<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________
TO ____________.
Commission file number 0-26866
SONUS PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-4343413
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
22026 20TH AVE. SE, BOTHELL, WASHINGTON 98021
(Address of Principal Executive Offices)
(425) 487-9500
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No[ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding at July 15, 2000
Common Stock, $.001 par value 9,157,938
Page 1 of 15 Pages
Exhibit Index appears on Page 14
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SONUS PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 ............ 3
Statements of Operations (unaudited) for the three and six months ended
June 30, 2000 and June 30, 1999 ............................................. 4
Statements of Cash Flows (unaudited) for the six months ended
June 30, 2000 and June 30, 1999 ............................................. 5
Notes to Financial Statements ................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 7
Item 3. Market Risk ...................................................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................... 12
Item 6. Exhibits and Reports on Form 8-K ................................................ 14
Items 2, 3 and 5 are not applicable and therefore have been omitted.
SIGNATURES ...................................................................................... 15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SONUS PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and marketable securities ......... $ 17,344,044 $ 16,804,486
Other current assets ..................................... 354,421 422,851
------------ ------------
Total current assets .................................. 17,698,465 17,227,337
Equipment, furniture and leasehold improvements, net of
accumulated depreciation of $3,396,614 and $3,179,956 .... 649,949 861,434
------------ ------------
Total assets ................................................ $ 18,348,414 $ 18,088,771
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ...................................... $ 5,000,000 $ 5,000,000
Accounts payable and accrued expenses .................... 2,662,896 2,826,169
Accrued clinical trial expenses .......................... 149,292 215,102
------------ ------------
Total current liabilities ............................. 7,812,188 8,041,271
Commitments and contingencies Stockholders' equity:
Preferred stock; $.001 par value;
5,000,000 authorized; no shares issued or
outstanding ........................................... -- --
Common stock; $.001 par value;
30,000,000 shares authorized; 9,157,938 and
8,989,225 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively ..... 37,719,736 37,142,965
Accumulated deficit ...................................... (27,165,799) (27,071,604)
Accumulated other comprehensive loss ..................... (17,711) (23,861)
------------ ------------
Total stockholders' equity ............................ 10,536,226 10,047,500
------------ ------------
Total liabilities and stockholders' equity .................. $ 18,348,414 $ 18,088,771
============ ============
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Collaborative agreements .................... $ -- $ 350,000 $ -- $ 2,050,000
Royalty revenue ............................. 44,969 -- 44,969 --
----------- ----------- ----------- -----------
Total revenue .................................. 44,969 350,000 44,969 2,050,000
----------- ----------- ----------- -----------
Operating expenses:
Research and development .................... 1,288,089 1,701,602 2,378,659 3,191,481
General and administrative .................. 1,136,107 1,872,607 2,521,288 3,583,244
----------- ----------- ----------- -----------
Total operating expenses ....................... 2,424,196 3,574,209 4,899,947 6,774,725
----------- ----------- ----------- -----------
Operating loss ................................. (2,379,227) (3,224,209) (4,854,978) (4,724,725)
Other income (expense):
Interest income ............................. 196,889 123,676 352,595 292,192
Interest expense ............................ (12,153) (22,244) (18,750) (71,480)
Other income ................................ 4,250,000 -- 4,250,000 --
----------- ----------- ----------- -----------
Income (loss) before taxes ..................... 2,055,509 (3,122,777) (271,133) (4,504,013)
Income taxes ................................... -- -- (176,939) --
----------- ----------- ----------- -----------
Net income (loss) .............................. $ 2,055,509 $(3,122,777) $ (94,194) $(4,504,013)
=========== =========== =========== ===========
Net income (loss) per common share:
Basic ....................................... $ 0.22 $ (0.36) $ (0.01) $ (0.52)
Diluted ..................................... $ 0.22 $ (0.36) $ (0.01) $ (0.52)
Shares used in computation of per share amounts:
Basic ....................................... 9,155,897 8,741,513 9,112,787 8,687,423
Diluted ..................................... 9,184,625 8,741,513 9,166,712 8,687,423
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
2000 1999
--------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................... $ (94,194) $ (4,504,013)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................... 216,657 385,664
Amortization of premium (discount) on marketable securities . -- 104,540
Realized gain on marketable securities ...................... -- (1,708)
Changes in operating assets and liabilities:
Other current assets ..................................... 68,430 192,722
Accounts payable and accrued expenses .................... (163,273) 530,616
Accrued clinical trial expenses .......................... (65,810) (457,001)
------------ ------------
Net cash used in operating activities .......................... (38,190) (3,749,180)
INVESTING ACTIVITIES:
Purchases of equipment, furniture and leasehold improvements ... (5,173) (39,098)
Purchases of marketable securities ............................. (5,977,254) (7,682,352)
Proceeds from sale of marketable securities .................... 499,995 9,618,687
Proceeds from maturities of marketable securities .............. 6,899,268 2,049,865
------------ ------------
Net cash provided by investing activities ...................... 1,416,836 3,947,102
FINANCING ACTIVITIES:
Proceeds from bank line of credit .............................. 10,000,000 10,000,000
Repayment of bank line of credit ............................... (10,000,000) (10,000,000)
Increase in long-term debt ..................................... -- 30,783
Repayment of capitalized lease obligations ..................... -- (51,393)
Proceeds from issuance of common stock ......................... 576,771 41,668
------------ ------------
Net cash provided by financing activities ...................... 576,771 21,058
------------ ------------
Increase in cash and cash equivalents for the period ........... 1,955,417 218,980
Cash and cash equivalents at beginning of period ............... 5,894,194 5,203,925
------------ ------------
Cash and cash equivalents at end of period ..................... 7,849,611 5,422,905
Marketable securities at end of period ......................... 9,494,433 7,643,762
------------ ------------
Total cash, cash equivalents and marketable securities ......... $ 17,344,044 $ 13,066,667
============ ============
Supplemental cash flow information:
Conversion of long-term debt to common stock ................ $ -- $ 2,080,005
Interest paid ............................................... $ 13,542 $ 16,895
Income taxes paid ........................................... $ -- $ --
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required to be presented for complete financial
statements. The accompanying financial statements reflect all adjustments
(consisting only of normal recurring items) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented.
The financial statements and related disclosures have been prepared with the
assumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto included in the Form
10-K for the year ended December 31, 1999 and filed with the SEC on February 29,
2000.
2. CONTINGENCIES
The Company has a manufacturing and supply agreement with Abbott
Laboratories ("Abbott") for the manufacture of the Company's ultrasound contrast
agents. Under this agreement, Abbott will manufacture the Company's first
ultrasound contrast product, EchoGen, following FDA approval, if obtained, for a
period of two years but in no event later than July 1, 2002.
The Company also has a commercial supply agreement with a third party for
certain medical grade raw materials for the Company's initial product in the
U.S., EchoGen. The Company is obligated to purchase certain minimum quantities
of the material over a five-year period subsequent to U.S. regulatory approval
of EchoGen, if obtained.
The Company is also party to certain litigation related to its business. See
"Part II. Other Information; Item 1. Legal Proceedings."
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and we intend that such
forward-looking statements be subject to the safe harbors created thereby.
Examples of these forward-looking statements include, but are not limited to:
- the submission of applications for and the timing or likelihood of
marketing approvals for one or more indications;
- market acceptance of our products;
- our anticipated future capital requirements and the terms of any capital
financing;
- our ability to locate and enter into agreements with distributors for
U.S. and international territories;
- our ability to identify and enter into acceptable arrangements with
alternative sources of supply of EchoGen should Abbott determine not to
continue to manufacture EchoGen;
- the progress and results of clinical trials;
- the timing and amount of future contractual payments, revenues and
operating expenses; and
- the anticipated outcome or financial impact of legal matters.
While these statements made by us are based on our current beliefs and judgment,
they are subject to risks and uncertainties that could cause actual results to
vary.
In evaluating such statements, stockholders and investors should
specifically consider a number of factors and assumptions, including those
discussed in the text of this report and the risk factors detailed from time to
time in our other filings with the Securities and Exchange Commission. As
discussed in our Annual Report on Form 10-K for the year ended December 31,
1999, actual results could differ materially from those projected in the
forward-looking statement as a result of the following factors, among others:
- uncertainty of governmental regulatory requirements and lengthy approval
process;
- unproven safety and efficacy of products and uncertainty of clinical
trials;
- history of operating losses and uncertainty of future financial results;
- future capital requirements and uncertainty of
additional funding;
- dependence on third parties for funding, clinical development and
distribution;
- competition and risk of technological obsolescence;
- limited manufacturing experience and dependence on limited contract
manufacturers and suppliers;
- lack of marketing and sales experience;
- uncertainty of market acceptance;
- dependence on patents and proprietary rights;
- limitations on third-party reimbursement;
- uncertainty associated with drug delivery technology;
- continued listing on the NASDAQ National Market; and
- dependence on key employees.
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MD&A OVERVIEW
In Management's Discussion and Analysis we explain the general financial
condition and the results of operations for our Company, including:
- an overview of our Company's business;
- regulatory progress;
- contractual agreements;
- results of operations and why those results are different from the prior
year;
- the capital resources our Company currently has and possible sources
of additional funding for future capital requirements; and
- the market risk of our investment portfolio.
BUSINESS OVERVIEW
Our Company is engaged in the research, development and commercialization of
ultrasound contrast agents and drug delivery systems based on our proprietary
technology. Our products are being developed for use in the diagnosis and
treatment of heart disease, cancer and other debilitating conditions. We have
financed our research and development and clinical trials through payments
received under contractual agreements, private equity and debt financings, and a
public offering of common stock. Clinical trials of our initial ultrasound
contrast product under development, EchoGen(R) (perflenapent injectable
emulsion), began in January 1994. In 1996, we filed a New Drug Application
("NDA") with the U.S. Food and Drug Administration ("FDA") for EchoGen as well
as a Marketing Authorization Application ("MAA") with the European Medicines
Evaluation Agency ("EMEA").
REGULATORY PROGRESS
United States
In April 1999, we received an "approvable letter" from the FDA for EchoGen.
The FDA letter gave the conditions that must be satisfied before final approval.
In September 1999, we filed a formal response to the conditions of the
approvable letter. In March 2000, we received an action letter from the FDA that
extended the approvable status for EchoGen. In April 2000, we filed our response
to the March action letter. The FDA accepted our filed response as complete for
review and has indicated that it will complete its review of our response by the
end of October 2000. Although it is inappropriate for us to speculate on the
outcome of the FDA review, we believe we have addressed the conditions requested
by the FDA. No assurance can be given that the FDA will review the response to
the action letter in a timely manner or that the FDA will ultimately approve
EchoGen.
Europe
In March 1998, the EMEA's Committee for Proprietary Medicinal Products
("CPMP") issued a positive opinion on EchoGen for use as a transpulmonary
echocardiographic contrast agent in patients with suspected or established
cardiovascular disease who have had previous inconclusive non-contrast studies.
In July 1998, the EMEA ratified the CPMP recommendation and granted a marketing
authorization for EchoGen in the 15 countries of the European Union ("E.U.").
During 1998 and 1999, we submitted to the EMEA certain variations of our
marketing authorization to bring the manufacturing process and specifications
for European product in line with the process and specifications submitted to
the FDA for approval in the U.S. Also during 1999, we received notifications
that the variations to our marketing license were approved by the EMEA with the
final notification received in December 1999.
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CONTRACTUAL AGREEMENTS
In 1999, we entered into a license agreement with Nycomed Imaging AS
("Nycomed") for the cross-license of certain proprietary ultrasound contrast
agent technologies. Under the terms of the agreement, we provided Nycomed with
an exclusive license to our ultrasound contrast patents except as related to
perfluoropentane, the gas we use in our ultrasound contrast products. Under the
exclusive license to the patents, Nycomed also has the right to freely
sublicense to other companies with a portion of any sublicense fees to be paid
to us. In addition, we have a worldwide, non-exclusive license to certain of
Nycomed's ultrasound contrast agent patents. We also have the right to
sublicense these patents to our collaborative partners. Under the agreement,
Nycomed paid us in 1999 a license fee of $10.0 million. In addition, both
companies have agreed to pay royalties to each other based on future sales of
our respective ultrasound contrast agents.
Also, under the license agreement, we transferred to Nycomed the
responsibilities and legal costs associated with our patent infringement
litigation with Molecular Biosystems, Inc. (MBI) and Mallinckrodt Medical Inc.
On May 8, 2000, the parties announced a settlement of the patent infringement
litigation. The settlement followed a summary judgement by the court which found
that MBI and Mallinckrodt infringed certain of our patents and rejected various
challenges made by MBI and Mallinckrodt to the validity of those patents. The
summary judgement also dismissed the counterclaims filed by MBI and
Mallinckrodt. Under terms of the settlement, we received a one-time payment of
$2.5 million from Nycomed pursuant to our license agreement with Nycomed. We
will also receive royalties on future sales of ultrasound contrast products by
MBI, Mallinckrodt and Nycomed in all territories of the world except Japan and
nine other Pacific Rim countries. Also, MBI and Mallinckrodt agreed to drop
their counterclaims against us. See "Part II. Other Information; Item 1. Legal
Proceedings."
In addition to the development of our ultrasound contrast agents, we believe
our drug delivery technology can be applied to the formulation of many water
insoluble active compounds, which are either currently in use or being
investigated as therapeutic agents. Our strategy is to enter into feasibility
study agreements with companies who own active compounds, typically large
pharmaceutical companies, to confirm that their active compounds can be
formulated with our proprietary delivery vehicle, and that the resulting
formulation enhances the properties of that drug, including efficacy and
toxicity. In December 1999, we entered into our first feasibility study
agreement. Under this feasibility study agreement, we have agreed to use our
reasonable best efforts to develop new formulations of an active compound and
provide them to the pharmaceutical company for further evaluation.
RESULTS OF OPERATIONS
Our results of operations have varied and will continue to vary
significantly and depend on, among other factors:
- timing of payments under contractual and license agreements;
- timing of regulatory approvals;
- entering into additional contractual agreements; and
- timing and costs of clinical trials, legal matters and expenses related
to product commercialization.
Revenue in the second quarter of 2000 was $45,000 compared to $350,000 in
the second quarter of 1999. For the six months ended June 30, 2000, revenue was
$45,000 compared to $2.1 million for the prior year period. Revenue for the
prior year periods were derived from payments received under collaborative
agreements with third parties. Revenue in the current period represents
royalties payable to us by Nycomed pursuant to our license agreement with
Nycomed.
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Total operating expenses were $2.4 million for the second quarter of 2000
compared with $3.6 million for the second quarter of 1999. Total operating
expenses for the six months ended June 30, 2000 were $4.9 million compared to
$6.8 million for the six months ended June 30, 1999. The decrease in operating
expenses from the prior year was primarily due to a lower level of research and
development and clinical trial spending as well as a reduction in legal costs as
a result of the transfer of ongoing patent litigation responsibilities to
Nycomed Amersham under the patent license agreement that we entered into with
Nycomed in late 1999 and the recent patent litigation settlement announced in
May 2000.
We anticipate total operating expenses will increase in future quarters due
to ongoing and planned clinical trials to study additional indications for
EchoGen and future products and due to higher marketing and administrative
expenses as we continue to prepare for commercialization of EchoGen if approved
for marketing in the U.S.
Other income in the second quarter of 2000 represents payments received of
$4.25 million from patent litigation and insurance settlements. As part of the
settlement of our patent litigation, we received a one-time payment of $2.5
million from Nycomed pursuant to our license agreement with Nycomed. In a
separate matter, we reached an agreement on a pre-existing insurance coverage
dispute from which we received a settlement of $1.75 million.
Interest income, net of interest expense, was $185,000 for the second
quarter of 2000 compared with $101,000 for the same period of the prior year and
$334,000 and $221,000 for the six months ended June 30, 2000 and 1999,
respectively. The increase in net interest income was primarily due to higher
levels of invested cash in 2000. In addition, we incurred lower levels of
interest expense in 2000 as approximately $2.1 million of long-term debt payable
to Abbott was converted into common stock in June 1999.
In the first quarter of 2000, we received a refund in the amount of $176,939
for international withholding taxes paid in 1995.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed operations with payments from contractual
agreements with third parties, proceeds from equity financings and a bank line
of credit. At June 30, 2000, we had cash, cash equivalents and marketable
securities of $17.3 million compared to $16.8 million at December 31, 1999. The
slight increase was primarily due to cash received from the exercise of stock
options.
We have a bank loan agreement which provides for a $5.0 million revolving
line of credit facility and bears interest at the prime rate plus 1.0%. At June
30, 2000, we had borrowings of $5.0 million outstanding under the line of
credit. The line of credit expires August 30, 2000 and is secured by our
tangible assets. We are required to maintain a minimum of $4.0 million of cash
in order to borrow under the line of credit, and the borrowed funds are required
to be held at the bank. We cannot give assurance that we will be able to renew
the loan agreement or that we will be able to maintain the minimum balances
necessary to borrow under the line of credit.
We expect that our cash needs will increase significantly in future periods
due to pending and planned clinical trials and higher administrative and
marketing expenses as we prepare for commercialization of EchoGen, if approved
for marketing in the United States. Based on our current operating plan, we
estimate that existing cash and marketable securities will be sufficient to meet
our cash requirements through 2000. We plan to seek additional funding through
available means, which may include debt and/or equity financing or funding under
additional third party agreements. Our future capital requirements depend on
many factors including:
- the ability to obtain continued funding under existing contractual and
licensing agreements;
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- the ability to attract and retain new partners;
- the ability to maintain our bank line of credit;
- the time and costs required to gain regulatory approvals;
- the progress of our research and development programs and clinical
trials;
- the costs of filing, prosecuting and enforcing patents, patent
applications, patent claims and trademarks;
- the costs of marketing and distribution;
- the status of competing products;
- the market acceptance and third-party reimbursement of our products, if
and when approved; and
- the cost of defending, and any damages or settlement payments that may
be paid pursuant to legal proceedings.
We cannot give assurance that U.S. regulatory approval will be achieved in the
near-term or at all or that, in any event, additional financing will be
available on acceptable terms, if at all. Any equity financing would likely
result in substantial dilution to our existing stockholders. If we are unable to
raise additional financing, we may be required to curtail or delay the
development of our products and new product research and development, which
could seriously harm our business.
ITEM 3. MARKET RISK
The market risk inherent in our short-term investment portfolio represents
the potential loss that could arise from adverse changes in interest rates. If
market rates hypothetically increase immediately and uniformly by 100 basis
points from levels at June 30, 2000, the decline in the fair value of the
investment portfolio would not be material. Because we have the ability to hold
our fixed income investments until maturity, we do not expect our operating
results or cash flows to be affected to any significant degree by a sudden
change in market interest rates.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a. In January 1998, we announced that we had filed a patent infringement action
in the U.S. District Court in Seattle, Washington, against Molecular Biosystems
Inc. ("MBI") and Mallinckrodt Medical Inc. ("Mallinckrodt"). The suit alleged
that one of MBI's ultrasound contrast agents infringed one or more of our
patents. MBI filed counterclaims alleging that the patents asserted by us were
invalid and not infringed, and that we made false public statements and engaged
in other actions intended to damage MBI.
Under our agreement with Nycomed, Nycomed is an exclusive licensee of our
patents in a field of use including non-perfluoropentane ultrasound contrast
agents. Shortly after we entered into the agreement with Nycomed, Nycomed was
added as a plaintiff in our lawsuit against MBI and Mallinckrodt and took
control of the patent infringement portion of that lawsuit.
On May 8, 2000, the parties announced a settlement of the patent
infringement litigation. The settlement followed a summary judgement by the
court which found that MBI and Mallinckrodt infringed certain of our patents and
rejected various challenges made by MBI and Mallinckrodt to the validity of
those patents. The summary judgement also dismissed the counterclaims filed by
MBI and Mallinckrodt. Under terms of the settlement, we received a one-time
payment of $2.5 million from Nycomed pursuant to our license agreement with
Nycomed. We will also receive royalties on future sales of ultrasound contrast
products by MBI, Mallinckrodt and Nycomed in all territories of the world except
Japan and nine other Pacific Rim countries. Also, MBI and Mallinckrodt agreed to
drop their counterclaims against us.
In a separate matter related to the MBI and Mallinckrodt patent litigation,
we also announced that we reached an agreement on a pre-existing insurance
coverage dispute. Under the agreement, we received an insurance payment of $1.75
million.
b. In July 2000, DuPont Pharmaceuticals Company, DuPont Contrast Imaging, Inc.,
E.I. Du Pont de Nemours & Co., Inc. and DuPont Pharma, Inc. (collectively
"DuPont") filed a complaint in the United States District Court for the District
of Massachusetts against us and Nycomed Amersham. DuPont's complaint seeks a
declaratory judgment that certain ultrasound contrast patents owned by us and
licensed to Nycomed are invalid and not infringed by DuPont.
We believe DuPont's complaint is without merit and intend to vigorously
defend against these allegations. Nycomed and we have filed motions to dismiss
DuPont's complaint or alternatively that the case be transferred to the U.S.
District Court for the Western District of Washington. Under our license
agreement with Nycomed, Nycomed has the right to enforce the patents in the
field of non-perfluoropentane ultrasound contrast agents on behalf of Nycomed
and on our behalf, at Nycomed's expense. Pursuant to this right, Nycomed and we
also have filed against DuPont a patent infringement action in the U.S. District
Court for the Western District of Washington alleging that DuPont's contrast
agent known as "Definity" infringes patents we own and have licensed to Nycomed.
Pursuant to our license agreement with Nycomed, Nycomed will bear all costs and
expenses associated with the prosecution of this action.
c. In August and September 1998, various class action complaints were filed in
the Superior Court of Washington (the "State Action") and in the U.S. District
Court for the Western District of Washington (the "Federal Action") against us
and certain of our officers and directors, alleging violations of Washington
State and U.S. securities laws. In October 1998, we and the individual
defendants moved to dismiss and stay the State Action. The state law claims in
the State Action were subsequently re-filed in the Federal Action. In February
1999, plaintiffs filed a consolidated and amended complaint in the
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Federal Action, alleging violations of Washington State and U.S. securities
laws. In March 1999, we and the individual defendants filed a motion to dismiss
the consolidated amended complaint in the Federal Action. In July 1999, the
Court entered an order denying in part and granting in part the motion to
dismiss the complaint in the Federal Action. In November 1999, we filed motions
for summary judgment and to stay discovery.
In July 2000, we, with the consent of our insurance carrier, entered into a
Memorandum of Understanding with plaintiffs to settle the Federal Action for an
amount within our directors and officers' insurance policy limits. The
settlement is subject to approval of the Court after notice and an opportunity
to object is provided to the shareholder class. Because of the time involved in
providing notice and obtaining approvals, it is likely that the final approval
will be obtained at the end of the year or in early 2001. Given the
uncertainties of litigation, we believe that the settlement is in the best
interests of our shareholders. However, there can be no assurance that the
settlement will be approved by the Court.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information regarding matters submitted to a vote of security holders at our
annual meeting of stockholders held on April 27, 2000, is set forth in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.41 2000 Stock Incentive Plan (the "2000 Plan")
10.42 Form of Stock Option Agreement pertaining to the 2000 Plan
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the quarter
ended June 30, 2000:
1. The Registrant filed a report on Form 8-K on May 25, 2000 in
connection with the announcement that the U.S. Food and Drug
Administration (FDA) has accepted as complete for review our
response to the March 2000 FDA action letter for our first
ultrasound contrast agent, EchoGen.
ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SONUS PHARMACEUTICALS, INC.
Date: August 14, 2000 By: /s/ Richard J. Klein
---------------------
Richard J. Klein
Vice President, Finance and
Assistant Secretary
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