<PAGE> 1
================================================================================
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 MARCH 31, 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 May 1, 2000
----- --------------------------
Common Stock, $.001 par value 9,155,897
Page 1 of 16 Pages
Exhibit Index appears on Page 15
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SONUS PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Item 1. Financial Statements
Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999...................................... 3
Statements of Operations (unaudited) for the three
months ended March 31, 2000 and March 31, 1999......... 4
Statements of Cash Flows (unaudited) for the three months
ended March 31, 2000 and March 31, 1999................ 5
Notes to Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
Item 3. Market Risk ................................................ 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Item 6. Exhibits and Reports on Form 8-K........................... 15
Items 2, 3 and 5 are not applicable and therefore have been omitted.
SIGNATURES.................................................................... 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SONUS PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and marketable securities ............ $ 15,265,213 $ 16,804,486
Other current assets ........................................ 301,711 422,851
------------ ------------
Total current assets ..................................... 15,566,924 17,227,337
Equipment, furniture and leasehold improvements, net of
accumulated depreciation of $3,295,660 and $3,179,956 ....... 750,904 861,434
------------ ------------
Total assets ................................................... $ 16,317,828 $ 18,088,771
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ......................................... $ 5,000,000 $ 5,000,000
Accounts payable and accrued expenses ....................... 2,622,393 2,826,169
Accrued clinical trial expenses ............................. 220,799 215,102
------------ ------------
Total current liabilities ................................ 7,843,192 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; 9,155,897 and 8,989,225
shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively .......................... 37,713,654 37,142,965
Accumulated deficit ......................................... (29,221,307) (27,071,604)
Accumulated other comprehensive loss ........................ (17,711) (23,861)
------------ ------------
Total stockholders' equity ............................... 8,474,636 10,047,500
------------ ------------
Total liabilities and stockholders' equity ..................... $ 16,317,828 $ 18,088,771
============ ============
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Collaborative agreements ................. $ -- $ 1,700,000
Operating expenses:
Research and development ................. 1,090,570 1,489,881
General and administrative ............... 1,385,180 1,710,637
----------- -----------
Total operating expenses .................... 2,475,750 3,200,518
----------- -----------
Operating loss .............................. (2,475,750) (1,500,518)
Other income (expense):
Interest income .......................... 155,706 168,516
Interest expense ......................... (6,597) (49,235)
----------- -----------
Income (loss) before income taxes ........... (2,326,641) (1,381,237)
Income taxes ................................ (176,939) --
----------- -----------
Net loss .................................... $(2,149,702) $(1,381,237)
=========== ===========
Basic and diluted net loss per share ........ $ (.24) $ (0.16)
Shares used in computation of basic and
diluted net loss per share ............... 9,069,677 8,633,333
</TABLE>
See accompanying notes.
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SONUS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................................ $ (2,149,702) $ (1,381,237)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................... 115,702 203,094
Amortization of premium (discount) on marketable securities ...... (3,828) 954
Realized gain on marketable securities ........................... -- (2,578)
Changes in operating assets and liabilities:
Other current assets .......................................... 121,140 138,890
Accounts payable and accrued expenses ......................... (203,776) (5,253)
Accrued clinical trial expenses ............................... 5,697 (235,942)
------------ ------------
Net cash used in operating activities ............................... (2,114,767) (1,282,072)
INVESTING ACTIVITIES:
Purchases of equipment, furniture and leasehold improvements ........ (5,173) (25,463)
Purchases of marketable securities .................................. (1,476,106) (6,416,425)
Proceeds from sale of marketable securities ......................... 499,995 5,959,925
Proceeds from maturities of marketable securities ................... 3,972,725 1,249,968
------------ ------------
Net cash provided by investing activities ........................... 2,991,441 768,005
FINANCING ACTIVITIES:
Proceeds from bank line of credit ................................... 5,000,000 5,000,000
Repayment of bank line of credit .................................... (5,000,000) (5,000,000)
Increase in long-term debt .......................................... -- 40,704
Repayment of capitalized lease obligations .......................... -- (17,961)
Proceeds from exercise of stock options ............................. 570,689 30,603
------------ ------------
Net cash provided by financing activities ........................... 570,689 53,346
------------ ------------
Increase (decrease) in cash and cash equivalents for the period ..... 1,447,363 (460,721)
Cash and cash equivalents at beginning of period .................... 5,894,194 5,203,925
------------ ------------
Cash and cash equivalents at end of period .......................... 7,341,557 4,743,204
Marketable securities at end of period .............................. 7,923,656 10,951,998
------------ ------------
Total cash, cash equivalents and marketable securities .............. $ 15,265,213 $ 15,695,202
============ ============
Supplemental cash flow information:
Interest paid .................................................... $ 6,597 $ 9,531
</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."
3. AGREEMENT WITH ABBOTT LABORATORIES
In 1996, the Company entered into two agreements with Abbott Laboratories
("Abbott") for the marketing and selling of the Company's ultrasound contrast
agents, including EchoGen, in: (1) the United States (the "Abbott U.S.
Agreement") and; (2) certain international territories including Europe, Latin
America, Canada, Middle East, Africa and certain Asia/Pacific countries (the
"Abbott International Agreement"). In January 1999, the Company and Abbott
amended the Abbott U.S. Agreement (the "Amended Abbott U.S. Agreement").
In February 2000, the Company entered into an amendment with Abbott that
further modifies the Amended Abbott U.S. Agreement. The modified agreement
provided Abbott the option by March 31, 2000 either to market and distribute
EchoGen in the U.S. subject to obtaining necessary regulatory approvals, or to
terminate the Amended Abbott U.S. Agreement, whether regulatory approvals are
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received or not. In March 2000, the Company and Abbott elected to terminate the
Amended U.S. Agreement and the companies have agreed that Abbott will return
U.S. marketing rights and materials related to EchoGen at no cost to the
Company, and Abbott will have no further economic responsibilities to the
Company.
In October 1999, the Company and Abbott Laboratories International Division
("Abbott International") restructured the Abbott International Agreement. Under
the restructured agreement, Abbott International has returned to the Company all
exclusive marketing rights to EchoGen for the international territories covered
by the agreement. In addition, as part of the termination of the Amended U.S.
Agreement in March 2000, the Company has no remaining economic obligations to
share EchoGen net profits or up-front license fees with Abbott International.
7
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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 and we are in discussions with the FDA regarding that
response. 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 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. 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 ten Pacific Rim countries.
See "Part II. Other Information; Item 1. Legal Proceedings."
In 1996, we entered into two agreements with Abbott Laboratories ("Abbott")
for the marketing and selling of our ultrasound contrast agents in: (1) the
United States (the "Abbott U.S. Agreement") and (2) certain international
territories including Europe, Latin America, Canada, Middle East, Africa and
certain Asia/Pacific countries (the "Abbott International Agreement"). In
January 1999, we amended the Abbott U.S. Agreement (the "Amended Abbott U.S.
Agreement"). Under the Amended Abbott U.S. Agreement, Abbott agreed to make
certain payments to us, primarily conditioned upon the achievement of regulatory
approval and certain commercialization milestones potentially totaling $31.0
million of which we have received $23.0 million as of March 31, 2000. In
addition, Abbott purchased in 1996, for $4.0 million, warrants to acquire
500,000 shares of our common stock at an exercise price of $16.00 per share.
In February 2000, we entered into an amendment with Abbott that further
modifies the Amended Abbott U.S. Agreement. The modified agreement provided
Abbott the option by March 31, 2000 either to market and distribute EchoGen in
the U.S. subject to obtaining necessary regulatory approvals, or to terminate
the Amended Abbott U.S. Agreement, whether regulatory approvals are received or
not. In March 2000, we and Abbott elected to terminate the Amended U.S.
Agreement and the companies have agreed that Abbott will return U.S. marketing
rights and materials related to EchoGen at no cost to us, and Abbott will have
no further economic responsibilities to us. We have also agreed with Abbott to
amend the manufacturing and supply agreement under which Abbott manufactures
EchoGen for us. Abbott will continue to manufacture EchoGen following FDA
approval, if obtained, for a period of two years, but in no event later than
July 1, 2002 under the manufacturing and supply agreement. There can be no
assurance that we can successfully market and distribute EchoGen, or that we
will be successful in obtaining other partners to market and distribute EchoGen,
or that we will be able to locate and qualify an alternative manufacturer of
EchoGen.
In October 1999, our Company and Abbott Laboratories International Division
("Abbott International") restructured the Abbott International Agreement. Under
the restructured agreement, Abbott International has returned to us all
exclusive marketing rights to EchoGen for the international territories covered
by the agreement. In addition, as part of the termination of the Amended U.S.
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Agreement, we have no remaining economic obligations to share EchoGen net
profits or up-front license fees with Abbott International. As of the date of
restructuring, Abbott International has paid $14.7 million to us. We have
commenced discussions with new potential marketing partners for the
international territories; however, no assurance can be given that we will
secure new marketing partners for these territories.
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 determine if our drug delivery strategy enhances
their active compound. 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. If the
feasibility study is successful, our goal is to negotiate a development and
license agreement with the pharmaceutical company.
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.
To date, our reported revenues have been derived from payments received
under collaborative agreements with third parties. No revenues were reported in
the first quarter of 2000 compared with revenues received under collaborative
agreements of $1.7 million for the first quarter of 1999. The revenues in 1999
represented payments received under our agreements with Abbott.
Total operating expenses were $2.5 million for the first quarter of 2000
compared with $3.2 million for the first quarter of 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.
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. We may also
incur significant expenses relating to legal matters, see "Part II. Other
Information; Item 1. Legal Proceedings."
Interest income, net of interest expense of $6,597, was $149,109 for the
first quarter of 2000 compared with $119,281, net of interest expense of
$49,235, for the same period of the prior year. The increase in net interest
income was primarily due to lower 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
$176,539 for international withholding taxes paid in 1995.
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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 March 31, 2000, we had cash, cash equivalents and marketable
securities of $15.3 million compared to $16.8 million at December 31, 1999. The
decrease was primarily due to cash used in operations during the first quarter
ended March 31, 2000.
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 March
31, 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
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 in 2000
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;
- - 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 existing 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 March 31, 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
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 follows 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
ten Pacific Rim countries. Also, MBI and Mallinckrodt agreed to drop their
counterclaims against us.
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 SONUS 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
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. On December 15, 1999, the Court
denied in part and granted in part the motion to stay discovery. The motion for
summary judgment is currently noted for July 10, 2000. We do not believe there
is any merit to the claims in these actions and we intend to defend our position
vigorously. Although we do not believe that we or any of our current or former
officers or directors have engaged in any wrongdoing, there can be no assurance
that this stockholder litigation will be resolved in our favor. Any settlement
or adverse judgment in excess of available insurance could have a material
adverse affect on our business, financial condition and results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Stockholders was held on April 27, 2000. At the Annual
Meeting there were three matters submitted to a vote of security holders.
Proxies were solicited pursuant to Regulation 14A of the Securities Exchange Act
of 1934. There was no solicitation in opposition to management's nominees as
listed in the proxy statement. Each director nominated and all other proposals
submitted to a vote passed and the voting outcome of each proposal is as
follows:
1. Election of the following five (5) directors to serve until the next
annual meeting of stockholders or until their successors are elected
and have qualified:
<TABLE>
<CAPTION>
Nominee For Abstain
------- --- -------
<S> <C> <C>
Michael A. Martino 7,594,678 752,872
George W. Dunbar, Jr. 7,594,298 753,252
Christopher S. Henney, Ph.D., D. Sc. 7,594,698 752,852
Robert E. Ivy 7,594,398 753,152
Dwight Winstead 7,594,698 752,852
</TABLE>
2. Approval of the adoption of the Company's 2000 Stock Incentive Plan:
<TABLE>
<S> <C> <C> <C>
For: 2,764,359 Against: 903,346 Abstain: 375,523 Broker Non-votes: 4,304,322
</TABLE>
3. Ratification of Ernst & Young LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000:
For: 7,945,679 Against: 39,004 Abstain: 362,867
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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 March 31, 2000:
1. The Registrant filed a report on Form 8-K on March 17, 2000 in
connection with the announcement of our receipt of an "action
letter" from the FDA for our first ultrasound contrast agent,
EchoGen.
ITEMS 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
15
<PAGE> 16
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: May 12, 2000 By: /s/ Richard J. Klein
-------------------------------------
Richard J. Klein
Vice President, Finance and
Assistant Secretary
16
<PAGE> 17
EXHIBIT INDEX
Ex-27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,341,557
<SECURITIES> 7,923,656
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,566,924
<PP&E> 4,046,564
<DEPRECIATION> (3,295,660)
<TOTAL-ASSETS> 16,317,828
<CURRENT-LIABILITIES> 7,843,192
<BONDS> 0
0
0
<COMMON> 37,713,654
<OTHER-SE> (29,239,018)
<TOTAL-LIABILITY-AND-EQUITY> 16,317,828
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,475,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,597)
<INCOME-PRETAX> (2,326,641)
<INCOME-TAX> (176,939)
<INCOME-CONTINUING> (2,149,702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,149,702)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
