost which approximate estimated fair value. The
Company has not realized any gains or losses on its investments.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets ranging
from three to five years. Leasehold improvements are amortized over the
remaining period of the lease.
STOCK-BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
the Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations and to adopt the "disclosure only" alternative described in
SFAS 123 in accounting for its employee stock option plans. Under APB 25, if
the exercise price of the Company's employee stock options equals or exceeds
the fair value of the underlying stock on the date of grant, no compensation
expense is recognized.
SPONSORED RESEARCH
Research and development expenses under sponsored research arrangements
are recognized as the related services are performed, generally ratably over
the period of service. Payments for license fees are expensed when paid.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding. Common equivalent shares are excluded from the
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
equivalent shares (stock options, warrants and preferred stock) issued during
the period commencing 12 months prior to March 31, 1995 at prices below the
public offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method for
stock options and the if-converted method for the assumed conversion of the
payable to Titan as of March 31, 1995). However, shares to be held in escrow
are not treated as outstanding for any period (see Note 5.) Net loss per
share calculated on this basis for the year ended December 31, 1995 was $2.28
Pro forma net loss per share has been computed as described above and
also gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than 12 months prior to the IPO that
automatically converted upon completion of the Company's IPO (using the
if-converted method) from the original date of issuance.
F-9
<PAGE>
2. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Furniture and office equipment . . . . . . . . . . . . $ 11,521 $ 57,834
Leasehold improvements . . . . . . . . . . . . . . . . -- 19,817
Computer equipment. . . . . . . . . . . . . . . . . . 8,382 40,268
----------- ----------
19,903 117,919
Less accumulated depreciation and amortization . . . . (1,659) (23,983)
----------- ----------
Furniture and equipment, net . . . . . . . . . . . . . $ 18,244 $ 93,936
----------- ----------
----------- ----------
</TABLE>
Depreciation expense was $1,659 and $22,323 for the years ended December
31, 1995 and 1996, respectively.
3. SPONSORED RESEARCH AND LICENSE AGREEMENTS
In July 1994, the Company entered into a research agreement with a
university. Under the terms of the agreement, the Company agreed to fund
research of $105,700 through December 31, 1994. The agreement was extended
six months beyond the original term to allow for completion of the scope of
the research program. During the year ended December 31, 1995, the Company
incurred sponsored research expenses of $62,000 related to this agreement.
In 1992, the Company entered into research and license agreements with
Bar-Ilan Research and Development Company, Ltd. ("Bar-Ilan"), an entity
located in Israel. The research agreement expired during 1994. Pursuant to
the license agreement, the Company receives certain exclusive worldwide
licenses to inventions and confidential information related to the research
program in exchange for the research funding and specified royalties on
future sales and/or sublicensing arrangements. To maintain license
exclusivity, the Company made royalty payments of $10,000 and $15,000 in 1995
and 1996, respectively. The Company is obligated to make minimum royalty
payments of $20,000 in 1997, $25,000 in 1998 and $60,000 in each calendar
year thereafter. In connection with this license agreement, Bar-Ilan
also entered into a stock purchase agreement with the Company.
In May 1996, the Company signed a licensing agreement with Boehringer
Ingelheim GmbH ("Boehringer") to acquire the rights in the United States and
the European Union to develop a new intravenous formulation of the drug
ApafantTM for all clinical indications. The Company intends to proceed with
further development and, if possible, clinical testing of the drug. Pursuant
to the agreement, the Company made a license payment of $50,000 in 1996, and
may be obligated to make future milestone and royalty payments to Boehringer.
However, under certain circumstances, Boehringer may participate in further
development and commercialization of ApafantTM and, in such circumstances,
would be obligated to make milestone and royalty payments to Ansan.
F-10
<PAGE>
4. LEASES
The Company leases facilities under an operating lease that expires in
December 1998. Rent expense totaled $56,831 for the year ended December 31,
1996. Future minimum lease payments total $54,479 for the years ending
December 31, 1997 and 1998.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In May 1994, the Company issued 532,651 shares of Series A Preferred
Stock to Titan for cash of $992,592 and in exchange for forgiveness of a
payable to Titan of $1,449,064. Concurrent with the Offering, the preferred
stock automatically converted into 532,651 shares of common stock.
UNIT OFFERING
In August 1995, the Company issued 1,300,000 units, at $5.00 per unit in
the Offering. Each unit consisted of one share of common stock, one
redeemable class A warrant, and one class B warrant. The net proceeds (after
underwriter's discount and expenses, and other costs associated with the
Offering) totaled $5,107,000. At the closing of the Offering, all of the
Company's outstanding preferred stock automatically converted into 532,651
shares of common stock, and the Company issued 352,557 shares of common stock
to Titan in exchange for forgiveness of $1,551,252 of intercompany debt. In
September 1995 the Company issued an additional 195,000 units, at $5.00 per
share, in accordance with the underwriter's over-allotment option. The net
proceeds from the exercise of the underwriter's over-allotment option (after
underwriter's discount and expenses) totaled $848,250. Each class A warrant
entitles the holder to purchase one share of common stock and one class B
warrant at an exercise price of $6.50 per share. Each class B warrant
entitles the holder to purchase one share of common stock an exercise price
of $8.75 per share.
In connection with the Offering, the holders of the Company's common
stock and options to purchase common stock placed, on a pro rata basis,
363,740 shares and options to purchase 36,260 shares of common stock into
escrow (the "Escrow Shares" and "Escrow Options", respectively). The Escrow
Shares and Escrow Options are not transferable or assignable; however, the
Escrow Shares may be voted. Holders of Escrow Options may exercise their
options prior to their release from escrow; however, the shares issuable upon
any such exercise will continue to be held in escrow. The Escrow Shares and
Escrow Options will be released from escrow if, and only if, certain earnings
or market price criteria have been met. If the conditions are not met by
March 31, 2000, the Escrow Shares and Escrow Options will be canceled and
contributed to the Company's capital.
The release of Escrow Shares and Escrow Options held by employees,
officers, directors, consultants and their relatives will be deemed
compensatory. Accordingly, the Company will recognize as compensation
expense, during the period in which the earnings or market price targets are
met, a one-time charge to reflect the then fair market value of the shares
released from escrow. Such charges could substantially reduce the Company's
net income or increase the Company's loss. The amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity.
BRIDGE LOAN WARRANTS
In May and June 1995, the Company completed a bridge financing with
gross proceeds of $1,425,000. In conjunction with the bridge notes, the
Company issued class A warrants to purchase an aggregate of 712,500 shares of
Common Stock. In 1995, the Company recognized a $400,000 charge related to
the issuance of the warrants. The principal and accrued interest on the
bridge notes were repaid out of the proceeds from the Offering.
F-11
<PAGE>
COMMON STOCK
During 1996, the Company issued 40,000 shares of common stock to an
employee, resulting in $323,000 in compensation expense.
STOCK PURCHASE AGREEMENTS
Through December 31, 1996, the Company has issued 18,095 shares of
common stock to officers, employees and consultants under stock purchase
agreements. Certain shares are subject to repurchase by the Company, as
determined by the board of directors, at the original issuance price. The
repurchase rights will lapse as the shares vest over a period of five years
from the issuance date. During 1996, the Company exercised its repurchase
rights with respect to 804 shares. At December 31, 1996, 1,178 shares are
subject to repurchase.
STOCK OPTION PLAN
Under the Company's 1993 Stock Option Plan which was amended and
restated (the "1993 Plan"), pursuant to which incentive stock options may be
granted to employees, and nonstatutory stock options may be granted to
employees, directors, consultants and affiliates of the Company. A total of
141,710 shares of Common Stock has been reserved and authorized for issuance
under the 1993 Plan. No further options will be granted under the Company's
1993 Plan. In May 1995, the Company adopted the 1995 Stock Option Plan (the
"1995 Option Plan"). A total of 150,000 shares of Common Stock are reserved
and authorized for issuance under the 1995 Option Plan.
Options granted under the 1993 and 1995 Plans expire no later than ten
years from the date of grant, except when the grantee is a 10% shareholder of
the Company or an affiliate company, in which case the maximum term is five
years from the date of grant. The exercise price shall be at least 100%, 85%
and 110% of the fair value of the stock subject to the option on the grant
date, as determined by the board of directors, for incentive stock options,
nonstatutory stock options and options granted to 10% shareholders of the
Company or affiliate company, respectively. Options granted under the 1993
Option Plan are exercisable immediately upon grant, however, the shares
issuable upon exercise of the options are subject to repurchase by the
Company. Such repurchase rights will lapse as the shares vest over a period
of five years from the date of grant.
Activity under the 1993 and 1995 Option Plans is summarized below:
<TABLE>
<CAPTION>
Outstanding Options
Shares -------------------
Available for Number of Price Per Weighted Avg.
Grant Shares Share Exercise Price
----- ------ ----- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 66,533 75,177 $0.29 - $0.46 $0.31
Additional shares authorized 150,000 -- -- --
Options granted (85,918) 85,918 $ 0.46 - $5.00 $1.34
Options canceled 31,325 (31,325) $0.29 $0.29
---------- ---------
Balance at December 31, 1995 161,940 129,770 $0.29 - $5.00 $0.99
Options granted (127,117) 127,177 $2.88 - $3.38 $2.93
Options exercised -- (33,152) $0.29 - $0.58 $0.50
Options canceled 14,509 (14,509) $0.29 - $0.46 $0.42
---------- ---------
Balance at December 31, 1996 49,332 209,226 $0.29 - $5.00 $2.29
---------- ---------
---------- ---------
</TABLE>
The Company recorded deferred compensation of $277,784 for the
difference between the grant price and the deemed fair value of the Company's
common stock for certain options granted in the 12-month period prior to the
offering. The deferred compensation is being amortized to expense over the
vesting period of the options.
F-12
<PAGE>
From incorporation through December 31, 1994, the Company issued options
for 12,066 shares outside the 1993 Plan at exercise prices ranging from $0.06
to $0.29. These options are exercisable immediately upon grant; however,
the shares issuable upon exercise of the options are subject to repurchase by
the Company. Such repurchase right will lapse as the shares vest over a
period of three to five years from the date of grant.
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Range of Weighted Avg. Weighted Avg. Options Weighted Avg.
Exercise Options Remaining Exercise Currently Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.06 - $ 0.29 33,200 7.13 $ 0.24 25,329 $ 0.23
$ 0.58 40,806 8.25 $ 0.58 4,145 $ 0.58
$ 2.88 - $ 5.00 142,117 9.42 $ 3.15 34,310 $ 3.18
------- ------
216,123 8.85 $ 2.22 63,784 $ 1.88
------- ------
------- ------
</TABLE>
Of the 129,770 options outstanding at December 31, 1995, 36,607 were
exercisable at that date. All options granted under the 1993 Plan are
immediately exercisable, of which 44,532 shares of common stock underlying
the options as of December 31, 1996 would be subject to repurchase by the
Company should certain options be exercised and the optionee's employment or
consulting relationship terminate.
STOCK COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
the grant, no compensation expense is recognized.
Pro forma information regarding the net and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options granted subsequent to 1994 under the fair value method
of that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model for the multiple option
approach with the following assumptions for 1996 and 1995: weighted-average
volatility factor of 0.7; no expected dividend payments; weighted-average
risk-free interest rates in effect of 6.27% and 6.00%, respectively; and a
weighted-average expected life of 4.04 and 4.46, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of the Company's employee stock options.
Based upon the above methodology, the weighted-average fair value of
options granted during the years ended December 31, 1995 and 1996 was $0.77
and $1.54, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma net loss over the options' vesting
period. The Company's pro forma information is as follows:
F-13
<PAGE>
December 31,
------------
1995 1996
---- ----
Pro forma net loss $ (2,842,935) $ (2,372,568)
Pro forma net loss per share $ (1.94) $ (0.98)
Because SFAS 123 is applicable only to options granted subsequent to
1994, its pro forma effect will not be fully reflected until 1998.
6. RELATED PARTY TRANSACTIONS
On May 31, 1994, the Company entered into an agreement with Titan
providing for the allocation of costs by Titan to the Company for certain
services provided during 1994 and 1995 in managing the affairs of the
Company, consisting primarily of occupancy and equipment charges. These
expenses are allocated among Titan and Titan's subsidiaries and affiliates
based upon the relative percentage of effort expended by Titan on each
subsidiary's affairs and relative use of assets held by Titan, including
those under a master capital equipment lease. Management believes these
allocations to be reasonable.
Research and development expenses allocated to the Company from Titan
were approximately $114,000 for the year ended December 31, 1995. General
and administrative expenses allocated to the Company were $398,000 and
$57,000 for the years ended December 31, 1995 and 1996, respectively.
No interest has been charged on the net payable to Titan. Activity
under the payable to Titan is summarized as follows:
<TABLE>
<CAPTION>
Period From
November 6,
Year Ended Year Ended 1992 to
December 31, December 31, December 31,
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 1,292,960 $ 57,791 $ --
Corporate cost allocations 375,867 56,865 1,160,940
Working capital advances to the Company 181,678 3,225 2,198,719
Repayment of debt to Titan (241,462) -- (241,462)
Conversion of payable to Titan into capital stock (1,551,252) -- (3,000,316)
------------ --------- ------------
Ending balance $ 57,791 $ 117,881 $ 117,881
------------ --------- ------------
------------ --------- ------------
Average balance during the period $ 830,972 $ 87,836 $ 592,024
------------ --------- ------------
------------ --------- ------------
</TABLE>
LEASE COMMITMENT
Titan is party to a master capital equipment lease, pursuant to which
the Company and three other Titan majority-owned subsidiaries are jointly and
severally liable under a sublease and assignment agreement for monthly
payments (currently totaling $30,459) under the lease, should Titan be unable
to service the equipment lease. As of December 31, 1996, the amount
outstanding under the lease was approximately $747,000.
7. INCOME TAXES
As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $8,600,000. The Company also had federal
research and development tax credit carryforwards of approximately $200,000.
The net operating loss and credit carryforwards will expire at various dates
beginning in 2008 through 2011, if not utilized.
F-14
<PAGE>
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets for federal
and state income taxes are as follows:
December 31,
------------
1995 1996
---- ----
Net operating loss carryforwards $ 2,200,000 $ 3,100,000
Research credit carryforwards 100,000 200,000
Capitalized research and development 300,000 300,000
Valuation allowance (2,600,000) (3,600,000)
------------- ------------
$ -- $ --
------------- ------------
------------- ------------
The net valuation allowance increased by $1,000,000 during the year
ended December 31, 1995.
8. SUBSEQUENT EVENTS
UNAUDITED
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for a debenture
(the "Debenture") which is convertible at any time prior to June 21, 1997
into 333,333 shares of common stock. The Debenture bears interest at prime
plus 2% and is due in March 1998. In connection with the issuance of the
Debenture, Ansan granted Titan an option (the "First Option") to acquire on
additional 333,333 shares of Ansan common stock for an aggregate purchase
price of $1,000,000. The First Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant
Titan two additional options (respectively, the "Second Option" and the
"Third Option"). The Second Option will be exercisable for two years from
the date of grant to purchase up to 1,630,000 shares of Ansan common stock at
an exercise price of $3.75 per share. The Third Option will be exercisable
through August 8, 2000 to purchase up to 500,000 additional shares at an
exercise price of $6.50 per share. Titan will be obligated to exercise the
Second Option for the purchase of specified numbers of shares in the event
Titan's outstanding Class A Warrants are exercised, provided Ansan has not
completed public or private equity financings resulting in specified gross
proceeds prior to the date such a purchase obligation arises.
F-15
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANSAN PAHRMACEUTICALS, INC.
Date: March 27, 1997 By: /s/Vaughan H.J. Shalson
--------------------------------------
Vaughan H.J. Shalson
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/Louis R. Bucalo Chairman of the Board March 27, 1997
- ---------------------------- of Directors
Louis R. Bucalo, M.D.
/s/Vaughan H.J. Shalson President, Chief Executive March 27, 1997
- ---------------------------- Officer and Director
Vaughan H.J. Shalson (Principal Executive,
Financial and
Accounting Officer)
/s/Lindsay A. Rosenwald Director March 27, 1997
- ----------------------------
Lindsay A. Rosenwald, M.D.
/s/Richard Sperber Director March 27, 1997
- ----------------------------
Richard Sperber
/s/Ilan Cohn Director March 27, 1997
- ----------------------------
Ilan Cohn, Ph.D.
/s/David Naveh Director March 27, 1997
- ----------------------------
David Naveh, Ph.D.
21
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996
-------------- --------------
Net loss $ (2,821,406) $ (2,280,756)
Weighted average shares of
common stock outstanding 1,319,560 2,797,430
Shares related to staff accounting
bulleting topic 4D:
Stock Options 28,506
Conversion of payable to parent 176,279
Escrow Shares (289,152) (365,983)
-------------- --------------
Shares used in computing net loss per
share 1,235,193 2,431,447
-------------- --------------
-------------- --------------
Net loss per share $ (2.28) $ (0.94)
-------------- --------------
-------------- --------------
Pro Forma
Net loss applicable to common stock $ (2,821,406)
--------------
--------------
Calculation of shares outstanding for
computing pro forma net loss per share:
Shares used in computing net loss
per share 1,235,193
Adjusted to reflect the effect of
the assumed conversion of
preferred stock 321,328
Escrow Shares (91,808)
--------------
Shares used in computing pro forma net
loss per share 1,464,713
--------------
--------------
Pro forma net loss per share $ (1.93)
--------------
--------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 245,778
<SECURITIES> 1,500,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,829,538
<PP&E> 117,919
<DEPRECIATION> 23,983
<TOTAL-ASSETS> 1,923,474
<CURRENT-LIABILITIES> 334,036
<BONDS> 0
0
0
<COMMON> 10,850,017
<OTHER-SE> (9,260,579)
<TOTAL-LIABILITY-AND-EQUITY> 1,589,438
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,438,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,280,757)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,280,757)
<EPS-PRIMARY> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
