UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
000-28782
Spectrum Pharmaceuticals,
Inc.
®
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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93-0979187
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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157 Technology Drive
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92618
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Irvine, California
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(Zip Code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(949) 788-6700
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Stock Market, LLC
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Common Stock Purchase Warrants
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Rights to Purchase Series B Junior Participating Preferred
Stock
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of
June 30, 2008 was $42,794,914 based on the closing sale
price of such common equity on such date.
As of March 27, 2009 there were 32,530,636 shares of
the registrants common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrants 2009
Annual Meeting of Stockholders, to be filed on or before
April 30, 2009, are incorporated by reference into
Part III of this
Form 10-K.
FORWARD-LOOKING
STATEMENTS
Spectrum Pharmaceuticals, Inc.s Annual Report on
Form 10-K
contains certain words, including but not limited to,
believes, may, will,
expects, intends, estimates,
anticipates, plans, seeks,
or continues, and also contains predictions,
estimates and other 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 in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on the current
beliefs of the Companys management as well as assumptions
made by and information currently available to the
Companys management. Readers should not put undue reliance
on these forward-looking statements. Reference is made in
particular to forward looking statements regarding the success,
safety and efficacy of our drug products, product approvals,
product sales, revenues, development timelines, product
acquisitions, liquidity and capital resources and trends.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified.
Spectrum Pharmaceuticals, Inc.s actual results may differ
materially from the results projected in the forward-looking
statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this Report,
including the Risk Factors in
Item 1A Risk Factors, and in
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in Part II. Except as required by law, we do not
undertake to update any such forward-looking statements and
expressly disclaim any duty to update the information contained
in this filing.
Unless the context otherwise requires, all references to the
Company, we, us,
our, Spectrum and Spectrum
Pharmaceuticals refer to Spectrum Pharmaceuticals, Inc.
and its subsidiaries and other consolidated entities, as a
consolidated entity. We primarily conduct all our activities as
Spectrum Pharmaceuticals.
Spectrum Pharmaceuticals,
Inc.
®
is a registered trademark of Spectrum Pharmaceuticals, Inc.
Fusilev
tm
,
Turning Insights Into
Hope
tm
and our logos are trademarks owned by Spectrum Pharmaceuticals,
Inc.
EOquin
®
is a registered trademark of Allergan, Inc.
Zevalin
®
is a registered trademark of RIT Oncology,
LLC
tm
,
and
RIT
tm
and RIT Oncology,
LLC
tm
are registered trademarks of RIT Oncology, LLC, a wholly-owned
subsidiary of Spectrum Pharmaceuticals, Inc.
RenaZorb
®
is a registered trademark of Altair Nanomaterials, Inc., and
licensed to Spectrum Pharmaceuticals, Inc. All other trademarks
and trade names are the property of their respective owners.
3
PART I
Overview
We are a commercial stage biopharmaceutical company committed to
developing and commercializing innovative therapies with a focus
primarily in the areas of hematology-oncology and urology. We
have a fully developed commercial infrastructure that is
responsible for the sales and marketing of two drugs in the
United States, namely Fusilev and Zevalin. Our lead
developmental drug is apaziquone (formerly EOquin), which is
presently being studied in two large Phase 3 clinical trials for
non-muscle invasive bladder cancer under a strategic
collaboration with Allergan Inc. Another drug, ozarelix is in a
Phase 2 clinical trial for benign prostatic hypertrophy (BPH).
Our business strategy for 2009 is comprised of the following
initiatives:
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Maximizing the growth potential for our marketed drugs,
Fusilev and Zevalin.
The companys
near-term outlook depends on sales and marketing successes
associated with our two marketed drugs. We launched Fusilev in
August 2008 and were able to successfully achieve broad
utilization in community offices and institutions. Our second
drug, Zevalin, is marketed by our subsidiary RIT Oncology LLC
(RIT), which was formed in December 2008. A dedicated commercial
organization comprised of sales representatives, account
managers, medical science liaisons and a complement of other
marketing personnel support the sales and marketing of these
drugs. Together with multiple initiatives to address historical
barriers to uptake of Zevalin, we believe we can capture the
substantial growth potential in sales for both Fusilev and
Zevalin. Both drugs have additional applications on file with
the U.S. Food and Drug Administration (FDA) for new, larger
indications in non-Hodgkins lymphoma and metastatic
colorectal cancer, respectively. We plan to fully capitalize on
these potential indication approvals in a cash-efficient manner
by staging appropriate infrastructure expansions to facilitate
broad customer reach and to address other market requirements,
as appropriate. These supplemental applications are currently
under review by the FDA, with regulatory decisions expected in
second half of 2009.
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Maximizing the asset value of
apaziquone.
We took a giant step forward with
our lead development asset, apaziquone, in late 2008 with the
signing of a strategic collaboration with Allergan. We retained
exclusive rights to apaziquone in Asia, including Japan and
China while Allergan received exclusive rights to apaziquone for
the treatment of bladder cancer in the rest of the world,
including the United States, Canada and Europe. In the United
States, we will co-promote apaziquone with Allergan and share in
its profits and expenses. This drug is presently being studied,
under a special protocol assessment procedure with the FDA and
scientific advice from the European Medicines Agency (EMEA), in
two large Phase 3 clinical trials for non-muscle invasive
bladder cancer. Our goal is to complete enrollment in these two
trials and also begin a study in Bacillus Calmette-Guérin,
or BCG, refractory bladder cancer by the end of 2009. These
studies have been and will be strategically placed in centers
worldwide that have extensive clinical trial experience, so as
to ensure proper execution. These studies are designed to
clinically differentiate this drug versus standard of care, and
to ultimately successfully address the unmet needs in this
disease. We hope to continue to partially monetize this asset
through seeking additional strategic collaborations in markets
where we have sole rights. Specifically, our goal is to secure
new partnerships for this agent in Japan and selected markets in
Asia.
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Optimizing our development
portfolio.
We continue to build on our core
expertise in clinical development for the treatment of cancer
and urology. We remain reliant on in-licensing strategies to
seek drugs for development. Most recently, the company has
undertaken a criteria-based portfolio review, which is expected
to result in streamlining our pipeline drugs, allowing for
greater focus and integration of our development and commercial
goals. The portfolio will be assessed based on factors that
include, among others things, probability of clinical success,
time and cost of development, market potential, synergies with
marketed and other developmental drugs, and competitive
landscape. As a result of this portfolio evaluation, a
determination will be made whether to: 1) continue with the
drugs clinical development; 2) terminate its
development; or 3) out-license rights to a third party for
development and commercialization.
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Managing our financial resources
effectively.
We remain committed to fiscal
discipline, a policy which has allowed us to become
exceptionally well capitalized among our peers, despite a very
challenging fiscal environment. This policy includes the pursuit
of non-dilutive funding options, prudent expense management, and
the achievement of critical synergies within our operations in
order to maintain a reasonable burn rate. Despite the
build-up
in
operational infrastructure to facilitate the marketing of two
drugs, we intend to be fiscally prudent in any expansion we
undertake. In terms of revenue generation, we hope to become
more reliant on sales from currently marketed drugs and intend
to pursue out-licensing of apaziquone and select pipeline drugs
in select territories, as discussed above. When appropriate, we
may pursue other sources of financing, including non-dilutive
financing alternatives. While we are currently focused on
advancing our key drug development programs, we anticipate that
we will make regular determinations as to which other programs,
if any, to pursue and how much funding to direct to each program
on an ongoing basis, based on clinical success and commercial
potential.
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Expanding commercial bandwidth through licensing and
business development.
It remains our goal to
identify drugs that will create strong synergies with our
currently marketed drugs, including drugs in development. To
this end, we will continue to explore strategic collaborations
as these relate to drugs that are either in advanced clinical
trials or are currently on the market. We believe that such
opportunistic collaborations will provide synergies with respect
to how we deploy our internal resources. In this regard, we
intend to identify and secure drugs that have significant growth
potential either through enhanced marketing and sales efforts or
through pursuit of additional clinical development.
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Further enhancing the organizational structure to meet our
corporate objectives.
We have highly
experienced staff in pharmaceutical operations, clinical
development, regulatory and commercial functions who come from
small and mid-size biotech companies to large pharmaceutical
companies. We recently strengthened the ranks of our management
team, and will continue to pursue talent on an opportunistic
basis. Finally, we remain committed to running a lean and
efficient organization, while effectively leveraging our
critical resources.
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Recent
Developments
In 2008, we continued to execute on our business strategy. Below
are some key developments.
On March 7, 2008, we received approval from the FDA for our
New Drug Application, or NDA, for Fusilev (levoleucovorin)
for injection. We launched Fusilev in August and achieved net
sales of approximately $7.7 million for 2008. In October,
we filed a supplemental NDA for Fusilev in combination with
5-FU-containing regimens in the treatment of colorectal cancer.
In November 2008, we also received a unique J-code for Fusilev
from the Centers for Medicare and Medicaid Services (CMS). In
December, Fusilev was listed in the National Comprehensive
Cancer Network (NCCN) Drugs and Biologic Compendium for use in
combination with high-dose methotrexate for the treatment of
bone cancer (osteosarcoma and dedifferentiated chrondrosarcoma).
For apaziquone, in October 2008 we signed an exclusive
development and commercialization collaboration agreement with
Allergan, Inc. Under the terms of the agreement, Allergan paid
us $41.5 million at closing and will make additional
payments of up to $304 million based on the achievement of
certain development, regulatory and commercialization
milestones. We retained exclusive rights to apaziquone in Asia,
including Japan and China. Allergan received exclusive rights to
apaziquone for the treatment of bladder cancer in the rest of
the world, including the United States, Canada and Europe. In
the United States, we will co-promote apaziquone with Allergan
and share equally profits and expenses. Allergan will also pay
us royalties on all of its apaziquone sales outside of the
United States. If we decide to opt-out of co-promoting the drug
in the United States, our share of any future development costs
shall be significantly reduced. Part of the aggregate
development costs and marketing expenses incurred by us shall be
reimbursed by Allergan in the form of a one-time payment and
instead of a sharing of profit and expenses, Allergan will pay
us royalties in the United States that are slightly greater than
the royalties paid on net sales outside the United States. In
addition, Allergan will pay us up to $245 million in
additional milestones based upon the achievement of certain
sales milestones in the United States. Spectrum will continue to
conduct the apaziquone clinical trials pursuant to a joint
development plan, with Allergan bearing 65% of these expenses.
We
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continue to recruit sites and enroll patients in these two
studies and our goal is to complete enrollment for both Phase 3
clinical trials by year-end 2009.
In December 2008, we partnered with Cell Therapeutics, Inc.
(CTI) to form a
50-50
owned
joint venture, RIT Oncology, LLC (RIT) to commercialize and
develop Zevalin ([90Y]-ibritumomab tiuxetan) in the United
States. In December 2008, the FDA accepted for filing and
review, and granted priority review status for, RITs
supplemental Biologics License Application (sBLA) for the use of
Zevalin as first-line therapy for patients with B-cell
follicular NHL. In March 2009, CTI sold to us their remaining
50% ownership in RIT, resulting in RIT becoming our wholly-owned
subsidiary. A Prescription Drug User Fee Act (PDUFA) target date
of July 2, 2009 was established by the FDA for a decision
regarding the Zevalin sBLA.
In May 2008, we sold our rights to our share of profits of
sumatriptan injection, the generic form of
GlaxoSmithKlines
Imitrex
®
injection, to our commercialization partner, Par Pharmaceutical
Companies, Inc., which along with the sale of our other generic
injectable products to Sagent Pharmaceuticals, netted us
approximately $20.7 million.
We continued our efforts to build a global pharmaceutical
organization in 2008. We formed two ex-US business entities, one
a Canadian affiliate, Spectrum Pharma Canada, Inc. headquartered
in the Province of Quebec, Canada, and the other a wholly-owned,
Indian subsidiary, OncoRx Pharma Private Ltd., headquartered in
Mumbai, India. We established these entities in an effort to
facilitate the opening of clinical trials sites in these
countries to continue the clinical development of our products
at a reduced cost.
Product
Portfolio
We have a product portfolio consisting of both commercial stage
and development stage products. While we are committed to
growing the sales of our marketed products, we want to make sure
that we have a healthy pipeline of products under development to
bring to the market.
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Our drug products, their approved
and/or
target indications, and status of development are summarized in
the following table, and discussed below in further detail:
Some of our drugs may prove to be beneficial in additional
disease indications as we continue to study and develop these
drugs. In addition, we have intellectual property rights to
neurology compounds that we may out-license to third parties for
further development.
Overview
of Cancer
According to the American Cancer Societys publication
Cancer Facts & Figures 2008, cancer is the second
leading cause of death in the United States, accounting for
approximately 25% of all deaths. In the United States,
approximately 1.4 million new cancer cases were expected to
be diagnosed in 2008 and over 565,000 persons were expected
to die from the disease in 2008. Accordingly, there is
significant demand for improved and novel cancer treatments.
Cancer develops when cells in a part of the body begin to grow
out of control. Although there are many kinds of cancer, they
all start because of
out-of-control
growth of abnormal cells. Normal body cells grow, divide, and
die in an orderly fashion. During the early years of a
persons life, normal cells divide more rapidly until the
person becomes an adult. After that, cells in most parts of the
body divide only to replace worn-out or dying cells and to
repair injuries. Because cancer cells continue to grow and
divide, they are different from normal cells. Instead of dying,
they outlive normal cells and continue to form new abnormal
cells.
Cancer cells develop because of damage to DNA. Most of the time,
when DNA becomes damaged, the body is able to repair it. In
cancer cells, the damaged DNA is not repaired. People can
inherit damaged DNA, which accounts for inherited cancers. More
often, however, a persons DNA becomes damaged by exposure
to something in the environment, such as smoking.
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Cancer usually forms as a tumor. Some cancers, like leukemia, do
not form tumors. Instead, these cancer cells involve the blood
and blood-forming organs and circulate through other tissues
where they grow. Often, cancer cells travel to other parts of
the body where they begin to grow and replace normal tissue.
This process is called metastasis. Regardless of where a cancer
may spread, however, it is always named for the place it began.
For instance, breast cancer that spreads to the liver is still
called breast cancer, not liver cancer.
Different types of cancer can behave very differently. For
example, lung cancer and breast cancer are very different
diseases. They grow at different rates and respond to different
treatments. That is why people with cancer need treatment that
is aimed at their particular kind of cancer. Cancer is currently
treated by surgery, chemotherapy, radiation therapy, hormonal
therapy, biological therapy and immunotherapy. Cancer is
referred to as refractory when it has not responded, or is no
longer responding, to a treatment.
We are seeking novel drugs that address cancer or cancer related
indications with significant unmet medical need, that:
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are already approved for sale or have demonstrated initial
safety and efficacy in clinical trials
and/or
we
believe have a higher probability of regulatory approval than
that of a typical compound at a similar stage of development;
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target cancer indications with significant unmet medical need,
where current treatments either do not exist or are not
effective; and
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we believe we can acquire at a fair value based on our judgment
of clinical success and commercial potential.
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Our drug
products
Zevalin ([90Y]-ibritumomab tiuxetan)
:
In
December 2008, we acquired rights to commercialize and develop
Zevalin in the United States, as the result of a transaction
with Cell Therapeutics, Inc., further described below.
Zevalin is a prescribed form of cancer therapy called
radioimmunotherapy. Radioimmunotherapy combines a source of
radiation, called a radioisotope, with an antibody. As part of
the Zevalin therapeutic regimen, the Y-90 radioisotope is
combined with a monoclonal antibody (CD20 MAB) that specifically
recognizes a particular part of a B-cell (the cells of the
immune system that make antibodies to invading pathogens) called
the CD20 antigen. The CD20 antigen is found on malignant and
normal B-cells. As the patient is infused with Y-90 Zevalin and
it enters the bloodstream, the antibody portion recognizes and
attaches to the CD20 antigen on tumor cells, allowing the
radiation energy emitted from the Y-90 radioisotope
(
i.e
., beta emission) to penetrate and damage the
malignant B-cells as well as nearby neighboring cells, many of
which are also lymphoma cells.
The current Zevalin therapeutic regimen also requires a bioscan
of the prospective patient prior to treatment with Y-90 Zevalin.
For the bioscan, the patient is infused with In-111 Zevalin, in
which the Y-90 radioisotope is replaced with the In-111
radioisotope and combined with the CD20 MAB. In-111 Zevalin
produces a kind of radiation called gamma emission, which is
very similar to the kind of radiation used to produce x-rays.
Once infused with In-111, the prospective patient goes through a
bioscan (also known as an imaging study). The
bioscan allows a physician to follow In-111 Zevalin as it
travels within the prospective patients body. Based upon
the distribution of In-111 Zevalin (whether the In-111 Zevalin
goes to certain unintended areas of the body), the physician may
elect to not infuse the patient with Y-90 Zevalin. Many Zevalin
healthcare providers throughout the world do not believe that
the In-111 bioscan is a necessary part of the Zevalin
therapeutic regimen. Currently, we are working with the FDA to
remove this bioscan requirement.
Zevalin is indicated as part of a Zevalin therapeutic regimen
for treatment of relapsed or refractory, low-grade or follicular
B-cell NHL, including patients with rituximab-refractory
follicular NHL. Zevalin is also indicated, under accelerated
approval, for the treatment of relapsed or refractory,
rituximab-naive, low-grade and follicular NHL based on studies
using a surrogate endpoint of overall response rate. Zevalin was
approved by the FDA in February of 2002 as the first
radioimmunotherapeutic agent for the treatment of NHL. For
reference, the term refractory refers to lymphoma that does not
respond to a particular therapy. The term relapsed refers to
lymphoma that returns after initially responding to therapy. The
terms low-grade and follicular refer to types of lymphoma cells
as determined by laboratory tests, which have an indolent (slow
growing) clinical course. Rituximab is a
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monoclonal antibody that specifically recognizes a particular
part of a B-cell also called the CD 20 antigen, and is used as
monotherapy or in combination in the treatment of B-cell NHL.
NHL is caused by the abnormal proliferation of white blood cells
and normally spreads through the lymphatic system, a system of
vessels that drains fluid from the body. There can be many
different types of NHL which can be divided into aggressive NHL,
a rapidly spreading acute form of the disease, and indolent NHL,
which progresses more slowly, and can be classified as either
B-cell or T-cell NHL. According to the National Cancer
Institutes SEER database there were nearly
400,000 people in the U.S. with NHL in 2004. The
American Cancer Society estimated that in the United States
66,120 people were expected to be newly diagnosed with NHL
in 2008. Additionally, approximately 19,160 were expected to die
from this disease in 2008.
In December 2008, the FDA accepted for filing and review, and
granted priority review status for RITs sBLA for the use
of Zevalin as first-line consolidation therapy for patients with
B-cell follicular NHL. Under a relapsed or refractory setting,
Zevalin is used for treatment if a patient is not responding to
first-line therapy with other chemotherapeutic, cytotoxic or
anti-cancer drugs or if the lymphoma returns after first-line
therapy. Consolidation therapy aims to rapidly improve the
quality of the response achieved with initial remission
induction treatment. Induction therapy is a treatment designed
as a first step toward reducing the number of cancer cells.
Currently, a PDUFA target date of July 2, 2009 has been
established by the FDA for a decision regarding the Zevalin sBLA.
The sBLA is based upon data from the multinational, randomized
Phase 3 First-line Indolent Trial (FIT) which evaluated the
benefit and safety of a single infusion of Zevalin in
414 patients with CD20-positive follicular NHL who had
achieved a partial response or a complete response after
receiving one of the standard first-line chemotherapy regimens.
The FIT trial demonstrated that when used as a first-line
consolidation therapy for patients with follicular NHL, Zevalin
significantly improved the median progression-free survival time
from 13 months (control arm) to 37 months (Zevalin
arm) (p<0.0001).
The primary investigators of the study concluded that Zevalin
consolidation of first remission in advanced stage follicular
NHL is highly effective, resulting in a total complete response
(CR + CRu) rate of 87 percent and prolongation of median
progression-free survival by approximately two years, with a
toxicity profile comparable to that seen with Zevalins use
in approved indications. Zevalin-treated patients had reversible
and manageable Grade 3 or 4 hematologic side effects including
neutropenia in 67 percent, thrombocytopenia in
61 percent, and anemia in 3 percent of patients.
Non-hematologic toxicities were 24 percent Grade 3,
5 percent Grade 4, and Grade 3 - 4 infection was
8 percent.
The following describes the principal commercial terms relating
to Zevalin licensing and development:
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On December 15, 2008, we and CTI closed a transaction to
enter into a 50/50 owned joint venture called RIT. CTI
previously acquired the U.S. rights to develop, market and
sell Zevalin from Biogen Idec, Inc. on December 21, 2007.
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Upon the closing of the transaction, CTI contributed the Zevalin
product assets to RIT in exchange for a 50% membership interest
in RIT and the cash payments to CTI noted below. CTI received an
initial cash payment of $7.5 million at the closing of the
transaction on December 15, 2008, and received an
additional $7.5 million cash payment in early January 2009.
CTI also had the option to sell its remaining 50% membership
interest in RIT to us, subject to adjustment for any amounts
owed between RIT and CTI at the time of sale. CTI exercised this
Put option in February 2009. On March 15, 2009,
we and CTI entered into an agreement to complete such sale for
an aggregate amount of $16.5 million subject to certain
adjustments for, among other things, payables determined to be
owed between CTI and RIT. As a result of the sale, we own 100%
of RIT and are its sole member and therefore, we have, through
licenses, all of the U.S. rights to Zevalin.
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In connection with obtaining the required consent of Biogen to
the foregoing transactions, we entered into certain agreements
with Biogen. Such agreements included:
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an amendment to the original asset purchase agreement between
CTI and Biogen (CTI/Biogen Agreement), modifying future
milestone payments, to provide that (i) concurrently with
the execution of the amendment CTI was required to pay Biogen
$0.2 million (which was reimbursed to CTI by RIT from the
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initial capital contributions made by CTI and us),
(ii) upon the December 2008 closing of the
transaction, CTI was required to pay Biogen an additional
$2.0 million (which was paid by RIT as successor to CTI
under the amendment), (iii) upon the achievement of the
specified FDA approval milestone, RIT (as successor to CTI) will
be required to pay Biogen an additional amount of
$5.5 million if the milestone event occurs in 2009
(provided that RIT may elect to defer any such payment until
January 1, 2010, but upon such election the required
payment will increase to $6.0 million), $7.0 million
if the milestone event occurs in 2010, $9.0 million if the
milestone event occurs in 2011, or $10.0 million if the
milestone event occurs in 2012 or later. No other material terms
of the CTI/Biogen Agreement were modified. CTIs rights and
obligations, including its payment obligations to Biogen,
including royalties on net sales of Zevalin and an additional
regulatory milestone payment, under both the CTI/Biogen
Agreement and the amendment were assigned to and assumed by RIT
in connection with the closing of the joint venture transaction.
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an amendment to the original supply agreement between Biogen and
CTI (CTI/Biogen Supply Agreement), modifying certain of the
pricing and manufacturing technology transfer terms contained in
the CTI/Biogen Supply Agreement and also providing that the term
of the agreement may be shortened in some instances in the event
of a mid-term manufacturing technology transfer. CTIs
rights and obligations, including its payment obligations to
Biogen, under both the CTI/Biogen Supply Agreement and the
amendment were assigned to and assumed by RIT in connection with
the closing of the joint venture transaction.
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a security agreement, by and between RIT and Biogen whereby RIT
granted to Biogen a first priority security interest in all of
RITs assets, including the assets contributed to RIT by
CTI in connection with the closing of the joint venture
transaction, to secure certain payment, indemnification and
other obligations of RIT to Biogen.
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a guarantee, by Spectrum for the benefit of Biogen whereby we
have, among other things, guaranteed the payment and performance
all of RITs obligations to Biogen (including its
obligations as assignee of CTI under all contractual
arrangements between CTI and Biogen that were assigned to and
assumed by RIT in connection with the closing of the joint
venture transaction).
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pursuant to the transfer of Zevalin assets from CTI to RIT in
December 2008, RIT assumed certain license and sublicense
agreements with various third parties related to Zevalin
intellectual property under which RIT is required to make
certain payment obligations including milestone payments and
royalties.
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Fusilev (levoleucovorin) for
injection
:
On March 7, 2008, our NDA for
our proprietary drug Fusilev was approved by the FDA. We
commercially launched Fusilev in August 2008, with an in-house
sales force and commercialization team. Subsequent to the
launch, in November 2008, we received a unique J-code for
Fusilev from CMS, which went into effect on January 1,
2009. The J-code is a unique, product-specific billing code that
assists providers (
e.g.
, physicians that prescribe
Fusilev) in obtaining reimbursement for Fusilev.
Fusilev is a novel folate analog formulation and the
pharmacologically active isomer (the
levo
-isomer) of the
racemic compound, calcium leucovorin. Isomers are compounds with
the same molecular formula, but mirror image atomic
structures. Leucovorin is a mixture of equal parts of both
isomers: the pharmacologically active
levo-
isomer
and the inactive
dextro-
isomer. Preclinical studies have
demonstrated that the inactive
dextro-
isomer may compete
with the active
levo
-isomer for uptake at the cellular
level. By removing the inactive
dextro
form, the dosage
of Fusilev is one-half that of leucovorin and patients are
spared the administration of an inactive substance.
Fusilev rescue is indicated after high-dose methotrexate therapy
in patients with osteosarcoma, and to diminish the toxicity and
counteract the effects of impaired methotrexate elimination or
inadvertent overdose of folic acid antagonists. Fusilev has been
designated as an orphan drug for its approved indications.
Methotrexate is a widely used anti-cancer drug. It is a
therapeutic option in the treatment of solid tumors and
hematological malignancies, such as NHL. In addition,
methotrexate is also used to treat autoimmune diseases such as
rheumatoid arthritis, psoriasis and some rare opportunistic
infections.
In mid-year 2008, we filed an NDA amendment for Fusilev tablets.
Following the tablet submission, in October 2008, we filed a
sNDA for Fusilev (levoleucovorin) for injection in combination
with 5-FU-containing
10
regimens in the treatment of colorectal cancer. A PDUFA target
date of October 8, 2009 has been established by the FDA for
a decision regarding the sNDA.
Calcium leucovorin is currently a standard combination agent
with 5-FU in various colorectal cancer treatment regimens.
Calcium leucovorin potentiates the effects of 5-FU and its
derivatives by stabilizing the binding of the drugs
metabolite to its target enzyme, thus prolonging drug activity.
There are peer-reviewed publications wherein Fusilev is used in
place of the leucovorin in combination with 5-FU containing
regimens for adjuvant and advanced colorectal cancer and in
combination with oxaliplatin
and/or
irinotecan for advanced disease. The National Comprehensive
Cancer Network Clinical Practice Guidelines in
Oncology
tm
in colon cancer and rectal cancer have been updated to reflect
that Fusilev is available in the United States. Additionally, in
the fourth quarter of 2008, Fusilev was listed and continues to
be listed in the NCCN Drugs and Biologic Compendium for use in
combination with high-dose methotrexate for the treatment of
bone cancer (osteosarcoma and de-differentiated
chrondrosarcoma). The NCCN Drugs and Biologics Compendium is an
important reference that has been recognized by
United HealthCare as a formal guidance for coverage policy.
In addition, CMS announced in June 2008 that it would recognize
the NCCN Drugs & Biologics Compendium as a source of
information to determine which drugs may be covered under
Medicare Part B.
The following describes the principal commercial terms relating
to Fusilev licensing and development.
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In April 2006, we acquired all of the oncology drug product
assets of Targent, Inc. Targent is eligible to receive payments,
in the form of our common stock
and/or
cash,
upon achievement of certain regulatory and sales milestones. At
our option, any amounts due in cash under the purchase agreement
may be paid by issuing shares of our common stock having a
value, determined as provided in the purchase agreement, equal
to the cash payment amount.
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In May 2006, we amended and restated a license agreement with
Merck Eprova AG, a Swiss corporation, or Eprova, that we assumed
in connection with the acquisition of the assets of Targent.
Pursuant to the license agreement, we obtained the exclusive
license to use regulatory filings related to Fusilev and a
non-exclusive license under certain patents and know-how related
to Fusilev to develop, make, have made, use, sell and have sold
Fusilev in the field of oncology in North America. Also, we have
the right of first opportunity to negotiate an exclusive license
to manufacture, have manufactured, use and sell Fusilev products
outside the field of oncology in North America. Under the terms
of the license agreement, we paid Eprova $100,000 for the
achievement of FDA approval of Fusilev. Eprova is also eligible
to receive a payment upon achievement of another regulatory
milestone, in addition to royalties on net sales. The term of
the license agreement is determined on a
product-by-product
and
country-by-country
basis until royalties are no longer owed under the license
agreement. The license agreement expires in its entirety after
the date that we no longer owe any royalties to Eprova. We have
the unilateral right to terminate the license agreement, in its
entirety or on a
product-by-product
or
country-by-country
basis, at any time for any reason and either party may terminate
the license agreement due to material breach of the terms of the
license agreement by or insolvency of the other party.
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Apaziquone (formerly known as
EOquin
):
Apaziquone is an anti-cancer agent
that becomes activated by certain enzymes often present in
higher amounts in cancer cells than in normal cells. It is
currently being investigated for the treatment of non-muscle
invasive bladder cancer (NMIBC), which is a cancer that is only
in the innermost layer of the bladder and has not spread to
deeper layers of the bladder.
The American Cancer Society estimated that the 2008 incidence
and prevalence of bladder cancer in the United States would be
approximately 68,810 and over 500,000, respectively. Based on
Globocan data, we estimated that the 2008 incidence and
prevalence of bladder cancer in Europe would be approximately
149,000 and 944,000, respectively. According to Botteman et al.,
(PharmacoEconomics 2003), bladder cancer is the most expensive
cancer to treat on a lifetime basis.
The initial treatment of this cancer is complete surgical
removal of the tumor. However, bladder cancer is a highly
recurrent disease with approximately 75% of patients recurring
within 5 years, and a majority of patients recurring within
2 years. This high recurrence rate is attributed to:
1) the highly implantable nature of cancer cells that are
dispersed during surgery, 2) incomplete tumor resection,
and 3) tumors present in multiple locations in the
11
bladder which may be missed or too small to visualize at the
time of resection. Despite evidence in the published literature
and guidance from the American and European Urology
Associations, instillation of a chemotherapeutic agent
immediately following surgery is not a standard clinical
practice. Currently, there are no approved drugs for this
indication which may, in part, explain the difference between
the literature and urology guidelines and actual clinical
management of this disease. For more than 30 years no new
drugs have been introduced in the market for treatment of NMIBC.
An immediate instillation of apaziquone may help by
1) reducing tumor recurrence by destroying dispersed cancer
cells that would otherwise re-implant onto the inner lining of
the bladder, 2) by destroying remaining cancer cells at the
site of tumor resection (also known as chemo-resection), and
3) by destroying tumors not observed during resection (also
known as chemo-ablation).
Apaziquone is a bio-reductive prodrug that is activated by
enzymes that are over expressed by bladder tumors. A
pharmacokinetic study verified that apaziquone is not present in
detectable levels in the bloodstream when the current proposed
dose is given immediately after surgical resection. The proposed
dose therefore carries a minimal risk of systemic toxicity which
can arise from absorption of a drug through the bladder wall
into the bloodstream. Additionally, the current proposed dose is
a fraction of the systemic toxic dose. These features of
apaziquone are distinct from other intravesical agents in use
for the treatment of recurrent bladder cancer.
A Phase 1 dose-escalation marker lesion (tumor) study
demonstrated that apaziquone had no systemic toxicity, and was
well tolerated at the dose level being used in the Phase 3
trials. Apaziquone also demonstrated anti-tumor activity against
NMIBC, as evidenced by eight of twelve patients showing a
complete response, defined as the complete disappearance of the
marker lesion as confirmed by biopsy, after receiving six
treatments with apaziquone over a period of six weeks.
Phase 2 data has confirmed anti-tumor activity in patients with
multiple, recurrent NMIBC, as evidenced by 31 of 46 patients
(67%) showing a complete response after receiving six weekly
treatments with 4 mg of apaziquone instilled into the
urinary bladder in this marker lesion study. Apaziquone was
well-tolerated, with no significant systemic toxicity, and local
toxicity limited to temporary chemical cystitis (inflammation of
the urinary bladder) resulting in increased urinary frequency,
dysuria (painful urination) and hematuria (blood in the urine)
in a few patients.
In September 2005, we initiated an open label, multi-center
clinical study in Europe in high-risk NMIBC in 53 patients.
Patients with high-risk NMIBC usually have more aggressive
bladder cancer with higher incidence of recurrence
and/or
progression to a more invasive stage, where the cancer invades
the muscle wall of the bladder, which may require total surgical
removal of the bladder. Enrollment has been completed and all
patients will be followed for twenty-four months or until
recurrence or disease progression is observed.
In 2006, we performed a 20 patient pilot safety study in
low-grade NMIBC. In this study, apaziquone was found to be well
tolerated when a single 4 mg dose is given to patients
immediately following surgery. In addition, there was no adverse
effect on wound healing and apaziquone was not detected in the
bloodstream.
In March 2007, we received concurrence from the FDA for the
design of a Phase 3 study protocol for the treatment of
non-invasive bladder cancer under a special protocol assessment
procedure. The development plan for apaziquone is two
randomized, double-blind, placebo-controlled Phase 3 clinical
trials, each with 562 patients with
T
a
G1-G2
(low-grade) non-muscle invasive bladder cancer. Patients are
being randomized in a
one-to-one
ratio to apaziquone or placebo. Under the protocol, the patients
are given a single 4 mg dose following surgical removal of
the tumors. The primary endpoint is a statistically significant
difference (p < 0.05) in the rate of tumor recurrence at
year two between the apaziquone patient group and the placebo
group. The first study began during the second quarter of 2007,
and the second study began during the third quarter of 2007. In
2008, we received scientific advice from the EMEA whereby the
EMEA agreed that the two Phase 3 studies as designed should be
sufficient for a regulatory decision regarding European
registration. We continue to recruit sites and enroll patients
in these two studies. Our goal is to complete enrollment for
both Phase 3 clinical trials by year-end 2009.
We plan to begin a study in BCG refractory bladder cancer by the
end of 2009.
12
The following describes the principal commercial terms relating
to apaziquone licensing and development.
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In October 2008, we terminated our 2001 license agreement for
apaziquone with INC
Research
®
,
formerly NDDO Research Foundation, in the Netherlands as the
patents underlying the agreement were all about to expire.
Pursuant to the termination, INC assigned to us all rights it
had in the know-how or intellectual property licensed under the
agreement and all rights in may have had in any know-how or
intellectual property created during the term of the agreement.
In exchange we paid INC a small amount of cash and issued them a
small number of shares of our common stock. In addition, INC is
entitled to up to 25,000 additional shares of our common stock
and an additional payment of $300,000 upon achievement of
certain regulatory milestones.
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In October, 2008, we entered into a license, development, supply
and distribution agreement with Allergan Sales, LLC, Allergan
USA, LLC and Allergan, Inc. pursuant to which we and Allergan
agreed to a collaboration for the development and
commercialization of a formulation of apaziquone suitable for
use in treating cancer or precancerous conditions via
instillation. The agreement provides that Allergan has the
exclusive right to make, develop and commercialize apaziquone
for the treatment of bladder cancer, or pre-bladder cancer
conditions worldwide except for Asia (as is defined in the
Agreement). We and Allergan also entered into a co-promotion
agreement providing for the joint commercialization of
apaziquone in the United States whereby we and Allergan will
share equally all profits and commercialization expenses. We
also have the right, in our sole discretion, to opt-out of the
co-promotion agreement before January 1, 2012. If we do so,
our share of any future development costs shall be significantly
reduced. Part of the aggregate development costs and marketing
expenses incurred by us since January 1, 2009 shall be
reimbursed by Allergan in the form of a one-time payment. The
co-promotion agreement will terminate and instead of a sharing
of profit and expenses, Allergan will pay us royalties on a
percentage of net sales of the apaziquone in the United States
that are slightly greater than the royalties paid on net sales
outside the United States. In addition, Allergan will pay us up
to $245 million in additional milestones based upon the
achievement of certain sales milestones in the United States.
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In consideration for the rights granted under the license
agreement, Allergan paid us an up-front fee of
$41.5 million. In addition, Allergan will pay us up to
$304 million based on the achievement of certain
development, regulatory and sales milestones. Also, Allergan has
agreed to pay us tiered royalties starting in the mid-teens
based on a percentage of net sales of the apaziquone outside of
the United States.
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We will continue to conduct the current Phase 3 clinical trials
as well as certain future planned clinical trials pursuant to a
joint development plan, of which Allergan will fund 65% of
the development costs.
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Ozarelix
:
Ozarelix, a LHRH (Luteinizing
Hormone Releasing Hormone, also known as GnRH or Gonadotropin
Releasing Hormone) antagonist (a substance that blocks the
effects of a natural hormone found in the body) is currently
being investigated for its targeted indications in hormone
dependent prostate cancer, or HDPC, benign prostastic
hypertrophy, or BPH, and endometriosis. Mechanistically, LHRH
antagonists exert rapid inhibition of luteinizing hormone and
follicle stimulating hormone with an accompanying rapid decrease
in sex hormones and would therefore be expected to be effective
in a variety of hormonally dependent disease states including
ovarian cancer, prostate cancer, BPH, infertility, uterine myoma
and endometriosis.
The prostate is a walnut-sized gland that forms part of the male
reproductive and urinary system. The prostate is located in
front of the rectum and just below the bladder, where urine is
stored. The prostate also surrounds the urethra, the canal
through which urine passes out of the body. BPH is an age
related non-cancerous enlargement of the prostate leading to
difficulty in passing urine, reduced flow of urine, discomfort
or pain while passing urine and increased frequency of
urination. According to the National Kidney and Urologic
Diseases Information Clearinghouse, BPH rarely causes symptoms
before age 40, but more than half of men in their sixties
and as many as 90 percent in their seventies and eighties
have some symptoms of BPH. As life expectancy rises, so does the
occurrence of BPH. Treatment options for benign prostatic
hypertrophy include surgery and medications to reduce the amount
of tissue and increase the flow of urine.
13
Testosterone is considered to play a role in BPH development.
Unlike LHRH agonists, ozarelix, which is an antagonist of LHRH,
has the potential to rapidly reduce testosterone in a dose
dependent fashion thus decrease the prostate size and improve
urinary symptoms without the severe side effects associated with
complete reduction in testosterone to castration levels.
Current therapies for BPH either address its symptoms but not
the underlying condition, or block growth of new prostate cells
and reduce prostate size with only moderate relief of symptoms.
There are two classes of drugs currently approved to treat BPH.
The first, alpha adrenergic receptor blockers, are believed to
work by relaxing the smooth muscle in the prostate around the
urethra and the bladder neck without addressing the underlying
condition of the enlarged prostate. Drugs in the second
category,
5-alpha
reductase inhibitors, work by blocking the conversion of
testosterone to hormones that stimulate the growth of new
prostate cells thereby slowing and eventually reversing
enlargement of the prostate. This class of drugs has a slow
onset of action, typically requiring daily treatment for many
months before improving patient symptoms. Drugs in both classes
need to be dosed daily and can have significant side effects,
including effects on libido, potency, ejaculation, rhinitis and
cardiovascular effects such as dizziness, fainting and
lightheadedness. Many patients either do not respond or do not
tolerate existing medical therapy, leading to over 350,000
surgical procedures annually in the United States, despite the
risks of serious surgical complications including impotence and
incontinence. We believe that ozarelix could provide rapid and
prolonged relief of the symptoms of BPH in affected men.
Phase 2 data from a European study with ozarelix in
144 patients with BPH in a double-blinded, randomized,
placebo-controlled, multi-center, dose-ranging study were
positive. Statistically significant positive results were seen
for the primary endpoint in favor of ozarelix. Clinical
improvement was maintained for six months following initial
dosing of ozarelix. Ozarelix was also found to be safe and
well-tolerated in the study. Based on the results of this dose
finding study, ozarelix 15 mg, given on day 1 and day 15,
was chosen to be used for the next study.
In January 2007, we initiated in the United States a randomized,
double-blind, placebo-controlled Phase 2b trial of ozarelix in
76 men with BPH. In the trial, men were dosed by intramuscular
injection with 15 mg of ozarelix or placebo on day 1 and
day 15 and were followed for nine months. The primary endpoint
of the study was the improvement of BPH symptoms at
12 weeks as measured by the International Prostate Symptom
Score, which is the instrument used to assess the severity of
BPH in all research studies. Additionally, effects on urine
flow, residual urine volume and quality of life were measured.
While the results of this study were not as robust as seen in
the previous study, the data did support clinically meaningful
activity in BPH.
Accordingly, based on the results of the previous studies, we
have initiated a multi-center, randomized, double-blind,
placebo-controlled study to evaluate the efficacy of ozarelix
compared to placebo in the treatment of lower urinary tract
symptoms (LUTS) secondary to BPH in men as assessed by the IPSS
at Week 14.
Patients who meet the entry IPSS inclusion criteria at week 0
will be randomized and enrolled in the double-blind treatment
period. Patients will be randomized to one of three treatment
arms and will receive two
6-month
courses of study drug administered on Days 0 and 14 of each
6-month
course. Treatment arms include: ozarelix 30mg + 15mg, ozarelix
15mg + 15mg or placebo + placebo. All injections will be
administered subcutaneously. Safety and efficacy assessments
will be performed at defined intervals throughout the study. At
week 52, all patients on study will be eligible to receive
ozarelix for an additional 52 weeks in the open-label
treatment period. We estimate that we will enroll approximately
860 patients. Sites in the United States and India will
participate in the study.
The initial treatment of prostate cancer includes surgery along
with radiation therapy and hormonal therapy. We believe ozarelix
may prove to be an important addition in treating
hormone-dependent prostate cancer patients because of its
ability to induce prolonged testosterone suppression in healthy
volunteers as shown in early trials. Phase 2 data for ozarelix
in hormone dependent prostate cancer appears to be positive.
Patients receiving 130 mg per cycle of ozarelix showed the
greatest continuous testosterone suppression, the primary
endpoint. In patients with continuous testosterone suppression,
tumor response, as measured by PSA levels, was 97%. Ozarelix was
well-tolerated at all doses. We are currently working with our
licensor for the drug, Aeterna Zentaris, to develop a
longer-acting, commercially feasible depo formulation, and to
determine the best path forward for its development in this
indication. Degarelix, another LHRH antagonist, marketed by
Ferring Pharmaceuticals, recently received
14
marketing approval from the FDA for their one month injectable
preparation for the treatment of advanced hormone dependent
prostate cancer.
Endometriosis is a condition where tissue similar to the lining
of the uterus is also found elsewhere in the body, but primarily
in the abdominal cavity. This is a painful condition, typically
affects women during their menstruating years and is rarely
found after menopause. Currently, there is no cure for
endometriosis. However, symptoms associated with endometriosis
can be managed through a combination of treatments. We believe
intermittent administration of ozarelix may be used to treat
endometriosis both through transient estrogen suppression and a
direct effect on the LHRH receptors present in the endometrial
tissue. We are developing the protocol for a Phase 1 study to
study ozarelix as a treatment for endometriosis.
The following describes the principal commercial terms relating
to ozarelix licensing and development.
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In 2004, we entered into a license agreement with a subsidiary
of Aeterna Zentaris, Inc., Aeterna Zentaris GmbH, whereby we
acquired an exclusive license to develop and commercialize
ozarelix in North America (including Canada and Mexico) and
India. In addition, we have a 50% financial interest in any
income Aeterna Zentaris derives from ozarelix in Japan. We are
contingently obligated to pay amounts based upon achievement of
milestones and a royalty based on any future net sales.
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With certain exceptions, we are required to purchase all
finished drug product from Aeterna Zentaris for the clinical
development of ozarelix at a set price. The parties agreed to
discuss entering into a joint supply agreement for commercial
supplies of finished drug product.
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The term of the license agreement expires ten years after the
first commercial sale of a product in any country within the
territory or as long as any product is covered by a patent in
any country in the territory, whichever term is longer, although
some obligations survive termination. In addition, the agreement
may be terminated earlier by either party (in some cases either
in whole or on a
product-by-product
and/or
country-by-country
and/or
indication-by-indication
basis), based upon material breach or the commencement of
bankruptcy or insolvency proceedings involving the other, or by
us upon sixty days notice to Aeterna Zentaris.
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Ortataxel
:
In July 2007, we entered
into an exclusive worldwide license agreement for ortataxel, a
third-generation taxane. We acquired these rights from Indena
S.p.A., a natural products company. Ortataxel has been shown to
be bioavailable when administered orally to patients with solid
tumors. In addition, it belongs to a new generation of taxanes
with the potential to be active against tumors resistant to
paclitaxel (Bristol-Myers Squibbs
Taxol
®
)
and docetaxel (Sanofi-Aventis
Taxotere
®
).
Phase 1 and 2 studies in more than 350 patients with solid
tumors have shown responses in patients that were refractory to
treatment with the available taxane drugs. The safety profile of
ortataxel is comparable to that of paclitaxel and docetaxel.
While optimizing the oral formulation for better
bioavailiablity, we will consider future studies with the oral
formulation.
The following describes the principal commercial terms relating
to ortataxel licensing and development.
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Under the terms of the license agreement with Indena, we are
obligated to make payments based on the achievement of certain
development, regulatory filing and sales milestones. We will
also pay Indena single-digit royalties on worldwide sales of
ortataxel, if and when the product is approved.
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Also, we are obligated to purchase all of our requirements of
ortataxel active pharmaceutical ingredient from Indena.
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Satraplatin
:
Satraplatin, an orally
administered platinum-derived chemotherapy agent, is being
developed by our sublicensee, GPC Biotech AG. On
October 30, 2007, GPC announced that the Phase 3 trial
evaluating satraplatin for the treatment of hormone-refractory
prostate cancer failed to meet its primary efficacy endpoint
and, as a result, GPC did not refile the NDA with the FDA
seeking approval for satraplatin. GPC is currently conducting
Phase 1 and 2 clinical trials for satraplatin in various
solid tumors. Recently, GPC announced that it entered into a
merger agreement with Houston-based Agennix Inc.
The following describes the principal commercial terms relating
to satraplatin licensing and development.
15
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In 2001, we in-licensed exclusive worldwide rights to
satraplatin from its developer, Johnson Matthey, PLC, or Johnson
Matthey, in exchange for an up-front fee, additional payments to
be made based upon achievement of certain milestones and
royalties based on any net sales, if and when a commercial drug
is approved and sales are initiated.
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In 2002, in exchange for an up-front license fee and future
milestones and royalties, we entered into a
Co-Development
and License Agreement with GPC for worldwide rights for further
development and commercialization of satraplatin. Under the
terms of this agreement, GPC agreed to fully fund the
development expenses for satraplatin. We are entitled to
additional revenues upon: achievement of specified milestones by
GPC, which are generally based on regulatory and sales
milestones; and royalties on worldwide sales, if any, of the
product.
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Elsamitrucin
:
Elsamitrucin is an
anti-tumor antibiotic that acts as a dual inhibitor of two key
enzymes involved in DNA replication, topoisomerase I and II. By
inhibiting the activity of these two key enzymes involved in DNA
replication, elsamitrucin is thought to lead to DNA breaks that
prevent the correct replication of DNA and ultimately result in
cancer cell death.
On the basis of previous studies conducted by our licensor,
Bristol-Myers Squibb, or BMS, elsamitrucin has been shown to
have minimal toxicity to bone marrow while demonstrating
promising anti-tumor activity.
We conducted a Phase 2, single agent study in heavily
pre-treated patients with NHL. The level of activity seen did
not justify further development for this indication as a single
agent. However, elsamitrucin appears to have synergy with taxane
and platinum derivatives in experimental models. Also, minimal
toxicity to bone marrow may allow combinations with other drugs
without a need to significantly reduce doses, which may result
in improved therapeutic effects. We are currently reviewing all
pre-clinical and clinical data of this product to determine the
best path forward for its development.
The following describes the principal commercial terms relating
to elsamitrucin licensing and development.
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We in-licensed exclusive worldwide rights to elsamitrucin from
its developer, BMS, in 2001, in exchange for a small up-front
fee and additional future payments based upon achievement of
development and regulatory milestones and a royalty based on net
sales, if and when a commercial drug is approved and sales are
initiated.
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Lucanthone
:
Lucanthone is an orally
administered small-molecule which inhibits Topoisomerase II
and AP endonuclease. In preclinical tests, lucanthone was shown
to enhance the sensitivity of animals to an anticancer agent in
a time dependent and reversible manner.
Lucanthone was originally used as an antiparasitic agent for the
treatment of schistosomiasis in the 1950s and 1960s, and has a
demonstrated safety profile. It was later discontinued because
better anti-parasitic medications became available. A Phase 1
dose-escalation study of lucanthone in patients with recurrent
malignant gliomas receiving Temozolomide was initiated and
patients are currently being enrolled.
The following describes the principal commercial terms relating
to lucanthone licensing and development.
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We entered into a license agreement with Dr. Robert E.
Bases, the inventor of a method of treating cancer of the
central nervous system through the administration of lucanthone
and radiation, whereby we acquired worldwide exclusive rights to
develop and commercialize a product based upon his invention in
May 2005. Under the terms of the license agreement, we made a
small up-front payment and are obligated to make additional
periodic payments, a payment upon achievement of a certain
regulatory milestone and royalties on potential net sales, if
any.
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SPI-1620
:
SPI-1620 is a highly
selective peptide agonist of endothelin B receptors, which can
stimulate receptors on endothelial cells, the innermost layer of
cells lining the blood vessels. This technology takes advantage
of the fact that the blood supply to tumors is different than
the blood supply to healthy organs. Blood vessels in the growing
part of tumors are relatively devoid of smooth muscle covering
and are rich in endothelial cells. Therefore, by stimulating the
endothelial B receptors present on the endothelial cells,
SPI-1620 should selectively increase tumor blood flow while
sparing healthy tissue.
16
Chemotherapy is one of the mainstays of therapy for solid
carcinomas, including breast, lung, and prostate. Chemotherapy
uses drugs called cytotoxic agents that are poisonous to cells
and kill cancer cells. Chemotherapy often fails because adequate
and uniform distribution of the cytotoxic agents is not achieved
in the tumor, and serious side effects can result from toxicity
to normal cells. Consequently, any means to increase the
delivery of a cytotoxic agent selectively to tumors, while
minimizing its concentration in normal tissues may be beneficial.
SPI-1620 is being developed as an adjunct to chemotherapy. In
pre-clinical studies, when anti-cancer drugs, such as
paclitaxel, are administered shortly after SPI-1620, the
anti-cancer drug concentration in the tumor is increased several
fold. This results in increased anti-tumor efficacy at a given
dose of a cytotoxic agent, and might allow physicians to
maximize efficacy with reduced cytotoxic agent doses with
resultant decreased toxicity to the normal organs.
In the first quarter of 2008, we initiated an open label,
dose-escalation Phase 1 study assessing the safety,
tolerability, pharmacokinetics and pharmacodynamics of SPI-1620
in patients with recurrent or progressive carcinoma. We enrolled
the first patient in this study in February 2008, and are
continuing to enroll patients in this study.
The following describes the principal commercial terms relating
to SPI-1620 licensing and development.
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We acquired an exclusive worldwide license to develop and
commercialize SPI-1620 for the prevention and treatment of
cancer from Chicago Labs, Inc. in February 2005. We paid Chicago
Labs a small up-front fee and are obligated to make future
payments contingent upon the successful achievement of certain
development and regulatory milestones. In addition, we will pay
royalties and sales milestones on net sales, after marketing
approval is obtained.
|
SPI-205
:
SPI-205, a lipid suspension of
leteprinim, has demonstrated, in experimental models, benefits
in treating chemotherapy induced pheripheral neuropathy.
Chemotherapy drugs can damage the nervous system, especially the
pheripheral nervous system, which are those nerves that carry
motor (movement) information for muscle contraction and those
that carry sensory information such as touch, vibration, pain
and temperature. Damage to the pheripheral nerves is known as
neuropathy. Currently, there is no effective treatment for
chemotherapy induced neuropathy.
During 2009, we plan to continue preclinical evaluation of
SPI-205.
RenaZorb
:
RenaZorb, a second-generation
lanthanum-based nanoparticle phosphate binding agent, has the
potential to treat hyperphosphatemia, (high phosphate levels in
blood), in patients with stage 5 chronic kidney disease
(end-stage renal disease). Hyperphosphatemia affects patients
with chronic kidney disease, especially end-stage kidney disease
patients on dialysis. It can lead to significant bone disease
(including pain and fractures) and cardiovascular disease, and
is independently associated with increased mortality.
According to The United States Renal Data System (USRDS), in
2009 there will be an estimated 600,000 patients with
end-stage renal disease in the United States. Treatment of
hyperphosphatemia is aimed at lowering blood phosphate levels
by: (1) restricting dietary phosphorus intake; and
(2) using, on a daily basis, and with each meal, oral
phosphate binding drugs that facilitate fecal elimination of
dietary phosphate before its absorption from the
gastrointestinal tract into the bloodstream. Restricting dietary
phosphorus intake has historically not been a successful means
of serum phosphate control, therefore phosphate binders are the
mainstay of hyperphosphatemia management.
Currently marketed therapies for treating hyperphosphatemia
include polymer-based and lanthanum-based phosphate binders,
aluminum-based phosphate binders, and calcium-based phosphate
binders. Under the National Kidney Foundation K/DOQI guidelines,
both calcium-based phosphate binders and non-calcium,
non-aluminum, non-magnesium phosphate binders are recommended as
first line or long-term therapy for the management of
hyperphosphatemia. However, the current therapies require use of
a large number of pills or large pills to be chewed or swallowed
along with each meal, leading to problems with patient
compliance with the treatment regimen.
We believe that RenaZorb has the opportunity, because of its
potentially higher capacity for binding phosphate on an equal
weight basis, to significantly improve patient compliance by
offering the
lowest-in-class
17
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dosage to achieve the same therapeutic benefit as other
phosphate binders. We continue to perform preclinical
development work on RenaZorb.
|
The following describes the principal commercial terms relating
to RenaZorb licensing and development.
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We entered into a license agreement with Altair Nanomaterials,
Inc. and its parent Altair Nanotechnologies, Inc., or Altair,
whereby we acquired an exclusive worldwide right to develop and
commercialize RenaZorb for all human therapeutic and diagnostic
uses in January 2005. Under the terms of the license agreement,
we made up-front and milestone payments and are obligated to
make additional payments upon achievement of certain clinical
development and regulatory and sales milestones, in addition to
royalties on potential net sales.
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Manufacturing
We currently do not have internal manufacturing capabilities;
therefore, all of our products are manufactured on a contract
basis. We expect to continue to contract with third party
providers for manufacturing services, including active
pharmaceutical ingredient (API), finished-dosage product, as
well as packaging operations. We believe that our current
agreements with third party manufacturers provide for sufficient
operating capacity to support the anticipated commercial demand
for our products. However, we have only one approved contract
manufacturer for each aspect of the manufacturing process for
Zevalin and Fusilev. If we are unable to obtain a sufficient
supply of our required products, or if we should encounter
delays or difficulties in our relationships with our
manufacturers, we may lose potential sales.
We attempt to prevent disruption of supplies through supply
agreements, appropriate forecasting, maintaining stock levels
and other strategies. Although we are taking these actions to
avoid a disruption in supply, we cannot provide assurance that
we may not experience a disruption in the future.
Sales,
Marketing and Distribution
We have built, and continue to build, a sales and marketing
infrastructure as part of our commercialization efforts for
Fusilev and Zevalin. While we maintain a relatively small sales
force, we believe that the size of our sales force is
appropriate to effectively reach our target audience for our two
commercial products.
We utilize a third-party logistics company to store and
distribute our commercial products.
Customers
Our largest customers are GPOs and distributors of
pharmaceutical products. GPOs accounted for approximately 30%
and distributors approximately 70% of the net sales. All sales
were to customers in the United States.
Competition
The pharmaceutical industry is characterized by rapidly evolving
biotechnology and intense competition. We expect
biotechnological developments and improvements in the fields of
our business to continue to occur at a rapid rate and, as a
result, expect competition to remain intense. Many companies are
engaged in research and development of compounds that are
similar to our research. Biotechnologies under development by
these and other pharmaceutical companies could result in
treatments for the diseases and disorders for which we are
developing our own treatments. In the event that one or more of
those programs are successful, the market for some of our drug
products could be reduced or eliminated. Any product for which
we obtain FDA approval must also compete for market acceptance
and market share.
Competing in the branded product business requires us to
identify and quickly bring to market new products embodying
therapeutic innovations. Successful marketing of branded
products depends primarily on the ability to communicate the
effectiveness, safety and value of the products to healthcare
professionals in private practice, group practices, hospitals
and academic institutions, and managed care organizations.
Competition for branded drugs is less driven by price and is
more focused on innovation in treatment of disease, advanced
drug delivery and
18
specific clinical benefits over competitive drug therapies.
Unless our products are shown to have a better safety profile,
efficacy and cost-effectiveness as compared to other
alternatives, they may not gain acceptance by medical
professionals and may therefore never be successful commercially.
Companies that have products on the market or in research and
development that target the same indications as our products
target include Neurocrine Biosciences, Abraxis Bioscience, Inc.,
Astra Zeneca LP, Amgen, Inc., Bayer AG, Bioniche Life Sciences
Inc., Eli Lilly and Co., Novartis Pharmaceuticals Corporation,
Genentech, Inc., Bristol-Myers Squibb Company, GlaxoSmithKline,
Biogen-IDEC Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc.,
Cephalon, Inc., Sanofi-Aventis, Inc., Pfizer, Inc., AVI
Biopharma, Inc., Genzyme Corporation, Shire Pharmaceuticals,
Abbott Laboratories, Poniard Pharmaceuticals, Inc., Roche
Pharmaceuticals, Johnson & Johnson and others who may
be more advanced in development of competing drug products or
are more established and are currently marketing products for
the treatment of various indications that our drug products
target. Many of our competitors are large and well-capitalized
companies focusing on a wide range of diseases and drug
indications, and have substantially greater financial, research
and development, marketing, human and other resources than we
do. Furthermore, large pharmaceutical companies have
significantly more experience than we do in pre-clinical
testing, human clinical trials and regulatory approval
procedures, among other things.
As noted above, we launched our proprietary product, Fusilev, in
August 2008. Fusilev is the levo-isomeric form of the racemic
compound calcium leucovorin, a product already approved for the
same indications our product is approved for. Leucovorin has
been sold as a generic product on the market for a number of
years. There are two generic companies currently selling the
leucovorin product and therefore we are competing against a low
cost alternative. Also, Fusilev will be offered as part of a
treatment regimen, and that regimen may change to exclude
Fusilev. For these reasons, we may not recognize the full
potential value of our investment in the product.
Regarding Zevalin, there are three products which are potential
competitors for the indications it is currently approved for.
Treanda
®
(bendamustine hydrochloride) for Injection, for Intravenous
Infusion, marketed by Cephalon, is indicated for the treatment
of patients with indolent B-cell NHL that has progressed during
or within six months of treatment with rituximab or a
rituximab-containing regimen.
Also, the
BEXXAR
®
therapeutic regimen (Tositumomab and Iodine I 131 Tositumomab),
a radiopharmaceutical marketed by GlaxoSmithKline, is indicated
for the treatment of patients with CD20 antigen-expressing
relapsed or refractory, low-grade, follicular, or transformed
NHL, including patients with Rituximab-refractory NHL.
Finally,
Rituxan
®
(rituximab), marketed by Genentech and Biogen, is indicated for
the treatment of patients with relapsed or refractory, low-grade
or follicular, CD20-positive, B-cell NHL as a single agent;
previously untreated follicular, CD20-positive, B-cell NHL in
combination with CVP (cyclophosphamide, vincristine and
prednisolone combination) chemotherapy; and non-progressing
(including stable disease), low-grade,
CD20-positive
B-cell NHL, as a single agent, after first-line CVP
chemotherapy. Rituxan is administered as a part of various
chemotherapy regimens and schedules, the vast majority of which,
could be used in concert with other therapeutic agents, such as
Zevalin, as part of a treatment plan.
Please also read our discussion of competition matters in
Item 1A Risk Factors of this report.
Research
and Development
New drug development, which is the process whereby drug product
candidates are tested for the purpose of filing a NDA or BLA (or
similar filing in other countries) and eventually obtaining
marketing approval from the FDA or a similar marketing
authorization from other regulatory authorities outside of the
United States, is an inherently uncertain, lengthy and expensive
process that requires several phases of clinical trials to
demonstrate to the satisfaction of the appropriate regulatory
authorities that the products are both safe and effective for
their respective indications.
Research and development expenses for such drug development are
comprised of the following types of costs incurred in performing
research and development activities: personnel expenses,
facility costs, contract services,
19
license fees and milestone payments, costs of clinical trials,
laboratory supplies and drug products, and allocations of
corporate costs. Research and development expenditures,
including related stock-based charges, are expensed as we incur
them and were approximately $26.7 million in 2008,
$33.3 million in 2007, and $23.7 million in 2006
broken out by product as follows:
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Years Ended December 31,
|
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2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Fusilev
|
|
$
|
1,791
|
|
|
$
|
1,368
|
|
|
$
|
4,428
|
|
Zevalin
|
|
|
151
|
|
|
|
|
|
|
|
|
|
Apaziquone
|
|
|
5,477
|
|
|
|
6,348
|
|
|
|
2,617
|
|
Ozarelix
|
|
|
2,435
|
|
|
|
6,217
|
|
|
|
2,881
|
|
Ortataxel
|
|
|
150
|
|
|
|
3,719
|
|
|
|
|
|
Other drugs
|
|
|
1,304
|
|
|
|
3,452
|
|
|
|
4,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Costs
|
|
|
11,308
|
|
|
|
21,104
|
|
|
|
14,383
|
|
Indirect Costs
|
|
|
15,375
|
|
|
|
12,181
|
|
|
|
9,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research & Development
|
|
$
|
26,683
|
|
|
$
|
33,285
|
|
|
$
|
23,728
|
|
|
|
|
|
|
|
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Patents
and Proprietary Rights
Our
Patents and Proprietary Rights
We in-license from third parties certain patent and related
intellectual property rights related to our proprietary
products. In particular, we have licensed patent rights with
respect to Fusilev, Zevalin, ozarelix, ortataxel, satraplatin,
elsamitrucin, lucanthone, RenaZorb and SPI-1620, in each case
for the remaining life of the applicable patents. Except for
Zevalin, Fusilev and ozarelix, our agreements generally provide
us with exclusive worldwide rights to, among other things,
develop, sublicense, and commercialize the drug products. Under
most of these license arrangements, we are generally responsible
for all development, patent filing and maintenance costs, sales,
marketing and liability insurance costs related to the drug
products. In addition, these licenses and agreements may require
us to make royalty and other payments and to reasonably exploit
the underlying technology of applicable patents. If we fail to
comply with these and other terms in these licenses and
agreements, we could lose the underlying rights to one or more
of our potential products, which would adversely affect our
product development and harm our business. In addition, with
regard to apaziquone and SPI-205, we own patent and related
intellectual property rights related to these products.
The protection, preservation and infringement-free commercial
exploitation of these patents and related intellectual property
rights is very important to the successful execution of our
strategy. However, the issuance of a patent is not conclusive as
to its validity nor as to the enforceable scope of the claims of
the patent. Accordingly, our patents and the patents we have may
not prevent other companies from developing similar or
functionally equivalent products or from successfully
challenging the validity of our patents. If our patent
applications are not allowed or, even if allowed and issued as
patents, if such patents or the patents we have in-licensed, are
circumvented or not upheld by the courts, our ability to
competitively exploit our patented products and technologies may
be significantly reduced. Also, such patents may or may not
provide competitive advantages for their respective products or
they may be challenged or circumvented by competitors, in which
case our ability to commercially exploit these products may be
diminished.
From time to time, we may need to obtain licenses to patents and
other proprietary rights held by third parties to develop,
manufacture and market our products. If we are unable to timely
obtain these licenses on commercially reasonable terms, our
ability to commercially exploit such products may be inhibited
or prevented.
As mentioned above, we own and in-license from third parties
certain patent rights related to our products. We believe that
our patents and licenses are important to our business, but that
with the exception of the United States and European patents
discussed in this paragraph, no one patent or license is
currently of material importance to our business. For Fusilev,
we have one United States formulation patent that covers Fusilev
that expires in 2019. For
20
Zevalin, we have sublicensed United States patents that cover
the processes and tools for making monoclonal
anti-bodies
(MABs) in general, licensed United States patents that cover the
CD-20 MAB in Zevalin as well as the use of Zevalin to treat NHL,
and acquired patent applications covering the Zevalin
compounding process (
i.e.
, process of linking the CD20
MAB to a radioactive isotope to make the patient-ready dosage
form of Zevalin). These patents expire over a wide range of
dates beginning in 2009, but the licensed patents covering the
CD-20 MAB itself do not begin to expire until 2015.
Additionally, we have pending United States patent applications
covering the compounding process, and will consider filing more
patent applications, if the opportunity arises. For apaziquone,
there is a composition patent that will expire in 2009 in the
United States, and a United States formulation patent that does
not expire until 2022. We have filed and plan to file additional
United States and foreign patent applications covering new
formulations
and/or
uses
for this product. For ozarelix, there is a United States
composition patent that will expire in 2020, and method of use
and formulation patent applications on file in the United
States. For ortataxel, there are two United States composition
patents that will expire in 2013, and the corresponding European
patents will expire in 2014. We anticipate filing new method of
use and formulation patent applications for the ortataxel
product in the future. There is one United States patent
covering satraplatin, a method of use patent that expires in
2010, and foreign composition patents in Europe that have
expired and will expire in various countries between 2008 and
2009. For elsamitrucin, we have filed United States and foreign
formulation and method of use patent applications, and we
anticipate filing future United States and foreign patent
applications covering new formulations
and/or
uses
for this product. For lucanthone, there is a United States
method of use patent that expires in 2019. For RenaZorb, there
are pending United States and foreign patent applications
covering compositions of matter directed to treating
hyperphosphatemia. For SPI-1620, we have filed method of use
patent applications in the United States and Europe. For
SPI-205, there is a United States composition and method of use
patent that expires in 2010. This patent expires in certain
European countries in 2011. We also have a United States
method of use patent that expires in 2021 and there is ongoing
prosecution for its European counterparts. We have also filed
another method of use patent application in the United States
and Europe and anticipate filing future patent applications
pending the continued development of new methods of use and new
formulations. We are constantly evaluating our patent portfolio
and are currently prosecuting patent applications for our drug
products and are considering new patent applications in order to
maximize the life cycle of each of our products.
While the United States and the European Union are currently the
largest potential markets for most of our products, we also have
patents issued and patent applications pending outside of the
United States and Europe. Limitations on patent protection in
these countries, and the differences in what constitutes
patentable subject matter in countries outside the United
States, may limit the protection we have on patents issued or
licensed to us outside of the United States. In addition, laws
of foreign countries may not protect our intellectual property
to the same extent as would laws in the United States. To
minimize our costs and expenses and to maintain effective
protection, we usually focus our patent and licensing activities
within the United States, the European Union, Canada and Japan.
In determining whether or not to seek a patent or to license any
patent in a certain foreign country, we weigh the relevant costs
and benefits, and consider, among other things, the market
potential and profitability, the scope of patent protection
afforded by the law of the jurisdiction and its enforceability,
and the nature of terms with any potential licensees. Failure to
obtain adequate patent protection for our proprietary drugs and
technology would impair our ability to be commercially
competitive in these markets.
In addition to the specific intellectual property subjects
discussed above, we have trademark protection in the United
States for Spectrum Pharmaceuticals,
Inc.
®
,
Fusilev
tm
,
Turning Insights Into
Hope
tm
,
Zevalin
®
and
RenaZorb
®
.
Additionally, for some other of these and other works related to
our business, we have pending United States and ex-United States
trademark applications.
EOquin
®
is registered trademark of Allergan.
RenaZorb
®
is a registered trademark of Altair Nanomaterials, Inc., and
licensed to Spectrum Pharmaceuticals, Inc.
In conducting our business generally, we rely upon trade
secrets, know-how, and licensing arrangements and use customary
practices for the protection of our confidential and proprietary
information such as confidentiality agreements and trade secret
protection measures, such as periodic internal and external
trade secret audits. It is possible that these agreements will
be breached or will not be enforceable in every instance, and
that we will not have adequate remedies for any such breach. It
is also possible that our trade secrets or know-how will
otherwise become known or independently developed by
competitors. The protection of know-how is particularly
important
21
because the know-how is often the necessary or useful
information that allows us to practice the claims in the patents
related to our proprietary drug products.
We may find it necessary to initiate litigation to enforce our
patent rights, to protect our trade secrets or know-how or to
determine the scope and validity of the proprietary rights of
others. Litigation concerning patents, trademarks, copyrights
and proprietary technologies can often be protracted and
expensive and, as with litigation generally, the outcome is
inherently uncertain. See Item 1A Risk Factors
for more information.
The
Patent Process
The United States Constitution provides Congress with the
authority to provide inventors the exclusive right to their
discoveries. Congress codified this right in United States Code
Title 35, which gave the U.S. Patent and Trademark
Office, or USPTO, the right to grant patents to inventors and
defined the process for securing a United States patent.
This process involves the filing of a patent application that
teaches a person having ordinary skill in the respective art how
to make and use the invention in clear and concise terms. The
invention must be novel (not previously known) and non-obvious
(not an obvious extension of what is already known). The patent
application concludes with a series of claims that specifically
describe the subject matter that the patent applicant considers
his invention.
The USPTO undertakes an examination process that can take from
one to seven years, or more, depending on the complexity of the
patent and the problems encountered during examination.
In exchange for disclosing the invention to the public, for all
United States patent applications filed after 1995, the
successful patent applicant is currently provided a right to
exclude others from making, using or selling the claimed
invention for a period of 20 years from the effective
filing date of the patent application.
Under certain circumstances, a patent term may be extended.
Patent extensions are most frequently granted in the
pharmaceutical and medical device industries under the Drug
Price Competition and Pricing Term Restoration Act of 1984, or
commonly known as the Hatch-Waxman Act, to recover some of the
time lost during the FDA regulatory process, subject to a number
of limitations and exceptions. The patent term may be extended
up to a maximum of five years; however, as a general rule, the
average extension period granted for a new drug is approximately
three years. Only one patent can be extended per FDA approved
product, and a patent can only be extended once.
Regulatory
Exclusivities
The FDA has provided for certain regulatory exclusivities for
products whereby the FDA will not approve of the sale of any
generic form of the drug until the end of the prescribed period.
The FDA will grant a
5-year
period of exclusivity for a product that contains a chemical
entity never previously approved by the FDA either alone or in
combination with other drugs. In addition, the FDA will grant a
3-year
period of exclusivity to a new drug product that contains the
same active drug substance that has been previously approved
such as a new formulation of an old drug product. Also, as an
incentive for pharmaceutical companies to research the safety
and efficacy of their brand name drugs for use in pediatric
populations, Congress enacted the Food & Drug
Administration Modernization Act of 1997, which included a
pediatric exclusivity for brand name drugs. This pediatric
exclusivity protects drug products from generic competition for
six months after their patents expire in exchange for research
on children. For example, if a pharmaceutical company owns a
patent covering a brand name drug, they can only exclude third
parties from selling generic versions of that drug until that
patent expires. However, if the FDA grants a brand named drug
pediatric exclusivity, the FDA will not approve a generic drug
companys ANDA and thus not allow the sale of a generic
drug for six months beyond the patent term covering the brand
name drug. Thus, the pediatric exclusivity effectively extends
the brand named companys patent protection for six months.
This extension applies to all dosage forms and uses that the
original patent covered.
Paragraph IV
Certification
In 1984, Congress enacted the Hatch-Waxman Act in part to
establish a streamlined approval process for the FDA to use in
approving generic versions of previously approved branded
pharmaceutical drugs. Under the Hatch-
22
Waxman Act, for each patent listed in the FDA Orange Book, where
branded companies are required to list their patents for branded
products, for the relevant branded drug, an ANDA applicant must
certify one of the following claims: (1) that there is no
patent information listed; (2) that such patent has
expired; (3) that the proposed drug will not be marketed
until expiration of the patent; or (4) that either the
proposed generic drug does not infringe the patent or the patent
is invalid, otherwise known as paragraph IV certification.
If an ANDA applicant files a paragraph IV certification,
the Hatch-Waxman Act requires the applicant to provide the
patent holder with notice of that certification and provides the
patent holder with a
45-day
window, during which it may bring suit against the applicant for
patent infringement. If patent litigation is initiated during
this period, the FDA may not approve the ANDA until the earlier
of (1) 30 months from the patent holders receipt
of the notice (the
30-month
stay) or (2) the issuance of a final, non-appealed, or
non-appealable court decision finding the patent invalid,
unenforceable or not infringed. If the patent is found to be
infringed by the filing of the ANDA, the patent holder could
seek an injunction to block the launch of the generic product
until the patent expires.
Often more than one company will file an ANDA that includes a
paragraph IV certification. However, the Hatch-Waxman Act
provides that such subsequent ANDA applications will not be
approved until 180 days after the earlier of (1) the
date of the first commercial marketing of the first-filed ANDA
applicants generic drug or (2) the date of a decision
of a court in an action holding the relevant patent invalid,
unenforceable, or not infringed. Thus, the Hatch- Waxman Act
effectively grants the first-filed ANDA holder 180 days of
marketing exclusivity for the generic product.
As part of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, certain types of settlement
agreements entered into between branded and generic
pharmaceutical companies related to the manufacture, marketing
and sale of generic versions of branded drugs are required to be
filed with the Federal Trade Commission and the Department of
Justice for review of potential anti-competitive practices. This
requirement could affect the manner in which generic drug
manufacturers resolve intellectual property litigation and other
disputes with branded pharmaceutical companies, and could result
generally in an increase in private-party litigation against
pharmaceutical companies. The impact of this requirement, and
the potential governmental investigations and private-party
lawsuits associated with arrangements between brand name and
generic drug manufacturers, remains uncertain and could
adversely affect our business.
Currently, there is no equivalent ANDA process for biological
drugs. However, United States legislation is being contemplated
for a similar process for the approval of biosimilar
or biogeneric biological drugs.
Please also read our discussion of patent and intellectual
property matters in Item 1A Risk Factors
section of this report.
Orphan
Drug Designation
Some jurisdictions, including Europe and the United States, may
designate drugs for relatively small patient populations as
orphan drugs. The FDA grants orphan drug designation
to drugs intended to treat a rare disease or condition that
affects fewer than 200,000 individuals in the United States or
more than 200,000 individuals in the United States and for which
there is no reasonable expectation that the cost of developing
and making available in the United States a drug for this type
of disease or condition will be recovered from sales in the
United States for that drug. In the United States, orphan drug
designation must be requested before submitting an application
for marketing approval. Orphan drug designation does not convey
any advantage in, or shorten the duration of, the regulatory
review and approval process. If a product which has an orphan
drug designation subsequently receives the first FDA approval
for the indication for which it has such designation, the
product is entitled to orphan drug exclusivity, which means the
FDA may not approve any other application to market the same
drug for the same indication for a period of seven years, except
in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity. Also,
competitors may receive approval of different drugs or biologics
for the indications for which the orphan product has exclusivity.
Under European Union medicines laws, criteria for designation as
an orphan medicine are similar but somewhat
different from those in the United States. Orphan medicines are
entitled to ten years of market exclusivity, except under
certain limited circumstances comparable to United States law.
During this period of market exclusivity, no similar
product, whether or not supported by full safety and efficacy
data, will be approved
23
unless a second applicant can establish that its product is
safer, more effective or otherwise clinically superior. This
period may be reduced to six years if the conditions that
originally justified orphan designation change or the sponsor
makes excessive profits.
Fusilev has been granted orphan drug designations for its use in
conjunction with high dose methotrexate in the treatment of
osteosarcoma and for its use in combination chemotherapy with
the approved agent 5-fluorouracil in the palliative treatment of
metastatic adenocarcinoma of the colon and rectum (colorectal
cancer). Final approval of orphan drug status is granted after
approval of the product in the applicable indication.
Governmental
Regulation
The development, production and marketing of our proprietary and
generic drug products are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the
United States and other countries. In the United States, drugs
are subject to rigorous regulation. The Federal Food, Drug, and
Cosmetic Act, as amended from time to time, and the regulations
promulgated thereunder, as well as other federal and state
statutes and regulations, govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage,
record keeping, approval, advertising and promotion of our
products that are marketed or in development. Product
development and approval within this regulatory framework,
including for drugs already at a clinical stage of development,
can take many years and require the expenditure of substantial
resources. In addition to obtaining FDA approval for each
product, each drug-manufacturing establishment must be
registered with the FDA. Domestic manufacturing establishments
must comply with the FDAs current good manufacturing
practice (cGMP) regulations and are subject to periodic
inspections by the FDA. To supply drug ingredients or products
for use in the United States, foreign manufacturing
establishments must also comply with cGMP and are subject to
periodic inspection by the FDA or by other regulatory
authorities in certain countries under reciprocal agreements
with the FDA.
General
Information about the Drug Approval Process and Post-Marketing
Requirements
The United States system of new drug approval is one of the most
rigorous in the world. Only a small percentage of compounds that
enter the pre-clinical testing stage are ever approved for
commercialization. Our strategy focuses on in-licensing clinical
stage drug products that are already in or about to enter human
clinical trials. A late-stage focus helps us to effectively
manage the high cost of drug development by focusing on
compounds that have already passed the many hurdles in the
pre-clinical and early clinical process.
The following general comments about the drug approval process
are relevant to the development activities we are undertaking
with our proprietary drugs.
Pre-clinical Testing:
During the pre-clinical
testing stage, laboratory and animal studies are conducted to
show biological activity of a drug compound against the targeted
disease and the compound is evaluated for safety.
Investigational New Drug Application:
After
pre-clinical testing, an Investigational New Drug (IND)
Application is submitted to the FDA to request the ability to
begin human testing of the drug. An IND becomes effective thirty
days after the FDA receives the application (unless the FDA
notifies the sponsor of a clinical hold), or upon prior
notification by the FDA.
Phase 1 Clinical Trials:
These trials,
typically involving small numbers of healthy volunteers or
patients, usually define a drug candidates safety profile,
including the safe dosage range.
Phase 2 Clinical Trials:
In phase 2 clinical
trials, controlled studies of human patients with the targeted
disease are conducted to assess the drugs effectiveness.
These studies are designed primarily to determine the
appropriate dose levels, dose schedules and route(s) of
administration, and to evaluate the effectiveness of the drug on
humans, as well as to determine if there are any side effects on
humans to expand the safety profile following phase 1. These
clinical trials, and phase 3 trials discussed below, are
designed to evaluate the drugs overall benefit-risk
profile, and to provide information to inform physician labeling.
Phase 3 Clinical Trials:
This phase usually
involves larger number of patients with the targeted disease.
Investigators (typically physicians) monitor the patients to
determine the drug candidates efficacy and to observe
24
and report any adverse reactions that may result from long-term
use of the drug on a large, more widespread, patient population.
During the phase 3 clinical trials, typically the drug candidate
is compared to either a placebo or a standard treatment for the
target disease.
New Drug Application or NDA:
After completion
of all three clinical trial phases, if the data indicates that
the drug is safe and effective, a New Drug Application (NDA) is
filed with the FDA requesting FDA approval to market the new
drug as a treatment for the target disease.
Fast Track and Priority Review:
The FDA has
established procedures for accelerating the approval of drugs to
be marketed for serious or life threatening diseases for which
the manufacturer can demonstrate the potential to address unmet
medical needs.
Abbreviated New Drug Application (ANDA):
An
ANDA is the abbreviated review and approval process created by
the Drug Price Competition and Patent Term Restoration Act of
1984 signed into law in part for the accelerated approval of
generic drugs. When a company files an ANDA, it must make a
patent certification regarding the patents covering the branded
product listed in the FDAs Orange Book. An ANDA applicant
must make one of four certifications: (1) that there is no
patent information listed in the Orange Book; (2) that the
listed patent has expired; (3) that the listed patent will
expire on a stated date and the applicant will not market the
product until the patent expires; or (4) that the listed
patent is invalid or will not be infringed by the generic
product. The ANDA drug development and approval process
generally takes less time than the NDA drug development and
approval process since the ANDA process usually does not require
new clinical trials establishing the safety and efficacy of the
drug product.
NDA and ANDA Approval:
The FDA approves drugs
that are subject to NDA review based on data in the application
demonstrating the drug is safe and effective in its proposed
use(s) and that the drugs benefits outweigh its risks. FDA
will also review the NDA applicants manufacturing process
and controls to ensure they are adequate to preserve the
drugs identity, strength, quality, and purity, and FDA
will review and approve the drugs proposed labeling. As
for the ANDA approval process, these abbreviated
applications are generally not required to include preclinical
or clinical data to establish safety and effectiveness. Rather,
an ANDA must demonstrate both chemical equivalence and
bio-equivalence (the rate and extent of absorption in the body)
to the innovator drug unless a bio-equivalence
waiver is granted by the FDA.
Phase 4 Clinical Trials:
After a drug has been
approved by the FDA, phase 4 studies may be conducted to explore
additional patient populations, compare the drug to a
competitor, or to further study the risks, benefits and optimal
use of a drug. These studies may be a requirement as a condition
of the initial approval of the NDA.
Post-Approval Studies Requirements under
FDAAA:
The Food and Drug Administration
Amendments Act of 2007 (the FDAAA), which President
Bush signed into law in September 2007, significantly added to
the FDAs authority to require post-approval studies. Under
the FDAAA, if the FDA becomes aware of new safety information
after approval of a product, they may require us to conduct
further clinical trials to assess a known serious risk, signals
of serious risk or to identify an unexpected serious risk. If
required to conduct a post-approval study, periodic status
reports must be submitted to the FDA. Failure to conduct such
post-approval studies in a timely manner may result in
administrative action being taken by FDA, including substantial
civil fines.
Risk Evaluation and Mitigation Strategy Authority under
FDAAA:
The FDAAA also gave the FDA new authority
to require the implementation of a Risk Evaluation and
Mitigation Strategy (REMS) for a product when
necessary to minimize known and preventable safety risks
associated with the product. The FDA may require the submission
of a REMS before a product is approved, or after approval based
on new safety information, including new analyses of
existing safety information. A REMS may include a medication
guide, patient package insert, a plan for communication with
healthcare providers, or other elements as the FDA deems are
necessary to assure safe use of the product, which could include
imposing certain restrictions on distribution or use of a
product. A REMS must include a timetable for submission of
assessments of the strategy at specified time intervals. Failure
to comply with a REMS including the submission of a
required assessment may result in substantial civil
or criminal penalties.
Other Issues Related to Product
Safety:
Adverse events that are reported after
marketing approval also can result in additional limitations
being placed on a products use and, potentially,
withdrawal of the product from the
25
market. In addition, under the FDAAA, the FDA has authority to
mandate labeling changes to products at any point in a
products lifecycle based on new safety information derived
from clinical trials, post-approval studies, peer-reviewed
medical literature, or post-market risk identification and
analysis systems data.
FDA
Enforcement
The development of drug products, as well as the marketing of
approved drugs, is subject to substantial continuing regulation
by the FDA, including regulation of adverse event reporting,
manufacturing practices and the advertising and promotion of the
drug. Failure to comply with the FDA and other governmental
regulations can result in fines, unanticipated compliance
expenditures, recall or seizure of products, total or partial
suspension of production
and/or
distribution, suspension of the FDAs review of NDAs, ANDAs
or other product applications, enforcement actions, injunctions
and criminal prosecution. Under certain circumstances, the FDA
also has the authority to revoke previously granted drug
approvals. Although we have internal compliance programs, if
these programs do not meet regulatory agency standards or if our
compliance is deemed deficient in any significant way, it could
have a material adverse effect on our business. See Item 1A
Risks Factors Our failure to comply with
governmental regulation may delay or prevent approval of our
products
and/or
subject us to penalties.
With respect specifically to information submitted to FDA in
support of marketing applications, the FDA, under its Fraud,
Untrue Statements of Material Facts, Bribery and Illegal
Gratuities Policy, can significantly delay the approval of a
marketing application or seek to withdraw an
approved application where it identifies fraud or
discrepancies in regulatory submissions. Such actions by the FDA
may significantly delay or suspend substantive scientific review
of a pending application during validity assessment or remove
approved products from the market until the assessment is
complete and questions regarding reliability of the data are
resolved. In addition, the Generic Drug Enforcement Act of 1992
established penalties for wrongdoing in connection with the
development or submission of an ANDA. Under this Act, the FDA
has the authority to permanently or temporarily bar companies or
individuals from submitting or assisting in the submission of an
ANDA, and to temporarily deny approval and suspend applications
to market generic drugs. The FDA may also suspend the
distribution of all drugs approved or developed in connection
with certain wrongful conduct
and/or
withdraw approval of an ANDA and seek civil penalties.
Healthcare
Reform
Continuing studies of the proper utilization, safety and
efficacy of pharmaceuticals and other health care products are
being conducted by industry, government agencies and others.
Such studies, which increasingly employ sophisticated methods
and techniques, can call into question the utilization, safety
and efficacy of previously marketed products and in some cases
have resulted, and may in the future result, in the
discontinuance of their marketing.
Foreign
Regulation
Whether or not we obtain FDA approval for a product, we must
obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical
trials or marketing of the product in those countries. The
approval process varies from country to country, and the time
may be longer or shorter than that required for FDA approval.
The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement also may vary,
sometimes significantly, from country to country.
Under European Union regulatory systems, we may submit marketing
authorization applications either under a centralized or
decentralized procedure. The centralized procedure, which is
available for medicines produced by biotechnology or which are
highly innovative, provides for the grant of a single marketing
authorization that is valid for all European Union member
states. This authorization is a marketing authorization
approval, or MAA. The decentralized procedure provides for
mutual recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization,
which is granted by a single European Union member state, may
submit an application to the remaining member states. Within
90 days of receiving the applications and assessment
report, each member state must decide whether to recognize
approval. This procedure is referred to as the mutual
recognition procedure, or MRP.
26
In addition, regulatory approval of prices is required in most
countries other than the United States. We face the risk that
the resulting prices would be insufficient to generate an
acceptable return to us.
Third
Party Reimbursement and Pricing Controls
In the United States and elsewhere, sales of pharmaceutical
products depend in significant part on the availability of
reimbursement to the consumer from third-party payers, such as
government and private insurance plans. Third-party payers are
increasingly challenging the prices charged for medical products
and services. It is time-consuming and expensive for us to go
through the process of seeking reimbursement from Medicare and
private payers. Our products may not be considered cost
effective, and coverage and reimbursement may not be available
or sufficient to allow us to sell our products on a competitive
and profitable basis.
More generally, in the coming years, the United States
Government could enact significant changes to governmental
healthcare programs, and the United States healthcare system as
a whole, that may result in significantly increased rebates,
decreased pricing flexibility, diminished negotiating
flexibility, coverage and reimbursement limitations based upon
comparative and cost-effectiveness reviews, and other measures
that could significantly impact the success of our products.
In many foreign markets, including the countries in the European
Union, pricing of pharmaceutical products is subject to
governmental control. In the United States, there have been, and
we expect that there will continue to be, a number of federal
and state proposals to implement similar governmental pricing
control. While we cannot predict whether such legislative or
regulatory proposals will be adopted, the adoption of such
proposals could have a material adverse effect on our business,
financial condition and profitability.
Employees
The efforts of our employees are critical to our success. We
believe that we have assembled a strong management team with the
experience and expertise needed to execute our business
strategy. We anticipate hiring additional personnel as needs
dictate to implement our growth strategy. As of
December 31, 2008, we had 84 employees, of which 5
held a M.D. degree and 11 held a Ph.D. degree. We cannot be sure
that we will be able to attract and retain qualified personnel
in sufficient numbers to meet our needs. Our employees are not
subject to any collective bargaining agreements, and we regard
our relations with our employees to be good.
Corporate
Background and Available Information
Spectrum Pharmaceuticals is a Delaware corporation that was
originally incorporated in Colorado as Americus Funding
Corporation in December 1987, became NeoTherapeutics, Inc. in
August 1996, was reincorporated in Delaware in June 1997, and
was renamed Spectrum Pharmaceuticals, Inc. in December 2002.
We also maintain a website located at
http://www.spectrumpharm.com,
and electronic copies of our periodic and current reports,
Proxy Statements for our annual stockholders meetings, and
any amendments to those reports, are available, free of charge,
under the Investor Relations link on our website as
soon as practicable after such material is filed with, or
furnished to, the SEC.
For financial information regarding our business activities,
please see Item 8 Financial Statements
and Supplementary Data.
An investment in our common stock involves a high degree of
risk. Our business, financial condition, operating results and
prospects can be impacted by a number of factors, any one of
which could cause our actual results to differ materially from
recent results or from our anticipated future results. As a
result, the trading price of our common stock could decline, and
you could lose part or all of your investment. You should
carefully consider the risks described below with all of the
other information included in this Annual Report. Failure to
satisfactorily achieve any of our objectives or avoid any of the
risks below would likely have a material adverse effect on our
business and results of operations.
27
Risks
Related to Our Business
Like
other early-stage biotech companies, we have a history of
operating losses and our losses may continue to increase as we
expand our commercialization and development efforts, and our
efforts may never result in profitability.
Our cumulative losses since our inception in 1987 through
December 31, 2008 were in excess of $250 million. Our
net losses in 2008 and 2007 were approximately $15 million
and $34 million, respectively. We expect to continue to
incur additional losses as we implement our growth strategy of
commercializing our approved drug products and developing our
pipeline products for at least the next few years. We may never
achieve significant revenues from sales of products or become
profitable. Even if we eventually generate significant revenues
from sales, we will likely continue to incur losses over the
next several years.
Our
business does not generate sufficient cash to finance our
ongoing operations and therefore, we will likely need to
continue to raise additional capital.
Our current commercial operations do not generate sufficient
operating cash to finance the clinical development of all our
drug products, to commercialize our approved drug products and
to capitalize on growth opportunities. While we have been
successful recently in generating funds through the licensing
and sale of our assets, we have historically relied primarily on
raising capital through the sale of our securities and
out-licensing our drug products to meet our financial needs.
Although we began selling products in 2008, we believe that in
the near-term we will likely need to continue to raise funds in
order to continue drug product commercialization, development
and acquisition.
We may not be able to raise additional capital on favorable
terms, if at all, particularly with the current volatile
financial market conditions. Accordingly, we may be forced to
significantly change our business plans and restructure our
operations to conserve cash, which would likely involve
out-licensing or selling some or all of our intellectual,
technological and tangible property not presently contemplated
and at terms that we believe would not be favorable to us,
and/or
reducing the scope and nature of our currently planned drug
development and commercialization activities. An inability to
raise additional capital would also materially impact our
ability to expand operations.
Clinical
trials may fail to demonstrate the safety and efficacy of our
drug products, which could prevent or significantly delay
obtaining regulatory approval.
Prior to receiving approval to commercialize any of our drug
products, we must demonstrate with substantial evidence from
well-controlled clinical trials, and to the satisfaction of the
FDA, and other regulatory authorities in the United States and
other countries, that each of the products is both safe and
effective. For each drug product, we will need to demonstrate
its efficacy and monitor its safety throughout the process. If
such development is unsuccessful, our business and reputation
would be harmed and our stock price would be adversely affected.
All of our drug products are prone to the risks of failure
inherent in drug development. Clinical trials of new drug
products sufficient to obtain regulatory marketing approval are
expensive and take years to complete. We may not be able to
successfully complete clinical testing within the time frame we
have planned, or at all. We may experience numerous unforeseen
events during, or as a result of, the clinical trial process
that could delay or prevent us from receiving regulatory
approval or commercializing our drug products. In addition, the
results of pre-clinical studies and early-stage clinical trials
of our drug products do not necessarily predict the results of
later-stage clinical trials. Later-stage clinical trials may
fail to demonstrate that a drug product is safe and effective
despite having progressed through initial clinical testing. Even
if we believe the data collected from clinical trials of our
drug products is promising, such data may not be sufficient to
support approval by the FDA or any other United States or
foreign regulatory approval. Pre-clinical and clinical data can
be interpreted in different ways.
Accordingly, FDA officials could interpret such data in
different ways than we or our partners do, which could delay,
limit or prevent regulatory approval. The FDA, other regulatory
authorities, our institutional review boards, our contract
research organizations, or we may suspend or terminate our
clinical trials for our drug products. Any failure or
significant delay in completing clinical trials for our drug
products, or in receiving regulatory approval for
28
the sale of any drugs resulting from our drug products, may
severely harm our business and reputation. Even if we receive
FDA and other regulatory approvals, our drug products may later
exhibit adverse effects that may limit or prevent their
widespread use, may cause the FDA to revoke, suspend or limit
their approval, or may force us to withdraw products derived
from those drug products from the market.
If we
are unable to effectively maintain and expand our sales and
marketing capabilities, we may be unable to successfully
commercialize our approved products.
Historically, we have had limited internal experience in
selling, marketing or distributing pharmaceutical products.
However, we have recently established a small direct sales force
to market our approved products. We also are expanding our
direct sales force in connection with the re-launch of Zevalin.
If we are not able to effectively hire and train qualified
individuals as part of our sales force, our product sales and
resulting revenues will be negatively impacted.
If we
are unable to expand approved usage of Zevalin, or to maintain
or obtain improved reimbursement rates for it, the
products operating results may be harmed, which could
adversely affect our financial and operating
results.
We intend to seek expansion of the approved uses of Zevalin in
the United States. If we are unable to expand the approved uses
of Zevalin, or if we are otherwise unable to fulfill our
marketing, sales and distribution plans for Zevalin, we may not
recognize the full anticipated value of our investment in the
product and our financial and operating results could be
adversely affected.
In 2007, CMS implemented new outpatient reimbursement rates for
radiopharmaceuticals, including Zevalin. The new reimbursement
rates are significantly below the institution or providers
current acquisition cost for Zevalin. Congress has passed
legislation to delay the implementation of those new rates and
stabilize reimbursement rates through January 1, 2010, with
the intention of giving drug manufacturers and CMS time to reach
an agreement that more adequately reflects costs associated
affected pharmaceuticals. However, CMS may not agree to a rate
or methodology that provides an acceptable reimbursement on
radiopharmaceuticals such as Zevalin. In the event that CMS does
not agree to a reimbursement rate that is adequate to cover an
institution or providers acquisition cost for Zevalin, we
could face significant difficulty in getting care providers to
use Zevalin, which would have an adverse impact on the
products expected operating results, and in turn adversely
impact our investment in the product and our financial and
operating results.
We may
face difficulties in achieving broader market acceptance of
Zevalin if we do not invest significantly in our sales and
marketing infrastructure.
United States sales of Zevalin have declined over the
several years prior to our acquisition of the Zevalin assets. We
believe that an enhanced sales and marketing strategy for
Zevalin, in conjunction with efforts to obtain approval by the
FDA for expanded uses of Zevalin, has significant potential to
increase sales of and revenue from Zevalin over the next few
years. However, implementation of the sales and marketing
strategy for Zevalin, and the efforts to expand approved usage
of Zevalin, will require a significant investment of financial
and other resources by us for the foreseeable future and may not
ultimately increase Zevalin sales or allow us to realize the
anticipated benefits from our investment in the product.
Additionally, our efforts to establish an effective direct sales
force for Zevalin will require significant commitments of both
financial and management resources by us, and may not ultimately
be successful due a variety of factors, including industry
competition for effective sales and marketing personnel or the
inability of us to dedicate the necessary resources to those
efforts.
The
intellectual property and assets owned by our subsidiary, RIT,
are subject to a security agreement with Biogen that secures the
entitys payment and other obligations to Biogen, and we
have guaranteed all of those obligations.
In connection with the formation of RIT, RIT entered into a
security agreement with Biogen pursuant to which RIT granted to
Biogen a first priority security interest in all of its assets,
which consist of the Zevalin-related intellectual property and
other assets RIT. The security agreement secures certain
payment, indemnification and
29
other obligations of RIT to Biogen related to Zevalin. If RIT
were to default on certain of its obligations to Biogen, or in
certain other circumstances generally related to a bankruptcy or
insolvency of RIT, Biogen could seek to foreclose on the
collateral under the security agreement to obtain satisfaction
of RITs obligations to it. If RIT were to default on its
obligations to Biogen, and Biogen were to foreclose on the
collateral under the security agreement, RITs business
could be materially and adversely impacted, which could in turn
materially and adversely impact our investment in RIT and our
financial condition and results of operations.
Furthermore, in connection with the formation of RIT we
guaranteed all of RITs obligations to Biogen. If RIT were
to default on its obligations to Biogen, Biogen could require us
alone to satisfy all of those obligations under our guarantee.
The financial and other obligations that we would incur could
have a material and adverse effect on our financial condition
and results of operations.
If we
are unable to expand the approved usage of Fusilev, the
products operating results may be harmed, which could
adversely affect our financial and operating
results.
We have filed a supplemental new drug application for Fusilev
for use in combination with 5-FU-containing regimens in the
treatment of colorectal cancer. The greatest potential use of
this product is in this indication. If we are not able to obtain
approval for this indication, we may not recognize the full
anticipated value of our investment in the product and our
financial and operating results could be adversely affected.
Our
drug product Fusilev may not be more cost efficient than
competing drugs and otherwise may not have any competitive
advantage, which could hinder our ability to successfully
commercialize it.
Fusilev is a novel folate analog formulation and the
pharmacologically active isomer (the levo-isomer) of the racemic
compound calcium leucovorin, a product already approved for the
same indications our product is approved for. Leucovorin has
been sold as a generic product on the market for a number of
years. There are generic companies currently selling the product
and therefore, Fusilev competes against a low-cost alternative.
Also, Fusilev will be offered as part of a treatment regimen,
and that regimen may change to exclude Fusilev. Accordingly, it
may not gain acceptance by the medical field or become
commercially successful.
The
marketing and sale of Fusilev and Zevalin may be adversely
affected by the marketing and sales efforts of third parties who
sell these products outside the United States.
We have only licensed the rights to develop, market and sell
Fusilev in North America, and have licensed the rights to
develop, market and sell Zevalin in the United States. Other
companies market and sell the same products in other parts of
the world. If, as a result of their actions, negative publicity
is associated with the product, our own efforts to successfully
market and sell these products, may be adversely impacted.
The
development of our drug product, apaziquone, may be adversely
affected if the development efforts of Allergan, who retained
certain rights to the product, are not successful.
In 2008, we entered into a co-development and license agreement
with Allergan, Inc., or Allergan, for the worldwide development
and commercialization of our drug product, apaziquone. Allergan
has agreed to partially fund development and commercialization
expenses for apaziquone. We do not fully control the drug
development process under the license agreement. In addition, if
we do not achieve certain milestones under the license agreement
and it has been determined that failure to achieve these
milestones was a result of our actions or inactions, Allergan is
entitled to assume additional control over the development
process. As a result, success of this product could depend, in
part, upon the efforts of Allergan. Allergan may not be
successful in the clinical development of the drug, obtaining
approval of the product by regulatory authorities, or the
eventual commercialization of apaziquone.
30
The
development of our drug product, ozarelix, may be adversely
affected if the development efforts of Aeterna Zentaris, who
retained certain rights to the product, are not
successful.
Aeterna Zentaris licensed the rights to us to develop and market
ozarelix in the United States, Canada, Mexico and India. Aeterna
Zentaris, or its partners, may conduct their own clinical trials
on ozarelix for regulatory approval in all other parts of the
world. We will not have control over such development activities
and our ability to attain regulatory approvals for ozarelix may
be adversely impacted if its efforts are not successful.
The
development of our drug product, satraplatin, depends on the
efforts of a third party and, therefore, its eventual success or
commercial viability is largely beyond our
control.
In 2002, we entered into a co-development and license agreement
with GPC Biotech AG, or GPC, for the worldwide development and
commercialization of our drug product, satraplatin. GPC has
agreed to fully fund development and commercialization expenses
for satraplatin. We do not have control over the drug
development process and therefore the success of this product
depends upon the efforts of GPC and any of its sublicensees. GPC
may not be successful in the clinical development of the drug,
obtaining approval of the product by regulatory authorities, or
the eventual commercialization of satraplatin.
The
inability to retain and attract key personnel could
significantly hinder our growth strategy and might cause our
business to fail.
Our success depends upon the contributions of our key management
and scientific personnel, especially Dr. Rajesh C.
Shrotriya, our Chairman, President and Chief Executive Officer.
Dr. Shrotriya has been President since 2000 and Chief
Executive Officer since 2002, and has spearheaded our business
strategy since that time. The loss of the services of
Dr. Shrotriya or any other key personnel could delay or
preclude us from achieving our business objectives.
We also require expertise in sales, marketing, pharmaceutical
drug development and other areas in order to achieve our
business objectives. Competition for qualified personnel among
pharmaceutical companies is intense, and the loss of key
personnel, or the delay or inability to attract and retain the
additional skilled personnel required for the expansion of our
business, could significantly damage our business.
As we
evolve from a company primarily involved in development to a
company also involved in commercialization, we may encounter
difficulties in managing our growth and expanding our operations
successfully.
We only recently began commercial sales of our products and have
had to increase our personnel accordingly, including
establishing a direct sales force. In addition, as we advance
our drug products through clinical trials, we will need to
expand our development, regulatory, manufacturing, marketing and
sales capabilities or contract with third parties to provide
these capabilities for us. As our operations expand, we expect
that we will need to manage additional relationships with such
third parties, as well as additional collaborators and
suppliers. Maintaining these relationships and managing our
future growth will impose significant added responsibilities on
members of our management. We must be able to: manage our
development efforts effectively; manage our clinical trials
effectively; hire, train and integrate additional management,
development, administrative and sales and marketing personnel;
improve our managerial, development, operational and finance
systems and expand our facilities, all of which may impose a
strain on our administrative and operational infrastructure.
If we
acquire additional businesses, we may not successfully integrate
their operations.
We may acquire additional businesses that complement or augment
our existing business. Integrating any newly acquired business
could be expensive and time-consuming. We may not be able to
integrate any acquired business successfully or operate any
acquired business profitably. Our future financial performance
will depend, in part, on our ability to manage any future growth
effectively and our ability to integrate any acquired
businesses. We may not be able to accomplish these tasks, and
our failure to accomplish any of them could prevent us from
successfully growing our company.
31
Our
collaborations with outside scientists may be subject to change,
which could limit our access to their expertise.
We work with scientific advisors and collaborators at research
institutions. These scientists are not our employees and may
have other commitments that would limit their availability to
us. If a conflict of interest between their work for us and
their work for another entity arises, we may lose their
services, which could negatively impact our research and
development activities.
We may
rely on contract research organizations and other third parties
to conduct clinical trials and, in such cases, we are unable to
directly control the timing, conduct and expense of our clinical
trials.
We may rely, in full or in part, on third parties to conduct our
clinical trials. In such situations, we have less control over
the conduct of our clinical trials, the timing and completion of
the trials, the required reporting of adverse events and the
management of data developed through the trial than would be the
case if we were relying entirely upon our own staff.
Communicating with outside parties can also be challenging,
potentially leading to mistakes as well as difficulties in
coordinating activities. Outside parties may have staffing
difficulties, may undergo changes in priorities or may become
financially distressed, adversely affecting their willingness or
ability to conduct our trials. We may experience unexpected cost
increases that are beyond our control. Problems with the
timeliness or quality of the work of a contract research
organization may lead us to seek to terminate the relationship
and use an alternative service provider. However, making this
change may be costly and may delay our trials, and contractual
restrictions may make such a change difficult or impossible.
Additionally, it may be impossible to find a replacement
organization that can conduct our trials in an acceptable manner
and at an acceptable cost.
We are
subject to risks associated with doing business
internationally.
Since we conduct clinical trials and manufacture our drug
products internationally, our business is subject to certain
risks inherent in international business, many of which are
beyond our control. These risks include, among other things:
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maintaining compliance with foreign legal requirements,
including employment law;
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unexpected changes in foreign regulatory requirements, including
quality standards and other certification requirements;
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tariffs, customs, duties and other trade barriers;
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changing economic conditions in countries where our products are
manufactured;
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exchange rate risks;
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product liability, intellectual property and other claims;
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political instability;
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new export license requirements; and
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difficulties in coordinating and managing foreign operations.
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Any of these factors could have an adverse effect on our
business, financial condition and results of operations. We may
not be able to successfully manage these risks or avoid their
effects.
We may
have conflicts with our partners that could delay or prevent the
development or commercialization of our drug
products.
We may have conflicts with our partners, such as conflicts
concerning the interpretation of preclinical or clinical data,
the achievement of milestones, the interpretation of contractual
obligations, payments for services, development obligations or
the ownership of intellectual property developed during our
collaboration. If any conflicts arise with any of our partners,
such partner may act in a manner that is adverse to our best
interests. Any
32
such disagreement could result in one or more of the following,
each of which could delay or prevent the development or
commercialization of our drug product, and in turn prevent us
from generating revenues:
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unwillingness on the part of a partner to pay us milestone
payments or royalties that we believe are due to us under a
collaboration;
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uncertainty regarding ownership of intellectual property rights
arising from our collaborative activities, which could prevent
us from entering into additional collaborations;
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unwillingness by the partner to cooperate in the development or
manufacture of the product, including providing us with product
data or materials;
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unwillingness on the part of a partner to keep us informed
regarding the progress of its development and commercialization
activities or to permit public disclosure of the results of
those activities;
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initiation of litigation or alternative dispute resolution
options by either party to resolve the dispute;
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attempts by either party to terminate the collaboration;
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our ability to to maintain or defend our intellectual property
rights may be compromised by our partners acts or
omissions;
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a partner may utilize our intellectual property rights in such a
way as to invite litigation that could jeopardize or invalidate
our intellectual property rights or expose us to potential
liability;
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a partner may change the focus of their development and
commercialization efforts. As previously noted, pharmaceutical
and biotechnology companies historically have re-evaluated their
priorities following mergers and consolidations, which have been
common in recent years in these industries. The ability of our
products to reach their potential could be limited if future
partners decrease or fail to increase spending relating to such
products;
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unwillingness of a partner to fully fund or commit sufficient
resources to the testing, marketing, distribution or development
of our products; and/or
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unwillingness or ability of a partner to fulfill their
obligations to us. A partner may develop alternative products
either on their own or in collaboration with others, or
encounter conflicts of interest or changes in business strategy
or other business issues.
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Given these risks, it is possible that any collaborative
arrangements which we have or may enter into may not be
successful.
Our
efforts to acquire or in-license and develop additional drug
products may fail, which might limit our ability to grow our
business.
Our long-term strategy includes the acquisition or in-license of
additional drug products. We are actively seeking to acquire, or
in-license, additional commercial drug products as well as drug
products that have demonstrated positive pre-clinical
and/or
clinical data. We have certain criteria that we are looking for
in any drug product acquisition and we may not be successful in
locating and acquiring, or in-licensing, additional desirable
drug products on acceptable terms. In addition, many other large
and small companies within the pharmaceutical and biotechnology
industry seek to establish collaborative arrangements for
product research and development, or otherwise acquire products
in late-stage clinical development, in competition with us. We
face additional competition from public and private research
organizations, academic institutions and governmental agencies
in establishing collaborative arrangements for drug products in
late-stage clinical development. Many of the companies and
institutions that compete against us have substantially greater
capital resources, research and development staffs and
facilities than we have, and greater experience in conducting
business development activities. These entities represent
significant competition to us as we seek to expand our portfolio
through the in-license or acquisition of compounds. Moreover,
while it is not feasible to predict the actual cost of acquiring
additional drug products, that cost could be substantial and we
may need to raise additional financing, which may further dilute
existing stockholders, in order to acquire new drug products.
33
From
time to time we may need to license patents, intellectual
property and proprietary technologies from third parties, which
may be difficult or expensive to obtain.
We may need to obtain licenses to patents and other proprietary
rights held by third parties to successfully develop,
manufacture and market our drug products. As an example, it may
be necessary to use a third partys proprietary technology
to reformulate one of our drug products in order to improve upon
the capabilities of the drug product. If we are unable to timely
obtain these licenses on reasonable terms, our ability to
commercially exploit our drug products may be inhibited or
prevented.
We are
a small company relative to our principal competitors, and our
limited financial resources may limit our ability to develop and
market our drug products.
Many companies, both public and private, including well-known
pharmaceutical companies and smaller niche-focused companies,
are developing products to treat many, if not all, of the
diseases we are pursuing or are currently distributing drug
products that directly compete with the drugs that we sell or
that we intend to develop, market and distribute. Many of these
companies have substantially greater financial, research and
development, manufacturing, marketing and sales experience and
resources than us. As a result, our competitors may be more
successful than us in developing their products, obtaining
regulatory approvals and marketing their products to consumers.
Competition for branded or proprietary drugs is less driven by
price and is more focused on innovation in the treatment of
disease, advanced drug delivery and specific clinical benefits
over competitive drug therapies. We may not be successful in any
or all of our current clinical studies; or if successful, and if
one or more of our drug products is approved by the FDA, we may
encounter direct competition from other companies who may be
developing products for similar or the same indications as our
drug products. Companies that have products on the market or in
research and development that target the same indications as our
products target include Neurocrine Biosciences, Abraxis
Bioscience, Inc., Astra Zeneca LP, Amgen, Inc., Bayer AG,
Bioniche Life Sciences Inc., Eli Lilly and Co., Novartis
Pharmaceuticals Corporation, Genentech, Inc., Bristol-Myers
Squibb Company, GlaxoSmithKline, Biogen-IDEC Pharmaceuticals,
Inc., OSI Pharmaceuticals, Inc., Cephalon, Inc., Sanofi-aventis,
Inc., Pfizer, Inc., AVI Biopharma, Inc., Genzyme Corporation,
Shire Pharmaceuticals, Abbott Laboratories, Poniard
Pharmaceuticals, Inc., Roche Pharmaceuticals,
Johnson & Johnson and others who may be more advanced
in the development of competing drug products or are more
established. Many of our competitors are large and
well-capitalized companies focusing on a wide range of diseases
and drug indications, and have substantially greater financial,
research and development, marketing, human and other resources
than we do. Furthermore, large pharmaceutical companies have
significantly more experience than we do in pre-clinical
testing, human clinical trials and regulatory approval
procedures, among other things.
Our
supply of drug products will be dependent upon the production
capabilities of contract manufacturing organizations, or CMOs,
and component and packaging supply sources, and, if such CMOs
are not able to meet our demands, we may be limited in our
ability to meet demand for our products, ensure regulatory
compliance or maximize profit on the sale of our
products.
We have no internal manufacturing capacity for our drug
products, and, therefore, we have entered into agreements with
CMOs to supply us with active pharmaceutical ingredients and our
finished dose drug products. Consequently, we will be dependent
on our CMO partners for our supply of drug products. Some of
these manufacturing facilities are located outside the United
States. The manufacture of finished drug products, including the
acquisition of compounds used in the manufacture of the finished
drug product, may require considerable lead times. We will have
little or no control over the production process. Accordingly,
while we do not currently anticipate shortages of supply, there
could arise circumstances in which we will not have adequate
supplies to timely meet our requirements or market demand for a
particular drug product could outstrip the ability of our supply
source to timely manufacture and deliver the product, thereby
causing us to lose sales. In addition, our ability to make a
profit on the sale of our drug products depends on our ability
to obtain price arrangements that ensure a supply of product at
favorable prices.
34
Reliance on CMOs entails risks to which we would not be subject
if we manufactured products ourselves, including reliance on the
third party for regulatory compliance and adherence to the
FDAs current Good Manufacturing Practice, or cGMP,
requirements, the possible breach of the manufacturing agreement
by the CMO and the possibility of termination or non-renewal of
the agreement by the CMO, based on its own business priorities,
at a time that is costly or inconvenient for us. Before we can
obtain marketing approval for our drug products, our CMO
facilities must pass an FDA pre-approval inspection. In order to
obtain approval, all of the facilitys manufacturing
methods, equipment and processes must comply with cGMP
requirements. The cGMP requirements govern all areas of record
keeping, production processes and controls, personnel and
quality control. In addition, our CMOs will be subject to
on-going periodic inspection by the FDA and corresponding state
and foreign agencies for compliance with cGMP regulations,
similar foreign regulations and other regulatory standards. We
do not have control over our CMOs compliance with these
regulations and standards. Any failure of our third party
manufacturers or us to comply with applicable regulations,
including an FDA pre-approval inspection and cGMP requirements,
could result in sanctions being imposed on them or us, including
warning letters, fines, injunctions, civil penalties, failure of
regulatory authorities to grant marketing approval of our
products, delay, suspension or withdrawal of approvals, license
revocation, seizures or recalls of product, operation
restrictions and criminal prosecutions, any of which could
significantly and adversely affect our business.
We may
not be successful in establishing additional active
pharmaceutical ingredient or finished dose drug supply
relationships, which would limit our ability to develop and
market our drug products.
Success in the development and marketing of our drugs depends in
part upon our ability to maintain, expand and enhance our
existing relationships and establish new sources of supply for
active pharmaceutical ingredients, or API, or for the
manufacture of our finished dose drug products. We do not
presently intend to focus our research and development efforts
on developing APIs or manufacturing of finished dosage form for
our drugs. In addition, we currently have no capacity to
manufacture APIs or finished dose drug products and do not
intend to spend our capital resources to develop the capacity to
do so. Therefore, we must rely on relationships with API
suppliers and other CMOs, to supply our APIs and finished dose
drug products. We may not be successful in maintaining,
expanding or enhancing our existing relationships or in securing
new relationships with API suppliers or CMOs. If we fail to
maintain or expand our existing relationships or secure new
relationships, our ability to develop and market our drug
products could be harmed.
We rely on contract suppliers to supply our existing products,
and will likely do the same for other products that we may
develop, commercialize or acquire in the future. Contract
suppliers may not be able to meet our needs with respect to
timing, cost, quantity or quality. All of our suppliers are
sole-source suppliers, including for Zevalin and Fusilev, and no
currently qualified alternative suppliers exist.
If we are unable to obtain a sufficient supply of our required
products and services on acceptable terms, or if we should
encounter delays or difficulties in our relationships with our
manufacturers, or if any required approvals by the FDA and other
regulatory authorities do not occur on a timely basis, we will
lose sales. Moreover, contract suppliers that we may use must
continually adhere to current good manufacturing practices
enforced by the FDA. If the facilities of these suppliers cannot
pass an inspection, we may lose FDA approval of our products.
Failure to obtain products for sale for any reason may result in
an inability to meet product demand and a loss of potential
revenues.
Our
drug products may not be more effective, safer or more
cost-efficient than a competing drug and otherwise may not have
any competitive advantage, which could hinder our ability to
successfully commercialize our drug products.
Any drug product for which we obtain FDA approval must compete
for market acceptance and market share. Drugs produced by other
companies are currently on the market for each disease type we
are pursuing. Even if one or more of our drug development
products ultimately receives FDA approval, our drug products may
not have better efficacy in treating the target indication than
a competing drug, may not have a more favorable side-effect
profile than a competing drug, may not be more cost-efficient to
manufacture or apply, or otherwise may not demonstrate a
competitive advantage over competing therapies. Accordingly,
even if FDA approval is obtained for one or more of
35
our drug development products, they may not gain acceptance by
the medical field or become commercially successful.
The
size of the market for our potential products is
uncertain.
We often provide estimates of the number of people who suffer
from the diseases that our drugs are targeting. However, there
is limited information available regarding the actual size of
these patient populations. In addition, it is uncertain whether
the results from previous or future clinical trials of drug
products will be observed in broader patient populations, and
the number of patients who may benefit from our drug products
may be significantly smaller than the estimated patient
populations.
If
actual future payments for allowances, discounts, returns,
rebates and chargebacks exceed the estimates we made at the time
of the sale of our products, our financial position, results of
operations and cash flows may be materially and negatively
impacted.
We recognize product revenue net of estimated allowances for
discounts, returns, rebates and chargebacks. Such estimates
require our most subjective and complex judgment due to the need
to make estimates about matters that are inherently uncertain.
Based on industry practice, pharmaceutical companies, including
us, have liberal return policies. Generally, we are obligated to
accept from customers the return of pharmaceuticals that have
reached their expiration date up to 12 months after their
expiration. We authorize returns for damaged products and
exchanges for expired products in accordance with our return
goods policy and procedures. In addition, like our competitors,
we also give credits for chargebacks to wholesale customers that
have contracts with us for their sales to hospitals, group
purchasing organizations, pharmacies or other retail customers.
A chargeback is the difference between the price the wholesale
customer (in our case, the GPOs) pays (wholesale acquisition
cost) and the price that the GPOs end-customer pays for a
product (contracted customer). Since we have only recently begun
commercial distribution of our products, we do not have
historical data on returns and allowances. Although we have
estimated the allowances very conservatively, actual results may
differ significantly from our estimated allowances for
discounts, returns, rebates and chargebacks. Changes in
estimates and assumptions based upon actual results may have a
material impact on our results of operations
and/or
financial condition. Such changes to estimates will be made to
the financial statements in the year in which the estimate is
charged. In addition, our financial position, results of
operations and cash flows may be materially and negatively
impacted if actual future payments for allowances, discounts,
returns, rebates and chargebacks exceed the estimates we made at
the time of the sale of our products.
Risks
Related to Our Industry
If
third-party payors do not adequately reimburse providers for any
of our products, if approved for marketing, we may not be
successful in selling them.
Our ability to commercialize any products successfully will
depend in part on the extent to which reimbursement will be
available from governmental and other third-party payors, both
in the United States and in foreign markets. Even if we succeed
in bringing one or more products to the market, the amount
reimbursed for our products may be insufficient to allow us to
compete effectively and could adversely affect our profitability.
Reimbursement by a governmental and other third-party payors may
depend upon a number of factors, including a governmental or
other third-party payors determination that use of a
product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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cost-effective; and
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neither experimental nor investigational.
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Obtaining reimbursement approval for a product from each
third-party and governmental payor is a time-consuming and
costly process that could require us to provide supporting
scientific, clinical and cost-effectiveness data for the use of
our products to each payor. We may not be able to provide data
sufficient to obtain reimbursement.
Eligibility for coverage does not imply that any drug product
will be reimbursed in all cases or at a rate that allows us to
make a profit. Interim payments for new products, if applicable,
may also not be sufficient to cover our costs and may not become
permanent. Reimbursement rates may vary according to the use of
the drug and the clinical setting in which it is used, may be
based on payments allowed for lower-cost drugs that are already
reimbursed, may be incorporated into existing payments for other
products or services, and may reflect budgetary constraints
and/or
Medicare or Medicaid data used to calculate these rates. Net
prices for products also may be reduced by mandatory discounts
or rebates required by government health care programs or by any
future relaxation of laws that restrict imports of certain
medical products from countries where they may be sold at lower
prices than in the United States.
The
consolidation of drug wholesalers and other wholesaler actions
could increase competitive and pricing pressures on
pharmaceutical manufacturers, including us.
We sell our pharmaceutical products primarily through
wholesalers. These wholesale customers comprise a significant
part of the distribution network for pharmaceutical products in
the United States. This distribution network is continuing to
undergo significant consolidation. As a result, a smaller number
of large wholesale distributors control a significant share of
the market. We expect that consolidation of drug wholesalers
will increase competitive and pricing pressures on
pharmaceutical manufacturers, including us. In addition,
wholesalers may apply pricing pressure through fee-for-service
arrangements, and their purchases may exceed customer demand,
resulting in reduced wholesaler purchases in later quarters. We
cannot assure you that we can manage these pressures or that
wholesaler purchases will not decrease as a result of this
potential excess buying.
Rapid
bio-technological advancement may render our drug products
obsolete before we are able to recover expenses incurred in
connection with their development. As a result, our drug
products may never become profitable.
The pharmaceutical industry is characterized by rapidly evolving
biotechnology. Biotechnologies under development by other
pharmaceutical companies could result in treatments for diseases
and disorders for which we are developing our own treatments.
Several other companies are engaged in research and development
of compounds that are similar to our research. A competitor
could develop a new biotechnology, product or therapy that has
better efficacy, a more favorable side-effect profile or is more
cost-effective than one or more of our drug products and thereby
cause our drug products to become commercially obsolete. Some of
our drug products may become obsolete before we recover the
expenses incurred in their development. As a result, such
products may never become profitable.
Competition
for patients in conducting clinical trials may prevent or delay
product development and strain our limited financial
resources.
Many pharmaceutical companies are conducting clinical trials in
patients with the disease indications that our drug products
target. As a result, we must compete with them for clinical
sites, physicians and the limited number of patients who fulfill
the stringent requirements for participation in clinical trials.
Also, due to the confidential nature of clinical trials, we do
not know how many of the eligible patients may be enrolled in
competing studies and who are consequently not available to us
for our clinical trials. Our clinical trials may be delayed or
terminated due to the inability to enroll enough patients to
complete our clinical trials. Patient enrollment depends on many
factors, including the size of the patient population, the
nature of the trial protocol, the proximity of patients to
clinical sites and the eligibility criteria for the study. The
delay or inability to meet planned patient enrollment may result
in increased costs and delays or termination of the trial, which
could have a harmful effect on our ability to develop products.
37
Failure
to obtain regulatory approval outside the United States will
prevent us from marketing our product candidates
abroad.
We intend to market certain of our existing and future product
candidates in
non-U.S. markets.
In order to market our existing and future product candidates in
the European Union and many other
non-U.S. jurisdictions,
we must obtain separate regulatory approvals. We have had
limited interactions with
non-U.S. regulatory
authorities, and the approval procedures vary among countries
and can involve additional testing, and the time required to
obtain approval may differ from that required to obtain FDA
approval. Approval by the FDA does not ensure approval by
regulatory authorities in other countries, and approval by one
or more
non-U.S. regulatory
authorities does not ensure approval by regulatory authorities
in other countries or by the FDA. The
non-U.S. regulatory
approval process may include all of the risks associated with
obtaining FDA approval as well as other risks specific to the
jurisdictions in which we may seek approval. We may not obtain
non-U.S. regulatory
approvals on a timely basis, if at all. We may not be able to
file for
non-U.S. regulatory
approvals and may not receive necessary approvals to
commercialize our existing and future product candidates in any
market.
Even
after we receive regulatory approval to market our drug
products, the market may not be receptive to our drug products
upon their commercial introduction, which would negatively
affect our ability to achieve profitability.
Our drug products may not gain market acceptance among
physicians, patients, healthcare payors and the medical
community. The degree of market acceptance of any approved drug
products will depend on a number of factors, including:
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the effectiveness of the drug product;
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the prevalence and severity of any side effects;
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potential advantages or disadvantages over alternative
treatments;
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relative convenience and ease of administration;
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the strength of marketing and distribution support;
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the price of the drug product, both in absolute terms and
relative to alternative treatments; and
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sufficient third-party coverage or reimbursement.
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If our drug products receive regulatory approval but do not
achieve an adequate level of acceptance by physicians,
healthcare payors and patients, we may not generate drug product
revenues sufficient to attain profitability.
Guidelines
and recommendations published by various organizations can
reduce the use of our products.
Government agencies promulgate regulations and guidelines
directly applicable to us and to our products. However,
professional societies, practice management groups, insurance
carriers, physicians, private health/science foundations and
organizations involved in various diseases from time to time may
also publish guidelines or recommendations to healthcare
providers, administrators and payers, and patient communities.
Recommendations of government agencies or these other
groups/organizations may relate to such matters as usage,
dosage, route of administration and use of related therapies and
reimbursement of our products by government and private payers.
Organizations like these have in the past made recommendations
about our products. Recommendations or guidelines that are
followed by patients and healthcare providers could result in
decreased use
and/or
dosage of our products.
Any recommendations or guidelines that result in decreased use,
dosage or reimbursement of our products could adversely affect
our product sales and operating results materially. In addition,
the perception by the investment community or stockholders that
such recommendations or guidelines will result in decreased use
and dosage of our products could adversely affect the market
price for our common stock.
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Our
failure to comply with governmental regulations may delay or
prevent approval of our drug products and/or subject us to
penalties.
The FDA and comparable agencies in foreign countries impose many
requirements on the introduction of new drugs through lengthy
and detailed clinical testing and data collection procedures,
and other costly and time consuming compliance procedures. While
we believe that we are currently in compliance with applicable
FDA regulations, if our partners, our CROs, our CMOs or we fail
to comply with the regulations applicable to our clinical
testing, the FDA may delay, suspend or cancel our clinical
trials, or the FDA might not accept the test results. The FDA,
an institutional review board at our clinical trial sites, our
third party investigators, any comparable regulatory agency in
another country, or we, may suspend clinical trials at any time
if the trials expose subjects participating in such trials to
unacceptable health risks. Further, human clinical testing may
not show any current or future drug product to be safe and
effective to the satisfaction of the FDA or comparable
regulatory agencies, or the data derived from the clinical tests
may be unsuitable for submission to the FDA or other regulatory
agencies.
Once we submit a drug product for commercial sale approval, the
FDA or other regulatory agencies may not issue their approvals
on a timely basis, if at all. If we are delayed or fail to
obtain these approvals, our business and prospects may be
significantly damaged. Even if we obtain regulatory approval for
our drug products, we, our partners, our manufacturers, and
other contract entities will continue to be subject to extensive
requirements by a number of national, foreign, state and local
agencies. These regulations will impact many aspects of our
operations, including testing, research and development,
manufacturing, safety, effectiveness, labeling, storage, quality
control, adverse event reporting, record keeping, approval,
advertising and promotion of our future products. Failure to
comply with applicable regulatory requirements could, among
other things, result in:
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warning letters;
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fines;
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changes in advertising;
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revocation or suspension of regulatory approvals of products;
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product recalls or seizures;
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delays, interruption, or suspension of product distribution,
marketing and sale;
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civil or criminal sanctions; and
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refusals to approve new products.
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The
discovery of previously unknown problems with drug products
approved to go to market may raise costs or prevent us from
marketing such product or change the labeling of our products or
take other potentially limiting or costly actions if we or
others identify side effects after our products are on the
market.
The later discovery of previously unknown problems with our
products may result in restrictions of the drug product,
including withdrawal from the market. In addition, the FDA may
revisit and change its prior determinations with regard to the
safety and efficacy of our products. If the FDAs position
changes, we may be required to change our labeling or to cease
manufacture and marketing of the challenged products. Even prior
to any formal regulatory action, we could voluntarily decide to
cease the distribution and sale or recall any of our products if
concerns about their safety or effectiveness develop.
On September 27, 2007, President Bush signed into law the
FDAAA, significantly adding to the FDAs authority
including allowing the FDA to (i) require sponsors of
marketed products to conduct post-approval clinical studies to
assess a known serious risk, signals of serious risk or to
identify an unexpected serious risk; (ii) mandate labeling
changes to products, at any point in a products lifecycle,
based on new safety information and (iii) require sponsors
to implement a Risk Evaluation and Mitigation Strategy REMS for
a product which could include a medication guide, patient
package insert, a communication plan to healthcare providers, or
other elements as the FDA deems are necessary to assure safe use
of the drug (either prior to approval or post-approval as
necessary), which could include imposing certain restrictions on
distribution or use of a product. Failure to comply with the new
requirements, if imposed on a sponsor by the FDA under the
FDAAA, could result in significant civil monetary
39
penalties or other administrative actions by FDA. Further,
regulatory agencies could change existing, or promulgate new,
regulations at any time which may affect our ability to obtain
or maintain approval of our existing or future products or
require significant additional costs to obtain or maintain such
approvals.
Our
failure to comply with FDA (and related) regulations applicable
to our business may subject us to sanctions, which could damage
our reputation and adversely affect our business
condition.
In the U.S., the FDA, and comparable state regulatory agencies
and enforcement authorities, impose requirements on us as a
manufacturer and marketer of prescription drug products. Drug
manufacturers are required to register with FDA, and are
required to comply with various regulatory requirements
regarding drug research, manufacturing, distribution, reporting
and recordkeeping. Most drug products must be approved by the
FDA prior to marketing, and companies are required to comply
with numerous post-marketing requirements. Companies are also
subject to periodic inspection by the FDA for compliance with
cGMP and other applicable regulations.
Further, drug manufacturers are required to comply with FDA
requirements for labeling and advertising, as well as other
Federal and state requirements for advertising. This includes a
prohibition on promotion for unapproved or off-label
uses,
e.g.
, promotion of products for uses that are not
described in the products FDA-approved labeling. While a
physician may prescribe a medication for off-label uses where
appropriate, companies may not generally promote drug products
for off-label uses.
If FDA or other Federal and state agencies believe that a
company is not in compliance with applicable regulations, they
have various enforcement authorities to address violations. FDA
can issue a warning letter and seek voluntary compliance from a
company in the form of remedial or corrective action. FDA may
also impose civil money penalties by administrative action, and
through judicial enforcement seek actions including injunctions,
seizures, and criminal penalties. FDA or other Federal and state
authorities may also seek operating restrictions on a company in
order to achieve compliance, including termination or suspension
of company activities. Such agencies and enforcement authorities
may also disseminate information to the public about their
enforcement actions.
If we were to become subject to any FDA or similar enforcement
action related to any of our drug products, our business
condition could be adversely affected, and the public release of
such information could be damaging to our reputation.
Legislative
or regulatory reform of the healthcare system and pharmaceutical
industry related to pricing or reimbursement may hurt our
ability to sell our products profitably or at all.
In both the United States and certain foreign jurisdictions,
there have been and may continue to be a number of legislative
and regulatory proposals to change the healthcare system and
pharmaceutical industry in ways that could impact our ability to
sell our products profitably. Sales of our products depend in
part on the availability of reimbursement from third-party
payors such as government health administration authorities,
private health insurers, health maintenance organizations
including pharmacy benefit managers and other health
care-related organizations. Both the Federal and state
governments in the U.S. and foreign governments continue to
propose and pass new legislation and regulations designed to
contain or reduce the cost of health care. Such legislation and
regulations may result in decreased reimbursement for
prescription drugs, which may further exacerbate industry-wide
pressure to reduce the prices charged for prescription drugs.
This could harm our ability to market our products and generate
revenues.
It is possible that proposals will be adopted, or existing
regulations that affect the coverage or pricing of
pharmaceutical and other medical products may change, before any
of our products are approved for marketing. Cost control
initiatives could decrease the price that we receive for any of
our products that we are developing. In addition, third-party
payors are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of
newly-approved pharmaceutical products.
In some foreign countries, particularly in the European Union,
prescription drug pricing is subject to governmental control. In
these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of
marketing approval for a product. To obtain reimbursement or
pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost-effectiveness of
our product
40
candidate to other available therapies. If reimbursement of our
products is unavailable or limited in scope or amount, or if
pricing is set at unsatisfactory levels, our profitability will
be negatively affected.
If we
market products in a manner that violates health care
anti-kickback or other fraud and abuse laws, we may be subject
to civil or criminal penalties, including exclusions from
participation in Federal health care programs.
The Federal health care program anti-kickback statute prohibits,
among other things, knowingly and willfully offering, paying,
soliciting, or receiving remuneration to induce or in return for
purchasing, leasing, ordering, or arranging for the purchase,
lease or order of any health care item or service reimbursable
under Medicare, Medicaid or other federally financed health care
programs. This statute applies to arrangements between
pharmaceutical manufacturers and prescribers, purchasers and
formulary managers. Although there are a number of statutory
exemptions and regulatory safe harbors protecting certain common
activities, the exemptions and safe harbors are drawn narrowly,
and practices that involve remuneration intended to induce
prescribing, purchases or recommendations may be subject to
scrutiny if they do not qualify for an exemption or safe harbor.
Federal false claims laws prohibit any person from knowingly
presenting, or causing to be presented, a false claim for
payment to the Federal government, or knowingly making, or
causing to be made, a false statement to get a false claim paid.
Pharmaceutical companies have been prosecuted under these laws
for a variety of alleged promotional and marketing activities,
such as providing free product to customers with the expectation
that the customers would bill Federal programs for the product;
reporting to pricing services inflated average wholesale prices
that were then used by Federal programs to set reimbursement
rates; engaging in off-label promotion that caused claims to be
submitted to Medicaid for non-covered off-label uses; and
submitting inflated best price information to the Medicaid
Rebate Program.
The Health Insurance Portability and Accountability Act of 1996
also created prohibitions against health care fraud and false
statements relating to health care matters. The health care
fraud statute prohibits knowingly and willfully executing a
scheme to defraud any health care benefit program, including
private payors. The false statements statute prohibits knowingly
and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for
health care benefits, items or services.
The majority of states also have statutes or regulations similar
to these Federal laws, which apply to items and services
reimbursed under Medicaid and other state programs, or, in
several states, apply regardless of the payor. In addition, some
states have laws that require pharmaceutical companies to adopt
comprehensive compliance programs. For example, under California
law, pharmaceutical companies must comply with both the April
2003 Office of Inspector General Compliance Program Guidance for
Pharmaceutical Manufacturers and the PhRMA Code on Interactions
with Healthcare Professionals, as amended. We have adopted and
implemented a compliance program which we believe satisfies the
applicable requirements of California law.
Sanctions under these Federal and state laws may include civil
monetary penalties, exclusion of a manufacturers products
from reimbursement under government programs, criminal fines and
imprisonment. Because of the breadth of these laws and the
narrowness of the safe harbors, it is possible that some of our
business activities could be subject to challenge under one or
more of such laws. If our past, present or future operations are
found to be in violation of any of the laws described above or
other similar governmental regulations to which we are subject,
we may be subject to the applicable penalty associated with the
violation which could adversely affect our ability to operate
our business and our financial results.
If we
are unable to adequately protect our technology or enforce our
patent rights, our business could suffer.
Our success with the drug products that we develop will depend,
in part, on our ability and the ability of our licensors to
obtain and maintain patent protection for these products. We
currently have a number of United States and foreign patents
issued and pending, however, we primarily rely on patent rights
licensed from others. Our license agreements generally give us
the right
and/or
obligation to maintain and enforce the subject patents. We may
not receive patents for any of our pending patent applications
or any patent applications we may file in the future. If our
pending and future patent applications are not allowed or, if
allowed and issued into patents, if such patents and
41
the patents we have licensed are not upheld in a court of law,
our ability to competitively exploit our drug products would be
substantially harmed. Also, such patents may or may not provide
competitive advantages for their respective products or they may
be challenged or circumvented by our competitors, in which case
our ability to commercially exploit these products may be
diminished.
The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal and
factual questions. No consistent policy regarding the breadth of
claims allowed in pharmaceutical and biotechnology patents has
emerged to date in the United States. The laws of many countries
may not protect intellectual property rights to the same extent
as United States laws, and those countries may lack adequate
rules and procedures for defending our intellectual property
rights. Filing, prosecuting and defending patents on all our
products or product candidates throughout the world would be
prohibitively expensive. Competitors may use our technologies in
jurisdictions and may not be covered by any of our patent claims
or other intellectual property rights.
Changes in either patent laws or in interpretations of patent
laws in the United States and other countries may diminish the
value of our intellectual property. We do not know whether any
of our patent applications will result in the issuance of any
patents, and we cannot predict the breadth of claims that may be
allowed in our patent applications or in the patent applications
we license from others.
The degree of future protection for our proprietary rights is
uncertain because legal means afford only limited protection and
may not adequately protect our rights or permit us to gain or
keep our competitive advantage. For example:
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we or our licensors might not have been the first to make the
inventions covered by each of our or our licensors pending
patent applications and issued patents, and we may have to
participate in expensive and protracted interference proceedings
to determine priority of invention;
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we or our licensors might not have been the first to file patent
applications for these inventions;
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others may independently develop similar or alternative product
candidates or duplicate any of our or our licensors
product candidates;
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our or our licensors pending patent applications may not
result in issued patents;
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our or our licensors issued patents may not provide a
basis for commercially viable products or may not provide us
with any competitive advantages or may be challenged by third
parties;
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others may design around our or our licensors patent
claims to produce competitive products that fall outside the
scope of our or our licensors patents;
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we may not develop or in-license additional patentable
proprietary technologies related to our product
candidates; or
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the patents of others may prevent us from marketing one or more
of our product candidates for one or more indications that may
be valuable to our business strategy.
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Moreover, an issued patent does not guarantee us the right to
practice the patented technology or commercialize the patented
product. Third parties may have blocking patents that could be
used to prevent us from commercializing our patented products
and practicing our patented technology. Our issued patents and
those that may be issued in the future may be challenged,
invalidated or circumvented, which could limit our ability to
prevent competitors from marketing related product candidates or
could limit the length of the term of patent protection of our
product candidates. In addition, our competitors may
independently develop similar technologies. Moreover, because of
the extensive time required for development, testing and
regulatory review of a potential product, it is possible that,
before any of our product candidates can be commercialized, any
related patent may expire or remain in force for only a short
period following commercialization, thereby reducing any
advantage of the patent.
We also rely on trade secret protection and contractual
protections for our unpatented, confidential and proprietary
technology. Trade secrets are difficult to protect. While we
enter into confidentiality agreements with our employees,
consultants and others, these agreements may not successfully
protect our trade secrets or other
42
confidential and proprietary information. It is possible that
these agreements will be breached, or that they will not be
enforceable in every instance, and that we will not have
adequate remedies for any such breach. Likewise, although we
conduct periodic trade secret audits of certain partners,
vendors and contract manufacturers, these trade secret audits
may not protect our trade secrets or other confidential and
proprietary information. It is possible that despite having
certain trade secret audited security measures in place, trade
secrets or other confidential and proprietary information may
still be leaked or disclosed to a third party. It is also
possible that our trade secrets will become known or
independently developed by our competitors.
If we are unable to adequately protect our technology, trade
secrets or proprietary know-how, or enforce our patents, our
business, financial condition and prospects could suffer.
Intellectual
property rights are complex and uncertain and therefore may
subject us to infringement claims.
The patent positions related to our drug products are inherently
uncertain and involve complex legal and factual issues. Although
we are not aware of any infringement by any of our drug products
on the rights of any third party, there may be third party
patents or other intellectual property rights relevant to our
drug products of which we are not aware. Third parties may
assert patent or other intellectual property infringement claims
against us with products. This could draw us into costly
litigation as well as result in the loss of our use of the
intellectual property that is critical to our business strategy.
Intellectual
property litigation is increasingly common and increasingly
expensive and may result in restrictions on our business and
substantial costs, even if we prevail.
Patent and other intellectual property litigation is becoming
more common in the pharmaceutical industry. Litigation is
sometimes necessary to defend against or assert claims of
infringement, to enforce our patent rights, including those we
have licensed from others, to protect trade secrets or to
determine the scope and validity of proprietary rights of third
parties. Currently, no third party is asserting that we are
infringing upon their patent rights or other intellectual
property, nor are we aware or believe that we are infringing
upon any third partys patent rights or other intellectual
property. We may, however, be infringing upon a third
partys patent rights or other intellectual property, and
litigation asserting such claims might be initiated in which we
would not prevail, or we would not be able to obtain the
necessary licenses on reasonable terms, if at all. All such
litigation, whether meritorious or not, as well as litigation
initiated by us against third parties, is time-consuming and
very expensive to defend or prosecute and to resolve. In
addition, if we infringe the intellectual property rights of
others, we could lose our right to develop, manufacture or sell
our products or could be required to pay monetary damages or
royalties to license proprietary rights from third parties. An
adverse determination in a judicial or administrative proceeding
or a failure to obtain necessary licenses could prevent us from
manufacturing or selling our products, which could harm our
business, financial condition and prospects.
If our competitors prepare and file patent applications in the
United States or Europe that claim technology we also claim, we
may have to participate in interference proceedings required by
the USPTO to determine priority of invention or opposition
proceedings in Europe, both of which could result in substantial
costs, even if we ultimately prevail. Results of interference
and opposition proceedings are highly unpredictable and may
result in us having to try to obtain licenses in order to
continue to develop or market certain of our drug products.
We may
be subject to damages resulting from claims that we, or our
employees, have wrongfully used or disclosed alleged trade
secrets of our employees former employers.
Many of our employees were previously employed at universities
or biotechnology or pharmaceutical companies, including our
competitors or potential competitors. Although we have not
received any claim to date, we may be subject to claims that
these employees through their employment inadvertently or
otherwise used or disclosed trade secrets or other proprietary
information of their former employers. Litigation may be
necessary to defend against these claims. If we fail in
defending such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel.
43
We may
be subject to product liability claims, and may not have
sufficient product liability insurance to cover any such claims,
which may expose us to substantial liabilities.
We may be held liable if any product we or our partners develop
causes injury or is found otherwise unsuitable during product
testing, manufacturing, marketing or sale. Regardless of merit
or eventual outcome, product liability claims could result in
decreased demand for our product candidates, injury to our
reputation, withdrawal of patients from our clinical trials,
substantial monetary awards to trial participants and the
inability to commercialize any products that we may develop.
These claims might be made directly by consumers, health care
providers, pharmaceutical companies or others selling or testing
our products. Although we currently carry product liability
insurance in the amount of at least $10 million in the
aggregate, it is possible that this coverage will be
insufficient to protect us from future claims. However, our
insurance may not reimburse us or may not be sufficient to
reimburse us for expenses or losses we may suffer. Moreover, if
insurance coverage becomes more expensive, we may not be able to
maintain insurance coverage at a reasonable cost or in
sufficient amounts to protect us against losses due to
liability. Failure to maintain sufficient insurance coverage
could have a material adverse effect on our business, prospects
and results of operations if claims are made that exceed our
coverage.
On occasion, juries have awarded large judgments in class action
lawsuits for claims based on drugs that had unanticipated side
effects. In addition, the pharmaceutical and biotechnology
industries, in general, have been subject to significant medical
malpractice litigation. A successful product liability claim or
series of claims brought against us could harm our reputation
and business and would decrease our cash reserves.
The
use of hazardous materials in our research and development
efforts imposes certain compliance costs on us and may subject
us to liability for claims arising from the use or misuse of
these materials.
Our research and development efforts have involved and currently
involve the use of hazardous materials. We are subject to
federal, state and local laws and regulations governing the
storage, use and disposal of these materials and some waste
products. We believe that our safety procedures for the storage,
use and disposal of these materials comply with the standards
prescribed by federal, state and local regulations. However, we
cannot completely eliminate the risk of accidental contamination
or injury from these materials. If there were to be an accident,
we could be held liable for any damages that result, which could
exceed our financial resources. We currently maintain insurance
coverage for injuries resulting from the hazardous materials we
use; however, future claims may exceed the amount of our
coverage. Also, we do not have insurance coverage for pollution
clean up and removal. Currently the costs of complying with
federal, state and local regulations are not significant, and
consist primarily of waste disposal expenses.
Risks
Related to Our Common Stock
There
are a substantial number of shares of our common stock eligible
for future sale in the public market. The sale of these shares
could cause the market price of our common stock to fall. Any
future equity issuances by us may have dilutive and other
effects on our existing stockholders.
As of March 27, 2009, there were approximately
32.5 million shares of our common stock outstanding, and in
addition, security holders held options, warrants and preferred
stock which, if vested, exercised or converted, would obligate
us to issue up to approximately 12.7 million additional
shares of common stock. However, we would receive over
$89 million from the issuance of shares of common stock
upon the exercise of all of the options and warrants. A
substantial number of those shares, when we issue them upon
vesting, conversion or exercise, will be available for immediate
resale in the public market. In addition, we have a shelf
registration statement to sell up to $150 million of our
securities, some or all of which may be shares of our common
stock or securities convertible into or exercisable for shares
of our common stock, and all of which would be available for
resale in the market. The market price of our common stock could
fall as a result of sales of any of these shares of common stock
due to the increased number of shares available for sale in the
market.
We have primarily financed our operations, and we anticipate
that we will have to finance a large portion of our operating
cash requirements, by issuing and selling our common stock or
securities convertible into or exercisable for shares of our
common stock. Any issuances by us of equity securities may be at
or below the prevailing market price of our common stock and may
have a dilutive impact on our existing stockholders. These
issuances or other
44
dilutive issuances would also cause our net income, if any, per
share to decrease in future periods. As a result, the market
price of our common stock could drop.
The
market price and trading volume of our common stock fluctuate
significantly and could result in substantial losses for
individual investors.
The stock market from time to time experiences significant price
and trading volume fluctuations that are unrelated to the
operating performance of particular companies. These broad
market fluctuations may cause the market price and trading
volume of our common stock to decrease. In addition, the market
price and trading volume of our common stock is often highly
volatile.
Factors that may cause the market price and volume of our common
stock to decrease include:
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adverse results or delays in our clinical trials;
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fluctuations in our results of operations;
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timing and announcements of our bio-technological innovations or
new products or those of our competitors;
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developments concerning any strategic alliances or acquisitions
we may enter into;
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announcements of FDA non-approval of our drug products, or
delays in the FDA or other foreign regulatory review process or
actions;
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adverse actions taken by regulatory agencies with respect to our
drug products, clinical trials, manufacturing processes or sales
and marketing activities;
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concerns about our products being reimbursed;
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any lawsuit involving us or our drug products;
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developments with respect to our patents and proprietary rights;
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announcements of technological innovations or new products by
our competitors;
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public concern as to the safety of products developed by us or
others;
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regulatory developments in the United States and in foreign
countries;
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changes in stock market analyst recommendations regarding our
common stock or lack of analyst coverage;
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the pharmaceutical industry generally and general market
conditions;
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failure of our results of operations to meet the expectations of
stock market analysts and investors;
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sales of our common stock by our executive officers, directors
and five percent stockholders or sales of substantial amounts of
our common stock;
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changes in accounting principles; and
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loss of any of our key scientific or management personnel.
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Also, certain dilutive securities such as warrants can be used
as hedging tools which may increase volatility in our stock and
cause a price decline. While a decrease in market price could
result in direct economic loss for an individual investor, low
trading volume could limit an individual investors ability
to sell our common stock, which could result in substantial
economic loss as well. Since January 1, 2008 through
March 27, 2009, the price of our common stock ranged
between $0.46 and $3.35, and the daily trading volume was as
high as 4,369,800 shares and as low as 20,200 shares.
In addition, due in large part to the current global economic
crisis many institutional investors that historically had
invested in specialty pharmaceutical companies have ceased
operations or further investment in these companies, which has
had negatively impacted trading volume for our stock.
Following periods of volatility in the market price of a
companys securities, securities class action litigation
may be instituted against that company. Regardless of their
merit, these types of lawsuits generally result in substantial
legal fees and managements attention and resources being
diverted from the operations of a business.
45
Provisions
of our charter, bylaws and stockholder rights plan may make it
more difficult for someone to acquire control of us or replace
current management even if doing so would benefit our
stockholders, which may lower the price an acquirer or investor
would pay for our stock.
Provisions of our certificate of incorporation and bylaws, both
as amended, may make it more difficult for someone to acquire
control of us or replace our current management. These
provisions include:
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the ability of our board of directors to amend our bylaws
without stockholder approval;
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the inability of stockholders to call special meetings;
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the ability of members of the board of directors to fill
vacancies on the board of directors;
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the inability of stockholders to act by written consent, unless
such consent is unanimous; and
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the establishment of advance notice requirements for nomination
for election to our board of directors or for proposing matters
that can be acted on by stockholders at stockholder meetings.
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These provisions may make it more difficult for stockholders to
take certain corporate actions and could delay, discourage or
prevent someone from acquiring our business or replacing our
current management, even if doing so would benefit our
stockholders. These provisions could limit the price that
certain investors might be willing to pay for shares of our
common stock.
We have a stockholder rights plan pursuant to which we
distributed rights to purchase units of our series B junior
participating preferred stock. The rights become exercisable
upon the earlier of ten days after a person or group of
affiliated or associated persons has acquired 15% or more of the
outstanding shares of our common stock or ten business days
after a tender offer has commenced that would result in a person
or group beneficially owning 15% or more of our outstanding
common stock. These rights could delay or discourage someone
from acquiring our business, even if doing so would benefit our
stockholders. We currently have no stockholders who own 15% or
more of the outstanding shares of our common stock.
Our
publicly-filed SEC reports are reviewed by the SEC from time to
time and any significant changes required as a result of any
such review may result in material liability to us and have a
material adverse impact on the trading price of our common
stock.
The reports of publicly-traded companies are subject to review
by the Securities and Exchange Commission, or the SEC, from time
to time for the purpose of assisting companies in complying with
applicable disclosure requirements and to enhance the overall
effectiveness of companies public filings, and reviews of
such reports are now required at least every three years under
the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at
any time. While we believe that our previously filed SEC reports
comply, and we intend that all future reports will comply, in
all material respects with the published rules and regulations
of the SEC, we could be required to modify or reformulate
information contained in prior filings as a result of an SEC
review. Any modification or reformulation of information
contained in such reports could be significant and could result
in material liability to us and have a material adverse impact
on the trading price of our common stock.
We do
not anticipate declaring any cash dividends on our common
stock.
We have never declared or paid cash dividends on our common
stock and do not plan to pay any cash dividends on our common
stock in the foreseeable future. Our current policy is to retain
all funds and any earnings for use in the operation and
expansion of our business.
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Item 1B.
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Unresolved
Staff Comments
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None.
Our corporate administrative offices are located in a two-story
34,320 square foot facility containing office and
laboratory space, constructed for us in Irvine, California. The
lease on this facility expires on June 30, 2009. While
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we have a
5-year
renewal option, we are evaluating whether to renew the lease for
an additional 5 years or consider securing an alternate
facility. We believe that the market for office properties is
currently favorable for us, and expect our lease costs to
compare favorably with our current leasing costs, including
utilities, taxes, insurance and common area maintenance. In the
event we decide to secure an alternate facility, we do not
expect the relocation to adversely affect our operations. We
also lease small administrative offices in Zurich, Switzerland,
Montreal, Canada, and Mumbai, India on an expense-sharing basis.
The financial and other terms of these lease arrangements are
not material to our business.
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Item 3.
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Legal
Proceedings
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We are involved with various legal matters arising from the
ordinary course of business. Although the ultimate resolution of
these various matters cannot be determined at this time, we do
not believe that such matters, individually or in the aggregate,
will have a material adverse effect on our future consolidated
results of operations, cash flows or financial condition.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during
the quarter ended December 31, 2008.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Common
Stock
As of March 27, 2009 there were 32,530,636 shares of
common stock outstanding and 355 shareholders of record. On
March 27, 2009, the closing sale price of our common stock
was $1.88 per share.
Market
for Securities
Our common stock is traded on the NASDAQ Global Market under the
symbol SPPI. The high and low sale prices of our
common stock reported by NASDAQ during each quarter ended in
2008 and 2007 were as follows:
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High
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Low
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Year 2008
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Quarter Ended
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|
March 31
|
|
$
|
3.35
|
|
|
$
|
2.25
|
|
June 30
|
|
$
|
2.98
|
|
|
$
|
0.46
|
|
September 30
|
|
$
|
1.90
|
|
|
$
|
1.30
|
|
December 31
|
|
$
|
2.25
|
|
|
$
|
0.55
|
|
Year 2007
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
7.11
|
|
|
$
|
5.27
|
|
June 30
|
|
$
|
7.75
|
|
|
$
|
6.18
|
|
September 30
|
|
$
|
7.88
|
|
|
$
|
3.48
|
|
December 31
|
|
$
|
4.73
|
|
|
$
|
2.58
|
|
The high and low sales prices of our common stock, reported by
NASDAQ, reflect inter-dealer prices, without retail
mark-ups,
markdowns or commissions, and may not represent actual
transactions.
Dividends
We have never paid cash dividends on our common stock and we do
not intend to pay cash dividends of our common stock in the
foreseeable future. We currently intend to retain our earnings,
if any, to finance future growth.
47
Unregistered
Sales of Equity Securities
In the fourth quarter 2008, we issued 50,000 shares of our
common stock to INC
Research
®
,
formerly NDDO Research Foundation, and its designees, pursuant
to the termination of a license agreement with INC Research.
On March 19, 2009, as required by an asset purchase agreement
with Targent, Inc., we became obligated to issue 125,000 shares
of our common stock to Targent, or its designees, due to the
acceptance by the FDA of our sNDA for Fusilev. We agreed to
register for resale one-third of the shares; the rest are
unregistered. We received no cash proceeds in connection with
this issuance.
Each of the securities issued described above have been issued
without registration under the Securities Act of 1933 in
reliance upon the exemptions from registration provided under
Section 4(2) of the Securities Act and Regulation D
promulgated thereunder. The foregoing transactions did not
involve any public offering; we made no solicitation in
connection with the issuances; we obtained representations from
the parties regarding their investment intent, experience and
sophistication; the parties either received or had access to
adequate information about us in order to make an informed
investment decision; and we reasonably believed that the parties
were sophisticated within the meaning of
Section 4(2) of the Securities Act. No underwriting
discounts or commissions were paid in conjunction with the
issuances.
48
|
|
Item 6.
|
Selected
Financial Data
|
The following table presents our selected financial data.
Financial data for the years ended December 31, 2008, 2007,
and 2006 and as of December 31, 2008 and 2007 has been
derived from our audited financial statements included elsewhere
in this Annual Report on
Form 10-K,
and should be read in conjunction with those financial
statements and accompanying notes and with Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Financial data for
the years ended December 31, 2005 and 2004 and as of
December 31, 2006, 2005 and 2004 has been derived from our
audited financial statements not included herein.
CONSOLIDATED
FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except Share data)
|
|
|
Statement of Operations Data for the Years Ended December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,725
|
|
|
$
|
7,672
|
|
|
$
|
5,673
|
|
|
$
|
577
|
|
|
$
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sold
|
|
|
1,193
|
|
|
|
|
|
|
|
97
|
|
|
|
397
|
|
|
|
123
|
|
Research and development
|
|
|
26,683
|
|
|
|
33,285
|
|
|
|
23,728
|
|
|
|
13,483
|
|
|
|
7,588
|
|
Acquired in-process research and development
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
15,161
|
|
|
|
11,582
|
|
|
|
7,741
|
|
|
|
6,619
|
|
|
|
5,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(19,170
|
)
|
|
|
(37,195
|
)
|
|
|
(25,893
|
)
|
|
|
(19,922
|
)
|
|
|
(12,800
|
)
|
Other income (expense)
|
|
|
1,165
|
|
|
|
3,139
|
|
|
|
2,606
|
|
|
|
1,279
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before minority interest in consolidated entities
|
|
$
|
(18,005
|
)
|
|
$
|
(34,056
|
)
|
|
$
|
(23,287
|
)
|
|
$
|
(18,643
|
)
|
|
$
|
(12,282
|
)
|
Minority interest in net loss of consolidated entities
|
|
|
2,538
|
|
|
|
20
|
|
|
|
3
|
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,467
|
)
|
|
$
|
(34,036
|
)
|
|
$
|
(23,284
|
)
|
|
$
|
(18,642
|
)
|
|
$
|
(12,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
(0.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends on common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
78,086
|
|
|
$
|
55,659
|
|
|
$
|
50,697
|
|
|
$
|
63,667
|
|
|
$
|
39,206
|
|
Other current assets
|
|
|
7,536
|
|
|
|
953
|
|
|
|
1,590
|
|
|
|
718
|
|
|
|
795
|
|
Property and equipment, net
|
|
|
1,782
|
|
|
|
716
|
|
|
|
625
|
|
|
|
562
|
|
|
|
687
|
|
Intangible Assets, net
|
|
|
37,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
289
|
|
|
|
212
|
|
|
|
205
|
|
|
|
128
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
124,735
|
|
|
$
|
57,540
|
|
|
$
|
53,117
|
|
|
$
|
65,075
|
|
|
$
|
40,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
28,032
|
|
|
$
|
7,799
|
|
|
$
|
6,233
|
|
|
$
|
3,828
|
|
|
$
|
2,666
|
|
Other non-current-liabilities
|
|
|
42,822
|
|
|
|
992
|
|
|
|
1,035
|
|
|
|
241
|
|
|
|
178
|
|
Minority interest in consolidated subsidiaries
|
|
|
14,262
|
|
|
|
|
|
|
|
20
|
|
|
|
23
|
|
|
|
24
|
|
Total stockholders equity
|
|
|
39,619
|
|
|
|
48,749
|
|
|
|
45,829
|
|
|
|
60,983
|
|
|
|
37,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
124,735
|
|
|
$
|
57,540
|
|
|
$
|
53,117
|
|
|
$
|
65,075
|
|
|
$
|
40,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis should be read in
conjunction with our consolidated financial statements and
related notes included elsewhere in this Annual Report on
Form 10-K.
The discussion in this report contains forward-looking
statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and
intentions. Reference is made in particular to forward-looking
statements regarding the success of our drug candidates, the
safety and efficacy of our drug candidates product
approvals, product sales, revenue development timelines, product
acquisitions, liquidity and capital resources and trends. Our
actual results could differ materially from those discussed
here. Factors that might cause such a difference include, but
are not limited to, those discussed below and elsewhere,
including under Item 1A Risk Factors of this
report. The cautionary statements made in this report should be
read as applying to all related forward-looking statements
wherever they appear in this report.
Overview
We are a commercial stage biopharmaceutical company committed to
developing and commercializing innovative therapies with a focus
primarily in the areas of hematology-oncology and urology. We
have a fully developed commercial infrastructure that is
responsible for the sales and marketing of two drugs in the
United States, namely Fusilev and Zevalin. Our lead
developmental drug is apaziquone, which is presently being
studied in two large Phase 3 clinical trials for bladder cancer
under a strategic collaboration with Allergan Inc. Another
drug, ozarelix is in a Phase 2 clinical trial for BPH.
Our business strategy for 2009 is comprised of the following
initiatives:
|
|
|
|
|
Maximizing the growth potential for our marketed drugs,
Fusilev and Zevalin.
The companys
near-term outlook depends on sales and marketing successes
associated with our two marketed drugs. We launched Fusilev in
August 2008 and were able to successfully achieve broad
utilization in community offices and institutions. Our second
drug, Zevalin, is marketed by our subsidiary RIT Oncology LLC
(RIT), which was formed in December 2008. A dedicated commercial
organization comprised of sales representatives, account
managers, medical science liaisons and a complement of other
marketing personnel support the marketing and sales of these
drugs. Together with multiple initiatives to address historical
barriers to uptake of Zevalin, we believe we can capture the
substantial growth potential in sales for both Zevalin and
Fusilev. Both drugs have additional applications on file with
the FDA for new, larger indications in non-Hodgkins
lymphoma and metastatic colorectal cancer, respectively. We plan
to fully capitalize on these potential indication approvals in a
cash-efficient manner by staging appropriate infrastructure
expansions to facilitate broad customer reach and to address
other market requirements, as appropriate. These supplemental
applications are currently under review by the FDA, with
regulatory decisions expected in second half of 2009.
|
|
|
|
Maximizing the asset value of
apaziquone.
We took a giant step forward with
our lead development asset, apaziquone, in late 2008 with the
signing of a strategic collaboration with Allergan. We retained
exclusive rights to apaziquone in Asia, including Japan and
China while Allergan received exclusive rights to apaziquone for
the treatment of bladder cancer in the rest of the world,
including the United States, Canada and Europe. In the United
States, we will co-promote apaziquone with Allergan and share in
its profits and expenses. This drug is presently being studied,
under a special protocol assessment procedure with the FDA and
scientific advice from the EMEA, in two large Phase 3 clinical
trials for non-muscle invasive bladder cancer. Our goal is to
complete enrollment in these two trials and also begin a second
study in BCG refractory bladder cancer by the end of 2009. These
studies have been and will be strategically placed in centers
worldwide that have extensive clinical trial experience, so as
to ensure proper execution. These studies are designed to
clinically differentiate this drug versus standard of care, and
to ultimately successfully address the unmet needs in this
disease. We hope to continue to partially monetize this asset
through seeking additional strategic collaborations in markets
where we have sole rights. Specifically, our goal is to secure
new partnerships for this agent in Japan and selected markets in
Asia.
|
|
|
|
Optimizing our development
portfolio.
We continue to build on our core
expertise in clinical development for the treatment of cancer
and urology. We remain reliant on in-licensing strategies to
seek drugs for
|
50
|
|
|
|
|
development. Most recently, the company has undertaken a
criteria-based portfolio review, which is expected to result in
streamlining of our pipeline drugs that will allow for greater
focus and integration of our development and commercial goals.
The portfolio will be assessed based on factors that include,
among others, probability of clinical success, time to and cost
of development, market potential, synergies with marketed and
other developmental drugs and competitive landscape. As a result
of this portfolio evaluation a determination will be made of
whether to: 1) continue with the drugs clinical
development; 2) terminate its development; or
3) out-license rights to a third party for development and
commercialization.
|
|
|
|
|
|
Managing our financial resources
effectively.
We remain committed to fiscal
discipline, a policy which has allowed us to become
exceptionally well capitalized among our peers, despite a very
challenging fiscal environment. This policy includes the pursuit
of non-dilutive funding options, prudent expense management, and
the achievement of critical synergies within our operations in
order to maintain a reasonable burn rate. Despite the
build-up
in
operational structure to facilitate the marketing of two drugs,
we intend to be fiscally prudent in any expansion we undertake.
In terms of revenue generation, we hope to become more reliant
on sales from currently marketed drugs and intend to pursue
out-licensing of apaziquone in select territories and select
pipeline drugs, as discussed above. If and when appropriate, we
may pursue other sources of financing, including non-dilutive
financing alternatives. While we are currently focused on
advancing our key drug development programs, we anticipate that
we will make regular determinations as to which other programs,
if any, to pursue and how much funding to direct to each program
on an ongoing basis in response to the scientific and clinical
success of each drug candidate, as well as an ongoing assessment
as to the drug candidates commercial potential.
|
|
|
|
Expanding commercial bandwidth through licensing and
business development.
It remains our goal to
identify drugs that will create strong synergies with our
currently marketed drugs, including drugs in development. To
this end, we will continue to explore strategic collaborations
as these relate to drugs that are either in advanced clinical
trials or are currently on the market. We believe that such
opportunistic collaborations will provide synergies not only
with respect to how we deploy our internal resources, but also
in terms of how customers and investors view our drug offerings.
In this regard, we intend to identify and secure drugs that have
significant growth potential either through enhanced marketing
and sales efforts or through pursuit of additional clinical
development.
|
|
|
|
Further enhancing the organizational structure to meet our
corporate objectives.
We have highly
experienced staff in pharmaceutical operations, clinical
development, regulatory and commercial functions. All key
functional areas are comprised of individuals with extensive
experience in the health care industry derived from small and
mid-size biotech companies to large pharmaceutical companies. We
also recently strengthened the ranks of our management team, and
will continue to pursue talent on an opportunistic basis.
Finally, we remain committed to running a lean and efficient
organization, while effectively leveraging our critical resources
|
Financial
Condition
Liquidity
and Capital Resources
Our current commercial operations do not generate sufficient
operating cash to finance the clinical development of our drug
product candidates, to commercialize our approved drug products
and to capitalize on growth opportunities. Our cumulative
losses, since inception in 1987 through December 31, 2008,
have exceeded $250 million. We expect to continue to incur
additional losses for at least the next few years, as we
implement our growth strategy of commercializing Fusilev and
Zevalin, while continuing to develop our portfolio of late-stage
drug products, unless they are offset, if at all, by the
out-license of any of our drugs.
We believe that the approximately $78 million in cash, cash
equivalents and marketable securities that we had as of
December 31, 2008 will allow us to fund our current planned
operations for at least the next twelve months. We also believe
the financial institutions through which we have invested our
funds are strong, well capitalized and our instruments are held
in accounts segregated from the assets of the institutions.
However, due to the extremely
51
volatile financial and credit markets and liquidity crisis
currently faced by most banking institutions, the financial
viability of these institutions, and the safety and liquidity of
our funds is being constantly monitored.
We may seek to obtain additional capital through the sale of
debt or equity securities, if necessary, especially in
conjunction with opportunistic acquisitions or license of drugs.
In this regard, in April 2008, we filed a shelf registration
statement with the SEC to give us the ability, from time to
time, to offer any combination of our securities described in
the registration statement in one or more offerings for up to
$150 million. There can be no assurance that we will be
able to obtain such additional capital when needed, or, if
available, that it will be on terms favorable to us or to our
stockholders. If additional funds are raised by issuing equity
securities, the percentage ownership of our stockholders will be
reduced, stockholders may experience additional dilution or such
equity securities may provide for rights, preferences or
privileges senior to those of the holders of our common stock.
If additional funds are raised through the issuance of debt
securities, the terms of such securities may place restrictions
on our ability to operate our business. If and when appropriate,
just as we have done in the past, we may pursue non-dilutive
financing alternatives as well. However, from a revenue
generation perspective, we eventually hope to completely finance
our operations from sales of our currently marketed products.
We are not able to provide any revenue guidance at this time.
For Fusilev, our goal is to be able to maintain current usage
patterns, even though it appears that the leucovorin shortage
may be over. In addition, successful and continual growth of
Fusilev sales will largely depend upon obtaining FDA approval
for use of Fusilev in combination with 5-FU containing regimens
for the treatment of colorectal cancer. For Zevalin, sales
growth is largely dependent on obtaining FDA approval of our
sBLA for use in first-line consolidation treatment for NHL,
establishing reimbursement standards in concert with CMS and
obtaining FDA approval to remove the
In-111
bio-scan requirement. We are unable to reasonably estimate when,
if ever, we will realize sustainable net profit from sales of
these two products or any of our other products, if they are
approved by the FDA.
As described elsewhere in this report, including in Item 1A
Risk Factors, our drug development efforts are
subject to the considerable uncertainty inherent in any new drug
development. Due to the uncertainties involved in progressing
through clinical trials, and the time and cost involved in
obtaining regulatory approval and in establishing collaborative
arrangements, among other factors, we cannot reasonably estimate
the timing, completion dates, and ultimate aggregate cost of
developing each of our drug product candidates. Accordingly, the
following discussion of our current assessment of the need for
cash to fund our operations may prove too optimistic and our
assessment of expenditures may prove inadequate.
Our expenditures for research and development consist of direct
product specific costs (such as up-front license fees, milestone
payments, active pharmaceutical ingredients, clinical trials,
patent related legal costs, and product liability insurance,
among others) and non-product specific, or indirect, costs. The
following summarizes our research and development expenses for
the periods indicated. To the extent that costs, including
personnel costs, are not tracked to a specific product
development program, they are included in the Indirect
Costs category in the table below. We charge all research
and development expenses to operations as incurred.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Fusilev
|
|
$
|
1,791
|
|
|
$
|
1,368
|
|
|
$
|
4,428
|
|
Zevalin
|
|
|
151
|
|
|
|
|
|
|
|
|
|
Apaziquone
|
|
|
5,477
|
|
|
|
6,348
|
|
|
|
2,617
|
|
Ozarelix
|
|
|
2,435
|
|
|
|
6,217
|
|
|
|
2,881
|
|
Ortataxel
|
|
|
150
|
|
|
|
3,719
|
|
|
|
|
|
Other drugs
|
|
|
1,304
|
|
|
|
3,452
|
|
|
|
4,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Costs
|
|
|
11,308
|
|
|
|
21,104
|
|
|
|
14,383
|
|
Indirect Costs (including non-cash share-based compensation of
$3,925, $3,555, and $2,540, respectively)
|
|
|
15,375
|
|
|
|
12,181
|
|
|
|
9,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research & Development
|
|
$
|
26,683
|
|
|
$
|
33,285
|
|
|
$
|
23,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
While we are currently focused on advancing our key product
development programs, we anticipate that we will make regular
determinations as to which other programs, if any, to pursue and
how much funding to direct to each program on an on-going basis
in response to the scientific and clinical success of each
product candidate, as well as an ongoing assessment as to the
product candidates commercial potential.
Under our various existing licensing agreements, we are
contingently obligated to make milestone payments. In connection
with the development of certain in-licensed drug products, we
anticipate the occurrence of certain of these milestones during
2009. Upon successful achievement of these milestones, we will
likely become obligated to pay up to approximately
$14 million during 2009. Of this amount $4 million may
be paid in cash or stock, at our option. The FDAs
acceptance of our sNDA for Fusilev for CRC in March 2009,
triggered the issuance of an aggregate of 125,000 shares of
our common stock to Targent, or its stockholders, with a fair
market value of approximately $185,000.
Our anticipated net use of cash for operations in the fiscal
year ending December 31, 2009, excluding the cost of
in-licensing or acquisitions of additional drugs, if any, is
expected to range between approximately $25 and
$30 million. The programs that will represent a significant
part of our expenditures are the on-going clinical study of
apaziquone and the commercialization of Fusilev, and the
re-launch of Zevalin. The level of funding of our other
development projects is subject to:
|
|
|
|
|
the continued success of the commercialization of Fusilev;
|
|
|
|
the success of the re-launch of Zevalin;
|
|
|
|
continued patient enrollment in our apaziquone clinical trials
at anticipated rates; and
|
|
|
|
continued positive results from our preclinical studies and
clinical trials.
|
Further, while we do not receive any funding from third parties
for research and development that we conduct, co-development and
out-licensing agreements with other companies for any of our
drug products may reduce our expenses. In this regard, we
entered into a collaboration agreement with Allergan whereby,
commencing January 1, 2009, Allergan will bear 65% of the
future development costs of apaziquone.
In addition to our present portfolio of drug product candidates,
we continually evaluate proprietary products for acquisition. If
we are successful in acquiring rights to additional products, we
may pay up-front licensing fees in cash
and/or
common stock and our research and development expenditures would
likely increase.
Net Cash
used in Operating Activities
During the years ended December 31, 2008 and 2007, net cash
used in operations was approximately $8.0 million and
$25.4 million, respectively. The decrease of approximately
$17.4 million in cash required for operations is primarily
due to an increase of approximately $21 million in
revenues, partially offset by increases in accounts receivable,
inventory and accounts payable.
Net Cash
used for Investing Activities
Net cash used for investing activities was approximately
$24.8 million and $4.6 million during the years ended
December 31, 2008 and 2007, respectively. The amounts were
primarily as follows: $13.1 million and $4.3 million,
respectively, was invested in marketable securities and
$1.5 million and $0.3 million, respectively, for
capital to support operations. In addition, during 2008 we
invested approximately $10.2 million for the acquisition
(including acquisition costs) of a 50% joint venture interest in
Zevalin with a balance of $7.5 million payable in January
2009.
Net Cash
provided by Financing Activities
Net cash provided by financing activities totaled approximately
$41.5 million and $30.6 million for the years ended
December 31, 2008 and 2007, respectively. The amounts were
primarily as follows: in 2007, approximately $30 million
derived from the sale of 5,134,100 shares of common stock;
and in 2008, the $41.5 million up-front payment received
from Allergan was recorded as deferred revenue to be amortized
over future periods in accordance with our revenue recognition
policy.
53
Results
of Operations
Results
of Operations for Fiscal 2008 Compared to Fiscal
2007
In 2008, we incurred a net loss of approximately
$15.5 million compared to a net loss of approximately
$34 million in 2007. The principal components of the
year-to-year changes in line items are discussed below.
We recognized revenue of approximately $28.7 million in
2008 as compared to approximately $7.7 million in 2007.
During 2008, we recorded approximately $7.7 million of
revenue from the August 2008 commercial launch of our
proprietary oncology drug Fusilev, which was approved by the FDA
in March 2008. While shipments of Fusilev for the period ended
December 31, 2008 were approximately $10.8 million
(net of estimates for promotional, price and other adjustments),
based on our revenue recognition policy, we have deferred the
recognition of approximately $3.1 million of such revenue
until we have more experience with the amount of product
returns. We also recognized approximately $0.3 million net
sales of Zevalin from the consolidation of RIT Oncology
effective December 15, 2008. We do expect to continue to
generate revenue from the sales of these two products in 2009,
however, we are not able to provide any revenue guidance at this
time. In addition, during 2008, we recognized revenue from:
(i) an agreement with Par Pharmaceutical, our former
marketing partner for sumatriptan injection, pursuant to which
we received a non-refundable $20 million cash payment from
Par for the transfer of our share of the profits from the
commercialization of sumatriptan injection; and (ii) the
transfer of rights to certain of our ANDAs to Sagent
Pharmaceuticals for $660,000. No similar revenues were generated
during 2007. During 2007, we recognized approximately
$7.7 million in licensing milestone and related revenues,
pursuant to our agreement with GPC Biotech for satraplatin. The
milestones were related to the filing and acceptance of a
Marketing Authorization Application by Pharmion with the EMEA.
Research and development expenses decreased by approximately
$6.6 million, from approximately $33.3 million in 2007
to approximately $26.7 million in 2008. During 2008, in
line with the strategy outlined at the start of the year, and in
response to the global financial crisis we focused on executing
a successful launch of Fusilev and prioritized our R&D
efforts to the rapid enrollment in the apaziquone clinical
study. Principal components of the decrease in 2008 were as
follows. Approximately:
|
|
|
|
|
$3.8 million and $3.6 million, respectively, due to
reductions in direct development costs related to Ozarelix and
Ortataxel; partially offset by,
|
|
|
|
$2.0 million increase in employee compensation expense
associated substantially with the hiring of personnel to advance
the apaziquone clinical study.
|
We anticipate research and development expense in 2009 to be
lower than that during as 2008 primarily due to our joint
development agreement with Allergan, under which Allergan has
agreed to fund 65% of the development costs and we have
agreed to fund the remaining development costs.
Selling, general and administrative expenses increased by
approximately $3.6 million, from approximately
$11.6 million in 2007 to approximately $15.2 million
in 2008, primarily due to approximately:
|
|
|
|
|
$5.9 million increase attributable to sales and marketing
expenses, including payroll costs, incurred with the launch of
Fusilev.
|
|
|
|
$2.4 million decrease in legal expenses, largely
attributable to the non-recurrence of arbitration costs against
GPC Biotech incurred during 2007, partially offset by legal
expenses in connection with business development activities,
including the collaboration agreement with Allergan.
|
|
|
|
$1.2 million increase in employee compensation attributed
to the expanded scope of operations.
|
We expect an increase in selling, general and administrative
expenses for 2009 primarily related to sales and marketing of
Fusilev and Zevalin.
Other income consisted of net interest income of approximately
$1.2 and $3.1 million for the years ended December 31,
2008 and 2007 and in 2008 included approximately $200,000
realized investment gains. The decrease in interest income was
primarily due to lower investment yields in 2008 due to the
shift in our investment strategy to more conservative US
Treasury investments. We expect similar yields going forward
until such time the credit markets improve.
54
Results
of Operations for Fiscal 2007 Compared to Fiscal
2006
In 2007, we incurred a net loss of approximately
$34 million compared to a net loss of approximately
$23.3 million in 2006. The principal components of the year
to year changes in line items are discussed below.
We recognized revenue of approximately $7.7 million in 2007
as compared to approximately $5.7 million in 2006. During
2007, we recognized approximately $7.7 million in licensing
milestone and related revenues, pursuant to our agreement with
GPC Biotech for satraplatin. Of this amount, $7.2 million
in milestone payments related to the acceptance by the FDA of an
NDA filing by GPC, and the filing and acceptance of a Marketing
Authorization Application with the EMEA. Approximately
$0.5 million of the recorded revenues represented amounts
received from GPC under our agreement for commissions on drug
products used by GPC in clinical trials and for anticipated
commercial launch. In comparison, we recorded milestone and
other fees during 2006 as follows: a $5 million milestone
payment from Par related to sumatriptan injection; and
approximately $581,000 premium received in connection with the
modification of a supply agreement with JBCPL, and the related
purchase by JBCPL of 120,000 shares of our common stock for
$1 million. Generic product sales in 2006 were
approximately $92,000. No product sales were recorded in 2007.
Research and development expenses increased by approximately
$9.6 million, from approximately $23.7 million in 2006
to approximately $33.3 million in 2007. During 2007, we
continued to advance the development of all of our proprietary
drugs. Primary components of cost increases related to the two
Phase 3 trials for apaziquone, which initiated during 2007, a
Phase 2b and toxicological study of ozarelix, and the
acquisition of ortataxel, milestone payments related to
satraplatin and employee compensation. The increases were offset
by a decrease in the development costs of other drugs, primarily
Fusilev.
Selling, general and administrative expenses increased by
approximately $3.9 million, from approximately
$7.7 million in 2006 to approximately $11.6 million in
2007, primarily due to increased legal expenses resulting from
the arbitration against GPC Biotech.
Other income of approximately $3.1 million consisted
primarily of interest income, and the increase in fiscal year
2007 from fiscal year 2006 is attributable to higher average
interest rates and balances of investable funds in 2007.
Off-Balance
Sheet Arrangements
We do not have any off balance sheet arrangements.
Contractual
and Commercial Obligations
The following table summarizes our contractual and other
commitments, including obligations under a facility lease and
equipment leases, as of December 31, 2008, approximately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
2-3
|
|
|
4-5
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Contractual Obligations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligations(2)
|
|
$
|
201
|
|
|
$
|
50
|
|
|
$
|
101
|
|
|
|
50
|
|
|
|
|
|
Operating Lease Obligations(3)
|
|
|
241
|
|
|
|
239
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Purchase Obligations(4)
|
|
|
13,675
|
|
|
|
8,537
|
|
|
|
4,669
|
|
|
|
469
|
|
|
|
|
|
Contingent Milestone Obligations(5)
|
|
|
86,600
|
|
|
|
14,110
|
|
|
|
4,679
|
|
|
|
7,536
|
|
|
|
60,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,717
|
|
|
$
|
22,936
|
|
|
$
|
9,451
|
|
|
$
|
8,055
|
|
|
$
|
60,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The table of contractual and commercial obligations excludes
contingent payments that we may become obligated to pay upon the
occurrence of future events whose outcome is not readily
predictable. Such significant contingent obligations are
described below under Employment Agreements.
|
|
(2)
|
|
The capital lease obligations are related to leased office
equipment.
|
55
|
|
|
(3)
|
|
The operating lease obligations are primarily related to the
facility lease for our corporate office, which expires in June
2009.
|
|
(4)
|
|
Purchase obligations represent the amount of open purchase
orders and contractual commitments to vendors for products and
services that have not been delivered, or rendered, as of
December 31, 2008. Approximately 90% of the purchase
obligations consist of expenses associated with clinical trials
and related costs for apaziquone and ozarelix for each of the
periods presented. Please see Service Agreements
below for further information.
|
|
(5)
|
|
Milestone obligations are payable contingent upon successfully
reaching certain development and regulatory milestones as
further described below under Licensing Agreements.
While the amounts included in the table above represent all of
our potential cash development and regulatory milestone
obligations as of December 31, 2008, given the
unpredictability of the drug development process, and the
impossibility of predicting the success of current and future
clinical trials, the timelines estimated above do not represent
a forecast of when payment milestones will actually be reached,
if at all. Rather, they assume that all development and
regulatory milestones under all of our license agreements are
successfully met, and represent our best estimates of the
timelines. In the event that the milestones are met, we believe
it is likely that the increase in the potential value of the
related drug product will significantly exceed the amount of the
milestone obligation.
|
Licensing
Agreements
Almost all of our drug candidates are being developed pursuant
to license agreements that provide us with rights to certain
territories to, among other things, develop, sublicense, and
sell the drugs. We are required to use commercially reasonable
efforts to develop the drugs, are generally responsible for all
development, patent filing and maintenance costs, sales,
marketing and liability insurance costs, and are generally
contingently obligated to make milestone payments to the
licensors if we successfully reach development and regulatory
milestones specified in the agreements. In addition, we are
obligated to pay royalties and, in some cases, milestone
payments based on net sales, if any, after marketing approval is
obtained from regulatory authorities.
The potential contingent development and regulatory milestone
obligations under all our licensing agreements are generally
tied to progress through the FDA approval process, which
approval significantly depends on positive clinical trial
results. The following list is typical of milestone events:
conclusion of Phase 2 or commencement of Phase 3 clinical
trials; filing of new drug applications in each of the United
States, Europe and Japan; and approvals from each of the
regulatory agencies in those jurisdictions.
Service
Agreements
In connection with the research and development of our drug
products, we have entered into contracts with numerous third
party service providers, such as clinical trial centers,
clinical research organizations, data monitoring centers, and
with drug formulation, development and testing laboratories. The
financial terms of these agreements are varied and generally
obligate us to pay in stages, depending on achievement of
certain events specified in the agreements, such as contract
execution, reservation of service or production capacity, actual
performance of service, or the successful accrual and dosing of
patients.
At each period end, we accrue for all costs of goods and
services received, with such accruals based on factors such as
estimates of work performed, patient enrollment, completion of
patient studies and other events. As of December 31, 2008,
we were committed under such contracts for up to approximately
$13.7 million, for future goods and services, including
approximately $8.5 million due within one year. We are in a
position to accelerate, slow-down or discontinue any or all of
the projects that we are working on at any given point in time.
Should we decide to discontinue
and/or
slow-down the work on any project, the associated costs for
those projects would get limited to the extent of the work
completed. Generally, we are able to terminate these contracts
due to the discontinuance of the related project(s) and thus
avoid paying for the services that have not yet been rendered
and our future purchase obligations would reduce accordingly.
Employment
Agreement
We have entered into an employment agreement with
Dr. Shrotriya, our President and Chief Executive Officer,
which expires January 2, 2011. The employment agreement
automatically renews for a one-year calendar term
56
unless either party gives written notice of such partys
intent not to renew the agreement at least 90 days prior to
the commencement of the next year. The employment agreement
requires Dr. Shrotriya to devote his full working time and
effort to the business and affairs of the Company during the
term of the agreement. The employment agreement provides for a
minimum annual base salary with annual increases, periodic
bonuses and option grants as determined by the Compensation
Committee of the Board of Directors.
Dr. Shrotriyas employment may be terminated due to
non-renewal of his employment agreement by us, mutual agreement,
death or disability, or by us for cause (as that term is defined
in the employment agreement) or without cause, or by
Dr. Shrotriya for no reason, good reason (as defined in the
agreement) or non-renewal. The employment agreement provides for
various guaranteed severance payments and benefits if:
(i) the agreement is not renewed by us,
(ii) Dr. Shrotriyas employment is terminated
without cause, (iii) Dr. Shrotriya resigns for good
reason, (iv) the agreement is terminated due to death or
disability of Dr. Shrotriya, (v) if Dr. Shrotriya
voluntarily resigns his employment for no reason or (vi) if
Dr. Shrotriyas employment is terminated (other than
by Dr. Shrotriya) without cause within twelve months after
a change in control, or Dr. Shrotriya is adversely affected
in connection with a change in control and resigns within twelve
months. If the agreement is terminated due to mutual agreement,
Dr. Shrotriyas non-renewal of the agreement, or by us
for cause, Dr. Shrotriya shall not be entitled to any
severance.
If any payment or distribution by us to or for the benefit of
Dr. Shrotriya is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (IRC) or any
interest or penalties are incurred by Dr. Shrotriya with
respect to such excise tax, then Dr. Shrotriya shall be
entitled to receive an additional payment in an amount such that
after payment by Dr. Shrotriya of all taxes (including any
interest and penalties imposed with respect thereto) and excise
tax imposed upon such payment, Dr. Shrotriya retains an
amount of the payment equal to the excise tax imposed upon the
payment.
If we determine that any payments to Dr. Shrotriya under
the agreement fail to satisfy the distribution requirement of
Section 409A(a)(2)(A) of the IRC, the payment schedule of
that benefit shall be revised to the extent necessary so that
the benefit is not subject to the provisions of
Section 409A(a)(1) of the IRC. We may attach conditions to
or adjust the amounts so paid to preserve, as closely as
possible, the economic consequences that would have applied in
the absence of this adjustment; provided, however, that no such
condition or adjustment shall result in the payments being
subject to Section 409A(a)(1) of the IRC.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. The estimation
process requires assumptions to be made about future events and
conditions, and as such, is inherently subjective and uncertain.
Actual results could differ materially from our estimates. On an
on-going basis, we evaluate our estimates, including cash
requirements, by assessing: planned research and development
activities and general and administrative requirements, required
clinical trial activity, market need for our drug candidates and
other major business assumptions.
The SEC defines critical accounting policies as those that are,
in managements view, most important to the portrayal of
our financial condition and results of operations and most
demanding of our judgment. We consider the following policies to
be critical to an understanding of our consolidated financial
statements and the uncertainties associated with the complex
judgments made by us that could impact our results of
operations, financial position and cash flows.
Cash,
Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities primarily
consist of bank checking deposits, short-term treasury
securities, and institutional money market funds, corporate debt
and equity, municipal obligations, including market auction debt
securities, government agency notes, and certificates of
deposit. We classify highly liquid short-term investments, with
insignificant interest rate risk and maturities of 90 days
or less at the time of
57
acquisition, as cash and cash equivalents. Other investments,
which do not meet the above definition of cash equivalents, are
classified as either held-to-maturity or
available-for-sale marketable securities, in
accordance with the provisions of Financial Accounting Standards
Board, or FASB, Statement, or SFAS, No. 115,
Accounting
for Certain Investments in Debt and Equity Securities
.
Investments that we intend to hold for more than one year are
classified as long-term investments.
Revenue
Recognition
We follow the provisions as set forth by current accounting
rules, which primarily include Staff Accounting Bulletin (SAB)
104,
Revenue Recognition
, and Emerging Issues Task Force
(EITF)
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables
. Generally, revenue is recognized when evidence
of an arrangement exists, delivery has occurred or services have
been rendered, the price is fixed and determinable, and
collectibility is reasonably assured.
Up-front fees representing non-refundable payments received upon
the execution of licensing or other agreements are recognized as
revenue upon execution of the agreements where we have no
significant future performance obligations and collectibility of
the fees is reasonably assured. Milestone payments, which are
generally based on developmental or regulatory events, are
recognized as revenue when the milestones are achieved,
collectibility is reasonably assured, and we have no significant
future performance obligations in connection with the milestone.
In those instances where we have collected fees or milestone
payments but have significant future performance obligations
related to the development of the drug product, we record
deferred revenue and recognize it over the period of our future
obligations.
Revenue from sales of product is recognized upon shipment of
product, when title and risk of loss have transferred to the
customer, and provisions for estimates, including promotional
adjustments, price adjustments, returns, and other potential
adjustments are reasonably determinable. Such revenue is
recorded, net of such estimated provisions, at the minimum
amount of the customers obligation to us. We state the
related accounts receivable at net realizable value, with any
allowance for doubtful accounts charged to general operating
expenses. If revenue from sales is not reasonably determinable
due to provisions for estimates, promotional adjustments, price
adjustments, returns or any other potential adjustments, we
defer the revenue and recognize revenue when the estimates are
reasonably determinable, even if the monies for the gross sales
have been received.
Purchase
Price Allocation
Based on the provisions of SFAS No. 141,
Business
Combinations
, for transactions that occurred prior to
December 31, 2008, the purchase price for our acquisitions
was allocated to the tangible and identifiable intangible assets
acquired and liabilities assumed based on their estimated fair
values at the acquisition date. For each acquisition, we engaged
an independent third-party valuation firm to assist in
determining the fair value of in-process research and
development and identifiable intangible assets. Such a valuation
requires significant estimates and assumptions including but not
limited to: determining the timing and expected costs to
complete the in-process projects, projecting regulatory
approvals, estimating future cash flows from product sales
resulting from in-process projects, and developing appropriate
discount rates and probability rates by project. We believe the
fair values assigned to the assets acquired and liabilities
assumed are based on reasonable assumptions. However, these
assumptions may be inaccurate, and unanticipated events and
circumstances may occur.
Research
and Development
Research and development expenses include related salaries and
benefits, clinical trial and related manufacturing costs,
contract and other outside service fees, and facilities and
overhead costs related to our research and development efforts.
Research and development expenses also consist of costs incurred
for proprietary and collaboration research and development and
include activities such as product registries and
investigator-sponsored trials. In accordance with Statement of
Financial Accounting Standards, or SFAS, No. 2,
Accounting for Research and Development Costs,
research
and development costs are expensed as incurred. In instances
where we enter into agreements with third parties for research
and development activities we may prepay fees for services at
the initiation of the contract. We record the prepayment as a
prepaid asset and charge research and development
58
expense over the period of time the contracted research and
development services are performed in accordance with
EITF 07-3,
Accounting for Nonrefundable Advance Payment for Goods or
Services to be Used in Future Research and Development
Activities.
Other types of arrangements with third parties
may be fixed fee or fee for service, and may include monthly
payments or payments upon the completion of milestones or
receipt of deliverables.
We review and accrue drug development expenses based on factors
such as estimates of work performed, patient enrollment,
completion of patient studies and other events. Accrued clinical
study costs are subject to revisions as trials progress to
completion. Revisions are recorded in the period in which the
facts that give rise to the revision become known.
Accounting
for Share-Based Compensation
In estimating the fair value of share-based compensation, we use
the quoted market price of our common stock for stock awards,
and the Black Scholes Option Pricing Model for stock options and
warrants. We estimate future volatility based on past volatility
of our common stock; and we estimate the expected length of the
option on several criteria, including the vesting period of the
grant, and the expected volatility.
New
Accounting Pronouncements
See Note 2:
Recent Accounting Pronouncements
of our
accompanying consolidated financial statements for a description
of recent accounting pronouncements that have a potentially
significant impact on our financial reporting and our
expectations of their impact on our results of operations and
financial condition.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The primary objective of our investment activities is to
preserve principal, while at the same time maximizing yields
without significantly increasing risk. We do not utilize hedging
contracts or similar instruments.
We are exposed to certain market risks. Our primary exposures
relate to (1) interest rate risk on our investment
portfolio, (2) credit risk of the companies bonds in
which we invest, (3) general credit market risks as have
existed since late 2007 and became more prominent during 2008
and (4) the financial viability of the institutions which
hold our capital and through which we have invested our funds.
We manage such risks on our investment portfolio by matching
scheduled investment maturities with our cash requirements and
investing in highly rated instruments.
In response to the dislocation in the credit markets since the
latter part of 2007, in early 2008 we converted substantially
all of our investments, including all of our market auction debt
securities, into highly liquid and safe instruments. Our
investments, as of December 31, 2008, were primarily in
money market accounts, short-term corporate bonds,
U.S. Treasury bills and U.S. Treasury-backed
securities. We believe the financial institutions through which
we have invested our funds are strong, well capitalized and our
instruments are held in accounts segregated from the assets of
the institutions. However, due to the current extremely volatile
financial and credit markets and liquidity crunch faced by most
banking institutions, the financial viability of these
institutions, and the safety and liquidity of our funds is being
constantly monitored.
Because of our ability to generally redeem these investments at
par at short notice, changes in interest rates would have an
immaterial effect on the fair value of these investments. If a
10% change in interest rates were to have occurred on
December 31, 2008, any decline in the fair value of our
investments would not be material in the context of our
financial statements. In addition, we are exposed to certain
market risks associated with credit ratings of corporations
whose corporate bonds we may purchase from time to time. If
these companies were to experience a significant detrimental
change in their credit ratings, the fair market value of such
corporate bonds may significantly decrease. If these companies
were to default on these corporate bonds, we may lose part or
all of our principal. We believe that we effectively manage this
market risk by diversifying our investments, and investing in
highly rated securities.
In addition, we are exposed to foreign currency exchange rate
fluctuations relating to payments we make to vendors, suppliers
and license partners using foreign currencies. In particular,
some of our obligations are incurred in Euros. We mitigate such
risk by maintaining a limited portion of our cash in Euros and
other currencies.
59
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Our annual consolidated financial statements are included in
Item 15 of this report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
(i) Disclosure
Controls and Procedures
We have established disclosure controls and procedures (as such
terms are defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934), as amended, or the
Exchange Act), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to our
management, including our Chief Executive Officer (our principal
executive officer) and Vice President Finance (our principal
financial officer), as appropriate, to allow for timely
decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our
management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Our disclosure controls and procedures are designed to provide a
reasonable level of assurance of reaching our desired disclosure
control objectives.
As required by SEC
Rule 13a-15(b),
we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and our Vice President of Finance, of the effectiveness
of the design and operation of our disclosure controls and
procedures as of December 31, 2008, the end of the period
covered by this report (Evaluation Date). Based on the
foregoing, our Chief Executive Officer and Vice President of
Finance concluded that our disclosure controls and procedures
were effective.
(ii) Internal
Control Over Financial Reporting
|
|
(a)
|
Managements
annual report on internal control over financial
reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Due to the small size
of our company and the limited number of employees, it is not
possible for us to fully segregate duties associated with the
financial reporting process; accordingly, we rely on mitigating
controls to reduce the risks from such lack of segregation of
duties. Further, all internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation. Because of such inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. Based on our
evaluation under the framework in COSO, our management concluded
that our internal control over financial reporting was effective
as of the Evaluation Date. Due to the timing of our acquisition
of our membership interest in RIT Oncology, LLC (RIT) in a
purchase business combination, we excluded RIT from the scope of
our assessment of internal controls over financial reporting for
the period ended December 31, 2008.
60
|
|
(b)
|
Changes
in internal control over financial reporting
|
During the quarter ended December 31, 2008, there were no
changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
(c)
|
Attestation
report of the registered public accounting firm
|
Kelly and Company, the Companys independent registered
public accounting firm, has audited the consolidated financial
statements included in this Annual Report and has issued an
attestation report in our internal control over financial
reporting, as set forth on
page F-2.
Presented below is an extract from that attestation report as to
their independent assessment of our internal control over
financial reporting: ...in our opinion, Spectrum
Pharmaceuticals, Inc. and Subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria
established in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required under this item is incorporated by
reference from our definitive proxy statement related to our
2009 Annual Meeting of Stockholders, to be filed pursuant to
Regulation 14A, on or before April 30, 2009 (the
2009 Proxy Statement).
|
|
Item 11.
|
Executive
Compensation
|
The information required under this item is incorporated by
reference from our 2009 Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required under this item is incorporated by
reference from our 2009 Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required under this item is incorporated by
reference from our 2009 Proxy Statement.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required under this item is incorporated by
reference from our 2009 Proxy Statement.
61
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1)
Consolidated Financial Statements:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007
|
|
|
F-3
|
|
Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006
|
|
|
F-4
|
|
Consolidated Statements of Stockholders Equity for the
years ended December 31, 2008, 2007 and 2006
|
|
|
F-5
|
|
Consolidated Statements of Cash Flow for the years ended
December 31, 2008, 2007 and 2006
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
(a)(2)
Financial Statement Schedules:
All
financial statement schedules are omitted because they are not
applicable or the required information is included in the
Consolidated Financial Statements or notes thereto.
(a)(3)
Exhibits.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1#
|
|
Asset Purchase Agreement by and between the Registrant, Targent
Inc. and Certain Stockholders of Targent, Inc., dated
March 17, 2006. (Filed as Exhibit 2.1 to Form 10-K/A,
Amendment No. 1, as filed with the Securities and Exchange
Commission on May 1, 2006, and incorporated herein by
reference.)
|
|
2
|
.2
|
|
Asset Purchase Agreement by and between the Registrant and
Par Pharmaceutical, Inc., dated as of May 6, 2008.
(Filed as Exhibit 2.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 11, 2008, and incorporated herein by reference.)
|
|
2
|
.3#
|
|
Purchase and Formation Agreement, dated as of November 26,
2008, by and among the Registrant, Cell Therapeutics, Inc. and
RIT Oncology, LLC. (Filed as Exhibit 2.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
December 19, 2008, and incorporated herein by reference.)
|
|
3
|
.1
|
|
Amended Certificate of Incorporation, as filed. (Filed as
Exhibit 3.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 8, 2006, and incorporated herein by reference.)
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant. (Filed as
Exhibit 3.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 16, 2004, and incorporated herein by reference.)
|
|
4
|
.1
|
|
Rights Agreement, dated as of December 13, 2000, between
the Registrant and ComputerShare Trust Company, N.A. (formerly
U.S. Stock Transfer Corporation), as Rights Agent, which
includes as Exhibit A thereto the form of Certificate of
Designation for the Series B Junior Participating Preferred
Stock, as Exhibit B thereto the Form of Rights Certificate
and as Exhibit C thereto a Summary of Terms of Stockholder
Rights Plan. (Filed as Exhibit 4.1 to
Form 8-A12G,
as filed with the Securities and Exchange Commission on
December 26, 2000, and incorporated herein by reference.)
|
|
4
|
.2
|
|
Amendment No. 1 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock Transfer
Corporation). (Filed as Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 14, 2003, and incorporated herein by reference.)
|
|
4
|
.3
|
|
Registration Rights Agreement dated as of September 26,
2003, by and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.4 to
Form 8-K,
as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.)
|
|
4
|
.4
|
|
Investor Rights Agreement, dated as of April 20, 2004, by
and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
April 23, 2004, and incorporated herein by reference.)
|
|
4
|
.5
|
|
Form of Warrant, dated as of April 21, 2004. (Filed as
Exhibit 4.2 to
Form 8-K,
as filed with the Securities and Exchange Commission on
April 23, 2004, and incorporated herein by reference.)
|
62
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
4
|
.6
|
|
Amendment No. 2 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock Transfer
Corporation). (Filed as Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.7
|
|
Amendment No. 3 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock Transfer
Corporation). (Filed as Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.8
|
|
Warrant issued by the Registrant to a Consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.9
|
|
Warrant issued by the Registrant to a Consultant, dated as of
April 21, 2004. (Filed as Exhibit 4.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.10
|
|
Form of Warrant, dated as of September 30, 2004. (Filed as
Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 15, 2004, and incorporated herein by reference.)
|
|
4
|
.11
|
|
Amendment No. 1 dated as of November 2, 2005, to
Warrant issued by the Registrant to a consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 4, 2005, and incorporated herein by reference.)
|
|
4
|
.12
|
|
Warrant issued by the Registrant to a Consultant, dated as of
September 20, 2005. (Filed as Exhibit 4.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 4, 2005, and incorporated herein by reference.)
|
|
4
|
.13
|
|
Form of Warrant dated September 15, 2005. (Filed as
Exhibit 4.35 to
Form 10-K,
as filed with the Securities and Exchange Commission on
March 15, 2006, and incorporated herein by reference.)
|
|
4
|
.14
|
|
Registration Rights Agreement dated as of April 20, 2006,
by and among the Registrant and Targent, Inc. (Filed as
Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 8, 2006, and incorporated herein by reference.)
|
|
4
|
.15
|
|
Fourth Amendment to Rights Agreement dated July 7, 2006.
(Filed as Exhibit 4.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
July 12, 2006, and incorporated herein by reference.)
|
|
4
|
.16
|
|
Amendment No. 5 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock
Transfer Corporation). (Filed as Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 3, 2006, and incorporated herein by reference.)
|
|
4
|
.17
|
|
Amendment No. 2 dated as of March 26, 2007, to Warrant
issued by the Registrant to a consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.1 to
Form 10-K/A,
as filed with the Securities and Exchange Commission on
April 30, 2007, and incorporated herein by reference.)
|
|
4
|
.18
|
|
Warrant issued by the Company to a Consultant, dated as of
April 28, 2008. (Filed as Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 11, 2008, and incorporated herein by reference.)
|
|
10
|
.1
|
|
Industrial Lease Agreement dated as of January 16, 1997,
between the Registrant and the Irvine Company. (Filed as
Exhibit 10.11 to the
Form 10-KSB
for the fiscal year ended December 31, 1996, as filed with
the Securities and Exchange Commission on March 31, 1997,
and incorporated herein by reference.)
|
|
10
|
.2*
|
|
Employee Stock Purchase Plan. (Filed as Exhibit 4.1 to the
Registrants Registration Statement on
Form S-8
(No. 333-54246),
and incorporated herein by reference.)
|
|
10
|
.3*
|
|
Amendment
2001-1
to
the Employee Stock Purchase Plan effective as of June 21,
2001. (Filed as Exhibit 10.22 to the Annual Report on
Form 10-K,
as amended, as filed with the Securities and Exchange Commission
on April 25, 2001, and incorporated herein by reference.)
|
|
10
|
.4
|
|
License Agreement dated as of August 28, 2001, by and
between the Registrant and Johnson Matthey PLC. (Filed as
Exhibit 10.5 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 14, 2001, and incorporated herein by reference.)
|
63
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.5
|
|
License Agreement dated as of October 24, 2001, by and
between the Registrant and Bristol-Myers Squibb Company. (Filed
as Exhibit 10.6 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 14, 2001, and incorporated herein by reference.)
|
|
10
|
.6
|
|
Preferred Stock and Warrant Purchase Agreement dated as of
September 26, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.)
|
|
10
|
.7
|
|
First Amendment dated March 25, 2004 to Industrial Lease
Agreement dated as of January 16, 1997 by and between the
Registrant and the Irvine Company. (Filed as Exhibit 10.1
to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
10
|
.8
|
|
Common Stock and Warrant Purchase Agreement, dated as of
April 20, 2004, by and among Spectrum and the purchasers
listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
April 23, 2004, and incorporated by reference.)
|
|
10
|
.9#
|
|
Co-Development and License Agreement by and between the
Registrant and GPC Biotech AG, dated as of September 30,
2002. (Filed as Exhibit 10.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 15, 2004, and incorporated by reference.)
|
|
10
|
.10#
|
|
License and Collaboration Agreement by and between the
Registrant and Zentaris GmbH, dated as of August 12, 2004.
(Filed as Exhibit 10.1 to
Form S-3/A,
as filed with the Securities and Exchange Commission on
January 21, 2005, and incorporated by reference.)
|
|
10
|
.11
|
|
Settlement Agreement and Release by and between the Registrant
and SCO Financial Group, LLC, dated as of September 30,
2004. (Filed as Exhibit 10.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 15, 2004, and incorporated by reference.)
|
|
10
|
.12*
|
|
Form of Stock Option Agreement under the 2003 Amended and
Restated Incentive Award Plan. (As filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
December 17, 2004, and incorporated herein by reference.)
|
|
10
|
.13#
|
|
License Agreement by and between the Registrant and Altair
Nanomaterials, Inc. and Altair Nanotechnologies, Inc. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
February 3, 2005, and incorporated herein by reference.)
|
|
10
|
.14#
|
|
License Agreement by and between the Registrant and Chicago
Labs, Inc. (Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
February 25, 2005, and incorporated herein by reference.)
|
|
10
|
.15*
|
|
Form of Non-Employee Director Stock Option Agreement under the
2003 Amended and Restated Incentive Award Plan. (Filed as
Exhibit 10.5 to
Form 10-Q
with the Securities and Exchange Commission on May 10,
2005, and incorporated herein by reference.)
|
|
10
|
.16#
|
|
License Agreement between Registrant and Dr. Robert Bases.
(Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
May 20, 2005, and incorporated herein by reference.)
|
|
10
|
.17
|
|
Form Securities Purchase Agreement dated September 14,
2005. (Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
September 15, 2005, and incorporated herein by reference.)
|
|
10
|
.18*
|
|
Restricted Stock Award Grant Notice and Restricted Stock Award
Agreement under the Amended and Restated Incentive Award Plan.
(Filed as Exhibit 10.44 to
Form 10-K,
as filed with the Securities and Exchange Commission on
March 15, 2006, and incorporated herein by reference.)
|
|
10
|
.19#
|
|
License Agreement between Registrant and Merck Eprova AG dated
May 23, 2006. (Filed as Exhibit 10.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 8, 2006, and incorporated herein by reference.)
|
|
10
|
.20*
|
|
Third Amended and Restated 1997 Stock Incentive Plan. (Filed as
Exhibit 10.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 3, 2006, and incorporated herein by reference.)
|
|
10
|
.21#
|
|
Agreement by and between Registrant and Glaxo Group Limited
(d/b/a GlaxoSmithKline) dated November 10, 2006. (Filed as
Exhibit 10.38 to
Form 10-K,
as filed with the Securities and Exchange Commission on
March 14, 2007, and incorporated herein by reference.)
|
64
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.22
|
|
Second Amendment to the License Agreement by and between
Registrant and Johnson Matthey PLC dated February 23, 2007.
(Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
March 2, 2007, and incorporated herein by reference.)
|
|
10
|
.25
|
|
Form of Subscription Agreement. (Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
May 4, 2007, and incorporated herein by reference.)
|
|
10
|
.26*
|
|
2003 Amended and Restated Incentive Award Plan. (Filed as
Exhibit 10.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 9, 2007, and incorporated herein by reference.)
|
|
10
|
.27*
|
|
Summary of Director Compensation. (Filed as Exhibit 10.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 9, 2007, and incorporated herein by reference.)
|
|
10
|
.28#
|
|
First Amendment to License Agreement dated August 28, 2001
between Johnson Matthey PLC and Registrant dated
September 30, 2002. (Filed as Exhibit 10.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 9, 2007.)
|
|
10
|
.29#
|
|
License Agreement by and between the Registrant and Indena,
S.p.A. dated July 17, 2007. (Filed as Exhibit 10.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 9, 2007.)
|
|
10
|
.30*
|
|
Executive Employment Agreement by and between the Registrant and
Rajesh C. Shrotriya, M.D., entered into June 20, 2008
and effective as of January 2, 2008. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
June 26, 2008, and incorporated herein by reference.)
|
|
10
|
.31
|
|
Consulting Agreement by and between the Registrant and Luigi
Lenaz, M.D., effective as of July 1, 2008. (Filed as
Exhibit 10.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 11, 2008, and incorporated herein by reference.)
|
|
10
|
.32*+
|
|
Form of Indemnity Agreement of the Registrant.
|
|
10
|
.33#+
|
|
License, Development, Supply and Distribution Agreement dated
October 28, 2008 by and among the Registrant and Allergan
Sales, LLC, Allergan USA, Inc. and Allergan, Inc.
|
|
21
|
+
|
|
Subsidiaries of Registrant.
|
|
23
|
.1+
|
|
Consent of Kelly & Company.
|
|
31
|
.1+
|
|
Certification of Chief Executive Officer, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
31
|
.2+
|
|
Certification of Vice President Finance, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
32
|
.1+
|
|
Certification of Chief Executive Officer, pursuant to
Rule 13a-14(b)/15d-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
32
|
.2+
|
|
Certification of Vice President Finance, pursuant to
Rule 13a-14(b)/15d-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
|
|
*
|
|
Indicates a management contract or compensatory plan or
arrangement.
|
|
#
|
|
Confidential portions omitted and filed separately with the U.S.
Securities and Exchange Commission pursuant to
Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as
amended.
|
|
+
|
|
Filed herewith.
|
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Spectrum Pharmaceuticals,
Inc.
|
|
|
|
By:
|
/s/
Rajesh
C. Shrotriya, M.D.
|
Rajesh C. Shrotriya, M.D.
Chief Executive Officer and President
Date: March 31, 2009
POWER OF
ATTORNEY
Each person whose signature appears below constitutes and
appoints each of Rajesh C. Shrotriya and Shyam K.
Kumaria as his attorney-in-fact, with full power of
substitution, for him in any and all capacities, to sign any
amendments to this
Form 10-K,
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
each attorney-in-fact, or his substitute, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on
Form 10-K
has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
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Signature
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Title
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Date
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/s/
Rajesh
C. Shrotriya, M.D.
Rajesh
C. Shrotriya, M.D.
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Chairman of the Board,
Chief Executive Officer, and President
(Principal Executive Officer)
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March 31, 2009
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/s/
Shyam
K. Kumaria
Shyam
K. Kumaria
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Vice President Finance
(Principal Financial and Accounting Officer)
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March 31, 2009
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/s/
Mitchell
P. Cybulski
Mitchell
P. Cybulski
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Director
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March 31, 2009
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/s/
Richard
D. Fulmer
Richard
D. Fulmer
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Director
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March 31, 2009
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/s/
Stuart
M. Krassner, Sc.D., Psy.D.
Stuart
M. Krassner, Sc.D., Psy.D.
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Director
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March 31, 2009
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/s/
Anthony
E. Maida, III
Anthony
E. Maida, III
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Director
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March 31, 2009
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/s/
Julius
A. Vida, Ph.D.
Julius
A. Vida, Ph.D.
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Director
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March 31, 2009
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66
Spectrum Pharmaceuticals, Inc. and Subsidiaries
Consolidated Financial Statements
As of December 31, 2008 and 2007 and
For Each of the Three Years in the Period Ended
December 31, 2008
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Consolidated
Financial Statements
INDEX TO
FINANCIAL STATEMENTS
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F-2
|
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Financial Statements of Spectrum Pharmaceuticals, Inc. and
Subsidiaries:
|
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F-4
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F-5
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F-6
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F-7
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F-8
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F-1
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Spectrum Pharmaceuticals, Inc.
We have completed the integrated audits of the accompanying
consolidated balance sheets of Spectrum Pharmaceuticals, Inc.
and Subsidiaries (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2008. We
also have audited Spectrum Pharmaceuticals, Inc. and
Subsidiaries internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Spectrum Pharmaceuticals, Inc. and
Subsidiaries management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying
Managements annual report on
internal control over financial reporting.
Our
responsibility is to express an opinion on these consolidated
financial statements and an opinion on the Companys
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
As described in Managements Report on Internal
Control over Financial Reporting the Companys,
management has excluded RIT Oncology, LLC (RIT) from its
assessment of internal control over financial reporting as of
December 31, 2008 because it was acquired by the Company in
a purchase business combination during 2008. We have also
excluded RIT from our audit of internal control over financial
reporting.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Spectrum Pharmaceuticals, Inc. and Subsidiaries as
of December 31, 2008 and 2007, and the consolidated results
of its operations and its cash flows for each of the years in
the three-year period ended
F-2
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, Spectrum Pharmaceuticals, Inc. and Subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on
criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)
Kelly & Company,
Certified Public Accountants
Costa Mesa, California
March 31, 2009
F-3
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
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|
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December 31,
|
|
|
December 31,
|
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|
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2008
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|
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2007
|
|
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|
(In thousands, except share
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|
|
and per share data)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,860
|
|
|
$
|
1,141
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Marketable securities
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|
|
68,226
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|
|
|
54,518
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Accounts receivable-trade, net
|
|
|
5,002
|
|
|
|
191
|
|
Inventory
|
|
|
1,841
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
693
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
85,622
|
|
|
|
56,612
|
|
Property and equipment, net
|
|
|
1,782
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|
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|
716
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|
Zevalin related intangible assets, net
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|
|
37,042
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|
|
|
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Other assets
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|
|
289
|
|
|
|
212
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|
|
|
|
|
|
|
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|
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Total assets
|
|
$
|
124,735
|
|
|
$
|
57,540
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
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Accounts payable and accrued obligations
|
|
$
|
5,627
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|
|
$
|
1,598
|
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Accrued compensation
|
|
|
2,956
|
|
|
|
1,111
|
|
Note payable to Cell Therapeutics in connection with Zevalin
joint venture
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|
7,500
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|
|
|
|
|
Current portion of deferred revenue and other credits
|
|
|
8,500
|
|
|
|
|
|
Accrued drug development costs
|
|
|
3,449
|
|
|
|
5,090
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
28,032
|
|
|
|
7,799
|
|
Capital lease obligations, net of current portion
|
|
|
95
|
|
|
|
|
|
Zevalin related contingent obligations
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|
|
8,798
|
|
|
|
|
|
Deferred revenue and other credits, net of current portion
|
|
|
33,929
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
70,854
|
|
|
|
8,791
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
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|
|
|
|
|
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Minority interest in consolidated entity
|
|
|
14,262
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|
|
|
|
|
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|
|
|
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|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, par value $0.001 per share,
5,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series B Junior Participating Preferred Stock,
1,000,000 shares authorized, no shares issued and
outstanding
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|
|
|
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|
|
Series E Convertible Voting Preferred Stock,
2,000 shares authorized, stated value $10,000 per share,
$0.8 million aggregate liquidation value, issued and
outstanding, 68 and 170 shares at December 31, 2008
and 2007, respectively
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|
419
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|
1,048
|
|
Common stock, par value $0.001 per share,
100,000,000 shares authorized;
|
|
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|
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Issued and outstanding, 32,166,316 and 31,233,798 shares at
December 31, 2008 and 2007, respectively
|
|
|
32
|
|
|
|
31
|
|
Additional paid-in capital
|
|
|
296,531
|
|
|
|
288,927
|
|
Accumulated other comprehensive income <loss>
|
|
|
(146
|
)
|
|
|
493
|
|
Accumulated deficit
|
|
|
(257,217
|
)
|
|
|
(241,750
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
39,619
|
|
|
|
48,749
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
124,735
|
|
|
$
|
57,540
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-4
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
License and contract revenue
|
|
$
|
20,676
|
|
|
$
|
7,672
|
|
|
$
|
5,000
|
|
Product sales
|
|
|
8,049
|
|
|
|
|
|
|
|
92
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
28,725
|
|
|
$
|
7,672
|
|
|
$
|
5,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sold
|
|
|
1,193
|
|
|
|
|
|
|
|
97
|
|
Research and development
|
|
|
26,683
|
|
|
|
33,285
|
|
|
|
23,728
|
|
Acquired in-process research and development
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
158
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
15,161
|
|
|
|
11,582
|
|
|
|
7,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
47,895
|
|
|
|
44,867
|
|
|
|
31,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(19,170
|
)
|
|
|
(37,195
|
)
|
|
|
(25,893
|
)
|
Other income, net
|
|
|
1,165
|
|
|
|
3,139
|
|
|
|
2,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest in consolidated entities
|
|
|
(18,005
|
)
|
|
|
(34,056
|
)
|
|
|
(23,287
|
)
|
Minority interest in net loss of consolidated entities
|
|
|
2,538
|
|
|
|
20
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,467
|
)
|
|
$
|
(34,036
|
)
|
|
$
|
(23,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares
outstanding
|
|
|
31,551,152
|
|
|
|
29,013,850
|
|
|
|
24,311,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-5
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at December 31, 2005
|
|
|
448
|
|
|
$
|
2,542
|
|
|
|
23,503,157
|
|
|
$
|
24
|
|
|
$
|
242,873
|
|
|
$
|
(26
|
)
|
|
$
|
(184,430
|
)
|
|
$
|
60,983
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,284
|
)
|
|
|
(23,284
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
383
|
|
Total comprehensive gain (loss), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383
|
|
|
|
(23,284
|
)
|
|
|
(22,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series D Preferred Stock into Common Stock
|
|
|
(108
|
)
|
|
|
(514
|
)
|
|
|
460,126
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series E Preferred Stock into Common Stock
|
|
|
(121
|
)
|
|
|
(747
|
)
|
|
|
242,000
|
|
|
|
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants to JBCPL for cash
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
419
|
|
Fair value of common stock issued to Targent, Inc. for
acquisition of assets
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
1
|
|
|
|
2,741
|
|
|
|
|
|
|
|
|
|
|
|
2,742
|
|
Fair value of common stock issued to Altair Nanotechnologies,
Inc. for milestones
|
|
|
|
|
|
|
|
|
|
|
140,000
|
|
|
|
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
574
|
|
Issuance of common stock upon exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
17,750
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Issuance of common stock upon exercise of employee stock options
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of common stock to 401(k) plan
|
|
|
|
|
|
|
|
|
|
|
39,906
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
Fractional share adjustments
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense and common stock issued
|
|
|
|
|
|
|
|
|
|
|
77,926
|
|
|
|
|
|
|
|
3,806
|
|
|
|
|
|
|
|
|
|
|
|
3,806
|
|
Series D Preferred Stock dividend paid with common stock
|
|
|
|
|
|
|
|
|
|
|
15,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Stock dividend paid in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
219
|
|
|
$
|
1,281
|
|
|
|
25,217,793
|
|
|
$
|
25
|
|
|
$
|
251,880
|
|
|
$
|
357
|
|
|
$
|
(207,714
|
)
|
|
$
|
45,829
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,036
|
)
|
|
|
(34,036
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive gain (loss), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
(34,036
|
)
|
|
|
(33,900
|
)
|
Conversion of Series D Preferred Stock into Common Stock
|
|
|
(49
|
)
|
|
|
(233
|
)
|
|
|
207,957
|
|
|
|
1
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants for cash, net of issuance
costs
|
|
|
|
|
|
|
|
|
|
|
5,134,100
|
|
|
|
5
|
|
|
|
30,004
|
|
|
|
|
|
|
|
|
|
|
|
30,009
|
|
Fair value of common stock issued to Targent, Inc. for milestones
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
520
|
|
Share-based compensation expense and common stock issued
|
|
|
|
|
|
|
|
|
|
|
235,313
|
|
|
|
|
|
|
|
5,278
|
|
|
|
|
|
|
|
|
|
|
|
5,278
|
|
Issuance of common stock upon exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
161,145
|
|
|
|
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
519
|
|
Issuance of common stock upon exercise of employee stock options
|
|
|
|
|
|
|
|
|
|
|
81,438
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
Issuance of common stock to 401(k) plan
|
|
|
|
|
|
|
|
|
|
|
44,118
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
Fair value of common stock issued to consultant for services
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Fractional share adjustments
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Stock dividend paid with common stock
|
|
|
|
|
|
|
|
|
|
|
1,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
170
|
|
|
$
|
1,048
|
|
|
|
31,233,798
|
|
|
$
|
31
|
|
|
$
|
288,927
|
|
|
$
|
493
|
|
|
$
|
(241,750
|
)
|
|
$
|
48,749
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,467
|
)
|
|
|
(15,467
|
)
|
Realized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(493
|
)
|
|
|
|
|
|
|
(493
|
)
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(639
|
)
|
|
|
(15,467
|
)
|
|
|
(16,106
|
)
|
Conversion of Series E Preferred Stock into Common Stock
|
|
|
(102
|
)
|
|
|
(629
|
)
|
|
|
204,000
|
|
|
|
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued to Targent, Inc. for NDA
Approval
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
Fair value of common stock issued to NDDO, University of Bradford
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
Share-based compensation expense and common stock issued
|
|
|
|
|
|
|
|
|
|
|
362,088
|
|
|
|
1
|
|
|
|
6,322
|
|
|
|
|
|
|
|
|
|
|
|
6,323
|
|
Issuance of common stock to 401(k) plan
|
|
|
|
|
|
|
|
|
|
|
166,430
|
|
|
|
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
274
|
|
Fractional share adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
68
|
|
|
$
|
419
|
|
|
|
32,166,316
|
|
|
$
|
32
|
|
|
$
|
296,531
|
|
|
$
|
(146
|
)
|
|
$
|
(257,217
|
)
|
|
$
|
39,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-6
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Cash Flows From Operating Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,467
|
)
|
|
$
|
(34,036
|
)
|
|
$
|
(23,284
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
610
|
|
|
|
255
|
|
|
|
198
|
|
Acquired in-process research and development
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
6,537
|
|
|
|
5,652
|
|
|
|
3,951
|
|
Fair value of common stock issued in connection with drug license
|
|
|
379
|
|
|
|
520
|
|
|
|
3,316
|
|
Minority interest in consolidated entities
|
|
|
(2,538
|
)
|
|
|
(20
|
)
|
|
|
(3
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,811
|
)
|
|
|
959
|
|
|
|
(863
|
)
|
Inventory
|
|
|
(1,841
|
)
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
101
|
|
|
|
(268
|
)
|
|
|
(63
|
)
|
Accounts payable and accrued obligations
|
|
|
2,387
|
|
|
|
1,463
|
|
|
|
2,111
|
|
Accrued compensation and related taxes
|
|
|
1,845
|
|
|
|
103
|
|
|
|
325
|
|
Deferred revenue and other credits
|
|
|
93
|
|
|
|
(43
|
)
|
|
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,005
|
)
|
|
|
(25,415
|
)
|
|
|
(13,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of marketable securities
|
|
$
|
(13,056
|
)
|
|
|
(4,265
|
)
|
|
|
(14,901
|
)
|
Investment in Zevalin joint venture
|
|
|
(10,202
|
)
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,518
|
)
|
|
|
(346
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(24,776
|
)
|
|
|
(4,611
|
)
|
|
|
(15,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants, net of
related offering costs and expenses
|
|
|
|
|
|
|
30,009
|
|
|
|
419
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
519
|
|
|
|
53
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
120
|
|
|
|
3
|
|
Proceeds from Allergan collaboration
|
|
|
41,500
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
41,500
|
|
|
|
30,648
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase <decrease> in cash and cash
equivalents
|
|
|
8,719
|
|
|
|
622
|
|
|
|
(28,231
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,141
|
|
|
|
519
|
|
|
|
28,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,860
|
|
|
$
|
1,141
|
|
|
$
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
36
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued in connection with drug license
|
|
$
|
379
|
|
|
$
|
520
|
|
|
$
|
3,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of restricted stock granted employees and directors
|
|
$
|
606
|
|
|
$
|
1,308
|
|
|
$
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock issued to match employee 401k contributions
|
|
$
|
274
|
|
|
$
|
179
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid with common stock
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of equity awarded to consultants and placement agents
|
|
$
|
70
|
|
|
$
|
70
|
|
|
$
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-7
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
We are a commercial stage biopharmaceutical company committed to
developing and commercializing innovative therapies with a focus
primarily in the areas of hematology-oncology and urology. We
have a fully developed commercial infrastructure that is
responsible for the sales and marketing of two drugs in the
United States, namely Fusilev and Zevalin. Our lead
developmental drug is apaziquone (formerly, EOquin), which is
presently being studied in two large Phase 3 clinical trials for
bladder cancer under a strategic collaboration with Allergan
Inc. Another drug, ozarelix is in a Phase 2 clinical trial for
benign prostatic hypertrophy (BPH).
|
|
2.
|
Summary
of Significant Accounting Policies and Estimates
|
Principles
of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
the Company, our wholly-owned subsidiaries, and joint ventures
the Company controls, or of which it is the primary beneficiary.
We evaluate the need to consolidate joint ventures based on
standards set forth in Financial Accounting Standards Board
(FASB) Financial Interpretation (FIN)
No. 46R,
Consolidation of Variable Interest Entities
(FIN 46R). Investments by outside parties
in our consolidated entities are recorded as Minority Interest
in Consolidated entities in our accounts, and stated net after
allocation of income and losses in the entity.
As of December 31, 2008, we had two consolidated
subsidiaries: OncoRx Pharma Private Limited
(OncoRx), 100% owned, organized in Mumbai, India in
2008 and Spectrum Pharmaceuticals GmbH, wholly-owned inactive
subsidiary, incorporated in Switzerland in April 1997; and two
consolidated joint ventures: RIT Oncology, LLC
(RIT), organized in Delaware in October 2008; and
Spectrum Pharma Canada, organized in Quebec, Canada in January
2008. During 2008, we dissolved NeoJB LLC (NeoJB),
which was 80% owned by us and organized in Delaware in April
2002.
We have eliminated all significant intercompany accounts and
transactions.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP)
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
and disclosure of contingent obligations in the financial
statements and accompanying notes. Our most significant
assumptions are employed in estimates used in determining values
of financial instruments and accrued obligations, as well as in
estimates used in applying the revenue recognition policy and
estimating share-based compensation. The estimation process
requires assumptions to be made about future events and
conditions, and as such, is inherently subjective and uncertain.
Actual results could differ materially from our estimates.
Fair
Value of Financial Instruments
Effective January 1, 2008, we adopted Statement of
Financial Accounting Standards No. 157,
Fair Value
Measurements
, or FAS 157. In February 2008, FASB
issued its Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, which
provides a one year deferral of the effective date of
FAS 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in
the financial statements at fair value at least annually.
Therefore, we adopted the provisions of FAS 157 with
respect to our financial assets and liabilities only.
FAS 157 defines fair value, establishes a framework for
measuring fair value under GAAP and enhances disclosures about
fair value measurements. Fair value is defined under
FAS 157 as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair
value under FAS 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs.
F-8
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
We utilize the market approach to measure fair value for our
financial assets and liabilities. The market approach uses
prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities. The standard describes a fair value hierarchy based
on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to
measure fair value which are the following:
Level 1:
Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for
assets or liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
Level 2:
Observable prices that are based
on inputs not quoted on active markets, but corroborated by
market data.
Level 3:
Unobservable inputs are used
when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible, as well as consider
counterparty credit risk in assessment of fair value.
The adoption of this statement did not have a material impact on
our consolidated results of operations and financial condition.
The carrying values of our cash, cash equivalents and marketable
securities, carried at fair value as of December 31, 2008,
are classified in the table below in one of the three categories
described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash & Equivalents
|
|
$
|
9,860
|
|
|
|
|
|
|
|
|
|
|
$
|
9,860
|
|
FDIC insured Bank Certificates of Deposit
|
|
$
|
10,509
|
|
|
|
|
|
|
|
|
|
|
|
10,509
|
|
Money Market Currency Funds
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
U.S. Treasury Backed Securities
|
|
$
|
43,650
|
|
|
|
|
|
|
|
|
|
|
|
43,650
|
|
U.S. Treasury T-Bills
|
|
$
|
12,217
|
|
|
|
|
|
|
|
|
|
|
|
12,217
|
|
Corporate Debt Securities
|
|
$
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
1,912
|
|
Other Securities
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,323
|
|
|
|
|
|
|
|
|
|
|
$
|
78,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities primarily
consist of bank checking deposits, short-term treasury
securities, institutional money market funds, corporate debt and
equity, municipal obligations, government agency notes, and
certificates of deposit. We classify highly liquid short-term
investments, with insignificant interest rate risk and
maturities of 90 days or less at the time of acquisition,
as cash and cash equivalents. Other investments, which do not
meet the above definition of cash equivalents, are classified as
either held-to-maturity or
available-for-sale marketable securities, in
accordance with the provisions of FASB Statement
(SFAS) No. 115,
Accounting for Certain
Investments in Debt and Equity Securities.
Investments
that lack immediate liquidity, or which we intend to hold for
more than one year are classified as long-term investments, and
included in other assets.
As of December 31, 2008, substantially all of our
marketable securities were held in short-term US treasury bills
or US treasury backed mutual funds or FDIC insured bank
certificates of deposits and held at major financial
institutions. These institutions are required to invest our cash
in accordance with our investment policy with the principal
objectives being preservation of capital, fulfillment of
liquidity needs and above market returns commensurate with
preservation of capital. Our investment policy also requires
that investments in marketable securities be in only highly
rated instruments, which are primarily US treasury bills or US
treasury backed
F-9
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
securities, with limitations on investing in securities of any
single issuer. To a limited degree these investments are insured
by the Federal Deposit Insurance Corporation and by third party
insurance. However, these investments are not insured against
the possibility of a complete loss of earnings or principal and
are inherently subject to the credit risk related to the
continued credit worthiness of the underlying issuer and general
credit market risks as have existed since late 2007. We manage
such risks on our portfolio by matching scheduled investment
maturities with our cash requirements and investing in highly
rated instruments.
Certain
Risks and Concentrations
We are subject to concentration of credit risk primarily from
our cash investments. Under our investment guidelines, credit
risk is managed by diversification of the investment portfolio
and by the purchase of investment-grade securities. We do not
require collateral or other security to support credit sales,
but provide an allowance for bad debts when warranted.
Our product sales are concentrated in a limited number of
customers. Our largest customers are Group Purchasing
Organizations (GPOs) of oncology products who accounted for
approximately 30% of our net revenues and approximately 70% of
the net revenues were generated by distributors. GPOs accounted
for approximately 30% of the net accounts receivables and
distributors accounted for approximately 70% of net receivables.
Currently we have single source suppliers for raw materials, and
the manufacturing of finished product of Fusilev and Zevalin. A
disruption in supply could materially affect our sales.
Similarly, we have single source suppliers for raw materials,
and manufactured finished product for our development drug
products. If we are unable to obtain sufficient quantities of
such product, our research and development activities may be
adversely affected.
Inventory
Inventory is stated at the lower of cost
(first-in,
first-out method) or market. The lower of cost or market is
determined based on net estimated realizable value after
appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors.
Property
and Equipment
We carry property and equipment at historical cost. Equipment is
depreciated on a straight-line basis over its estimated useful
life (generally 5 to 7 years). Leasehold improvements are
amortized over the shorter of the estimated useful life or lease
term. Maintenance and repairs are expensed as incurred. Major
renewals and improvements that extend the life of the property
are capitalized.
We review long-lived assets, including property and equipment,
for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. If impairment is indicated, we
reduce the carrying value of the asset to fair value.
Patents
and Licenses
We own or license all the intellectual property that forms the
basis of our business model. We expense all licensing and patent
application costs as they are incurred.
Purchase
price allocation
Based on the provisions of SFAS No. 141, Business
Combinations, the purchase price for the acquisition of Zevalin
rights was allocated to identifiable intangible assets acquired
and liabilities assumed based on their estimated fair values at
the acquisition date, as determined by an independent
third-party valuation firm. Such a valuation requires
significant estimates and assumptions including but not limited
to: determining the timing and
F-10
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
expected costs to complete the in-process projects, projecting
regulatory approvals, estimating future cash flows from product
sales resulting from in-process projects, and developing
appropriate discount rates and probability rates by project. We
believe the fair values assigned to the assets acquired and
liabilities assumed are based on reasonable assumptions.
However, these assumptions may be inaccurate, and unanticipated
events and circumstances may occur.
Industry
Segment and Geographic Information
We operate in one business segment, that of acquiring,
developing and commercializing prescription drug products.
Accordingly, the accompanying financial statements are reported
in the aggregate, including all our activities in one segment.
Our foreign operations were not significant for any of the years
presented herein.
Revenue
Recognition
We follow the provisions as set forth by current accounting
rules, which primarily include Staff Accounting Bulletin
(SAB) 104, Revenue Recognition, and Emerging Issues
Task Force (EITF)
No. 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables.
Generally, revenue is recognized when evidence of an arrangement
exists, delivery has occurred or services have been rendered,
the price is fixed and determinable, and collectibility is
reasonably assured.
Up-front fees representing non-refundable payments received upon
the execution of licensing or other agreements are recognized as
revenue upon execution of the agreements where we have no
significant future performance obligations and collectibility of
the fees is reasonably assured. Milestone payments, which are
generally based on developmental or regulatory events, are
recognized as revenue when the milestones are achieved,
collectibility is reasonably assured, and we have no significant
future performance obligations in connection with the milestone.
In those instances where we have collected fees or milestone
payments but have significant future performance obligations
related to the development of the drug product, we record
deferred revenue and recognize it over the period of our future
obligations.
Revenue from sales of product is recognized upon shipment of
product when title and risk of loss have transferred to the
customer, and provisions for estimates, including promotional
adjustments, price adjustments, returns, and other potential
adjustments are reasonably determinable. Such revenue is
recorded, net of such estimated provisions, at the minimum
amount of the customers obligation to us. We also state
the related accounts receivable at net realizable value, with
any allowance for doubtful accounts charged to general operating
expenses. If revenue from sales is not reasonably determinable
due to provisions for estimates, promotional adjustments, price
adjustments, returns or any other potential adjustments, we
defer the revenue and recognize revenue when the estimates are
reasonably determinable, even if the monies for the gross sales
have been received.
Research
and Development
Research and development expenses include related salaries and
benefits, clinical trial and related manufacturing costs,
contract and other outside service fees, and facilities and
overhead costs related to our research and development efforts.
Research and development expenses also consist of costs incurred
for proprietary and collaboration research and development and
include activities such as product registries and
investigator-sponsored trials. In accordance with Statement of
Financial Accounting Standards, or SFAS, No. 2,
Accounting for Research and Development Costs,
research
and development costs are expensed as incurred. In instances
where we enter into agreements with third parties for research
and development activities we may prepay fees for services at
the initiation of the contract. We record the prepayment as a
prepaid asset and charge research and development expense over
the period of time the contracted research and development
services are performed in accordance with EITF
07-3,
Accounting for Nonrefundable Advance Payment for Goods or
Services to be Used in Future Research and Development
Activities.
Other types of arrangements with third parties
may be fixed fee or fee for service, and may include monthly
payments or payments upon the completion of milestones or
receipt of deliverables.
F-11
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
We review and accrue drug development expenses based on factors
such as estimates of work performed, patient enrollment,
completion of patient studies and other events. Accrued clinical
study costs are subject to revisions as trials progress to
completion. Revisions are recorded in the period in which the
facts that give rise to the revision become known.
Acquired
In-Process Research and Development.
In accordance with SFAS No. 141, Business
Combinations, we immediately charge the costs associated
with purchased in-process research and development
(IPR&D), to the statement of operations upon
acquisition. These amounts represent an estimate of the fair
value of purchased IPR&D for projects that, as of the
acquisition date, had not yet reached technological feasibility,
had no alternative future use, and had uncertainty in generating
future economic benefits. We determine the future economic
benefits from the purchased IPR&D to be uncertain until
such technology is incorporated into products approved for
marketing by the FDA or when other significant risk factors are
abated.
Basic
and Diluted Net Loss Per Share
In accordance with FASB Statement No. 128, Earnings Per
Share, we calculate basic and diluted net loss per share using
the weighted average number of common shares outstanding during
the periods presented, and adjust the amount of net loss, used
in this calculation, for preferred stock dividends declared
during the period.
We incurred net losses in each of the periods presented, and as
such, did not include the effect of potentially dilutive common
stock equivalents in the diluted net loss per share calculation,
as their effect would be anti-dilutive for all periods.
Potentially dilutive common stock equivalents would include the
common stock issuable upon conversion of preferred stock and the
exercise of warrants and stock options that have conversion or
exercise prices below the market value of our common stock at
the measurement date.
The following data show the amounts used in computing basic loss
per share for each of the three years in the period ended
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands except share
|
|
|
|
and per share data)
|
|
|
Net loss
|
|
$
|
(15,467
|
)
|
|
$
|
(34,036
|
)
|
|
$
|
(23,284
|
)
|
Less: Preferred dividends paid in cash or stock
|
|
|
|
|
|
|
(12
|
)
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common stockholders used in computing basic
loss per share
|
|
$
|
(15,467
|
)
|
|
$
|
(34,048
|
)
|
|
$
|
(23,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
31,551,152
|
|
|
|
29,013,850
|
|
|
|
24,311,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting
for Share-Based Compensation
We adopted SFAS No. 123(R) on January 1, 2006,
using the modified prospective method and, accordingly, have not
restated the consolidated statements of operations for periods
prior to January 1, 2006. Under SFAS No. 123(R),
we are required to measure compensation cost for all equity
awards at fair value on the date of grant and recognize
compensation expense in our consolidated statements of
operations over the service period that the awards are expected
to vest. As permitted under SFAS No. 123(R), we have
elected to recognize compensation cost for all options with
graded vesting on a straight-line basis over the vesting period
of the entire option.
F-12
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
In estimating the fair value of share-based compensation, we use
the quoted market price of our common stock for stock awards,
and the Black-Scholes Option Pricing Model for stock options and
warrants. We estimate future volatility based on past volatility
of our common stock, and we estimate the expected length of
options based on several criteria, including the vesting period
of the grant and the expected volatility.
We recorded share-based compensation during each of the three
years in the period ended December 31, 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Research and development
|
|
$
|
3,925
|
|
|
$
|
3,555
|
|
|
$
|
2,540
|
|
Selling, general and administrative
|
|
|
2,612
|
|
|
|
2,097
|
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Share-based compensation
|
|
$
|
6,537
|
|
|
$
|
5,652
|
|
|
$
|
3,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on the deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. The Company has determined that the deferred tax
asset does not meet the more likely than not
criteria under SFAS No. 109,
Accounting for Income
Taxes
, and, accordingly, a valuation allowance has been
recorded to reduce the net deferred tax asset to zero.
Comprehensive
Income
Comprehensive income is calculated in accordance with
SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires the disclosure of all components
of comprehensive income, including net income and changes in
equity during a period from transactions and other events and
circumstances generated from non-owner sources. The
Companys accumulated other comprehensive income at
December 31, 2008 and 2007 consisted primarily of
unrealized gains and losses on investments in marketable
securities as of those dates and the change during the years
then ended is reported in the statements of stockholders
equity and comprehensive income (loss).
Reclassification
of Accounts
Certain reclassifications have been made to prior-year
comparative financial statements to conform to the current year
presentation. These reclassifications had no effect on
previously reported results of operations or financial position.
New
Accounting Pronouncements
Effective January 2008, we adopted the provisions of EITF Issue
No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods
or Services to Be Used in Future Research and Development
Activities
, or Issue
07-3,
which
addresses the accounting for nonrefundable advance payments. The
EITF concluded that nonrefundable advance payments for goods or
services to be received in the future for use in research and
development activities should be deferred and capitalized. The
capitalized amounts should be expensed as the related goods are
delivered or the services are performed. If an entitys
expectations change such that it does not expect it will need
the goods to be delivered or the services to be rendered,
capitalized nonrefundable advance payments should be charged to
expense. The adoption of Issue
No. 07-3
did not have a material impact on our results of operations or
financial position.
F-13
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
In December 2007, FASB ratified the final consensuses in
Emerging Issues Task Force, or EITF, Issue
No. 07-1,
Accounting for Collaborative Arrangements,
or
Issue
07-1,
which requires certain income statement presentation of
transactions with third parties and of payments between parties
to the collaborative arrangement, along with disclosure about
the nature and purpose of the arrangement. Issue
07-1
is
effective for us beginning January 1, 2009. We do not
expect the adoption of this accounting pronouncement to have a
significant impact on our financial statements.
In December 2007, FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)), which replaces
SFAS No. 141,
Business
Combinations
. SFAS No. 141(R), requires an
acquirer to recognize the assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at the
acquisition date, measured at their fair values as of that date,
with limited exceptions. This Statement also requires the
acquirer in a business combination achieved in stages to
recognize the identifiable assets and liabilities, as well as
the non-controlling interest in the acquiree, at the full
amounts of their fair values. SFAS No. 141(R) makes
various other amendments to authoritative literature intended to
provide additional guidance or to confirm the guidance in that
literature to that provided in this Statement. This Statement
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. We do not expect the adoption of this accounting
pronouncement to have a significant impact on our financial
statements.
In December 2007, FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
(SFAS No. 160), which
amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements
, to improve the
relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated
financial statements. SFAS No. 160 establishes
accounting and reporting standards that require the ownership
interests in subsidiaries not held by the parent to be clearly
identified, labeled and presented in the consolidated statement
of financial position within equity, but separate from the
parents equity. This statement also requires the amount of
consolidated net income attributable to the parent and to the
non-controlling interest to be clearly identified and presented
on the face of the consolidated statement of income. Changes in
a parents ownership interest while the parent retains its
controlling financial interest must be accounted for
consistently, and when a subsidiary is deconsolidated, any
retained non-controlling equity investment in the former
subsidiary must be initially measured at fair value. The gain or
loss on the deconsolidation of the subsidiary is measured using
the fair value of any non-controlling equity investment. The
Statement also requires entities to provide sufficient
disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling
owners. This Statement applies prospectively to all entities
that prepare consolidated financial statements and applies
prospectively for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. We
do not expect the adoption of this accounting pronouncement to
have a significant impact on our financial statements.
In March 2008, FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement
No. 133
(SFAS No. 161).
SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 with the intent to
provide users of financial statements with an enhanced
understanding of: (i) How and why an entity uses derivative
instruments; (ii) How derivative instruments and related
hedged items are accounted for under SFAS No. 133 and
its related interpretations and (iii) How derivative
instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. This
Statement is effective for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. We do
not expect the adoption of this accounting pronouncement to have
a significant impact on our financial statements.
In May 2008, FASB issued SFAS No. 162
The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162), which is effective 90 days
following the SECs approval of the Public Company
Oversight Board amendments to AU Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted
Accounting Principles. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in
F-14
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
conformity with GAAP in the United States (the GAAP hierarchy).
We do not expect the adoption of this accounting pronouncement
to have a significant impact on our financial statements.
In June 2008, FASB issued FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(FSP
EITF 03-6-1).
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in computing earnings per share
under the two-class method described in SFAS No. 128,
Earnings Per Share
. FSP
EITF 03-6-1
requires companies to treat unvested share-based payment awards
that have non-forfeitable rights to dividend or dividend
equivalents as a separate class of securities in calculating
earnings per share. FSP
EITF 03-6-1
will be effective for the Companys fiscal year beginning
March 1, 2009, with early adoption prohibited. We are
evaluating the effect the implementation of FSP
EITF 03-6-1
will have, if any, on basic net earnings per share.
|
|
3.
|
Commercial
and Development Drug Products
|
We currently market two products in the United States, Zevalin
and Fusilev. In addition, we have multiple products in clinical
development, including apaziquone (formerly Eoquin) which is in
two Phase 3 clinical trials for bladder cancer and ozarelix
which is in a Phase 2 clinical trial for benign prostatic
hypertrophy (BPH). The following is a brief description of our
key products as of December 31, 2008.
Zevalin
:
In December 2008, we partnered
with Cell Therapeutics, Inc. (CTI) to form a 50/50 owned joint
venture, RIT Oncology, LLC (RIT), to commercialize and develop
Zevalin ([90Y]-ibritumomab tiuxetan) in the U.S. In March
2009, CTI sold to us their remaining 50% ownership in RIT,
resulting in RIT becoming a wholly-owned subsidiary. (See
Note 14 for discussion of subsequent event, and proforma
effect on 2008 financial results).
Zevalin is a prescribed form of cancer therapy called
radioimmunotherapy. Radioimmunotherapy combines a source of
radiation, called a radioisotope, with an antibody. As part of
the Zevalin therapeutic regimen, the Y-90 radioisotope is
combined with a monoclonal antibody (CD20 MAB) that
specifically recognizes a particular part of a B-cell (the cells
of the immune system that make antibodies to invading pathogens)
called the CD20 antigen. The CD20 antigen is found on malignant
and normal B-cells. As the patient is infused with Y-90 Zevalin
and it enters the bloodstream, the antibody portion recognizes
and attaches to the CD20 antigen on tumor cells, allowing the
radiation energy emitted from the Y-90 radioisotope
(
i.e
., beta emission) to penetrate and damage the
malignant B-cells as well as nearby neighboring cells, many of
which are also lymphoma cells. In December 2008, the FDA
accepted for filing and review, and granted priority review
status for, RITs supplemental Biologics License
Application (sBLA) for the use of Zevalin as
first-line consolidation therapy for patients with B-cell
follicular NHL. Under a relapsed or refractory setting, Zevalin
is used for treatment if a patient is not responding to
first-line therapy with other chemotherapeutic, cytotoxic or
anti-cancer drugs or if the lymphoma returns after first-line
therapy. Consolidation therapy aims to rapidly improve the
quality of the response achieved with initial remission
induction treatment. Induction therapy is a treatment designed
as a first step toward reducing the number of cancer cells.
Currently, a PDUFA target date of July 2, 2009 has been
established by the FDA for a decision regarding the Zevalin sBLA.
Upon the closing of the transaction mentioned above, CTI
contributed the Zevalin product assets to RIT in exchange for a
50% membership interest in RIT and the cash payments to CTI
noted below. CTI received an initial cash payment of
$7.5 million at the closing of the transaction on
December 15, 2008, and received an additional
$7.5 million cash payment in early January 2009.
The assets contributed by CTI to RIT were all of its interests
in the Zevalin business, which included the following:
(i) assets acquired in the December 2007 agreement with
Biogen, which included the U.S. development, sales and
marketing rights to Zevalin. The assets acquired included the
Zevalin FDA registration, FDA dossier, U.S. trademark,
trade name and trade dress, customer list, certain patents and
the assignment of numerous contracts. There was no continuity of
physical facilities or personnel from the December 2007
transaction; (ii) assets acquired
F-15
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
in the June 2008 Access Agreement with Bayer Schering Pharma AG,
which holds the rights to Zevalin outside of the United States.
Under the agreement, Bayer gave CTI access to data from
Bayers phase 3 first-line indolent trial (FIT Trial),
of Zevalin; and (iii) CTIs September 30, 2008
submission of the Zevalin sBLA for use in first-line
consolidation therapy for patients with
B-cell
follicular NHL. The FDA has granted priority review status for
this sBLA and a decision is targeted for July 2009. The joint
venture also assumed obligations of $2.2 million in current
liabilities and certain contingent obligations.
The allocation of the initial capitalization of the joint
venture, detailed below, was based on the relative fair values
of the intangible assets acquired, as determined by an
independent valuation consultant, and the obligations assumed by
the joint venture.
|
|
|
|
|
|
|
|
|
Developed technology
|
|
|
|
|
|
$
|
23,100
|
|
Core technology
|
|
|
|
|
|
|
14,100
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
4,700
|
|
Assumed Obligation to pay Biogen
|
|
|
|
|
|
|
(2,200
|
)
|
Acquisition transaction costs
|
|
|
|
|
|
|
(902
|
)
|
Fair Value of Assumed Contingent Obligations
|
|
$
|
12,500
|
|
|
|
|
|
Less: Limitation based on excess of values of Intangibles
acquired over Initial capitalization
|
|
|
(1,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Obligations, as recorded
|
|
|
|
|
|
|
(8.798
|
)
|
|
|
|
|
|
|
|
|
|
Total initial capitalization of Joint Venture
|
|
|
|
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
The total fair value of intangible assets equals
$41.9 million which includes developed technology, core
technology and acquired in-process research and development. The
developed technology asset relates to intellectual property and
rights thereon related to Zevalin as approved by the FDA for
relapsed or refractory, low-grade or follicular
B-cell
NHL.
The core technology asset represents the value of the
intellectual property and rights therein expected to be
leveraged in the development of label expansions for Zevalin.
Developed and core technologies will be amortized over the term
of the patents related to such technologies. We estimate
aggregate amortization expense related to these acquired
intangible assets to be $3.7 million annually. IPR&D
for RIT was evaluated utilizing the present value of the
estimated after-tax cash flows expected to be generated by
purchased undeveloped technology related to the Zevalin business
or label expansions for indications that have not been approved
by the FDA. Since, at the effective time of the transaction
establishing RIT, the IPR&D had not reached technological
feasibility, such amount has been charged to retained earnings
as of the formation date of RIT.
In accordance with SFAS 141
Business
Combinations,
because the RIT transaction involves
contingent consideration, we recognized $8.8 million as a
Zevalin related contingent obligation on the balance sheet,
which is equal to the excess of the fair value of the intangible
assets over the initial capitalization, and is less than the
approximately $12.5 million fair value of the contingent
consideration, as determined by the independent valuation
consultant. When the contingencies are resolved and the
contingent consideration becomes payable, any excess of the fair
value of the contingent consideration over the amount initially
recognized as a liability shall be recognized as an additional
cost of the acquired entity. If the amount initially recognized
as a liability exceeds the fair value of the contingent
consideration, that excess will be allocated as a pro rata
reduction of the amounts assigned to the assets acquired.
The following describes certain additional terms relating to
Zevalin licensing and development:
|
|
|
|
|
In connection with obtaining the required consent of Biogen to
the foregoing transactions, we entered into certain agreements
with Biogen. Such agreements included:
|
|
|
|
|
|
an amendment to the original asset purchase agreement between
CTI and Biogen (CTI/Biogen Agreement), modifying future
milestone payments, to provide that (i) concurrently with
the execution of the
|
F-16
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
amendment CTI was required to pay Biogen $0.2 million
(which was reimbursed to CTI by RIT from the initial capital
contributions made by CTI and us), (ii) upon the
December 2008 closing of the transaction, CTI was required
to pay Biogen an additional $2.0 million (which was paid by
RIT as successor to CTI under the amendment), (iii) upon
the achievement of the specified FDA approval milestone, RIT (as
successor to CTI) will be required to pay Biogen an additional
amount of $5.5 million if the milestone event occurs in
2009 (provided that RIT may elect to defer any such payment
until January 1, 2010, but upon such election the required
payment will increase to $6.0 million), $7.0 million
if the milestone event occurs in 2010, $9.0 million if the
milestone event occurs in 2011, or $10.0 million if the
milestone event occurs in 2012 or later. No other material terms
of the CTI/Biogen Agreement were modified. CTIs rights and
obligations, including its payment obligations to Biogen,
including royalties on net sales of Zevalin and an additional
regulatory milestone payment, under both the CTI/Biogen
Agreement and the amendment were assigned to and assumed by RIT
in connection with the closing of the joint venture transaction.
|
|
|
|
|
an amendment to the original supply agreement between Biogen and
CTI (CTI/Biogen Supply Agreement), modifying certain of the
pricing and manufacturing technology transfer terms contained in
the CTI/Biogen Supply Agreement and also providing that the term
of the agreement may be shortened in some instances in the event
of a mid-term manufacturing technology transfer. CTIs
rights and obligations, including its payment obligations to
Biogen, under both the CTI/Biogen Supply Agreement and the
amendment were assigned to and assumed by RIT in connection with
the closing of the joint venture transaction.
|
|
|
|
a security agreement, by and between RIT and Biogen whereby RIT
granted to Biogen a first priority security interest in all of
RITs assets, including the assets contributed to RIT by
CTI in connection with the closing of the joint venture
transaction, to secure certain payment, indemnification and
other obligations of RIT to Biogen.
|
|
|
|
a guarantee, by Spectrum for the benefit of Biogen whereby we
have, among other things, guaranteed the payment and performance
all of RITs obligations to Biogen (including its
obligations as assignee of CTI under all contractual
arrangements between CTI and Biogen that were assigned to and
assumed by RIT in connection with the closing of the joint
venture transaction).
|
Fusilev for Injection
:
On
August 15, 2008, we commercially launched our proprietary
oncology drug Fusilev, which New Drug Application
(NDA) was approved by the U.S. Food and Drug
Administration (FDA) in March 2008.
Fusilev rescue is indicated after high-dose methotrexate therapy
in patients with osteosarcoma, the most common form of bone
cancer, and is also indicated to diminish the toxicity and
counteract the effects of impaired methotrexate elimination or
inadvertent overdose of folic acid antagonists. We filed a
supplemental NDA for its use in colorectal cancer in
5-fluorouracil containing regimens with the FDA at the end of
October 2008. Also, in June 2008, we filed an NDA amendment for
a tablet formulation.
In April 2006, we acquired all of the oncology drug assets of
Targent, Inc. The principal asset in the transaction was a
license agreement to market Fusilev in the field of oncology in
North America. We paid an up-front fee in common stock, with a
fair market value of approximately $2.7 million, and are
contingently obligated to pay additional amounts based upon
achievement of milestones. At our option, cash payments for
milestones specified in the agreement may be paid in shares of
the Companys common stock having a value determined as
provided in the asset purchase agreement, equal to the cash
payment amount. In 2007 and 2008, we recorded stock-based
research and development charges of $520,000 and $305,000,
respectively, which represents the fair market value of
125,000 shares of our common stock issued at each of
October 2007 and March 2008 as milestone payments to
Targent, LLC.
F-17
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
Apaziquone (formerly
EOquin)
:
Apaziquone, a synthetic drug which
is activated by certain enzymes present in higher amounts in
cancer cells than in normal tissues, is currently being
developed for non-muscle invasive bladder cancer.
In October 2008, we signed an exclusive development and
commercialization collaboration agreement with Allergan for
apaziquone. Under the terms of the agreement, Allergan paid us
an upfront non-refundable $41.5 million at closing and will
make additional payments of up to $304 million based on the
achievement of certain development, regulatory and
commercialization milestones. We retained exclusive rights to
apaziquone in Asia, including Japan and China. Allergan received
exclusive rights to apaziquone for the treatment of bladder
cancer in the rest of the world, including the United States,
Canada and Europe.
In the United States, Allergan and we will co-promote apaziquone
and share equally in its profits and expenses. Allergan will
also pay us royalties on all of its apaziquone sales outside of
the United States. Under the terms of the agreement, we will
continue to conduct the development program, including the
manufacture of clinical supplies and the conduct of the current
and future phase 3 clinical trials, and will be jointly
responsible for obtaining regulatory approval for the product.
Both parties will share development expenses with Allergan
bearing 65% of the cost. Pursuant to our revenue recognition
policy, we expect that we will recognize the up front payment of
$41.5 million over the period of the development work,
estimated at 4 to 5 years. As of December 31, 2008, we
have classified $8.5 million of such amount on the balance
sheet as current portion of deferred revenue.
We also have the right, in our sole discretion, to opt-out of
the co-promotion agreement before January 1, 2012. If we do
so, our share of any future development costs shall be
significantly reduced. Part of the aggregate development costs
and marketing expenses incurred by us since January 1, 2009
shall be reimbursed by Allergan in the form of a one-time
payment. The co-promotion agreement will terminate and instead
of a sharing of profit and expenses, Allergan will pay us
royalties on a percentage of net sales of the apaziquone in the
United States that are slightly greater than the royalties paid
on net sales outside the United States. In addition, Allergan
will pay us up to $245 million in additional milestones
based upon the achievement of certain sales milestones in the
United States.
In October 2008, we terminated our 2001 license agreement for
apaziquone with INC
Research
®
,
formerly NDDO Research Foundation, in the Netherlands as the
patents underlying the agreement were all about to expire.
Pursuant to the termination, INC assigned to us all rights it
had in the know-how or intellectual property licensed under the
agreement and all rights in may have had in any know-how or
intellectual property created during the term of the agreement.
In exchange we paid INC a small amount of cash and issued them a
small number of shares of our common stock. In addition, INC is
entitled to up to 25,000 additional shares of our common stock
and an additional payment of $300,000 upon achievement of
certain regulatory milestones.
Ozarelix
:
Ozarelix, a LHRH (Luteinizing
Hormone Releasing Hormone, also known as GnRH or Gonadotropin
Releasing Hormone) antagonist (a substance that blocks the
effects of a natural hormone found in the body) is currently
being investigated for its targeted indications in hormone
dependent prostate cancer, or HDPC, BPH and endometriosis.
Mechanistically, LHRH antagonists exert rapid inhibition of
luteinizing hormone and follicle stimulating hormone with an
accompanying rapid decrease in sex hormones and would therefore
be expected to be effective in a variety of hormonally dependent
disease states including ovarian cancer, prostate cancer, BPH,
infertility, uterine myoma and endometriosis.
Based on the results of the previous studies, we have initiated
a multi-center, randomized, double-blind, placebo-controlled
study to evaluate the efficacy of ozarelix compared to placebo
in the treatment of lower urinary tract symptoms (LUTS)
secondary to BPH in men as assessed by the IPSS at Week 14.
In 2004, we entered into a license agreement with a subsidiary
of Aeterna Zentaris, Inc., Aeterna Zentaris GmbH, whereby we
acquired an exclusive license to develop and commercialize
ozarelix in North America (including Canada and Mexico) and
India. In addition, we have a 50% financial interest in any
income Aeterna Zentaris derives from ozarelix in Japan. We are
contingently obligated to pay amounts based upon achievement of
milestones and a royalty based on any future net sales.
F-18
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
|
|
4.
|
Cash,
Cash Equivalents and Marketable Securities
|
Cash, cash equivalents, and investments in marketable securities
totaled $78.3 million and $55.8 million as of
December 31, 2008 and 2007, respectively. The following is
a summary of such investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Marketable Security
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cash
|
|
|
Current
|
|
|
Long Term
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents
|
|
$
|
9,860
|
|
|
|
|
|
|
|
|
|
|
$
|
9,860
|
|
|
$
|
9,860
|
|
|
|
|
|
|
|
|
|
FDIC Insured Bank Certificates of Deposit
|
|
|
10,509
|
|
|
|
|
|
|
|
|
|
|
|
10,509
|
|
|
|
|
|
|
$
|
10,319
|
|
|
$
|
190
|
|
Money Market Currency Funds
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
U.S. Government securities
|
|
|
55,867
|
|
|
|
|
|
|
|
|
|
|
|
55,867
|
|
|
|
|
|
|
|
55,867
|
|
|
|
|
|
Corporate debt securities
|
|
|
2,000
|
|
|
|
|
|
|
|
88
|
|
|
|
1,912
|
|
|
|
|
|
|
|
1,912
|
|
|
|
|
|
Other securities
|
|
|
104
|
|
|
|
|
|
|
|
57
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
78,468
|
|
|
$
|
|
|
|
$
|
145
|
|
|
$
|
78,323
|
|
|
$
|
9,860
|
|
|
$
|
68,226
|
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents
|
|
$
|
1,141
|
|
|
|
|
|
|
|
|
|
|
$
|
1,141
|
|
|
$
|
1,141
|
|
|
|
|
|
|
|
|
|
U.S. Government securities
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
$
|
491
|
|
|
|
|
|
Corporate debt securities
|
|
|
51,676
|
|
|
|
|
|
|
|
117
|
|
|
|
51,559
|
|
|
|
|
|
|
|
51,559
|
|
|
|
|
|
Other securities
|
|
|
2,020
|
|
|
$
|
610
|
|
|
|
|
|
|
|
2,630
|
|
|
|
|
|
|
|
2,468
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
55,328
|
|
|
$
|
610
|
|
|
$
|
117
|
|
|
$
|
55,821
|
|
|
$
|
1,141
|
|
|
$
|
54,518
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
marketable securities are
carried at fair value, with any unrealized gains and losses
included as a component of accumulated other comprehensive
income (loss) in stockholders equity. Realized gains and
losses and declines in value judged to be other-than-temporary,
as well as interest income and dividends on investments, are
included in other income and expense.
Available-for-sale
securities that lack
immediate liquidity, or which we intend to hold for more than
one year are classified as long-term investments and are
included in other assets.
|
|
5.
|
Accounts
Receivables and Revenues
|
The Company recorded revenues from sales of Fusilev and Zevalin
during the year ended December 31, 2008. The Companys
largest customers are Group Purchasing Organizations
(GPOs) and Distributors of pharmaceutical products.
GPOs accounted for approximately 30% and distributors for
approximately 70% of the net sales. All sales were to customers
in the United States.
F-19
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
Accounts receivable, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in 000s)
|
|
|
Accounts Receivable
|
|
$
|
9,926
|
|
|
$
|
191
|
|
Allowance for discounts, chargebacks and returns
|
|
|
(4,774
|
)
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivables Net of Allowances
|
|
$
|
5,002
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
While shipments of Fusilev for the year ended December 31,
2008 were approximately $10.8 (net of estimates for promotional,
price and other adjustments), we deferred the recognition of
approximately $3.1 million of such revenue until we have
more experience with the amount of product returns.
Inventories, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in 000s)
|
|
|
Finished Goods
|
|
$
|
1,492
|
|
|
$
|
|
|
Work In Process
|
|
|
312
|
|
|
|
|
|
Raw Materials
|
|
|
68
|
|
|
|
|
|
Less: inventory reserves
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,841
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company periodically reviews product inventories on hand.
Inventory levels are evaluated by management relative to product
demand, remaining shelf life, future marketing plans and other
factors, and reserves for obsolete and slow-moving inventories
are recorded for amounts which may not be realizable.
|
|
7.
|
Property
and Equipment
|
As of December 31, 2008 and 2007, property and equipment
consisted of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Equipment
|
|
$
|
2,286
|
|
|
$
|
1,435
|
|
Leasehold improvements
|
|
|
1,255
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
3,541
|
|
|
|
2,023
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,759
|
)
|
|
|
(1,307
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,782
|
|
|
$
|
716
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007 and 2006, the
Company recorded depreciation expense of approximately $452,000,
$255,000 and $198,000, respectively.
F-20
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
|
|
8.
|
Zevalin
related intangible assets
|
In connection with the formation of RIT Oncology LLC in December
2008, as described in Note 3, we recorded certain intangible
assets in connection with the acquisition of Zevalin as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Amortization
|
|
|
Net Carrying Amount
|
|
|
Developed technology
|
|
$
|
23,100
|
|
|
$
|
(98
|
)
|
|
$
|
23,002
|
|
Core technology
|
|
|
14,100
|
|
|
|
(60
|
)
|
|
|
14,040
|
|
Acquired in-process research and development
|
|
|
4,700
|
|
|
|
(4,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,900
|
|
|
$
|
(4,858
|
)
|
|
$
|
37,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets with definite lives are amortized
on a straight-line basis over their estimated useful lives. The
developed and core technology assets will be amortized over
10 years, or approximately $3.7 million annually
through 2018. Included in the intangible assets was an amount of
$4.7 million of IPR&D for a medical indication still
awaiting approval by the FDA. Such amount was completely written
off during the year ended December 31, 2008.
In July 2006, FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes. Under FIN 48, the impact of an
uncertain income tax position on the income tax return must be
recognized at the largest amount that is more-likely-than-not to
be sustained upon audit by the relevant taxing authority. An
uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Additionally,
FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted the provisions of
FIN 48 on January 1, 2007. There were no unrecognized
tax benefits as of the date of adoption. As a result of the
implementation of FIN 48, the Company did not recognize an
increase in the liability for unrecognized tax benefits. There
are no unrecognized tax benefits included in the balance sheet
that would, if recognized, affect the effective tax rate.
Significant components of the income tax expense for each of the
three years in the period ended December 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
The following is reconciliation from the statutory federal
income tax rate to our effective tax rate for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Computed at statutory tax rate
|
|
$
|
(7,956
|
)
|
|
$
|
(14,890
|
)
|
|
$
|
(9,904
|
)
|
Non-utilization of net operating losses
|
|
|
7,956
|
|
|
|
14,890
|
|
|
|
9,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense using effective tax rate
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of our deferred tax assets and
liabilities as of December 31, 2008 and 2007 are shown
below. A valuation allowance has been recognized to fully offset
the net deferred tax assets as of December 31, 2008, 2007
and 2006 as realization of such assets is uncertain.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss and business credit carry forwards
|
|
$
|
79,936
|
|
|
$
|
76,869
|
|
|
$
|
66,426
|
|
Stock-based Compensation
|
|
|
2,755
|
|
|
|
2,459
|
|
|
|
1,596
|
|
Depreciation and amortization differences
|
|
|
698
|
|
|
|
340
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
83,389
|
|
|
|
79,668
|
|
|
|
68,340
|
|
Valuation allowance for deferred tax assets
|
|
$
|
(83,389
|
)
|
|
$
|
(79,668
|
)
|
|
$
|
(68,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, we had Federal and
California income tax loss carry-forwards of approximately
$167 million and $90 million, respectively. The
Federal and California tax loss carry-forwards will begin to
expire in 2010 and 2009, respectively. Both Federal and
California law limit the use of net operating loss
carry-forwards and other tax attributes in the case of an
ownership change of a corporation as that term is
defined by section 382 of the Internal Revenue Code. We
have not yet completed an analysis to determine whether or not
we have undergone any ownership changes, but we
believe that one or more ownership changes may have
occurred due to our issuances of equity securities over the past
several years. Any ownership changes, as defined by the tax
code, may severely restrict utilization of our carry-forwards to
the point that they may never be utilized. In addition, at
December 31, 2008 we had research and development credit
carry-forwards of approximately $9 million which will begin
to expire in 2008 and also had foreign loss carry-forwards of
approximately $41 million.
|
|
10.
|
Commitments
and Contingencies
|
Facility
and Equipment Leases
As of December 31, 2008 we were obligated under a facility
lease and operating equipment leases. Our facility lease expires
in June 2009. We are evaluating options open to us to reconsider
the renewal of the lease or to consider the use of alternative
premises to conduct our business. We do not anticipate a major
disruption in our business operations should we decide not to
renew the lease and move to an alternative location.
F-22
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
Minimum lease requirements for each of the next five years and
thereafter, under the property and equipment operating leases,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
Capital Lease
|
|
|
|
Commitments
|
|
|
Commitments
|
|
|
|
(Amounts in thousands)
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
239
|
|
|
$
|
50
|
|
2010
|
|
|
2
|
|
|
|
51
|
|
2011
|
|
|
|
|
|
|
50
|
|
2012
|
|
|
|
|
|
|
50
|
|
2013
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
241
|
|
|
$
|
201
|
|
|
|
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2008, 2007
and 2006 amounted to approximately $583,000, $579,000 and
$343,000, respectively, and was net of sub-lease rent income of
$225,000 during the years ended December 31, 2006.
Licensing
Agreements
Almost all of our drug candidates are being developed pursuant
to license agreements that provide us with rights to certain
territories to, among other things, develop, sublicense, and
sell the drugs. We are required to use commercially reasonable
efforts to develop the drugs, are generally responsible for all
development, patent filing and maintenance costs, sales,
marketing and liability insurance costs, and are generally
contingently obligated to make milestone payments to the
licensors if we successfully reach development and regulatory
milestones specified in the agreements. In addition, we are
obligated to pay royalties and, in some cases, milestone
payments based on net sales, if any, after marketing approval is
obtained from regulatory authorities.
The potential contingent development and regulatory milestone
obligations under all our licensing agreements are generally
tied to progress through the FDA approval process, which
approval significantly depends on positive clinical trial
results. The following list is typical of milestone events:
conclusion of Phase 2 or commencement of Phase 3 clinical
trials; filing of new drug applications in each of the United
States, Europe and Japan; and approvals from each of the
regulatory agencies in those jurisdictions.
Service
Agreements
In connection with the research and development of our drug
products, we have entered into contracts with numerous third
party service providers, such as clinical trial centers,
clinical research organizations, data monitoring centers, and
with drug formulation, development and testing laboratories. The
financial terms of these agreements are varied and generally
obligate us to pay in stages, depending on achievement of
certain events specified in the agreements, such as contract
execution, reservation of service or production capacity, actual
performance of service, or the successful accrual and dosing of
patients.
At each period end, we accrue for all costs of goods and
services received, with such accruals based on factors such as
estimates of work performed, patient enrollment, completion of
patient studies and other events. As of December 31, 2008,
we were committed under such contracts for up to approximately
$13.7 million, for future goods and services, including
approximately $8.5 million due within one year. We are in a
position to accelerate, slow-down or discontinue any or all of
the projects that we are working on at any given point in time.
Should we decide to discontinue
and/or
slow-down the work on any project, the associated costs for
those projects would get limited to the extent of the work
completed. Generally, we are able to terminate these contracts
due to the
F-23
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
discontinuance of the related project(s) and thus avoid paying
for the services that have not yet been rendered and our future
purchase obligations would reduce accordingly.
Supply
Agreements
In connection with our acquisition of Zevalin, RIT Oncology
assumed a supply agreement with Biogen Idec Inc.
(Biogen) to manufacture Zevalin for sale in the
United States pursuant to which we would purchase from Biogen,
and Biogen would provide to us, kits to make Zevalin doses for
sale to end-users in the United States at a cost
plus manufacturing price. RIT Oncology also assumed a
manufacturing and supply agreement with MDS (Canada) Inc., MDS
Nordion Division, or MDS (Canada), for yttrium-90, a
radioisotope used in connection with the administration of
Zevalin.
In connection with Fusilev, we have a single source API supplier
as well as a single source finished product manufacturer.
Employment
Agreement
We have entered into an employment agreement with
Dr. Shrotriya, our President and Chief Executive Officer,
which expires January 2, 2011. The employment agreement
automatically renews for a one-year calendar term unless either
party gives written notice of such partys intent not to
renew the agreement at least 90 days prior to the
commencement of the next year. The employment agreement requires
Dr. Shrotriya to devote his full working time and effort to
the business and affairs of the Company during the term of the
agreement. The employment agreement provides for a minimum
annual base salary with annual increases, periodic bonuses and
option grants as determined by the Compensation Committee of the
Board of Directors.
Dr. Shrotriyas employment may be terminated due to
non-renewal of his employment agreement by us, mutual agreement,
death or disability, or by us for cause (as that term is defined
in the employment agreement) or without cause, or by
Dr. Shrotriya for no reason, good reason (as defined in the
agreement) or non-renewal. The employment agreement provides for
various guaranteed severance payments and benefits if:
(i) the agreement is not renewed by us,
(ii) Dr. Shrotriyas employment is terminated
without cause, (iii) Dr. Shrotriya resigns for good
reason, (iv) the agreement is terminated due to death or
disability of Dr. Shrotriya, (v) if Dr. Shrotriya
voluntarily resigns his employment for no reason or (vi) if
Dr. Shrotriyas employment is terminated (other than
by Dr. Shrotriya) without cause within twelve months after
a change in control, or Dr. Shrotriya is adversely affected
in connection with a change in control and resigns within twelve
months. If the agreement is terminated due to mutual agreement,
Dr. Shrotriyas non-renewal of the agreement, or by us
for cause, Dr. Shrotriya shall not be entitled to any
severance.
If any payment or distribution by us to or for the benefit of
Dr. Shrotriya is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (IRC) or any
interest or penalties are incurred by Dr. Shrotriya with
respect to such excise tax, then Dr. Shrotriya shall be
entitled to receive an additional payment in an amount such that
after payment by Dr. Shrotriya of all taxes (including any
interest and penalties imposed with respect thereto) and excise
tax imposed upon such payment, Dr. Shrotriya retains an
amount of the payment equal to the excise tax imposed upon the
payment.
If we determine that any payments to Dr. Shrotriya under
the agreement fail to satisfy the distribution requirement of
Section 409A(a)(2)(A) of the IRC, the payment schedule of
that benefit shall be revised to the extent necessary so that
the benefit is not subject to the provisions of
Section 409A(a)(1) of the IRC. We may attach conditions to
or adjust the amounts so paid to preserve, as closely as
possible, the economic consequences that would have applied in
the absence of this adjustment; provided, however, that no such
condition or adjustment shall result in the payments being
subject to Section 409A(a)(1) of the IRC.
F-24
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
Litigation
At December 31, 2008, we are involved with various legal
matters arising from the ordinary course of business. Although
the ultimate resolution of these various matters cannot be
determined at this time, we do not believe that such matters,
individually or in the aggregate, will have a material adverse
effect on our future consolidated results of operations, cash
flows or financial condition.
Authorized
Stock
On July 6, 2006, our stockholders approved an amendment to
our Certificate of Incorporation to increase the authorized
number of shares of our common stock from 50 million shares
to 100 million shares. The amendment was filed with the
Delaware Secretary of State on July 7, 2006. Further, on
July 7, 2006, we amended the Certificate of Designation of
Rights, Preferences and Privileges of Series B Junior
Participating Preferred Stock filed with the Delaware Secretary
of State on December 18, 2000 to increase the authorized
number of Series B Junior Participating Preferred Stock
from 200,000 shares to 1,000,000 shares.
Preferred
Stock
In December 2000, we adopted a stockholder rights plan pursuant
to which we distributed rights to purchase units of our
Series B Junior Participating Preferred Stock
(Series B Preferred Stock). Under this plan, as
amended through December 31, 2008, the rights become
exercisable upon the earlier of ten days after a person or group
of affiliated or associated persons has acquired 15% or more of
the outstanding shares of our common stock or ten business days
after a tender offer has commenced that would result in a person
or group beneficially owning 15% or more of our outstanding
common stock. These rights could delay or discourage someone
from acquiring our business, even if doing so would benefit our
stockholders. We currently have no stockholders who own 15% or
more of the outstanding shares of our common stock. Five days
after the rights become exercisable, each right, other than
rights held by the person or group of affiliated persons whose
acquisition of more than 15% of our outstanding common stock
caused the rights to become exercisable, will entitle its holder
to buy, in lieu of shares of Series B Preferred Stock, a
number of shares of our common stock having a market value of
twice the exercise price of the rights. After the rights become
exercisable, if we are a party to certain merger or business
combination transactions or transfers 50% or more of our assets
or earnings power (as defined), each right will entitle its
holder to buy a number of shares of common stock of the
acquiring or surviving entity having a market value of twice the
exercise price of the right. The rights expire on
December 13, 2010 and may be redeemed by us at one-tenth of
one cent per right at any time up to ten days after a person has
announced that they have acquired 15% or more of our outstanding
common stock.
In May 2003, we received gross cash proceeds of $6,000,000 in
exchange for the issuance of 600 shares of our
Series D 8% Cumulative Convertible Voting Preferred Stock
(Series D Preferred Stock), convertible into
2,553,191 shares of common stock, and Series D
Warrants, exercisable for five years, to purchase up to a total
of 1,276,595 shares of our common stock at an exercise
price of $3.00 per share and up to a total of
1,276,595 shares of our common stock at an exercise price
of $3.50 per share. As of December 31, 2008, all
Series D Preferred Stock had been converted to common
stock. Dividends on the Series D Preferred Stock were
payable quarterly at an annual rate of 8 percent either in
cash or shares of our common stock at our discretion.
In September 2003, we received gross cash proceeds of
$20,000,000 in exchange for the issuance of 2,000 shares of
our Series E Convertible Voting Preferred Stock
(Series E Preferred Stock), convertible into
4,000,000 shares of common stock, and Series E
Warrants, exercisable for five years, to purchase up to a total
of 2,800,000 shares of our common stock at an exercise
price of $6.50 per share. No dividends are payable on the
Series E Preferred Stock. Pursuant to certain provisions of
the Certificate of Designation, Rights and Preferences of the
Series E Preferred Stock, we have the option to redeem all
of the unconverted Series E Preferred Stock
F-25
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
outstanding at the end of a
20-day
trading period if, among other things, in that period the common
stock of the Company trades above $12.00 per share.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, before any
distribution of assets of the Corporation shall be made to the
common stockholders, the holders of the Series D and
Series E Preferred Stock shall be entitled to receive a
liquidation preference in an amount equal to 120% of the stated
value per share plus any declared and unpaid dividends thereon.
Common
Stock Issuances for Cash
In July 2006, we agreed to terminate the supply agreement dated
April 16, 2002, by and between J.B. Chemicals &
Pharmaceuticals Ltd., or JBCPL, and NeoJB LLC, or NeoJB, an 80%
owned subsidiary, whereby in addition to certain named products
we also had the right of first refusal on products sold by JBCPL
in the United States; and agreed to enter into a new supply
agreement limited to four specified products, including
ciprofloxacin and fluconazole tablets, to be supplied by JBCPL.
JBCPL also agreed to purchase 120,000 shares of our common
stock. We received an aggregate payment of $1 million in
consideration for the aforementioned modification of the supply
agreement and issuance of shares. $419,000 of the proceeds,
representing the fair value of the common stock on the effective
date of the agreement was recorded as sale of common stock.
Pursuant to our revenue recognition policy, the remainder of the
proceeds, $581,000 was recorded as other revenue for 2006.
In May 2007, we sold 5,134,100 shares of our common stock
at a purchase price of $6.25 per share for net cash proceeds of
approximately $30 million, after placement agent fees and
other offering costs of approximately $2 million. No
warrants were issued in connection with this offering.
Other
Equity Transactions
In connection with the acquisition in April 2006 of all of the
oncology assets of Targent, Inc., we issued to Targent and its
stockholders an aggregate amount of 600,000 shares of the
Companys common stock, with a fair value of $2,742,000 as
of the transaction closing date, all of which amount
representing purchased research and development, has been
charged to expense at the closing of the transaction as a
stock-based charge. Targent is eligible to receive additional
payments of shares of the Companys common stock
and/or
cash
upon achievement of certain regulatory and sales milestones, if
any. At our option, cash payments specified in the agreement may
be paid in shares of the Companys common stock having a
value determined as provided in the asset purchase agreement,
equal to the cash payment amount.
In June 2006, we issued to Altair Nanotechnologies, Inc., or
Altair, 140,000 shares of the Companys common stock,
representing payment of a milestone pursuant to the license
agreement for RenaZorb, as well as additional amounts for
transfer of technology related to formulation improvements to
RenaZorb developed by Altair. The fair value of the stock,
$574,000, was recorded as a stock-based research and development
charge for the year ended December 31, 2006.
In October 2007, we issued to Targent, Inc. 125,000 shares
of the Companys common stock, for payment of a milestone
pursuant to the license agreement for FUSILEV. The fair value of
the stock, $520,000, was recorded as a stock-based research and
development charge for the year ended December 31, 2007.
In March 2008, we issued to Targent, LLC 125,000 shares of
the Companys common stock for payment of a milestone
pursuant to the asset purchase agreement with Targent in
connection with the approval of FUSILEV by the FDA. The fair
value of the stock, $305,000, was recorded as a stock-based
research and development charge for the year ended
December 31, 2008.
In October 2008, we issued 75,000 shares of the
Companys common stock in connection with the assignment to
us of certain intellectual property rights related to EOquin.
The fair value of the stock, $74,000, was recorded as a
stock-based research and development charge for the year ended
December 31, 2008.
F-26
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
Common
Stock Reserved for Future Issuance
As of December 31, 2008, approximately 12.7 million
shares of common stock were issuable upon conversion or exercise
of rights granted under prior financing arrangements and stock
options and warrants, as follows:
|
|
|
|
|
Reserved stock
|
|
|
|
|
Conversion of Series E preferred shares
|
|
|
136,000
|
|
Exercise of stock options
|
|
|
7,115,772
|
|
Exercise of warrants
|
|
|
5,444,555
|
|
|
|
|
|
|
Total shares of common stock reserved for future issuances
|
|
|
12,696,327
|
|
|
|
|
|
|
Warrants
Activity
We typically issue warrants to purchase shares of our common
stock to investors as part of a financing transaction or in
connection with services rendered by placement agents and
consultants. Our outstanding warrants expire on varying dates
through September 2013. Below is a summary of warrant activity
during each of the three years in the period ended
December 31, 2008. A summary of warrant activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
9,652,051
|
|
|
$
|
6.51
|
|
|
|
9,917,077
|
|
|
$
|
6.71
|
|
|
|
9,920,703
|
|
|
$
|
7.20
|
|
Granted
|
|
|
50,000
|
|
|
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
5.25
|
|
Repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(161,145
|
)
|
|
|
3.22
|
|
|
|
(17,750
|
)
|
|
|
3.00
|
|
Forfeited
|
|
|
(157,450
|
)
|
|
|
6.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(4,100,046
|
)
|
|
|
5.43
|
|
|
|
(103,881
|
)
|
|
|
30.54
|
|
|
|
(35,876
|
)
|
|
|
(143.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, at the end of year
|
|
|
5,444,555
|
|
|
$
|
7.28
|
|
|
|
9,652,051
|
|
|
$
|
6.51
|
|
|
|
9,917,077
|
|
|
$
|
6.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, at the end of year
|
|
|
5,432,055
|
|
|
$
|
7.29
|
|
|
|
9,572,051
|
|
|
$
|
6.52
|
|
|
|
9,782,077
|
|
|
$
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2008 and 2006, we
granted warrants to consultants at exercise prices equal to or
greater than the quoted price of our common stock on the grant
dates. The fair value of warrants granted to consultants in the
years ended December 31, 2008 and 2006 were valued at
$52,000 and $177,000, respectively using the Black-Scholes
option pricing model, with the following assumptions: dividend
yield of 0%; expected volatility of 67% (2008) and 80%
(2006); risk free interest rate of 3.14% (2008) and 5.21%
(2006); and an expected life of 5 years; and is being
amortized to expense, net of forfeitures, as a component of
stock-based charges, over the
F-27
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
vesting period of the related grants. The following table
summarizes information about warrants outstanding at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Warrants
|
|
|
Average
|
|
|
Average
|
|
|
Warrants
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
Range of Exercise Price
|
|
12/31/2008
|
|
|
Life
|
|
|
Price
|
|
|
12/31/2008
|
|
|
Price
|
|
|
$0.00 to $2.99
|
|
|
50,000
|
|
|
|
5.00
|
|
|
$
|
1.79
|
|
|
|
37,500
|
|
|
$
|
1.79
|
|
$3.00 to $5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.01 to $10.00
|
|
|
5,369,555
|
|
|
|
2.74
|
|
|
$
|
7.31
|
|
|
|
5,369,555
|
|
|
$
|
7.31
|
|
$10.01 to $87.50
|
|
|
25,000
|
|
|
|
1.05
|
|
|
$
|
11.50
|
|
|
|
25,000
|
|
|
$
|
11.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,444,555
|
|
|
|
|
|
|
|
|
|
|
|
5,432,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Share-Based
Compensation
|
Stock
Options
We have two stock incentive plans: the 1997 Stock Incentive Plan
(the 1997 Plan) and the 2003 Amended and Restated
Incentive Award Plan (the 2003 Plan), (collectively,
the Plans). Subsequent to the adoption of the 2003
Plan, no new options have been granted pursuant the 1997 Plan.
The 2003 Plan authorizes the grant, in conjunction with all of
our other plans, of incentive awards, including stock options,
for the purchase of up to a total of 30% of our issued and
outstanding stock at the time of grant. As of December 31,
2008, approximately 1 million incentive awards were
available for grant under the 2003 Plan.
During each of the three years in the period ended
December 31, 2008, we granted stock options at exercise
prices equal to or greater than the quoted price of our common
stock on the grant dates. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions
used for grants in 2008, 2007 and 2006, respectively: risk-free
interest rates of 2.66% (2008), 4.57% (2007), and 4.58% (2006);
zero expected dividend yields; expected lives of 5 years;
expected volatility of 65.9% (2008), 68.3% (2007), and 75.2%
(2006). The risk-free interest rate assumption is based upon
observed interest rates appropriate for the expected term of the
Companys employee stock options. The expected volatility
is based on the historical volatility of the Companys
stock. The Company has not paid any dividends on common stock
since its inception and does not anticipate paying dividends on
its common stock in the foreseeable future. The weighted average
fair value of stock options, using the Black-Scholes option
pricing model, that were granted in 2008, 2007 and 2006, was
$1.19, $3.54 and $3.26, respectively.
F-28
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
A summary of stock option activity for each of the three years
in the period ended December 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
6,482,260
|
|
|
$
|
5.91
|
|
|
|
4,640,252
|
|
|
$
|
5.86
|
|
|
|
3,661,682
|
|
|
$
|
6.98
|
|
Granted
|
|
|
2,148,000
|
|
|
|
2.10
|
|
|
|
1,974,700
|
|
|
|
5.85
|
|
|
|
1,277,000
|
|
|
|
5.10
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(81,438
|
)
|
|
|
1.48
|
|
|
|
(1,500
|
)
|
|
|
2.12
|
|
Forfeited
|
|
|
(294,521
|
)
|
|
|
4.38
|
|
|
|
(39,425
|
)
|
|
|
5.04
|
|
|
|
(66,002
|
)
|
|
|
3.70
|
|
Expired
|
|
|
(1,219,967
|
)
|
|
|
6.08
|
|
|
|
(11,829
|
)
|
|
|
8.80
|
|
|
|
(230,928
|
)
|
|
|
20.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, at end of year
|
|
|
7,115,772
|
|
|
$
|
4.80
|
|
|
|
6,482,260
|
|
|
$
|
5.91
|
|
|
|
4,640,252
|
|
|
$
|
5.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
5,097,835
|
|
|
$
|
5.22
|
|
|
|
4,185,273
|
|
|
$
|
5.89
|
|
|
|
3,045,015
|
|
|
$
|
5.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding under all plans at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
Options
|
|
Weighted
|
|
Average
|
|
Options
|
|
Average
|
|
|
Outstanding
|
|
Average
|
|
Exercise
|
|
Exercisable
|
|
Exercise
|
Range of Exercise Price
|
|
12/31/08
|
|
Remaining Term
|
|
Price
|
|
12/31/08
|
|
Price
|
|
|
|
|
(In Years)
|
|
|
|
|
|
|
|
$1.00 - $2.50
|
|
|
1,443,750
|
|
|
|
7.39
|
|
|
$
|
1.58
|
|
|
|
585,125
|
|
|
$
|
1.71
|
|
$2.51 - $5.00
|
|
|
2,235,950
|
|
|
|
7.23
|
|
|
$
|
3.38
|
|
|
|
1,719,450
|
|
|
$
|
3.49
|
|
$5.01 - $10.00
|
|
|
3,409,832
|
|
|
|
6.71
|
|
|
$
|
6.25
|
|
|
|
2,771,020
|
|
|
$
|
6.22
|
|
$10.01 - $325.00
|
|
|
26,240
|
|
|
|
1.97
|
|
|
$
|
114.00
|
|
|
|
22,240
|
|
|
$
|
107.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,115,772
|
|
|
|
|
|
|
|
|
|
|
|
5,097,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented below is the aggregate intrinsic value of the stock
options outstanding, vested and expected to vest, and
exercisable as of December 31, 2008. The intrinsic value
represents the total difference between the Companys
closing common stock price on December 31, 2008 and the
exercise price, multiplied by the number of all in-the-money
options, that would have been received by the option holders had
all option holders exercised their options on December 31,
2008. This amount changes based on the fair market value of the
Companys common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Remaining Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(In Years)
|
|
|
(In thousands)
|
|
|
Stock Options as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
7,115,772
|
|
|
$
|
4.80
|
|
|
|
6.46
|
|
|
$
|
219.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
6,772,723
|
|
|
$
|
4.85
|
|
|
|
6.40
|
|
|
$
|
193.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
5,097,835
|
|
|
$
|
5.22
|
|
|
|
6.05
|
|
|
$
|
67.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2008, 2007 and 2006,
the share-based charge in connection with the expensing of stock
options was $5.5 million, $4.6 million and
$3.5 million, respectively. As of December 31, 2008,
there was $3.7 million of unrecognized share-based
compensation cost related to stock options, which is expected to
be recognized over a weighted average period of 1.5 years.
F-29
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
Restricted
Stock
A summary of the status of the Companys restricted stock
awards as of December 31, 2008 and of changes in unvested
shares outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Restricted
|
|
|
Average
|
|
|
Restricted
|
|
|
Average
|
|
|
Restricted
|
|
|
Average
|
|
|
|
Stock
|
|
|
Grant date
|
|
|
Stock
|
|
|
Grant date
|
|
|
Stock
|
|
|
Grant date
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Nonvested at beginning of period
|
|
|
277,500
|
|
|
$
|
5.03
|
|
|
|
146,250
|
|
|
$
|
4.25
|
|
|
|
115,000
|
|
|
$
|
4.26
|
|
Granted
|
|
|
372,500
|
|
|
$
|
1.65
|
|
|
|
265,000
|
|
|
$
|
5.56
|
|
|
|
80,000
|
|
|
$
|
4.23
|
|
Vested
|
|
|
(272,500
|
)
|
|
$
|
3.17
|
|
|
|
(133,750
|
)
|
|
$
|
5.22
|
|
|
|
(48,750
|
)
|
|
$
|
4.25
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at the end of period
|
|
|
377,500
|
|
|
$
|
3.04
|
|
|
|
277,500
|
|
|
$
|
5.03
|
|
|
|
146,250
|
|
|
$
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of restricted stock awards is the quoted market
price of our stock on the grant date, and is charged to expense
over the period of vesting. These awards are subject to
forfeiture to the extent that the recipients service is
terminated prior to the shares becoming vested.
During the years ended December 31, 2008, 2007 and 2006,
the stock-based charge in connection with the expensing of
restricted stock awards was approximately $862,000, $842,000 and
$296,000, respectively. As of December 31, 2008, there was
approximately $0.8 million of unrecognized stock-based
compensation cost related to nonvested restricted stock awards,
which is expected to be recognized over a weighted average
period of 1.3 years.
401(k)
Plan Matching Contribution
During the years ended December 31, 2008, 2007 and 2006, we
issued 166,430, 44,118 and 39,906 shares of common stock as
the Companys match of approximately $274,000, $211,000 and
$176,000 on the 401(k) contributions of its employees during
those periods.
F-30
Spectrum
Pharmaceuticals, Inc. and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
|
|
13.
|
Quarterly
Financial Information (Unaudited)
|
The following is a summary of the unaudited quarterly results of
operations for each of the calendar quarters ended in the
two-year period ended December 31, 2008 (in thousands,
except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(Amounts in thousands except share and per share data)
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
20,676
|
|
|
$
|
|
|
|
$
|
8,049
|
|
Total operating expenses
|
|
|
8,967
|
|
|
|
9,977
|
|
|
|
9,092
|
|
|
|
19,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,666
|
)
|
|
$
|
10,678
|
|
|
$
|
(8,816
|
)
|
|
$
|
(8,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.28
|
)
|
|
$
|
0.34
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation
|
|
|
31,271,281
|
|
|
|
31,462,522
|
|
|
|
31,538,023
|
|
|
|
31,928,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
343
|
|
|
$
|
4,032
|
|
|
$
|
3,250
|
|
|
$
|
47
|
|
Total operating expenses
|
|
|
8,817
|
|
|
|
11,060
|
|
|
|
11,559
|
|
|
|
13,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,892
|
)
|
|
$
|
(6,258
|
)
|
|
$
|
(7,382
|
)
|
|
$
|
(12,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation
|
|
|
25,290,717
|
|
|
|
28,442,904
|
|
|
|
31,034,241
|
|
|
|
31,207,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described in Note 3, on December 15, 2008, we
established RIT as a 50/50 joint venture with CTI, whereby we
acquired a 50% ownership interest in RIT. As part of that
transaction, CTI also had the option to sell its remaining 50%
membership interest in RIT to us, subject to adjustment for any
amounts owed between RIT and CTI at the time of sale. CTI
exercised this Put option in February 2009. On
March 15, 2009, we and CTI entered into an agreement to
complete such sale for an aggregate amount of $16.5 million
subject to certain adjustments for among other things payables
determined to be owed between CTI and RIT. As a result of the
sale, we own 100% of RIT and are its sole member and therefore,
we have, through licenses, all of the U.S. rights to
Zevalin.
On an unaudited pro forma basis, assuming that we had acquired
100% of RIT on January 1, 2008, the Companys results
for 2008 would have been approximately as follows:
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
|
December 31, 2008
|
|
|
|
(unaudited)
|
|
|
Revenues
|
|
$
|
40 million
|
|
Net loss
|
|
$
|
29 million
|
|
Loss per share
|
|
$
|
0.92
|
|
These pro forma amounts do not purport to show the exact results
that would have actually been obtained if the acquisition had
occurred as of the beginning of the period presented or that may
be obtained in the future.
F-31
Index to
Exhibits
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Asset Purchase Agreement by and between the Registrant, Targent
Inc. and Certain Stockholders of Targent, Inc., dated March 17
2006. (Filed as Exhibit 2.1 to
Form 10-K/A,
Amendment No. 1, as filed with the Securities and Exchange
Commission on May 1, 2006, and incorporated herein by
reference.)
|
|
2
|
.2
|
|
Asset Purchase Agreement by and between the Registrant and
Par Pharmaceutical, Inc., dated as of May 6, 2008.
(Filed as Exhibit 2.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 11, 2008, and incorporated herein by reference.)
|
|
2
|
.3#
|
|
Purchase and Formation Agreement, dated as of November 26,
2008, by and among the Registrant, Cell Therapeutics, Inc. and
RIT Oncology, LLC. (Filed as Exhibit 2.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
December 19, 2008, and incorporated herein by reference.)
|
|
3
|
.1
|
|
Amended Certificate of Incorporation, as filed. (Filed as
Exhibit 3.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 8, 2006, and incorporated herein by reference.)
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant. (Filed as
Exhibit 3.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 16, 2004, and incorporated herein by reference.)
|
|
4
|
.1
|
|
Rights Agreement, dated as of December 13, 2000, between
the Registrant and ComputerShare Trust Company, N.A. (formerly
U.S. Stock Transfer Corporation), as Rights Agent, which
includes as Exhibit A thereto the form of Certificate of
Designation for the Series B Junior Participating Preferred
Stock, as Exhibit B thereto the Form of Rights Certificate
and as Exhibit C thereto a Summary of Terms of Stockholder
Rights Plan. (Filed as Exhibit 4.1 to
Form 8-A12G,
as filed with the Securities and Exchange Commission on
December 26, 2000, and incorporated herein by reference.)
|
|
4
|
.2
|
|
Amendment No. 1 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock Transfer
Corporation). (Filed as Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 14, 2003, and incorporated herein by reference.)
|
|
4
|
.3
|
|
Registration Rights Agreement dated as of September 26,
2003, by and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.4 to
Form 8-K,
as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.)
|
|
4
|
.4
|
|
Investor Rights Agreement, dated as of April 20, 2004, by
and among the Registrant and the persons listed on
Schedule 1 attached thereto. (Filed as Exhibit 4.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
April 23, 2004, and incorporated herein by reference.)
|
|
4
|
.5
|
|
Form of Warrant, dated as of April 21, 2004. (Filed as
Exhibit 4.2 to
Form 8-K,
as filed with the Securities and Exchange Commission on
April 23, 2004, and incorporated herein by reference.)
|
|
4
|
.6
|
|
Amendment No. 2 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock Transfer
Corporation). (Filed as Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.7
|
|
Amendment No. 3 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock Transfer
Corporation). (Filed as Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.8
|
|
Warrant issued by the Registrant to a Consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.9
|
|
Warrant issued by the Registrant to a Consultant, dated as of
April 21, 2004. (Filed as Exhibit 4.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
4
|
.10
|
|
Form of Warrant, dated as of September 30, 2004. (Filed as
Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 15, 2004, and incorporated herein by reference.)
|
|
4
|
.11
|
|
Amendment No. 1 dated as of November 2, 2005, to
Warrant issued by the Registrant to a consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 4, 2005, and incorporated herein by reference.)
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
4
|
.12
|
|
Warrant issued by the Registrant to a Consultant, dated as of
September 20, 2005. (Filed as Exhibit 4.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 4, 2005, and incorporated herein by reference.)
|
|
4
|
.13
|
|
Form of Warrant dated September 15, 2005. (Filed as
Exhibit 4.35 to
Form 10-K,
as filed with the Securities and Exchange Commission on
March 15, 2006, and incorporated herein by reference.)
|
|
4
|
.14
|
|
Registration Rights Agreement dated as of April 20, 2006,
by and among the Registrant and Targent, Inc. (Filed as
Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 8, 2006, and incorporated herein by reference.)
|
|
4
|
.15
|
|
Fourth Amendment to Rights Agreement dated July 7, 2006.
(Filed as Exhibit 4.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
July 12, 2006, and incorporated herein by reference.)
|
|
4
|
.16
|
|
Amendment No. 5 to the Rights Agreement dated as of
December 13, 2000 by and between the Registrant and
ComputerShare Trust Company, N.A. (formerly U.S. Stock
Transfer Corporation). (Filed as Exhibit 4.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 3, 2006, and incorporated herein by reference.)
|
|
4
|
.17
|
|
Amendment No. 2 dated as of March 26, 2007, to Warrant
issued by the Registrant to a consultant, dated as of
September 17, 2003. (Filed as Exhibit 4.1 to
Form 10-K/A,
as filed with the Securities and Exchange Commission on
April 30, 2007, and incorporated herein by reference.)
|
|
4
|
.18
|
|
Warrant issued by the Company to a Consultant, dated as of
April 28, 2008. (Filed as Exhibit 4.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 11, 2008, and incorporated herein by reference.)
|
|
10
|
.1
|
|
Industrial Lease Agreement dated as of January 16, 1997,
between the Registrant and the Irvine Company. (Filed as
Exhibit 10.11 to the
Form 10-KSB
for the fiscal year ended December 31, 1996, as filed with
the Securities and Exchange Commission on March 31, 1997,
and incorporated herein by reference.)
|
|
10
|
.2*
|
|
Employee Stock Purchase Plan. (Filed as Exhibit 4.1 to the
Registrants Registration Statement on
Form S-8
(No. 333-54246),
and incorporated herein by reference.)
|
|
10
|
.3*
|
|
Amendment
2001-1
to
the Employee Stock Purchase Plan effective as of June 21,
2001. (Filed as Exhibit 10.22 to the Annual Report on
Form 10-K,
as amended, as filed with the Securities and Exchange Commission
on April 25, 2001, and incorporated herein by reference.)
|
|
10
|
.4
|
|
License Agreement dated as of August 28, 2001, by and
between the Registrant and Johnson Matthey PLC. (Filed as
Exhibit 10.5 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 14, 2001, and incorporated herein by reference.)
|
|
10
|
.5
|
|
License Agreement dated as of October 24, 2001, by and
between the Registrant and Bristol-Myers Squibb Company. (Filed
as Exhibit 10.6 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 14, 2001, and incorporated herein by reference.)
|
|
10
|
.6
|
|
Preferred Stock and Warrant Purchase Agreement dated as of
September 26, 2003, by and among the Registrant and the
purchasers listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
September 30, 2003, and incorporated herein by reference.)
|
|
10
|
.7
|
|
First Amendment dated March 25, 2004 to Industrial Lease
Agreement dated as of January 16, 1997 by and between the
Registrant and the Irvine Company. (Filed as Exhibit 10.1
to
Form 10-Q,
as filed with the Securities and Exchange Commission on
May 17, 2004, and incorporated herein by reference.)
|
|
10
|
.8
|
|
Common Stock and Warrant Purchase Agreement, dated as of
April 20, 2004, by and among Spectrum and the purchasers
listed on Schedule 1 attached thereto. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
April 23, 2004, and incorporated by reference.)
|
|
10
|
.9#
|
|
Co-Development and License Agreement by and between the
Registrant and GPC Biotech AG, dated as of September 30,
2002. (Filed as Exhibit 10.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 15, 2004, and incorporated by reference.)
|
|
10
|
.10#
|
|
License and Collaboration Agreement by and between the
Registrant and Zentaris GmbH, dated as of August 12, 2004.
(Filed as Exhibit 10.1 to
Form S-3/A,
as filed with the Securities and Exchange Commission on
January 21, 2005, and incorporated by reference.)
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.11
|
|
Settlement Agreement and Release by and between the Registrant
and SCO Financial Group, LLC, dated as of September 30,
2004. (Filed as Exhibit 10.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 15, 2004, and incorporated by reference.)
|
|
10
|
.12*
|
|
Form of Stock Option Agreement under the 2003 Amended and
Restated Incentive Award Plan. (As filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
December 17, 2004, and incorporated herein by reference.)
|
|
10
|
.13#
|
|
License Agreement by and between the Registrant and Altair
Nanomaterials, Inc. and Altair Nanotechnologies, Inc. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
February 3, 2005, and incorporated herein by reference.)
|
|
10
|
.14#
|
|
License Agreement by and between the Registrant and Chicago
Labs, Inc. (Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
February 25, 2005, and incorporated herein by reference.)
|
|
10
|
.15*
|
|
Form of Non-Employee Director Stock Option Agreement under the
2003 Amended and Restated Incentive Award Plan. (Filed as
Exhibit 10.5 to
Form 10-Q
with the Securities and Exchange Commission on May 10,
2005, and incorporated herein by reference.)
|
|
10
|
.16#
|
|
License Agreement between Registrant and Dr. Robert Bases.
(Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
May 20, 2005, and incorporated herein by reference.)
|
|
10
|
.17
|
|
Form Securities Purchase Agreement dated September 14,
2005. (Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
September 15, 2005, and incorporated herein by reference.)
|
|
10
|
.18*
|
|
Restricted Stock Award Grant Notice and Restricted Stock Award
Agreement under the Amended and Restated Incentive Award Plan.
(Filed as Exhibit 10.44 to
Form 10-K,
as filed with the Securities and Exchange Commission on
March 15, 2006, and incorporated herein by reference.)
|
|
10
|
.19#
|
|
License Agreement between Registrant and Merck Eprova AG dated
May 23, 2006. (Filed as Exhibit 10.1 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 8, 2006, and incorporated herein by reference.)
|
|
10
|
.20*
|
|
Third Amended and Restated 1997 Stock Incentive Plan. (Filed as
Exhibit 10.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 3, 2006, and incorporated herein by reference.)
|
|
10
|
.21#
|
|
Agreement by and between Registrant and Glaxo Group Limited
(d/b/a GlaxoSmithKline) dated November 10, 2006. (Filed as
Exhibit 10.38 to
Form 10-K,
as filed with the Securities and Exchange Commission on
March 14, 2007, and incorporated herein by reference.)
|
|
10
|
.22
|
|
Second Amendment to the License Agreement by and between
Registrant and Johnson Matthey PLC dated February 23, 2007.
(Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
March 2, 2007, and incorporated herein by reference.)
|
|
10
|
.25
|
|
Form of Subscription Agreement. (Filed as Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
May 4, 2007, and incorporated herein by reference.)
|
|
10
|
.26*
|
|
2003 Amended and Restated Incentive Award Plan. (Filed as
Exhibit 10.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 9, 2007, and incorporated herein by reference.)
|
|
10
|
.27*
|
|
Summary of Director Compensation. (Filed as Exhibit 10.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 9, 2007, and incorporated herein by reference.)
|
|
10
|
.28#
|
|
First Amendment to License Agreement dated August 28, 2001
between Johnson Matthey PLC and Registrant dated
September 30, 2002. (Filed as Exhibit 10.3 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 9, 2007.)
|
|
10
|
.29#
|
|
License Agreement by and between the Registrant and Indena,
S.p.A. dated July 17, 2007. (Filed as Exhibit 10.4 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
November 9, 2007.)
|
|
10
|
.30*
|
|
Executive Employment Agreement by and between the Registrant and
Rajesh C. Shrotriya, M.D., entered into June 20, 2008
and effective as of January 2, 2008. (Filed as
Exhibit 10.1 to
Form 8-K,
as filed with the Securities and Exchange Commission on
June 26, 2008, and incorporated herein by reference.)
|
|
10
|
.31
|
|
Consulting Agreement by and between the Registrant and Luigi
Lenaz, M.D., effective as of July 1, 2008. (Filed as
Exhibit 10.2 to
Form 10-Q,
as filed with the Securities and Exchange Commission on
August 11, 2008, and incorporated herein by reference.)
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.32*+
|
|
Form of Indemnity Agreement of the Registrant.
|
|
10
|
.33#+
|
|
License, Development, Supply and Distribution Agreement dated
October 28, 2008 by and among the Registrant and Allergan
Sales, LLC, Allergan USA, Inc. and Allergan, Inc.
|
|
21
|
+
|
|
Subsidiaries of Registrant.
|
|
23
|
.1+
|
|
Consent of Kelly & Company.
|
|
31
|
.1+
|
|
Certification of Chief Executive Officer, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
31
|
.2+
|
|
Certification of Vice President Finance, pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
32
|
.1+
|
|
Certification of Chief Executive Officer, pursuant to
Rule 13a-14(b)/15d-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
32
|
.2+
|
|
Certification of Vice President Finance, pursuant to
Rule 13a-14(b)/15d-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
|
|
*
|
|
Indicates a management contract or compensatory plan or
arrangement.
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#
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Confidential portions omitted and filed separately with the U.S.
Securities and Exchange Commission pursuant to
Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as
amended.
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+
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Filed herewith.
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EXECUTION COPY
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Exhibit 10.33
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LICENSE, DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT
by and among
ALLERGAN SALES, LLC,
ALLERGAN USA, INC.,
ALLERGAN, INC.
and
SPECTRUM PHARMACEUTICALS, INC.
dated October 28, 2008
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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Table of Contents
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ARTICLE 1 DEFINITIONS; INTERPRETATION
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5
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1.1
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Definitions
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6
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1.2
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Interpretation
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6
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ARTICLE 2 LICENSES; DELIVERY
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6
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2.1
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License to Allergan
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6
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2.2
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Degree of Exclusivity
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7
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2.3
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Allergan Sublicense Right
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7
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2.4
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Spectrums Retained Rights
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7
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2.5
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Spectrum Additional Limitations
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8
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2.6
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Additional Restrictions
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10
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2.7
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Diversion
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12
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2.8
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Delivery Obligations of Spectrum
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13
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2.9
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Delivery Obligations of Allergan
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13
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ARTICLE 3 DEVELOPMENT; SUPPLY; MARKETING
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13
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3.1
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Development Obligations
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13
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3.2
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Joint Development Plans
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14
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3.3
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Manufacturing Obligations
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18
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3.4
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Commercialization Rights and Obligations
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22
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ARTICLE 4 COMMITTEES
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24
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4.1
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Generally
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24
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4.2
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Governance of Each Committee
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25
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4.3
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Joint Development Committee
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25
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4.4
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Joint Supply Committee
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26
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4.5
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Joint Marketing Committee
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27
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4.6
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Escalation Procedure
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27
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ARTICLE 5 REGULATORY MATTERS
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29
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5.1
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Obligations of the Parties Relating to Regulatory Submissions
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29
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5.2
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Information Sharing
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31
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5.3
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Remedial Actions
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31
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5.4
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Costs Of Remedial Action
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31
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5.5
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Pharmacovigilance or Adverse Event Reporting
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32
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5.6
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Notification of Complaints
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32
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5.7
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Notification of Threatened Action
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33
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5.8
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Regulatory Inspections
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33
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5.9
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Audits
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33
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ARTICLE 6 PAYMENTS AND ROYALTIES
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33
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6.1
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Upfront Payment
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33
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6.2
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Development Milestone Payments
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34
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6.3
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Sales Milestone Payments
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35
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6.4
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Running Royalties
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36
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6.5
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Royalty Payment Schedule
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39
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6.6
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Development Costs
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39
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6.7
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Currency of Payments
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40
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6.8
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Budget
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40
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6.9
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Books; Records
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40
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6.10
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Audits
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40
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6.11
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Offset
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41
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6.12
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Stacking
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41
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6.13
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Withholding Taxes
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41
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6.14
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Spectrums Obligations
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42
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6.15
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Late Payment
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42
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ARTICLE 7 TRADEMARK ASSIGNMENT
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42
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7.1
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Assignment
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42
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7.2
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No Use by Spectrum
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42
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ARTICLE 8 INTELLECTUAL PROPERTY
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43
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8.1
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Ownership
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43
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8.2
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Prosecution
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43
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8.3
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Enforcement
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44
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ARTICLE 9 CONFIDENTIAL INFORMATION
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46
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9.1
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Confidentiality Obligations
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46
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9.2
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Disclosure Required by Law
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47
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9.3
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Equitable Relief
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48
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9.4
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Independent Development; Residuals
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48
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ARTICLE 10 CERTAIN REMEDIES; NOTICE RIGHT
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48
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10.1
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Development Trigger
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48
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10.2
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Change in Control Trigger
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49
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10.3
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Co-Promotion Trigger
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49
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10.4
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Clarification
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50
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10.5
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Notice
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50
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ARTICLE 11 REPRESENTATIONS, WARRANTIES AND COVENANTS
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50
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2
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11.1
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Both Parties
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50
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11.2
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Licensed Intellectual Property: Ownership/Right to License; Non-Infringement;
Validity
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51
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11.3
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All Rights Granted
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52
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11.4
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No Law Suits
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52
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11.5
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Trademarks
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52
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11.6
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Confidentiality
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53
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11.7
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Regulatory Approvals
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53
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11.8
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Professional Standards
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54
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11.9
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No Conflict
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54
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11.10
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Additional Warranties
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55
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11.11
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Licensed Product Warranties
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55
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11.12
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Inaccuracies
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56
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11.13
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DISCLAIMER OF ALL OTHER WARRANTIES
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56
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ARTICLE 12 INDEMNIFICATION; LIMITATIONS ON LIABILITY; INSURANCE REQUIREMENTS
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56
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12.1
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Indemnification By Spectrum
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56
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12.2
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Indemnification By Allergan
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57
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12.3
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Procedure
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57
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12.4
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Allocation of Product Liability Risks
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58
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12.5
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Infringement Remedies
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60
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12.6
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LIMITATIONS ON LIABILITY
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60
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12.7
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Insurance
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60
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ARTICLE 13 TERM AND TERMINATION
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61
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13.1
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Term
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61
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13.2
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Termination at Will
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61
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13.3
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Material Breach
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63
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13.4
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365(n)
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63
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13.5
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Effect of Termination
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63
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ARTICLE 14 MISCELLANEOUS
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64
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14.1
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Relationship of Parties
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64
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14.2
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Force Majeure Event
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65
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14.3
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Entire Agreement
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65
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14.4
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No Waiver; Amendment
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65
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14.5
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Partial Invalidity
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65
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14.6
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Assignment
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66
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14.7
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Governing Law
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66
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14.8
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Remedies
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66
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3
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14.9
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Further Assurances
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66
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14.10
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Counterparts; Facsimile
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66
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14.11
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Notices
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66
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14.12
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Press Releases and Announcements
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68
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14.13
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Use of Subcontractors
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68
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List of Schedules
Schedule 1.1 Definitions
Exhibit A to Schedule 1.1 Apaziquone
Exhibit B to Schedule 1.1 Example of Closed System Packaging
Exhibit C to Schedule 1.1 TPP
Schedule 3.1(a) Joint Development Plan
Schedule 3.1(c) Key Development Personnel
Schedule 3.2 (f)(i) List of Subcontractors
Schedule 3.2(f)(ii) Hospitals and Institutions that are clinical trial sites
Schedule 3.3(b) Spectrum Manufacturing Agreements
Schedule 3.3(d) Specifications
Schedule 3.4(a) Co-Promotion Agreement
Section 3.4(b)(i) Initial Joint Marketing Plan
Schedule 6.4(a) Example of Royalties
Schedule 7.1 Trademark Assignment Agreement, including Exhibit A
Schedule 11.2(e) Disclosures
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Schedule 11.5(c) Trademark and Domain Name Applications and Registrations for the Acquired
Trademarks
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4
LICENSE, DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT
This LICENSE, DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT (this
Agreement
), entered into
as of October 28, 2008 (the
Effective Date
), is made by and among Allergan Sales, LLC, a Delaware
corporation with its principal place of business at 2525 Dupont Drive, Irvine, California 92612
(
Allergan Sales
), Allergan USA, Inc., a Delaware corporation with its principal place of business
at 2525 Dupont Drive, Irvine, California 92612 (
Allergan USA
), Allergan, Inc., a Delaware
corporation with its principal place of business at 2525 Dupont Drive, Irvine, California 92612
(
Allergan, Inc.
and, collectively with Allergan Sales and Allergan USA,
Allergan
) and Spectrum
Pharmaceuticals, Inc. (
Spectrum
), a Delaware corporation with its principal place of business at
157 Technology Drive, Irvine, CA 92618. Allergan and Spectrum are collectively referred to herein
as the
Parties
and individually as a
Party
.
RECITALS
WHEREAS, Spectrum has developed certain intellectual property relating to the use of
Apaziquone for urological treatments and is conducting Phase 3 trials using the immediate
intravesical instillation of Apaziquone for the treatment of bladder cancer;
WHEREAS, Allergan has substantial expertise in the research, development, manufacture,
distribution, sales and marketing of urologic products, but does not currently market or
manufacture a bladder cancer treatment;
WHEREAS, the Parties desire to collaborate in conducting development and related activities,
marketing in certain territories, and selling of product(s) containing Apaziquone for certain
indications in those territories all on the terms and conditions set forth herein, but it is not
the intention of the Parties to undertake an employment, joint venture, partnership or other
fiduciary relationship; and
WHEREAS, Allergan USA will be responsible for the Allergan sales and distribution of the
products described herein and Allergan Sales will be responsible for the Allergan development and
manufacturing obligations described herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual representations,
warranties, covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS; INTERPRETATION
1.1
Definitions
. For the purposes of this Agreement, the capitalized terms used in this
Agreement, and not otherwise defined when used, shall have the meanings specified in
Schedule
5
1.1
.
1.2
Interpretation
. This Agreement shall be governed by the following rules of
construction, unless otherwise specified by the Agreement: (a) words of one gender shall be deemed
to include words of other genders; (b) any reference to an Article, Section, Exhibit, clause,
subclause, paragraph, subparagraph, Schedule or Recital is a reference to an Article, Section,
Exhibit, clause, subclause, paragraph, subparagraph, Schedule or Recital of this Agreement; (c) any
reference to any statute shall be construed as including all statutory provisions consolidating,
amending or replacing such statute; (d) the terms hereof, hereby, hereto, hereunder and
similar terms shall refer to this Agreement as a whole; (e) the word including and words of
similar import mean including, without limitation and including, but not limited to; (f) the
headings contained herein are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement; (g) this Agreement shall be construed without regard
to any presumption or rule requiring construction or interpretation against the Party drafting or
causing any instrument to be drafted; (h) all references to dollars or $ refer to United States
dollars; and (i) all references to days mean calendar days. In the event of any inconsistency
between the terms of the
Schedules
and the terms of the main body of this Agreement, the terms of
the main body of this Agreement shall prevail, except that in the event of any inconsistency
between the terms of
Schedule 1.1
and the terms of the main body of this Agreement, the terms of
Schedule 1.1
shall prevail.
ARTICLE 2
LICENSES; DELIVERY
2.1
License to Allergan
. Subject to the terms and conditions of this Agreement, Spectrum
hereby grants to Allergan and its Affiliates the following rights and licenses:
(a) an exclusive (even as to Spectrum, but subject to Section 2.2), irrevocable, right and
license, under the Licensed Intellectual Property, with the right to grant sublicenses (subject to
Section 2.3), to make, have made, use, conduct clinical trials for, sell, offer for sale, have
sold, import, export, or otherwise exploit the Licensed Product in the Allergan Territory;
provided
,
however
, that Allergan shall not make, have made, use, conduct clinical
trials for, sell, offer for sale, have sold, import, export, or otherwise exploit the Licensed
Product, under the Licensed Intellectual Property, outside the Field of Use in the Allergan
Territory without Spectrums consent;
(b) a non-exclusive, irrevocable, royalty-free right and license, under the Licensed
Intellectual Property, with the right to grant sublicenses, to manufacture and have manufactured
the Licensed Product in the Spectrum Territory solely for use or sale of such Licensed Product
pursuant to Section 2.1(a); and
(c) a non-exclusive, irrevocable, royalty-free right and license, with the right to grant
sublicenses, to use, perform, modify, create derivative works of, copy, display, reproduce and
distribute any and all Documents on or relating to the Licensed Product for the purpose of
6
exercising the rights granted in Section 2.1(a).
2.2
Degree of Exclusivity
. The license granted in Section 2.1(a) is exclusive. As used
herein, exclusive shall mean that Spectrum may not:
(a) grant any other license to any other licensee of the Licensed Intellectual Property within
the scope of the license granted to Allergan under Section 2.1(a), in whole or in part;
(b) itself make, have made, use, conduct clinical trials for, sell, offer for sale, have sold,
import, export, or otherwise exploit under the Licensed Intellectual Property within the scope of
the license granted to Allergan under Section 2.1(a); and
(c) assign, transfer or otherwise dispose of the Licensed Intellectual Property except as part
of an assignment of the entire Agreement pursuant to Section 14.6.
Notwithstanding the foregoing, Spectrum shall:
(i) have the right to perform its obligations set forth in this Agreement and the
Co-Promotion Agreement;
(ii) have the rights set forth in Section 2.5(b); and
(iii) shall have the right, under the Licensed Intellectual Property, to manufacture
and have manufactured any formulation including Apaziquone in the Allergan Territory solely
for use or sale of such formulation including Apaziquone within the scope of Spectrums
retained rights under Sections 2.4(a) and (b).
2.3
Allergan Sublicense Right
. Allergan shall have the unrestricted right to grant
sublicenses under the license in Section 2.1(a) in the Field of Use to its Affiliates without the
prior written consent of Spectrum,
and in the Field of Use to any other Third Parties: (a) with the prior written consent of
Spectrum in the Co-Promotion Region during the term of the Co-Promotion Agreement; and (b) without
the prior written consent of Spectrum in any other country or territory in the Allergan Territory.
Allergan shall have the unrestricted right to subcontract any of its obligations hereunder which do
not require the sublicenses described in Section 2.3(a) above.
2.4
Spectrums Retained Rights
.
(a) Spectrum retains the right under the Licensed Intellectual Property to develop and
commercialize any formulation including Apaziquone in the Spectrum Territory. Provided that
Spectrum is not in material breach of the terms of this Agreement, on written request by Spectrum,
Allergan agrees to negotiate in good faith for a reasonable period the terms of a commercially
reasonable royalty-bearing license under the Allergan Solely Developed Know How and Allergans
rights under the Joint Intellectual Property for Spectrum to develop and commercialize any
formulation including Apaziquone in the Spectrum Territory.
7
(b) Spectrum retains the right under the Licensed Intellectual Property to develop and
commercialize any formulation including Apaziquone that is not a Licensed Product in the Allergan
Territory. Provided that Spectrum is not in material breach of the terms of this Agreement, on
written request by Spectrum, Allergan agrees to negotiate in good faith for a reasonable period the
terms of a commercially reasonable royalty-bearing license under the Allergan Solely Developed Know
How and Allergans rights under the Joint Intellectual Property for Spectrum to develop and
commercialize any formulation including Apaziquone that is not a Licensed Product in the Allergan
Territory.
(c) If the Parties cannot agree on the royalty rate and scope of the license grant terms of
such commercially reasonable royalty-bearing licenses (in Section 2.4 (a) or (b), or in Section
2.5(b)(iii)(A) or Section 13.2(c)(i)) within a reasonable period of time, either Party may
initiate, and the Parties shall jointly submit to, binding arbitration in California, and the sole
issues to be submitted to arbitration shall be the royalty rate and scope of the license grant.
Upon conclusion of such arbitration, the Parties agree to effect the arbitrators order which shall
be binding.
2.5
Spectrum Additional Limitations
.
(a) Spectrum will not conduct clinical trials in the Field of Use with any formulation
including Apaziquone in the Allergan Territory, other than for the Licensed Product in the Field of
Use under this Agreement.
(b) If Spectrum desires to develop or commercialize any Licensed Product for use outside the
Field of Use in the Allergan Territory the following shall apply:
(i) prior to Spectrum initiating any clinical trial using a Licensed Product for use
outside the Field of Use in the Allergan Territory (such as ****), Spectrum will notify
Allergan in writing (the
Option Notice
) detailing such proposed use and will provide
Allergan with any data (including Spectrums then current development plan and budget) then
possessed by Spectrum on such Licensed Product for such use in such indication (such
Licensed Product for such use in such indication is the
Option Product
);
(ii) Allergan may, at its option, choose to co-develop and co-promote such Option
Product with Spectrum by delivering to Spectrum written notice within ninety (90) days after
receipt of the Option Notice. If Allergan elects to co-develop and/or co-promote such
Option Product with Spectrum, the Parties shall negotiate in good faith a written agreement
(the
Option Product Agreement
) covering the following:
(A) the terms for development and/or commercialization of such Option Product;
(B) a committee structure for the oversight of the development, marketing and
commercialization of the Option Product, with similar decision-making rules as those
in effect under this Agreement; and
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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(C) cross licenses under the Allergan Solely Developed Know How, Licensed
Intellectual Property and Allergans rights in the Joint Intellectual Property to
develop and commercialize such Option Product under similar terms to those set forth
in this Agreement.
(iii) If Allergan chooses not to co-develop and co-promote such Option Product with
Spectrum (as indicated by Allergans delivery of written notice to Spectrum rejecting such
rights, or failure to make an affirmative election within ninety (90) days after receipt of
the Option Notice), or the Parties fail to enter into an Option Product Agreement, then
Spectrum will have the right to pursue the development and commercialization of such Option
Product for the scope described to Allergan in the
Option Notice on its own and at its own expense (by itself or with a Third Party,
subject to Section 2.5(b)(iv)), and the following will apply:
(A) Allergan agrees to negotiate in good faith for a reasonable period the
terms of a commercially reasonable royalty-bearing license under the Allergan Solely
Developed Know How and Allergans rights under the Joint Intellectual Property for
Spectrum to develop and commercialize the Option Product for use outside the Field
of Use in the Allergan Territory (any disagreement shall be subject to binding
arbitration pursuant to the terms of Section 2.4(c));
(B) Spectrum shall not use any Trademark that is the same as, or similar to (so
as to cause confusion in consumers), the Acquired Trademarks or any other Trademark
used by Allergan or its Affiliates in Spectrums development or commercialization of
the Option Product;
(C) Spectrum will package the Option Product in a manner that will not be
confused with the Licensed Product in the Field of Use, and will label such Option
Product as not for bladder cancer treatment; and
(D) Spectrum will not promote, market, sell or distribute such Option Product
for use in the Field of Use in the Allergan Territory, and will use diligent efforts
to prevent and curb any use of such Option Product in the Field of Use in the
Allergan Territory, including meeting the requirements set forth in Sections 2.7(a)
and (d).
(iv) If Allergan opts out of developing and/or commercializing an Option Product under
subsection (iii) or the Parties fail to enter into an Option Product Agreement, and Spectrum
or any of its Affiliates desires to commence development or commercialization of such Option
Product with a Third Party (excluding any Affiliate of Spectrum) (
Proposed Transaction
),
then the following shall apply:
(A) the terms of the Proposed Transaction under which Spectrum (or its
Affiliate) contracts with such Third Party may not be more favorable to such
9
Third Party, taken as a whole, than the terms applicable to Allergan last
offered to Spectrum by Allergan; and
(B) if Spectrum (or its Affiliate) does not execute a definitive agreement for
the Proposed Transaction with a Third Party within nine (9) months following the
date that Allergan opts out under subsection (iii) or the Parties terminated
negotiation of an Option Product Agreement, then Spectrum (or its Affiliate) shall
be obligated to comply with this Section 2.5(b) again prior to
entering into a Proposed Transaction with a Third Party (i.e., Spectrum (or its
Affiliate) shall deliver a new Option Notice under Section 2.5(b)(i) and update its
data delivery, and recommence the option process with Allergan).
For clarity, if Allergan opts out of developing and/or commercializing an Option Product under
subsection (iii) or fails to make an affirmative election within ninety (90) days after the receipt
of an Option Notice, or the Parties fail to enter into an Option Product Agreement, then Spectrum
may then commence a clinical trial of the Option Product for use outside the Field of Use. Spectrum
acknowledges and agrees that neither it nor its Affiliates will use this process to circumvent the
intent of this Section 2.5(b).
2.6
Additional Restrictions
.
(a) For the period commencing on the Effective Date and ending **** after the First Commercial
Sale of a Licensed Product in the Field of Use in the Allergan Territory, Allergan will not develop
or commercialize any formulation including Apaziquone, except as a Licensed Product in the Field of
Use, without Spectrums written consent. It shall not be a breach of this subsection to the extent
that: (A) there is a Change in Control of Allergan and the acquirer of Allergans stock or other
securities or all or substantially all of the assets or any integral part of any Allergan, at the
time of acquisition, is developing or commercializing itself or through its Affiliates any
formulation that includes Apaziquone outside the Field of Use; or (B) Allergan directly or
indirectly, including through an Affiliate, acquires or purchases the stock or other securities or
all or substantially all of the assets or any integral part of any Third Party which at the time of
acquisition is developing or commercializing itself or through its Affiliates any formulation that
includes Apaziquone outside the Field of Use.
(b) Except for Spectrums performance obligations hereunder, for the period commencing on the
Effective Date and ending on the earlier of (i) an Allergan Trigger Date (hereinafter defined), or
(ii) **** after the First Commercial Sale of a Licensed Product in the Field of Use in the Allergan
Territory, Spectrum and its Affiliates shall not, by license or otherwise, research, develop, make,
use, market, sell, distribute or otherwise commercialize any Antineoplastic (hereinafter defined)
in the Field of Use in the Allergan Territory. It shall not be a breach of this subsection to the
extent that: (A) there is a Change in Control of Spectrum and the acquirer of Spectrums stock or
other securities or all or substantially all of the assets or any integral part of Spectrum, at the
time of acquisition, is developing or commercializing itself or through its Affiliates an
Antineoplastic in the Field of Use in the Allergan Territory; or (B)
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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Spectrum directly or indirectly, including through an Affiliate, acquires or purchases the stock or
other securities or all or substantially all of the assets or any integral part of any Third Party
which at the time of acquisition is developing or commercializing itself or through its Affiliates
any Antineoplastic in the Field of Use in the Allergan Territory.
(c) Except for the Licensed Product, for the period commencing on the Effective Date and
ending on the earlier of (i) a Spectrum Trigger Date (hereinafter defined), or (ii) **** after the
First Commercial Sale of a Licensed Product in the Field of Use in the Allergan Territory, Allergan
and its Affiliates shall not, by license or otherwise, research, develop, make, use, market, sell,
distribute or otherwise commercialize any Antineoplastic in the Field of Use in the Allergan
Territory. It shall not be a breach of this subsection to the extent that: (A) there is a Change
in Control of Allergan and the acquirer of Allergans stock or other securities or all or
substantially all of the assets or any integral part of Allergan, at the time of acquisition is
developing or commercializing itself or through its Affiliates an Antineoplastic in the Field of
Use in the Allergan Territory; or (B) Allergan directly or indirectly, including through an
Affiliate, acquires or purchases the stock or other securities or all or substantially all of the
assets or any integral part of any Third Party which at the time of acquisition is developing or
commercializing itself or through its Affiliates any Antineoplastic in the Field of Use in the
Allergan Territory.
(d) If the foregoing restrictions in subsections (b) and (c) are held by a court of competent
jurisdiction to be unenforceable, the restriction shall be automatically converted into a covenant
under which the applicable Party shall have the right of first negotiation to license the rights
covered by the restrictions in subsection (b) and (c) prior to their use or disposal of such rights
by the Party that would otherwise be in breach of subsection (b) or (c), upon commercially
reasonable terms.
(e) The following terms have the meanings set forth next to them when used in this Section
2.6:
(i)
Allergan Trigger Date
means the date on which (A) there is a Change in Control of
Allergan and the acquirer of Allergans stock or other securities or all or substantially
all of the assets or any integral part of any Allergan, at the time of acquisition is
developing or commercializing itself or through its Affiliates an Antineoplastic (except for
a Licensed Product) in the Field of Use in the Allergan Territory, or (B) Allergan directly
or indirectly, including through an Affiliate, acquires or purchases the stock or other
securities or all or substantially all of the assets or any integral part of any Third Party
which at the time of acquisition is developing or commercializing itself or through its
Affiliates any Antineoplastic (except for a Licensed Product) in the Field of Use in the
Allergan Territory.
(ii)
Antineoplastic
means a chemotherapeutic agent that causes cell death via redox
cycle or alkylation of DNA.
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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(iii)
Spectrum Trigger Date
means the date on which (A) there is a Change in Control
of Spectrum and the acquirer of Spectrums stock or other securities or all or substantially
all of the assets or any integral part of Spectrum, at the time of acquisition, is
developing or commercializing itself or through its Affiliates an Antineoplastic in the
Field of Use in the Allergan Territory, or (B) Spectrum directly or indirectly, including
through an Affiliate, acquires or purchases the stock or other securities or all or
substantially all of the assets or any integral part of any Third Party which at the time of
acquisition is developing or commercializing itself or through its Affiliates any
Antineoplastic in the Field of Use in the Allergan Territory.
2.7
Diversion
.
(a) Except pursuant to Section 2.5(b), Spectrum shall not sell the Licensed Product, including
via the Internet or mail order, to any Third Party, address or Internet Protocol (
IP
) address in
the Allergan Territory. If any of Spectrums product is diverted for use in the Field of Use in
the Allergan Territory, the following shall apply: (i) if such product were diverted by an
identifiable customer, distributor, employee, consultant or agent of Spectrum then, upon the
request of Allergan, Spectrum shall not sell such category of product to, or allow the sale of such
category of product by, any such customer, distributor, employee, consultant or agent for the
remaining Term and shall use commercially reasonable efforts to buy back all such product from such
customer, distributor, employee, consultant or agent within ten (10) business days of such request
from Allergan; or (ii) Spectrum shall use commercially reasonable efforts to investigate the
location of such diverted product and buy it back; but, if and to the extent that, Spectrum elects
not to, or is unable to, buy back the applicable diverted product, then Allergan may, in its sole
discretion, buy back the applicable diverted product and Spectrum shall reimburse Allergan for all
reasonable costs incurred by Allergan in connection with the buy-back of any such diverted product.
(b) Allergan shall not sell Licensed Product, including via the Internet or mail order, to any
Third Party, address or IP address in the Spectrum Territory. If any of Allergans Licensed
Product is diverted for sale in the Spectrum Territory, the following shall apply: (i) if such
Licensed Product were diverted by an identifiable customer, distributor, employee, consultant or
agent of Allergan then, upon the request of Spectrum, Allergan shall not sell Licensed Product to,
or allow the sale of Licensed Product by, any such customer, distributor, employee, consultant or
agent for the remaining Term and shall use commercially reasonable efforts to buy back all such
Licensed Product from such customer, distributor, employee, consultant or agent within ten (10)
business days of such request from Spectrum; or (ii) Allergan shall use commercially reasonable
efforts to investigate the location of such diverted Licensed Product and buy it back; but, if and
to the extent that, Allergan elects not to, or is unable to, buy back the applicable diverted
Licensed Product, then Spectrum may, in its sole discretion, buy
back the applicable diverted Licensed Product and Allergan shall reimburse Spectrum for all
reasonable costs incurred by Spectrum in connection with the buy-back of any such diverted Licensed
Product.
12
(c) The Parties acknowledge that, during the term of the Co-Promotion Agreement, the Parties
have different financial arrangements in the Co-Promotion Region than in the Royalty Territory.
During the term of the Co-Promotion Agreement, Allergan shall use substantially similar efforts to
the efforts Allergan uses with other Allergan prescription products to monitor the sales of the
Licensed Product in the Field of Use in the Royalty Territory in order to minimize the quantity of
Licensed Product in the Field of Use that is sold in the Royalty Territory with a view to diversion
for final sale in the Co-Promotion Region. The failure to stop such diversion shall not be deemed
a material breach of this Agreement. During the term of the Co-Promotion Agreement, if there is
any change in government policies in the Allergan Territory that materially affects the ability to
move Licensed Product in the Field of Use from the Royalty Territory into the Co-Promotion Region,
the Parties will meet to discuss in good faith the effect of such changes on diversion.
(d) If any formulation containing Apaziquone sold by Spectrum, its Affiliates or sublicensees
(the
Spectrum Product
) is used in the Field of Use in the Allergan Territory, Spectrum shall pay
to Allergan royalties on the actual sales of such Spectrum Product resulting in such use at the
rate of ****;
provided
,
however
, that, if, in any country in the Allergan
Territory, the use of such Spectrum Product in the Field of Use accounts for **** or more of the
use of any of Allergans Licensed Product in the Field of Use in such country, then Spectrum will
pay to Allergan royalties on Spectrums Royalty-Bearing Net Sales of all such Spectrum Product sold
in such country (regardless of the indication in which it is used) at the rate of ****.
2.8
Delivery Obligations of Spectrum
. Spectrum shall promptly disclose, in writing, to
Allergan all material Licensed Intellectual Property relevant to the license grants set forth
herein that is developed, conceived or reduced to practice during the Term of this Agreement by
Spectrum and its Affiliates, whether solely or jointly with Allergan, and shall make available to
Allergan all Spectrum employees involved in the development of such Licensed Intellectual Property,
during normal business hours, as may be reasonably requested by Allergan to assist Allergan in
understanding such deliveries.
2.9
Delivery Obligations of Allergan
. Upon agreement to the royalty-bearing licenses
described in Sections 2.4, 2.5 and/or Section 13.2(c)(i), Allergan shall promptly disclose, in
writing, to Spectrum all applicable material Allergan Solely Developed Know How and material Joint
Intellectual Property licensed
to Spectrum, and shall make available to Spectrum all Allergan employees involved in the
development of such material Allergan Solely Developed Know How and material Joint Intellectual
Property, during normal business hours, as may be reasonably requested by Spectrum to assist
Spectrum in understanding such deliveries.
ARTICLE 3
DEVELOPMENT; SUPPLY; MARKETING
3.1
Development Obligations
.
(a) The Parties shall jointly develop the Licensed Product (which in final form will be
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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in Closed-System Packaging) for use in the Field of Use in accordance with Articles 3, 4 and 5.
The Parties shall develop the Licensed Product (which in final form will be in Closed-System
Packaging) for use in the Field of Use in the Co-Promotion Region and EU (and elsewhere in the
Allergan Territory where the Parties mutually agree to co-fund the development) pursuant to the
joint development plan that is attached as
Schedule 3.1(a)
(which is comprised of two documents,
the work plan and budget) (the
JDP
) as may be modified by the Parties from time to time as set
forth herein.
(b) Obtaining the US Marketing Clearance and EU Marketing Clearance for the Licensed Product
(which in final form will be in Closed-System Packaging) for use in the Field of Use is of the
essence of this Agreement, and Spectrum shall develop the Licensed Product (which in final form
will be in Closed System Packaging) for use in the Field of Use and seek US Marketing Clearance and
EU Marketing Clearance for such Licensed Product pursuant to the terms of the JDP;
provided
,
however
, that Allergan shall cooperate with Spectrum and perform its
obligations pursuant to the terms of the JDP.
(c) Without limiting Allergans rights and remedies hereunder, Spectrum shall devote the
resources necessary to conduct and complete the 611 Study, 612 Study, BCG Refractory Study and, as
applicable, all other clinical trials described in Sections 3.2(b) and (c) using diligent efforts
to meet the timetables set forth in the JDP. Without limiting the foregoing obligation, Spectrum
agrees that, for as long as it has the responsibility to carry out the 611 Study, 612 Study and/or
the BCG Refractory Study under the JDP: (i) it will use commercially reasonable efforts to retain
each of the individuals specified in
Schedule 3.
1(c)
to continue to perform services for Spectrum
for the applicable term set forth in
Schedule 3.1(c)
, as either an employee or independent
contractor (collectively the
Key Development Personnel
); and (ii) it will use commercially
reasonable efforts to replace any Key Development Personnel who leave Spectrum during the
applicable term set forth in
Schedule 3.
1(c)
for any reason, with a person or persons of comparable
skill and experience in the industry for such term. For purposes of clarity,
Spectrum shall be able to cure any material breach of (i) above by complying with (ii) above.
All Key Development Personnel shall allocate their time to performing development services under
this Agreement in accordance with the JDP until the US Marketing Clearance and EU Marketing
Clearance for Licensed Product in the Field of Use is received.
(d) Spectrum shall, at its sole cost and expense (except as otherwise specified in Section
6.6), reasonably expand its development and clinical trial staff for performance of the services
set forth in this Article 3 as set forth in the JDP.
3.2
Joint Development Plans
.
(a)
Currently Contemplated Clinical Trials
.
(i) As of the Effective Date, the Parties have agreed upon the activities to be
performed by each Party to carry out the 611 Study and 612 Study, and a budget for
Development Costs relating thereto, as set forth in the JDP. The portions of the JDP
14
(including the work plan and budget) relating to the 611 Study and 612 Study are final and
are hereinafter referred to as the
611 Study and 612 Study JDP
. Spectrum shall perform
the services necessary to continue to successfully conduct and complete the 611 Study and
the 612 Study in compliance with the terms and conditions set forth in the 611 Study and 612
Study JDP using diligent efforts to meet the timetables set forth in the JDP. Spectrum
shall continue to be named as the sponsor of the 611 Study and 612 Study.
(ii) As of the Effective Date, the Parties have reached preliminary agreement upon the
activities to be performed by each Party to carry out the BCG Refractory Study, and a budget
for Development Costs relating thereto, as set forth in the JDP. The portions of the JDP
relating to the BCG Refractory Study (including the work plan and budget) are in draft form
and are hereinafter the
BCG Refractory Study JDP
. Such BCG Refractory Study JDP is
subject to finalization pursuant to this Section. The Parties agree that the draft BCG
Refractory Study JDP is subject to regulatory feedback from both the FDA and EMEA and
feedback from Key Opinion Leaders selected by mutual agreement of the Parties.
Key Opinion
Leaders
are specialists in the field recognized as leaders by their peers. The JDC shall
consider the feedback from Key Opinion Leaders when determining whether the protocol for the
BCG Refractory Study JDP
requires modification. The Members (hereinafter defined) of the JDC for both Allergan
and Spectrum will participate in all meetings with the Key Opinion Leaders relating to the
BCG Refractory Study. The Parties may invite additional observers to such meetings, as set
forth in Section 4.2(d). Spectrum shall promptly modify the study protocol (as agreed to by
the Parties) for the BCG Refractory Study based on regulatory feedback from the FDA and EMEA
and shall design and finalize a final protocol and study parameters for the BCG Refractory
Study which meet the needs of the FDA and EMEA and are designed to achieve the TPP for the
Licensed Product in the Field of Use. The Parties acknowledge that they may need to modify
the TPP for the Licensed Product in the Field of Use as is reasonably required to meet FDA
and EMEA approvals. Spectrum shall perform the services necessary to successfully conduct
and complete the BCG Refractory Study in compliance with the terms and conditions set forth
in the BCG Refractory Study JDP using diligent efforts to meet the timetables set forth in
the JDP. Spectrum shall be named as the sponsor of the BCG Refractory Study.
(b)
Additional Clinical Trials for BCG Refractory Indication
. If the EMEA requires additional
clinical trials for the Licensed Product for the BCG Refractory Indication (other than
modifications to the protocol for the BCG Refractory Study as described above), the Party who
receives notice from the EMEA shall promptly provide such notice to the other Party. The Parties
acknowledge that the conducting and completion of any such clinical trial(s) is of the essence of
this Agreement. The Parties shall coordinate the clinical trial(s) pursuant to one of the
following subsections:
(i) if the Parties agree to work on such clinical trial together, the following shall
apply: (A) within thirty (30) days of receipt of such notice, Spectrum shall submit to
15
Allergan a proposed development plan (including protocol, timeline and budget); (B) Allergan
and Spectrum shall work together in good faith in a timely manner to modify the development
plan to reflect the Parties agreement on the clinical trial (including protocol, timeline
and budget) consistent with the feedback from the EMEA; (C) once approved by the Parties,
the JDP shall be modified to include such development plan, whereupon Spectrum shall be
responsible for conducting the clinical trial, subject to Allergans right, in its sole
discretion, to take control of and to conduct the clinical trial by providing written notice
to Spectrum, and each Party shall perform their respective obligations for the clinical
trial under the JDP; (D) Spectrum shall be the sponsor of the clinical trial unless Allergan
exerts its right to take control of and conduct such clinical trial; and (E) the Development
Costs incurred in such clinical trial shall be paid as set forth in Section 6.6, or, at
Spectrums request, Allergan shall pay all of the Development Costs for such performance and
shall receive a credit for such payments for Spectrums share (of 35%) of such costs from
royalties and milestone payments due hereunder; or
(ii) if the Parties cannot agree on the development plan as set forth in Section
3.2(b)(i)(B) above, then: (A) Allergan may unilaterally create the development plan for the
clinical trial (including protocol, timeline and budget), consistent with the feedback from
the EMEA; (B) on completion, the JDP shall be modified to include such development plan,
whereupon Spectrum shall be responsible for conducting the clinical trial, subject to
Allergans right, in its sole discretion, to take over the control of and to conduct the
clinical trial by providing written notice to Spectrum, and each Party shall perform their
respective obligations for the clinical trial under such JDP; (C) Allergan shall be the
sponsor of the clinical trial; and (D) the Development Costs incurred in such clinical trial
shall be paid as set forth in Section 6.6, or, at Spectrums request, Allergan shall pay all
of the Development Costs for such performance and shall receive a credit for such payments
for Spectrums share (of 35%) of such costs from royalties and milestone payments due
hereunder.
(c)
Other Clinical Trials
. As long as the Co-Promotion Agreement has not been terminated, any
additional clinical trial for the Licensed Product in the Field of Use in the Co-Promotion Region
(including Phase 3b trials and Phase 4 trials that the JMC (defined below) desires to conduct),
other than those set forth above, shall, upon the mutual agreement by the Parties, be documented in
a joint development plan (including protocol, timeline and budget) as a modification to the JDP,
and shall be conducted by the Parties in accordance with the JDP. If Spectrum elects not to
conduct such clinical trials or not to fund such clinical trials upfront, Allergan may still
conduct such clinical trials, and the Development Costs incurred in such clinical trials shall be
split evenly. At Spectrums request, Allergan shall pay all of the Development Costs for such
performance and shall receive a credit for such payments for Spectrums share of such costs from
royalties and milestone payments due hereunder. Allergan shall be the sponsor of all such clinical
trials that Spectrum elects not to conduct. Any additional clinical trials outside the
Co-Promotion Region shall be conducted and paid for by Allergan.
(d)
Additional Development Activities
. Except for the 611 Study, 612 Study and
16
BCG Refractory Study, nothing in this Agreement shall prevent Allergan from developing and
performing any clinical trials with respect to the Licensed Product in the Field of Use in the
Allergan Territory unilaterally and at its own expense. If Allergan requests that Spectrum assist
in such trials, and Spectrum agrees to do so and agrees to assist in funding such trials, the
Parties shall amend the JDP to govern such trials and the Development Costs incurred in such
clinical trials shall be paid as set forth in Section 6.6. Spectrum shall not conduct any
development activities with respect to the Licensed Product in the Allergan Territory other than
pursuant to this Article 3 or as permitted in Section 2.5(b).
(e)
Modifications to the JDP
. The JDC (defined below) shall have the right to amend the JDP,
except that the following modifications to the JDP must be agreed upon mutually by the
Parties (any modified JDP shall be deemed incorporated herein by reference):
(i) any change in the JDP that would result in an increase of the total development
budget set forth in the JDP by more than ten percent (10%) as compared to the total
development budget set forth in the JDP as of the Effective Date;
provided
,
however
, that if another BCG Refractory clinical trial is required under Section
3.2(b) or other clinical trials under Section 3.2(c), then the expenditure in connection
therewith shall not be subject to the limitation of this Section 3.2(e) or applied against
the ten percent (10%) allowance under this Section 3.2(e)(i);
(ii) except for the clinical trials set forth in Section 3.2(a), (b) and (c), any new
clinical trials for the Licensed Product in the Field of Use in the Allergan Territory for
which Allergan wants Spectrum to conduct the clinical trials;
(iii) any adjustment of the clinical trials specified above that have an adverse impact
on the TPP relating to the Indications;
(iv) any adjustment of the TPP (except in response to the FDA or EMEA) that would have
a material impact on the clinical trials set forth above. Except as set forth in the
preceding sentence, Spectrum acknowledges that Allergan has final approval rights on the TPP
for the Licensed Product in the Field of Use, including over changes made in response to the
FDA and EMEA;
(v) any material changes to the percentage of Key Development Personnel time spent on
development hereunder; and
(vi) any changes to completion dates specified in the JDP.
(f)
Spectrum Subcontract Rights
. Except for Clinical Trial Institutions (as defined below),
Spectrum shall not subcontract any of its obligations under Sections 3.1 and 3.2 without the prior
written consent of Allergan, such consent not to be unreasonably withheld, delayed or conditioned.
In negotiating such subcontractor agreements, Spectrum will obtain the right to assign such
subcontractor agreements to Allergan in the event Allergan assumes the responsibility for the
development of the Licensed Product, and such agreements will provide
17
Allergan with the same audit and inspection rights as those provided in Section 5.9. The Parties
acknowledge that, as of the Effective Date, Spectrum has engaged for development purposes the
subcontractors listed on
Schedule 3.2(f)(i)
, and Allergan hereby consents to Spectrums right to
continue to use such subcontractors. If not already provided in the agreements with such
subcontractors, Spectrum will use commercially reasonable efforts to amend such agreements so that
Spectrum will have the right to assign such agreements to Allergan in the event Allergan assumes
the responsibility for the development of the Licensed Product, and to provide Allergan
with the same audit and inspection rights as those provided in Section 5.9. The subcontractors and
their contracts as of the Effective Date are identified on
Schedule 3.2(f)(i)
, except for the
hospitals or similar institutions operating as a site for clinical trials if they are not providing
broader services such as collecting or managing data from other sites (the
Clinical Trial
Institutions
). All Clinical Trial Institutions, as of the Effective Date, are identified on
Schedule 3.2(f)(ii)
. Spectrum shall update
Schedules 3.2(f)(i)
and
3.2(f)(ii)
each Fiscal Quarter
with the then-current development subcontractors.
3.3
Manufacturing Obligations
.
(a)
Obligations
. The Parties shall perform their respective obligations pertaining to
manufacturing and supply set forth in the joint supply plan (
JSP
);
provided
,
however
, that Allergan shall have the right to take over Spectrums role under the JSP at
any time with written notice to Spectrum. The initial JSP (for clinical trials supply and
validation batches) forms part of the JDP attached as
Schedule 3.1(a)
. The Parties acknowledge
that all modifications to the JSP must be agreed upon by the Parties, and that neither Party may
unilaterally modify the JSP. Any modified JSP shall be deemed incorporated herein by reference.
Subject to the terms and conditions of this Agreement, including the JSP, Spectrum agrees to have
manufactured and supplied to Allergan all of Allergans requirements for the Licensed Product for
clinical development under the terms of this Agreement. Spectrum agrees to have manufactured and
supplied to Allergan all of Allergans requirements for the Licensed Product for commercial use
pursuant to an amended JSP reflecting commercial supply and a mutually agreed upon supply agreement
as contemplated by Section 3.3(d).
(b)
Subcontracting
. Spectrum may meet its obligations to supply the Licensed Product to
Allergan hereunder through subcontracts with Third Parties, subject to the following requirements:
(i) Spectrum may not subcontract the performance of any services or sublicense any
rights set forth in this Section 3.3 to any sublicensee/subcontractor without Allergans
prior written permission. Allergan may, in its sole discretion, disapprove of any
sublicensee/subcontractor;
provided
,
however
, that, Allergan hereby gives
its written consent to the use of the following manufacturers as subcontractors pursuant to
the terms of the contracts set forth on
Schedule 3.
3(b)
(such contracts, the
Spectrum
Manufacturing Agreements
). Within a reasonable time after the Effective Date, Spectrum
will use commercially reasonable efforts to amend the Spectrum Manufacturing Agreements so
that such agreements are assignable to Allergan (without
18
further consent of a Third Party), provide Allergan with the same audit and inspection
rights as those set forth herein, ensure that the quality standards of such agreements are
no less stringent than those determined by the JSC pursuant to Section 3.3(d) below, and
ensure that such sublicensee/subcontractor complies with all applicable regulatory
obligations and applicable Law;
(ii) Spectrum will supervise each sublicensee/subcontractors performance of the
services and compliance with the terms of this Agreement;
(iii) All fees, costs, and other expenses relating to each sublicensee/subcontractor
shall be deemed Development Costs as set forth in the JDP prior to the First Commercial Sale
of the Licensed Product in the Field of Use, and after the First Commercial Sale of the
Licensed Product in the Field of Use shall be set forth in the supply agreement, and both
shall be calculated without any surcharge for any sublicensee/subcontractor fees;
(iv) Spectrum must enter into a written agreement with each sublicensee/subcontractor
engaged by Spectrum after the Effective Date obligating such sublicensee/subcontractor to
comply with Spectrums obligations under the applicable terms of this Agreement, including
the quality standards determined by the JSC pursuant to Section 3.3(d), and that the
sublicensee/subcontractor will comply with all applicable regulatory obligations. Each such
agreement shall be at least as protective of Allergans rights as the terms and conditions
of this Agreement, and subordinate thereto. Spectrum shall require that Allergan be a third
party beneficiary to each such agreement, and that all such agreements be assignable to
Allergan. Spectrum shall provide Allergan with a copy of each executed agreement with each
sublicensee/subcontractor permitted hereunder;
(v) Spectrum will not retain (even if approved by Allergan) any
sublicensee/subcontractor in any country where doing so would violate any applicable Laws,
including due to embargoes or other restrictions;
(vi) Spectrum acknowledges and agrees that, except and to the extent that Allergan
assumes Spectrums manufacture obligations under Section 3.3(f), Allergan has no obligations
under this Agreement to any such sublicensee/subcontractor and no sublicensee/subcontractor
has any rights or remedies against Allergan hereunder (except where such agreements are
assigned to Allergan hereunder); and
(vii) Allergan has the right but not the obligation to directly pay the
sublicensee/subcontractor for any manufacturing and supply services it performs on
Spectrums behalf and to include the amount of such payment in the calculation of
Development Costs under this Agreement prior to the First Commercial Sale of the Licensed
Product in the Field of Use or as covered in the supply agreement after the First Commercial
Sale of the Licensed Product in the Field of Use.
19
(c)
Allergan Cooperation.
Allergan acknowledges that Spectrum does not possess manufacturing
facilities and that Spectrums ability to perform its obligations under this Section 3.3 depends on
the timely engagement of manufacturing subcontractors which Spectrum is obligated to engage
hereunder. Allergan agrees to cooperate with Spectrum in the establishment of a commercial supply
chain for the Licensed Product in the Field of Use in the Allergan Territory and agrees not to
unreasonably withhold, condition or delay its consent to the selection of subcontractors or the
approval of contracts.
(d)
Specifications; Additional Terms
. The current specifications for the drug substance, drug
product and diluent of the Licensed Product (
Specifications
) are attached hereto as
Schedule
3.3(d)
. Subject to Section 4.6(b),
Schedule 3.
3(d)
can only be amended by written agreement of the
Parties. The Parties acknowledge that the Specifications will be updated and finalized by the
Parties as part of the Regulatory Approval in the Co-Promotion Region and the EU. If and to the
extent that Spectrum ships any Licensed Product to Allergan, each shipment shall be in accordance
with Allergans written instructions and applicable Laws governing the shipment, labeling and
packaging of such Licensed Product. Prior to the production of Licensed Product under this
Agreement, the Joint Supply Committee shall determine the quality standards applicable to the
manufacture of the Licensed Product. At least two (2) years prior to the Anticipated Approval
Date, the Parties shall negotiate in good faith, and enter into, a separate written supply
agreement which will provide for the manufacture and supply of the Licensed Product in the Field of
Use on terms mutually acceptable to the Parties. The supply agreement between the Parties shall
contain:
(i) terms consistent with provisions customarily found in agreements for the
manufacture and supply of commercial quantities of products of a similar nature, including
provisions relating to timing and size of production orders, shipping, certificates on
delivery, risk of loss, inspection and acceptance, timing of invoices and payments, failure
to supply, remedies for breach of representations and warranties;
(ii) the transfer price for all such Licensed Product, which shall be the actual cost
of manufacturing, which shall include the actual charges from Third Parties for testing,
packaging, freight, insurance and exporting the Licensed Product, but excluding any of
Spectrums overhead or general and administrative costs;
(iii) the representations and warranties set forth in Section 11.11 for the commercial
supply of Licensed Product in the Field of Use (unless the Parties mutually agree to modify
such provisions); and
(iv) the indemnification and disclaimers and limitations on liability as set forth in
Article 12 for the commercial supply of Licensed Product in the Field of Use (unless the
Parties mutually agree to modify such provisions).
(e)
Supply Agreement Mediation.
The Parties acknowledge that timely negotiation of a
mutually-agreeable supply agreement will be critical to the ability to launch the Licensed
20
Product. If at any time more than ninety (90) days after the commencement of negotiation of such
agreement, either Party believes such negotiations have reached an impasse, such Party may by
written notice to the other Party cause a meeting of the Vice President of Global Technical
Operations of Allergan and the Chief Executive Officer of Spectrum to seek to resolve such impasse.
Such meeting shall be held within twenty (20) days following such written notice. If, following
such meeting of senior executives, either Party believes an impasse still exists, then such Party
may by written notice cause the Parties to engage in a non-binding mediation of their differences
over the proposed agreement. Unless the Parties otherwise agree at the time, such mediation,
including the selection of the mediator, shall be conducted in accordance with the rules of the
American Arbitration Association. The fees and costs of the mediator shall be borne equally by the
Parties, regardless of the outcome of the mediation. If the Parties cannot agree through mediation
to the terms of the supply agreement, then Spectrum will enable Allergan by assigning the Spectrum
Manufacturing Agreements to Allergan in addition to transferring to Allergan the validated process
for manufacturing and the other items set forth in subsection (f) below.
(f)
Right to Terminate
. Allergan may terminate Spectrums responsibility to have manufactured
and supplied Licensed Product to Allergan for sale in the Allergan Territory under this Agreement
at any time with prior written notice. Such termination shall be effective thirty (30) days after
delivery of the notice, or such later date, at Allergans sole discretion, as necessary to complete
transition to another manufacturer or to Allergan. Termination of Spectrums manufacture and
supply obligation shall not relieve the Parties of any amounts owing between them. On termination
of Spectrums manufacture and supply obligation, Spectrum shall provide to Allergan a copy of all
of the then-current Know How Controlled by Spectrum necessary or useful for the manufacture of the
Licensed Product in the Field of Use, shall make its manufacturing personnel available for
reasonable consultation with Allergan regarding the processes for Licensed Product manufacture, and
shall provide all other technical transfers of all parts of the validated process for the Licensed
Product in the Field of Use, including Documents and other regulatory items. Subject to the terms
of the Spectrum Manufacturing Agreements, Spectrum shall assign to Allergan, and Allergan shall
assume responsibility under, all of Spectrums supply subcontracts for the Licensed Product
applicable to the Field of Use. The Parties shall negotiate in good faith the transition of
Spectrums sourcing of Licensed Product from such Third Party (for example, bifurcating the supply
agreement). After termination of Spectrums manufacturing and supply obligations as set forth
herein, Allergan shall be
responsible for all supply and manufacture of Licensed Product in the Field of Use in the
Allergan Territory, including fulfilling such subcontract agreements from the applicable date of
assignment. After Allergan terminates Spectrums manufacturing rights and responsibilities under
this Section 3.3(f), to the extent that such rights and responsibilities are transferred to
Allergan, Spectrum shall have no further performance obligation under this Section 3.3, and
Allergan shall thereafter be responsible for compliance with the product quality representations
set forth in Section 11.11 for Licensed Product manufactured for sale in the Co-Promotion Region,
with any costs of non-compliance with such representations to be borne by Allergan and not included
within allowable expenses.
21
3.4
Commercialization Rights and Obligations
.
(a)
Rights
. Allergan shall have the sole right to commercialize the Licensed Product in the
Field of Use in the Allergan Territory, except as set forth herein and in the co-promotion
agreement (
Co-Promotion Agreement
) identical to the form attached as
Schedule 3.
4(a)
and entered
into by the Parties on the Effective Date. During the term of the Co-Promotion Agreement, the
commercialization of the Licensed Product in the Field of Use in the Co-Promotion Region shall be
the Parties joint right and responsibility and shall be subject to the oversight of the Joint
Marketing Committee (
JMC
) and pursuant to the JMP as described in Section 3.4(b) below.
(b)
Co-Promotion Region; Joint Marketing Plan
. The strategy for the commercialization of the
Licensed Product in the Field of Use in the Co-Promotion Region during the term of the Co-Promotion
Agreement shall be described in a comprehensive plan that describes the pre-launch, launch and
subsequent commercialization activities (including advertising, education, planning, marketing,
sales force training and allocation) (the
Joint Marketing Plan
or
JMP
), as follows:
(i) An initial JMP setting forth the Parties agreement on the pre-launch commercial
planning activities and the budgeting relating thereto for the Licensed Product in the Field
of Use in the Co-Promotion Region, is attached to this Agreement as
Schedule 3.
4(b)(i)
. At
least twelve (12) months prior to the Anticipated Approval Date, the Parties shall finalize
the portion of the initial JMP setting forth the launch activities for the Licensed Product
in the Field of Use in the Co-Promotion Region and the budget relating thereto, and develop
and finalize a follow-on JMP that governs the post-launch activities for the Licensed
Product in the Field of Use in the Co-Promotion Region, as well as the budget relating
thereto, and such JMP shall be subject to the approval of the JMC.
(ii) Following the launch of the Licensed Product, on or before November 1 of each
Fiscal Year during the Term of this Agreement, the Parties shall create an updated JMP
detailing activities for the following Fiscal Year. The initial JMP and follow-on JMPs
shall generally conform to the level of detail utilized by Allergan in preparation of its
own product commercialization plans, with the overall objectives of maximizing the economic
value of the Licensed Product in the Field of Use in the Co-Promotion Region and of
providing Spectrum a meaningful role in the commercialization of the Licensed Product in the
Field of Use in the Co-Promotion Region. The JMP shall be deemed Confidential Information
of both Parties, and each Party shall use the JMP for the sole purpose of performing or
monitoring commercialization activities for the Licensed Product in the Field of Use in the
Co-Promotion Region. From time to time as reasonably necessary during the term of
commercialization of the Licensed Product in the Field of Use in the Co-Promotion Region,
the JMC may update the JMP.
22
(iii) During the term of the Co-Promotion Agreement, except as set forth in Section
6.14, all costs and expenses incurred by the Parties and specifically set forth in the JMP
shall be deemed allowable expenses and included in the calculation of product profits and
losses under the Co-Promotion Agreement.
(iv) Notwithstanding anything to the contrary in this Agreement, or any provision
granting final decision making authority to any Party on a particular matter under this
Agreement, during the pre-launch phase any change in the initial JMP that would result in an
increase of the total pre-launch budget for the Licensed Product in the Field of Use in the
Co-Promotion Region by more than ten percent (10%) as compared to the total pre-launch
budget for the Licensed Product in the Field of Use in the Co-Promotion Region set forth in
the JMP as of the Effective Date, shall in each case be subject to the Parties mutual
written agreement.
(c)
Performance Obligation
.
(i) Allergan shall file for Regulatory Approval for the Licensed Product for the
Initial Indication in the Field of Use in the EU within **** of the date on which filings
for Regulatory Approval for the Licensed Product for the Initial Indication in the Field of
Use have been made in the Co-Promotion Region,
provided
,
however
, that the
applicable clinical data is timely delivered to Allergan by Spectrum. No such failure is a
material breach of this Agreement. If Allergan fails to do so, then, upon Spectrums
written request, Allergan and Spectrum shall meet to discuss future activities relating to
the Licensed Product for the Initial Indication in the Field of Use in the EU.
(ii) Allergan shall use efforts consistent with the efforts used by Allergan to launch
other Allergan prescription products to launch the Licensed Product in the Field of Use (A)
in the Co-Promotion Region within **** after the date on which Regulatory Approval for the
Licensed Product in the Field of Use has been obtained in the Co-Promotion Region; and (B)
in the EU (an EU launch being defined as a launch in at least two (2) of the major countries
which are members of the EU) within **** after the date on which Regulatory Approval for the
Licensed Product in the Field of Use has been obtained in such countries,
provided
,
however
, that such **** periods of time shall be tolled by any periods of time in
which the Regulatory Approval in the respective territory has been revoked or such launches
are delayed for reasons beyond the reasonable control of Allergan.
(iii) If Allergan materially breaches Section 3.4(c)(ii), Spectrum may terminate
Allergans license to Licensed Product in the affected territory (either the Co-Promotion
Region and/or the EU, as the case may be) with written notice to Allergan within thirty (30)
days of the applicable failure, and in such cases Allergan shall cooperate in the transfer
to Spectrum of the Licensed Product rights in such territory(ies). Such transfer of product
rights shall be effected by means of removing the U.S. and/or the EU (as the case may be)
from the Allergan Territory and adding it to the Spectrum Territory, and
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24b-2 of the Securities Exchange Act of 1934, as amended.
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23
otherwise proceeding with respect to such transferred territory as if there had been a
termination by will by Allergan under Section 13.2.
(d)
Additional Performance Obligations
.
(i) Each Party shall conduct its activities under the JMP and this Agreement in
compliance in all material respects with all applicable Laws (including the Foreign Corrupt
Practices Act of 1977, as amended, and laws applicable to the sale and promotion of
pharmaceutical products) and in accordance with the following provisions:
(A) as between the Parties, Allergan shall be responsible for receiving and
filling orders, controlling invoicing, collecting payments, returns, charge-backs
and rebates on sales of the Licensed Product in the Field of Use in the Allergan
Territory, and shall have sole control over distribution of the Licensed Product in
the Field of Use in the Allergan Territory, in each case including the Licensed
Product under co-promotion by the Parties in the Field of Use in the Co-Promotion
Region. If Spectrum receives any order for the Licensed Product for the Field of
Use in the Allergan Territory, it shall promptly refer such orders to Allergan. If
Allergan receives any order for the Licensed Product for sale in the Spectrum
Territory, it shall promptly refer such orders to Spectrum; and
(B) each Party shall regularly update the JMC regarding the progress and
results of all commercialization activities for the Licensed Product in the Field of
Use. Once each Fiscal Year, during the term of the Co-Promotion Agreement, the
Parties shall meet by phone or in person to discuss the commercialization plans and
strategies of both Parties relating to the Licensed Product in the Field of Use in
the Allergan Territory;
provided
,
however
, that the Parties shall
not share competitively sensitive information (such as pricing or business plans)
for their own products that are not the Licensed Product in the Field of Use.
ARTICLE 4
COMMITTEES
4.1
Generally
. The Parties shall form three (3) committees, as described in this Article
4, to assist in the overseeing of, and making recommendations and decisions for, the development,
regulatory approvals, supply, marketing and commercialization of the Licensed Product in the Field
of Use in the Allergan Territory. The committees may exist simultaneously, and may be dissolved
over time, as their functions are completed. None of the committees shall have any power to amend
this Agreement or bind or incur liability on behalf of either Party without both Parties express
prior written authorization. Each Party shall comply with the decisions of the applicable
committee, to the extent such decisions fall within the applicable committees role and their
delineated powers and responsibilities, except in areas where such Party has sole responsibility
for performance as set forth herein.
24
4.2
Governance of Each Committee
. Each committee described in this Article 4 shall
be comprised of four (4) voting members (each a
Member
). Each Party shall have the right to
appoint two (2) Members to each committee (each a
Member Designee
). The following shall apply to
each committee and their Members:
(a) each Party may remove any of its Member Designees for any reason at any time upon written
notice to the other Party, and a replacement may be appointed by such Party to fill such vacancy;
(b) each committee shall meet at least once each Fiscal Quarter and as otherwise agreed upon
by the Parties;
(c) the presence of at least one (1) Spectrum Member Designee and one (1) Allergan Member
Designee for that committee shall be required to constitute a quorum at any meeting of such
committee. No business shall be transacted at any meeting of a committee unless a quorum of such
committees Members is present at the time when the meeting proceeds to business;
(d) in addition to Member Designees, each Party shall have the right to invite observers to
each meeting by providing the other Party with advance written notice of such observer(s);
provided
,
however
, that such observer(s) may not attend such meeting if the other
Party reasonably objects to the requesting Partys observer(s) prior to such meeting. Such
observers shall not have any voting rights and shall be bound by written obligations of
confidentiality and non-use, either by virtue of his/her employment by such Party or by a separate
written agreement;
(e) meetings of each committee shall alternate between the offices of Spectrum and Allergan in
Irvine, California. At their election, the Parties may conduct any meeting of the committees by
telephone;
(f) action items and resolutions of the committee meetings shall be kept, reviewed and
approved by the applicable committee Member Designees;
(g) decisions of each committee shall be made by unanimous agreement of the applicable
committees Members, with each Partys Member Designees having collectively one (1) vote, subject
to Section 4.6; and
(h) each committee shall continue to exist until the first to occur of: (i) the Parties
mutually agreeing to disband the committee; or (ii) a Party providing to the other Party written
notice of its intention to disband and no longer participate in such committee. Once a Party has
provided the other Party written notice as referred to in subsection (ii) above, such committee
shall have no further obligations under this Agreement and the receiving Party shall have the right
to solely decide, without consultation, any matters previously before such committee, without
affecting either Partys obligations hereunder.
4.3
Joint Development Committee
. Within ten (10) days of the Effective Date, the
25
Parties shall establish a Joint Development Committee (
JDC
). The JDCs sole role shall be to
assist in the overseeing of and in the making decisions for the development of, clinical trials
for, and preparation and submission of regulatory documentation for obtaining Regulatory Approval
for the Licensed Product in the Field of Use for the Co-Promotion Region, EU and any other
country in the Allergan Territory where each Party contributes to the funding of
development/regulatory matters (
JDC Role
). In performing the JDC Role, the powers and
responsibilities of the JDC are limited to the matters set forth in this Section 4.3. The JDC
shall coordinate with the respective Party to meet its responsibilities hereunder. The JDC shall
be responsible for overseeing and making decisions regarding:
(a) clinical activities and clinical and registration strategy including clinical trial
designs and registration plans to support the TPP for the Licensed Product in the Field of Use;
(b) clinical data go/no-go decisions through the development and registration process;
(c) pre-clinical and clinical development of Licensed Product in the Field of Use; and
(d) other development of the Licensed Product in the Field of Use.
4.4
Joint Supply Committee
. Within ten (10) days of the Effective Date, the Parties
shall establish a Joint Supply Committee (
JSC
). The JSCs sole role shall be to assist in the
overseeing of and in the making decisions for the manufacture and supply of Licensed Product in the
Field of Use, and monitoring continuing compliance with all regulatory requirements for the
manufacturing of the Licensed Product after receipt of the Regulatory Approval for the Licensed
Product in the EU and Co-Promotion Region (
JSC Role
). In performing the JSC Role, the powers and
responsibilities of the JSC are limited to the matters set forth in this Section 4.4. The JSC
shall coordinate with the respective Party to meet its responsibilities hereunder. The JSC shall
be responsible for overseeing and making decisions regarding:
(a) the Chemistry, Manufacturing, and Control (
CMC
) processes required in developing the
Licensed Product in the Field of Use;
(b) the clinical drug supply to meet requirements of the JDP;
(c) developing a robust and validated supply process for both drug substance and Licensed
Product in the Field of Use;
(d) ensuring final drug substance and Licensed Product in the Field of Use meet FDA and EMEA
standards;
(e) ensuring the required reports, data, and other CMC information included in the US
Marketing Clearances filings and EU Marketing Clearances filings meet standards expected for final
regulatory approval and the timelines set forth in the JSP and the JDP;
(f) ensuring a validated process for drug substance and drug manufacturing with
26
Allergan or
Spectrums Third Party commercial supplier(s) and the supply forecast meets the anticipated demand.
The JMP sets forth the pre-launch and pre-market marketing activities, as may be amended pursuant
to the Co-Promotion Agreement; and
(g) ensuring the final packaging configurations for Licensed Product in the Field of Use for
commercial launch in the Co-Promotion Region and the EU is the Closed-System
Packaging configuration.
4.5
Joint Marketing Committee
. Within ten (10) days of the Effective Date, the
Parties shall form a JMC to assist in recommendations and decision-making for the pre-marketing and
commercialization planning of the Licensed Product in the Field of Use in the Co-Promotion Region.
The JMCs sole role shall be to assist in the overseeing of and in the making decisions for the
marketing, promotion, calling and detailing of Licensed Product in the Field of Use within the
Co-Promotion Region (
JMC Role
). In performing the JMC Role, the powers and responsibilities of
the JMC are limited to the matters set forth in this Section 4.5. The JMC shall coordinate with
the respective Party to meet its responsibilities hereunder. The JMC shall be dissolved
automatically on termination of the Co-Promotion Agreement. The JMC shall be responsible for
overseeing and making decisions regarding:
(a) assisting the JDC in the prioritization of Phase IV trials of the Licensed Product in the
Field of Use;
(b) overseeing marketing activities for the Licensed Product in the Field of Use in the
Co-Promotion Region and making decisions regarding the promotion plan for pre-launch, launch and
post-launch activities in the Co-Promotion Region;
(c) developing a calling plan, including an allocation of sales force efforts by Spectrum and
Allergan in the Co-Promotion Region and also including the development of primary detail equivalent
targets for each Party;
(d) reviewing the overall performance and effectiveness of the marketing groups and sales
force and the actual results of the promotion of the Licensed Product in the Field of Use in the
Co-Promotion Region;
(e) reviewing and making other decisions related to pre-launch, launch and post-launch
marketing activities of the Licensed Product in the Field of Use in the Co-Promotion Region as they
may arise; and
(f) updating the JMP on a quarterly basis, including updating the JMP with the timeline and
forecast for the Licensed Product in the Field of Use when the primary market information for the
Co-Promotion Region is complete and upon filing for the Initial Indication.
4.6
Escalation Procedure
. In the event that a committee cannot agree on matters
falling within the scope of its JDC Role, JSC Role, or JMC Role, as applicable, and its powers and
responsibilities as set forth in Sections 4.3, 4.4 and 4.5, respectively, (whether due to
failure
27
to agree or failure to have a quorum present at a designated meeting time), then
the Chief Executive Officer of Spectrum (or a designee thereof) shall meet with the Executive Vice
President, Research & Development of Allergan (or a designee thereof for research and development
matters) or the Corporate Vice President for Global Strategic Marketing (or a designee thereof for
commercial matters) at an agreed location or by telephone to resolve the disagreement within twenty
(20) days of the meeting at which such disagreement occurred. If such officers of the Parties (or
their designees) are unable to resolve the disagreement within an additional thirty (30) day period
then:
(a) in the case of a dispute of the JDC, Spectrum shall have final approval rights over the
matter at dispute and shall promptly provide written notice to Allergan of its reasonable final
position regarding the matter at issue;
provided
,
however
, that Allergan shall have
final approval rights over the clinical trials, and the portions of the JDP related thereto,
covered by Sections 3.2(b), (c) and (d), and the regulatory filings and negotiations as described
in Sections 5.1(a)(iii) and (v), and the Parties shall mutually agree on the JDP amendments
described in Section 3.2(e). The Parties shall comply with the position taken by the Party with
final approval rights on such issue. Notwithstanding the foregoing, if (i) ****, (ii) the
Co-Promotion Agreement is terminated (other than by Spectrum opting out of it as permitted
therein), or (iii) the Co-Promotion Agreement terminates by reason of Spectrums decision to opt
out under such agreement and the 611 Study, 612 Study and BCG Refractory Study have been concluded,
then the Parties shall comply with the position taken by Allergan on such issue (including over the
items in Section 3.2(e)(iii),(iv), and (vi));
(b) In the case of a dispute of the JSC, Spectrum shall have final approval rights over the
matter at dispute and shall promptly provide written notice to Allergan of its reasonable final
position regarding the matter at issue. The Parties shall comply with the position taken by
Spectrum on such issue. Notwithstanding the foregoing, if ****, or if Allergan terminates its
supply agreement with Spectrum pursuant to Section 3.3(f), the Parties shall comply with the
position taken by Allergan on such issue (including over the items in Section 3.2(e) (iii), (iv),
and (vi)). Notwithstanding Allergans final approval rights set forth in the preceding sentence,
Spectrum shall have the final decision making authority as to the manufacturing process for the
Final Licensed Product, the CMC section for the Final Licensed Product, the formulation of the
Final Licensed Product, and the design of the Closed-System Packaging (as long as all such items
are in compliance with the JSP, Specifications, Closed-System Packaging and the TPP for the
Licensed Product in the Field of Use as of the Effective Date);
(c) in the case of a dispute of the JMC, Allergan shall have final approval rights over the
matter at dispute and shall promptly provide written notice to Spectrum of its reasonable final
position regarding the matter at issue. The Parties shall comply with the position taken by
Allergan on such issue; and
(d) in the event the provisions of this Article 4 do not provide, and the Parties cannot agree
on, which of the JDC, JSC and JMC has control over an item for resolution, Allergan shall have
final approval over which committee controls or whether such item falls within the scope of
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any
committee;
provided
,
however
, such authorization does not alter the approval rights
set forth in subsections (a), (b) and (c) or allow Allergan to modify the responsibilities of each
committee as set forth in Sections 4.3, 4.4 and 4.5.
ARTICLE 5
REGULATORY MATTERS
5.1
Obligations of the Parties Relating to Regulatory Submissions
.
(a)
Co-Promotion Region
. The following terms shall apply for the period commencing on the
Effective Date and ending on the earlier of (i) the occurrence of a Development Trigger or Change
in Control Trigger that results in Allergan delivering notice
under Section 10.1(c) or 10.2(a), and (ii) termination of this Agreement:
(i) Spectrum shall own all regulatory filings relating to the Licensed Product in the
Field of Use in the Co-Promotion Region;
(ii) Spectrum hereby appoints Allergan as its exclusive (even as to Spectrum)
authorized agent for all regulatory activities relating to the Licensed Product in the Field
of Use in the Co-Promotion Region, including filing, obtaining and maintaining Regulatory
Approvals and authorizations, except for Spectrums role in preparing regulatory submissions
expressly set forth in this Section 5.1(a). In order to perfect the foregoing appointment,
Spectrum irrevocably appoints Allergan as Spectrums attorney in fact for the purpose of
acting as authorized agent, including executing documents. Allergan shall be the sole point
of contact with regulatory agencies in the Co-Promotion Region in all matters relating to
the Licensed Product in the Field of Use both before and after any Licensed Product in the
Field of Use receives Regulatory Approval for sales;
(iii) Spectrum shall prepare all regulatory submissions relating to the Licensed
Product in the Field of Use in the Co-Promotion Region in the eCTD format. Spectrum shall
provide Allergan with draft copies of all submissions to regulatory agencies for Allergans
feedback, including a draft copy of each module of the eCTD form as each module is being
created and the completed modules. In addition, Spectrum shall provide to Allergan copies
of all final submissions to regulatory agencies which relate to the Licensed Product in the
Field of Use in the Co-Promotion Region reasonably in advance of the applicable filing
deadline. If Allergan has not filed such filings with the applicable regulatory agencies by
the applicable filing deadline, then Spectrum may send such final submissions to the
relevant regulatory agency with prior written notice to Allergan;
(iv) Each Party shall provide the other Party with copies of any correspondence
received from regulatory agencies relating to the Licensed Product in the Field of Use in
the Co-Promotion Region within ten (10) days of receipt, and shall provide the other Party
with written notice of any other contact by regulatory agencies
29
relating to the Licensed
Product in the Field of Use in the Co-Promotion Region within ten (10) days of such contact;
(v) Allergan shall conduct all negotiations with regulatory agencies in the
Co-Promotion Region relating to the Licensed Product in the Field of Use, and shall
determine and have final decision making on all regulatory negotiations in the Co-Promotion
Region relating to the Licensed Product in the Field of Use, provided that Allergan shall
use commercially reasonable efforts to schedule such negotiations or any other meetings or
teleconferences with regulatory agencies to allow Spectrum to participate. Allergan shall
provide copies of all materials relating thereto to Spectrum and shall advise Spectrum of,
and Spectrum may provide input relating to, all planned regulatory activities and exchanges
with regulatory authorities for Licensed Product in the Field of Use within the Co-Promotion
Region. Both Parties shall participate in all planned meetings and conference calls with
regulatory agencies relating to the Licensed Product in the Field of Use in the Co-Promotion
Region. If either Party is unable to
participate in such a meeting or conference call, then the other Party shall provide a
written summary of the discussion within thirty (30) days;
(vi) The regulatory filing fees in the Co-Promotion Region shall be deemed Development
Costs and shared by the Parties pursuant to Section 6.6; and
(vii) Allergan shall not be responsible or liable for any Spectrum taxes assessed by a
Government Authority as a result of Allergans appointment and actions under Section 5.1.
(b)
Royalty Territory
.
(i) Allergan shall own all regulatory filings relating to the Licensed Product in the
Field of Use in the Royalty Territory;
(ii) Except to the extent set forth in Section 3.4(c), Allergan shall have the
responsibility but not the obligation, at its sole expense and with the reasonable
assistance of Spectrum, for all regulatory activities relating to the Licensed Product in
the Field of Use within the Royalty Territory, including preparing, obtaining and
maintaining Regulatory Approvals and authorizations. Allergan shall determine, in its sole
discretion, the content of all such submissions and of all correspondence with regulatory
agencies relating to such Licensed Product in the Field of Use; and
(iii) The regulatory filing fees for the Licensed Product in the Field of Use for the
Royalty Territory shall be borne solely by Allergan.
(c)
NCE Exclusivity
. Each Party shall deliver written notice to the other Party of any ANDA
or other foreign equivalent filings it receives for generic equivalents or competitors to the
Licensed Product in the Field of Use in the Allergan Territory within ten (10) days of receipt or
notice of such filings. The Parties shall have the rights to respond to each such ANDA or other
30
foreign equivalent filings pursuant to the procedures set forth in Section 8.3(c).
5.2
Information Sharing
. This Section 5.2 shall not apply to any pharmacovigilance
data (which is addressed in Section 5.5). Each Party shall provide the other Party with copies of
all final submissions and correspondence to and from all regulatory agencies relating to the
Licensed Product in the Field of Use within ten (10) days of submission or receipt, as applicable.
Each Party shall permit the other Party to access, and shall provide the other Party with rights to
reference and use in association with the Licensed Product in the Field of Use, all of its, its
Affiliates, and its or their sublicensees regulatory, preclinical and clinical data
documentation, regulatory filings, and Regulatory Approvals with respect to the Licensed Product in
the Field of Use. A Party shall be entitled to provide such data to its Affiliates and
sublicensees pursuant to Section 9.1.
5.3
Remedial Actions
. Each Party will notify the other Party immediately, and
promptly confirm such notice in writing, if it obtains information indicating that any Licensed
Product in the Field of Use may be subject to a Remedial Action. A
Remedial Action
is any
recall, corrective action or other regulatory action taken by virtue of applicable Law. The
Parties will assist each other in gathering and evaluating such information as is required to
determine the
necessity of conducting a Remedial Action with respect to a Licensed Product in the Field of
Use; provided, however, that Allergan shall have sole responsibility for collecting information
from its customers in the Allergan Territory, including customer complaints. Each Party will
maintain adequate records to permit the Parties to trace the manufacture of the Licensed Product in
the Field of Use and the distribution and use of the Licensed Product in the Field of Use. In the
event Allergan determines that any Remedial Action with respect to the Licensed Product in the
Field of Use in the Allergan Territory should be commenced or Remedial Action is required by any
Governmental Authority having jurisdiction over the matter, Allergan will control and coordinate
all efforts necessary to conduct such Remedial Action. In the event that (a) Spectrum determines
that any Remedial Action with respect to the Licensed Product outside the Field of Use in the
Allergan Territory or Licensed Product in the Spectrum Territory should be commenced, or (b)
Remedial Action is required by any Governmental Authority having jurisdiction over the matter,
Spectrum will control and coordinate all efforts necessary to conduct such Remedial Action.
5.4
Costs Of Remedial Action
. The cost and expense of a Remedial Action (including
the Parties reasonable costs and expenses in conducting such Remedial Action, but excluding Third
Party Claims, which are addressed in Article 12) shall be allocated as follows:
(a) if and to the extent that such Remedial Action is due to (i) Allergans gross negligence
or willful misconduct, (ii) Allergans material breach of this Agreement, or (iii) Allergans
material breach of or substantial noncompliance with any Law, but only to the extent such Remedial
Action is due to the foregoing (i) (iii), such costs and expenses shall be borne and paid by
Allergan;
(b) if and to the extent that such Remedial Action is due to (i) Spectrums gross
31
negligence
or willful misconduct, (ii) Spectrums material breach of this Agreement, or (iii) Spectrums
material breach of or substantial noncompliance with any Law, but only to the extent such Remedial
Action is due to the foregoing (i) (iii), such costs and expenses shall be borne and paid by
Spectrum; and
(c) if and to the extent that such Remedial Action is due to reasons other than as set forth
in Sections 5.4(a) and (b), then:
(i) during any period when Spectrum is responsible for the manufacture and supply of
the Licensed Product in the Field of Use for Allergan and for all lots of Licensed Products
manufactured by Spectrum or its subcontractors for sale by Allergan in the Field of Use in
the Allergan Territory, the costs and expenses incurred by the Parties in connection with a
Remedial Action with respect to the Licensed Product in the Field of Use in the Allergan
Territory shall be borne and paid as follows: Allergan shall pay **** of such costs and
expenses, and Spectrum shall pay **** of such costs and expenses; and
(ii) except for all lots of Licensed Products manufactured by Spectrum or its
subcontractors, commencing on the date on which Allergan assumes the responsibility for the
manufacture and supply of the Licensed Product for sale in the Field of Use in the Allergan
Territory: (A) during the term of the Co-Promotion Agreement in the Co-
Promotion Region, the costs and expenses incurred by the Parties in connection with a
Remedial Action with respect to Licensed Products in the Field of Use shall be borne and
paid as follows: Allergan shall pay **** of such costs and expenses, and Spectrum shall pay
**** of such costs and expenses; and (B) in the Royalty Territory, and the Co-Promotion
Region after termination of the Co-Promotion Agreement, the costs and expenses incurred by
the Parties in connection with a Remedial Action with respect to the Licensed Product in the
Field of Use shall be borne and paid as follows: Allergan shall pay **** of such costs and
expenses, and Spectrum shall pay **** of such costs and expenses.
5.5
Pharmacovigilance or Adverse Event Reporting
. Within sixty (60) days of the
Effective Date, the Parties shall enter into a pharmacovigilance or adverse event reporting
agreement.
5.6
Notification of Complaints.
Each Party shall (a) notify the other Party
immediately of any information concerning any complaint involving the possible failure of Licensed
Product in the Field of Use to meet any requirement of applicable Law, and any serious or
unexpected side effect, injury, toxicity or sensitivity reaction or any unexpected incidents
associated with the distribution of the Licensed Product in the Field of Use, whether or not
determined to be attributable to the Licensed Product in the Field of Use, and (b) with respect to
adverse events, comply with the provisions of Section 5.5 and the applicable agreements described
therein.
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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5.7
Notification of Threatened Action
. Each Party shall immediately notify the other
Party of any information it receives regarding any threatened or pending action, inspection or
communication by or from any Party, including, without limitation, a Governmental Authority which
may affect the safety or efficacy claims of the Licensed Product in the Field of Use or the
continued marketing of the Licensed Product relating to the Field of Use. Upon receipt of such
information, the Parties shall consult with each other in an effort to arrive at a mutually
acceptable procedure for taking appropriate action. The Parties shall allocate all costs and
expenses associated with taking such action as is described with regard to Remedial Actions in
Section 5.4.
5.8
Regulatory Inspections
. Each Party shall use good faith efforts to obtain and
reveal to the other Party, all inspection reports for itself, its Affiliates, or for any of its
vendors, suppliers or other Third Parties by any Government Authority arising from an inspection of
the facilities where a Licensed Product for the Field of Use is manufactured, packaged or stored (a
Facility Inspection
), and the progress and outcome of any Facility Inspection as it may relate to
the Licensed Product in the Field of Use. Upon receipt of notice of any Facility Inspection, the
receiving Party will promptly notify the other Party thereof and the receiving Party will provide
the other Party with the inspection report and any other relevant information available about the
progress and outcome of such inspection available to the receiving Party.
5.9
Audits
. Each Party and its duly authorized representatives shall have the right
to inspect all facilities utilized by the other Party or its subcontractors (including to the
extent provided in, and subject to, the Spectrum Manufacturing Agreements) in connection with the
development, manufacture, sale, storage or distribution of the Licensed Product for the Field of
Use, upon reasonable prior written notice during normal business hours to ensure compliance
with the terms and conditions of this Agreement, and compliance by both Parties, as applicable,
with industry standards and applicable Law with respect to Licensed Product for the Field of Use it
manufactures for itself. In the event of a disagreement between the Parties as to (a) whether a
material adverse defect exists with respect to a Licensed Product or (b) the outcome of a
particular audit, an independent, mutually agreed upon arbiter shall be selected by the Parties to
resolve the dispute. The cost of such arbiter shall be shared equally by the Parties. All audits
shall be conducted without any undue disruption to the business and operations of the audited
Party. Any Third Parties conducting such audits shall enter into confidentiality agreements with
the audited Party in a form reasonably suitable to the audited Party. Both Parties shall correct,
or cause the correction of, any deficiencies which are discovered by any such audit.
ARTICLE 6
PAYMENTS AND ROYALTIES
6.1
Upfront Payment
. Allergan shall pay to Spectrum the sum of Forty-One Million Five
Hundred Thousand Dollars ($41,500,000) within ten (10) days after the Effective Date (the
Upfront
Payment
), and such payment shall be non-refundable, non-creditable and non-returnable under any
circumstances; provided that the foregoing statement shall not be construed as a limitation to any
remedies available to Allergan for the breach by Spectrum of this
33
Agreement or the Co-Promotion
Agreement.
6.2
Development Milestone Payments
.
(a) Subject to Section 6.2(b), Allergan shall pay to Spectrum additional amounts within thirty
(30) calendar days of the completion of certain development milestones, as set forth below:
(i) a one time payment of **** upon Allergans receipt of written notice from Spectrum
of the completion of enrollment for the 611 Study and 612 Study, but only if such enrollment
is completed on or before ****;
(ii) a one time payment of **** upon Allergans receipt of written notice from Spectrum
of the completion of enrollment for the BCG Refractory Study, but only if such enrollment is
completed on or before ****;
(iii) a one time payment of **** upon Allergans receipt of written notice of
acceptance by the FDA of the first filing of an NDA in the Co-Promotion Region for Licensed
Product for use for the Initial Indication;
(iv) a one time payment of **** upon Allergans receipt of written notice of acceptance
by the EMEA of the first filing of an MAA in the EU for Licensed Product for use for the
Initial Indication;
(v) a one time payment of **** upon Allergans receipt of written notice of the first
approval by the FDA of an NDA in the Co-Promotion Region for Licensed Product for use for
the Initial Indication;
(vi) a one time payment of **** upon Allergans receipt of written notice of the first
approval by the FDA of an sNDA in the Co-Promotion Region for Licensed Product for use for
the BCG Refractory Indication;
(vii) a one time payment of **** upon Allergans receipt of written notice of the first
approval by the EMEA of an MAA for Licensed Product for use for the Initial Indication; and
(viii) a one time payment of **** upon Allergans receipt of written notice of first
approval by the EMEA of an MAA or an equivalent of an sNDA for Licensed Product for use for
the BCG Refractory Indication.
(b) In the event of a Development Trigger after which Allergan delivers notice to Spectrum
under Section 10.1, the development milestone payments not yet due at the date of delivery of
Allergans notice, shall be reduced by ****,
provided
,
however
that if such notice
is delivered under Sections 10.1(b) and (c), the development milestone payments not yet due at the
date of delivery of Allergans notice, shall instead be reduced by **** (each a
Standard
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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Development Trigger Reduction
). Further, in the case of a Development Trigger that also
constitutes an uncured material breach hereunder, Allergan shall have the right to seek all
available rights and remedies to it, under law or equity (including injunctive relief against such
breach or to enforce the right granted to Allergan hereunder, except the Standard Development
Trigger Reduction), for such material breach by Spectrum that is not cured as set forth in Section
13.3(a) hereof and the amount of milestone payments not yet paid to Spectrum as of such time under
Section 6.2(a) shall be reduced by **** (the
Material Breach Development Trigger Reduction
). The
Material Breach Development Trigger Reduction shall be a remedy in lieu of, but not in addition to,
the Standard Development Trigger Reduction remedy to Allergan. For clarity, the occurrence of a
Development Trigger alone shall not automatically invoke the Material Breach Development Trigger
Reduction, unless the event giving rise to such Development Trigger itself constitutes an uncured
material breach of Spectrums obligation hereunder that is not cured as set forth in Section
13.3(a) hereof. In addition, the express options set forth in this Agreement available to Allergan
in the event of a Development Trigger shall not be construed to limit Allergans other rights and
remedies in the event such occurrence of a Development Trigger also constitutes an uncured material
breach under this Agreement by Spectrum.
6.3
Sales Milestone Payments
.
(a)
Milestones
. Subject to Sections 6.3(c) and 6.4(e), Allergan shall pay to Spectrum sales
milestone payments within sixty (60) days of the end of the Fiscal Quarter in which the following
milestones have been met:
(i) a one time payment of **** for the first time in which Royalty-Bearing Net Sales of
all Royalty-Bearing Product sold in the Royalty Territory exceed **** in a given Fiscal
Year;
(ii) a one time payment of **** for the first time in which Royalty-Bearing Net Sales
of all Royalty-Bearing Product sold in the Royalty Territory exceed **** in a given Fiscal
Year;
(iii) a one time payment of **** for the first time in which Royalty-Bearing Net Sales
of all Royalty-Bearing Product sold in the Royalty Territory exceed **** in a given Fiscal
Year; and
(iv) a one time payment of **** for the first time in which Royalty-Bearing Net Sales
of all Royalty-Bearing Product sold in the Royalty Territory exceed **** in a given Fiscal
Year.
(b)
Co-Promotion Region
. Subject to Sections 6.3(c), 6.4(e) and 10.2(c), if the Co-Promotion
Agreement is terminated, then for sales of Royalty-Bearing Product sold in the Co-Promotion Region
following such termination of the Co-Promotion Agreement, Allergan shall pay to Spectrum additional
sales milestone payments within sixty (60) days of the end of the
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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Fiscal Quarter in which the
following milestones have been met:
(i) a one time payment of **** for the first time in which Royalty-Bearing Net Sales of
all Royalty-Bearing Product sold in the Co-Promotion Region exceed **** in a given Fiscal
Year;
(ii) a one time payment of **** for the first time in which Royalty-Bearing Net Sales
of all Royalty-Bearing Product sold in the Co-Promotion Region exceed **** in a given Fiscal
Year;
(iii) a one time payment of **** for the first time in which Royalty-Bearing Net Sales
of all Royalty-Bearing Product sold in the Co-Promotion Region exceed **** in a given Fiscal
Year; and
(iv) a one time payment of **** for the first time in which Royalty-Bearing Net Sales
of all Royalty-Bearing Product sold in the Co-Promotion Region exceed **** in a given Fiscal
Year.
(c)
Calculation
. More than one sales milestone can be earned in any given Fiscal Year, but
each sales milestone can only be earned once.
6.4
Running Royalties
.
(a)
Base Rate for the Royalty Territory
. During the Royalty Term, Allergan shall also pay to
Spectrum as earned royalties on sales of Royalty-Bearing Product in the Royalty Territory the
following royalty payments:
(i) for the first **** of Royalty-Bearing Net Sales earned for Royalty-Bearing Product
sold in the Royalty Territory in a Fiscal Year, Allergan shall pay Spectrum a royalty at the
rate of **** of such Royalty-Bearing Net Sales;
(ii) for the next **** of Royalty-Bearing Net Sales earned for Royalty-Bearing Product
sold in the Royalty Territory in the same Fiscal Year, Allergan shall pay Spectrum a royalty
at the rate of **** of such Royalty-Bearing Net Sales;
(iii) for the next **** of Royalty-Bearing Net Sales earned for Royalty-Bearing Product
sold in the Royalty Territory in the same Fiscal Year, Allergan shall pay Spectrum a royalty
at the rate of **** of such Royalty-Bearing Net Sales; and
(iv) for any additional Royalty-Bearing Net Sales earned for Royalty-Bearing Product
sold in the Royalty Territory in the same Fiscal Year, Allergan shall pay Spectrum a royalty
at the rate of **** of such Royalty-Bearing Net Sales.
By way of example only,
Schedule 6.
4(a)
provides an example of how the royalties will be
calculated.
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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(b)
Base Rate for the Co-Promotion Region
. If the Co-Promotion Agreement is terminated
(subject to Section 10.2(c)), then for sales of Royalty-Bearing Product sold in the Co-Promotion
Region following such termination of the Co-Promotion Agreement, during the Royalty Term, Allergan
shall also pay to Spectrum as earned royalties on sales of Royalty-Bearing Product in the
Co-Promotion Region at the following royalty payments:
(i) for the first **** of Royalty-Bearing Net Sales earned for the Royalty-Bearing
Product sold in the Co-Promotion Region in a Fiscal Year, Allergan shall pay Spectrum a
royalty at the rate of **** of such Royalty-Bearing Net Sales;
(ii) for the next **** of Royalty-Bearing Net Sales earned for the Royalty-Bearing
Product sold in the Co-Promotion Region in the same Fiscal Year, Allergan shall pay Spectrum
a royalty at the rate of **** of such Royalty-Bearing Net Sales;
(iii) for the next **** of Royalty-Bearing Net Sales earned for the Royalty-Bearing
Product sold in the Co-Promotion Region in the same Fiscal Year, Allergan shall pay Spectrum
a royalty at the rate of **** of such Royalty-Bearing Net Sales; and
(iv) for any additional Royalty-Bearing Net Sales earned for Royalty-Bearing Product
sold in the Co-Promotion Region in the same Fiscal Year, Allergan shall pay Spectrum a
royalty at the rate of **** of such Royalty-Bearing Net Sales.
(c)
Calculations
. Notwithstanding the terms of subsections (a) and (b) above:
(i) no royalty payments shall be due for Royalty-Bearing Product which are sold and
returned as defective, unusable, rejected by a purchaser or for which neither Allergan nor
any of its Affiliates or its or their Sublicensees receives payment, and to the extent
royalties have already been paid prior to such circumstances being made apparent, Allergan
may credit such amounts previously paid against future royalties due;
(ii) there shall only be a single payment of royalties at the amounts set forth in this
Section 6.4 to Spectrum payable on any sale of Royalty-Bearing Product, regardless of the
number of patent applications or patents which are involved; and
(iii) no royalty payments shall be due for Royalty-Bearing Product which are used or
provided to others by Allergan, its Affiliates or its or their Sublicensees solely for
promotion (without consideration), research, conducting clinical trials, demonstration,
evaluation, testing or training purposes.
(d)
No Patent Protection
. If any Royalty-Bearing Product is sold in a country in the Allergan
Territory in which (i) there is no Patent Protection, (ii) there is no Regulatory Exclusivity, and
(iii) a Generic Product exists, then the royalty rates set forth in Sections 6.4(a) and (b) for
such Royalty-Bearing Product shall be ****.
Generic Product
means, with respect to a
Royalty-Bearing Product in the Field of Use in a particular country in the Allergan Territory,
another pharmaceutical product that: (x) contains as an active ingredient Apaziquone;
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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and (y) is
approved for use in such country (pursuant to 21 U.S.C. 355(b)(2), an ANDA, a separate NDA,
compendia listing, other drug approval application or otherwise, including foreign equivalents of
the foregoing, as applicable).
Patent Protection
means, in the country of sale in the Allergan
Territory, that at least one of the claims of an issued and unexpired patent included within the
Licensed Intellectual Property which would be infringed by the sale of the Royalty-Bearing Product
in that country is in effect, and has not been revoked or held unenforceable or invalid by a final
decision of a court or other governmental agency of competent jurisdiction having authority over
said patent and that final decision is not appealed or unappealable (all claims are considered
valid until so adjudicated and during prosecution of a patent application containing such claims)
and is sufficient to prevent a Generic Product from being sold in such country.
Regulatory
Exclusivity
means market exclusivity granted by a Governmental Authority designed to prevent the
entry of Generic Product(s) onto the market in the Field of Use, including new chemical entity
exclusivity, new use or indication exclusivity, new formulation exclusivity, orphan drug
exclusivity, pediatric exclusivity and 180-day generic product exclusivity. The foregoing shall
not apply for sales in the Co-Promotion Region as long as the Co-Promotion Agreement is in effect.
(e)
Royalty Term
. Allergans royalty obligations under Sections 6.4(a) and (b) shall commence
on the First Commercial Sale of a Royalty-Bearing Product and expire, on a country-by-country
basis, on the date which falls on the later of the following conditions (the
Royalty Term
):
(i) the expiration or earlier invalidation of all of the: (A) patents in the Licensed
Intellectual Property issued as of the Effective Date claiming the composition of matter of,
the formulation of, or the method of making or using, Royalty-Bearing Product in the Field
of Use in such country; and (B) other patents in the Licensed Intellectual Property issued
after the Effective Date but prior to the **** anniversary of the First Commercial Sale of a
Royalty-Bearing Product in the Field of Use in the Co-Promotion Region which are: (I)
issued prior to entry of a Generic Product in the country; (II) of sufficient breadth to
block the entry of Generic Products in the country; and (III) claim the composition of
matter of, the formulation of, or the method of making or using, Licensed Product in the
Field of Use in such country (except for the Original Patent Rights, such patents covered by
this subsection are
Extension Patents
);
(ii) the **** anniversary of the First Commercial Sale of such Royalty-Bearing Product
in the Field of Use in the Co-Promotion Region; or
(iii) the expiration of all Regulatory Exclusivity covering such Royalty-Bearing
Product in the Field of Use in such country.
After the expiration of the Royalty Term in a particular country, but only if Allergan has
fulfilled its payment obligations under this Article 6 in such country: (x) the licenses set forth
in Section 2.1 in such country shall be deemed fully-paid up, perpetual and royalty-free; (y)
Allergan may use such licenses in such country perpetually without additional royalties and
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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milestone payments due; and (z) such licenses in such country shall survive expiration or
termination of this Agreement regardless of cause.
6.5
Royalty Payment Schedule
. Within five (5) business days after the end of each
Fiscal Quarter during which a Royalty-Bearing Product in the Field of Use is sold by Allergan, its
Affiliates or its or their Sublicensees in the Royalty Territory, Allergan shall provide to
Spectrum the estimated royalty payment calculation for Spectrum to complete its quarterly
accounting close. Within forty-five (45) days after the end of each Fiscal Quarter during which a
Royalty-Bearing Product in the Field of Use is sold by Allergan, its Affiliates or its or their
Sublicensees in the Royalty Territory, Allergan shall deliver to Spectrum a detailed report, which
shall include at least: (a) the net quantity sold, total sales, total to net deducts, and
Royalty-Bearing Net Sales of Royalty-Bearing Product in the Field of Use for which royalties are
due hereunder that it has sold in the prior Fiscal Quarter; (b) the calculation in U.S. dollars of
royalty payments due hereunder with respect to such sales; and (c) the total due hereunder for such
Fiscal Quarter, including deduction for any offsets. Simultaneously with the delivery of each such
report, Allergan shall pay to Spectrum the amount specified in Section 6.5(c). Notwithstanding the
foregoing, to the extent that Royalty-Bearing Net Sales also include Sublicensee Net Sales of
Royalty-Bearing Product (including under Sections 6.3 and 6.4), Allergan shall have additional time
as reasonably necessary to provide Spectrum with the information relating to such Sublicensee Net
Sales of Royalty-Bearing Product in the foregoing report and payment or to determine whether the
sales milestones have been met and subsequently make payments therefor.
6.6
Development Costs
. Except as set forth in the Co-Promotion Agreement, commencing
with the Fiscal Quarter beginning January 1, 2009, and occurring each Fiscal Quarter thereafter, the Parties
agree to pay the Development Costs for the development and Regulatory Approval of the Licensed
Product in the Field of Use as follows: Allergan shall be responsible for sixty-five percent (65%)
of Development Costs incurred by Spectrum and Allergan in performing their obligations hereunder,
and Spectrum is responsible for thirty-five percent (35%) of the Development Costs incurred by
Spectrum and Allergan in performing their obligations hereunder. Within the first five (5)
business days of each Fiscal Quarter commencing on January 1, 2009, Allergan shall pay Spectrum quarterly in
advance Allergans share of the estimated Development Costs which Spectrum is estimated to incur
for such Fiscal Quarter (as set forth in the JDP). On a monthly basis the Parties agree to discuss
the Development Costs incurred in the previous month and review tracking of actual Development
Costs to estimated Development Costs. The Parties shall reconcile their respective applicable
Development Costs, and will deliver to the other Party, by the third business day after the new
Fiscal Quarter, the backup requested by such other Party to complete such other Partys quarterly
accounting close. The estimate provided by each Party on the third business day shall be
materially correct as regards actual Development Costs incurred. Within thirty (30) days after
the end of each Fiscal Quarter, Allergan will
provide Spectrum with an invoice representing thirty-five percent (35%) of the Development
Costs incurred by Allegan during the previous Fiscal Quarter and Spectrum will process a payment to
Allergan within thirty (30) days following receipt of this invoice. Within thirty (30) days after
the end of each Fiscal Quarter, Spectrum shall perform a true-up to determine its
39
actual
Development Costs incurred during the previous Fiscal Quarter. If the true-up reflects actual
Development Costs incurred in excess of advances previously made by Allergan, Spectrum will provide
Allergan with an invoice representing the excess and Allergan will process a payment to Spectrum
within thirty (30) days following receipt of this invoice. If the true-up reflects actual
Development Costs incurred less than advances previously made by Allergan, Spectrum will reduce
their next quarterly advance from Allergan by the amount of the shortfall. Spectrum shall bear all
Development Costs for development of the Licensed Product incurred
prior to January 1, 2009. In the event of
a Development Trigger after which Allergan delivers notice to Spectrum under Section 10.1 for
Allergan to take over development, all of the Development Costs incurred by Allergan in performing
the development and Regulatory Approval services itself shall also be borne by the Parties in the
ratio(s) set forth in this Section 6.6.
6.7
Currency of Payments
. All payments under this Agreement will be made in U.S.
dollars by electronic funds transfer to such bank accounts as each Party may designate from time to
time, or by check. When Royalty-Bearing Product is sold for monies other than U.S. dollars, the
exchange rate shall be determined based on the average daily exchange rate calculated by averaging
the closing daily rate between the country in which the Royalty-Bearing Product was sold and the
U.S., as obtained from Bloomberg or equivalent successor (absent manifest error therein), on a
monthly basis during the Fiscal Quarter that Allergan records the sale for accounting purposes.
6.8
Budget
. Each Party shall spend the amount specified as required to be budgeted by
such Party for performance of their obligations hereunder, as set forth in the applicable JDP, JSP
and JMP. Each Party shall account for FTEs assigned to such Party under the JDP, pre-launch JMP or
JSP at the FTE Rate.
6.9
Books; Records
. During the Term and for three (3) years thereafter, the Parties
shall keep and maintain at their respective regular places of business complete and accurate books,
records and accounts in accordance with the U.S. Generally Accepted Accounting Principles, or other
accounting standards mandated by the U.S. Securities and Exchange Commission, in sufficient detail
to reflect all amounts required to be paid under this Agreement, as well as any other books,
records or accounts required to be maintained in connection with the Licensed Product under any
applicable Law. Prior to destroying any books, records or accounts which are material to the
Parties rights and obligations under this Agreement, a Party must seek prior written consent from
the other Party, which consent may not be unreasonably withheld.
6.10
Audits
. During the Term and for three (3) years thereafter, each Party
(including a firm of certified public accountants engaged for such purpose) shall have access to
and the right to examine such relevant records and accounts that the other Party is required to
maintain pursuant to Section 6.9 at such other Partys premises for the sole purpose of verifying
the payments owing such Party hereunder; provided, however, that any such examination: (a) shall be
at the auditing Partys expense; (b) shall be during normal business hours upon reasonable
prior written notice which shall in no event be less than five (5) business days; and (c)
shall not
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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unreasonably interfere with such other Partys operations and activities. Neither Party
may re-audit the other Partys records once audited. All information reviewed during any such
examination shall be treated as Confidential Information of the other Party. The audited Party
shall promptly pay the auditing Party any underpayment discovered in the course of such audit,
together with interest at the rate specified in Section 6.15 accrued from the date due until paid.
Notwithstanding subsection (a) above, if the audit uncovers an underpayment that is more than five
percent (5%) of the amount payable for the period subject to such audit, the audited Party shall
reimburse the auditing Party for its out-of-pocket expense of such audit.
6.11
Offset
. Either Party shall be entitled to offset from any payment due to the
other Party under this Agreement any amounts due from the other Party and/or its Affiliates which
such other Party fails to pay, including Indemnifiable Amounts (defined in Section 6.14 below).
In the event of any offset under this Section, the Party making such offset shall provide receipts
of payment of any withheld amounts or other Documents reasonably available to it in support of such
offset.
6.12
Stacking
.
(a) If, in order to make or have made, use, conduct clinical trials for, sell, offer for sale,
have sold, import, export, or otherwise exploit a Final Licensed Product in the Allergan Territory,
it is necessary for Allergan to take a royalty-bearing license under Intellectual Property Rights
owned by a Third Party (excluding an Affiliate of Allergan), Allergan may deduct such amounts from
amounts due hereunder;
provided
,
however
, that Spectrum shall have the first right
to negotiate such Third Party license, provided that, if Spectrum does not obtain such license on a
timely basis in view of the timeline and circumstance of the development and/or commercialization
of the Licensed Product at such time, then Allergan shall have the right, upon ten (10) business
days prior written notice to Spectrum, to obtain such license itself under reasonable terms.
(b) To the extent that subsection (a) does not apply, if the Parties obtain and/or maintain a
license under Intellectual Property Rights owned by a Third Party (excluding an Affiliate of
Allergan) in order to make, have made, use, conduct clinical trials for, sell, offer for sale, have
sold, import, export, or otherwise exploit the Licensed Product in the Field of Use in the Allergan
Territory, then, except as provided in Section 6.14, payments made to such Third Party in exchange
for the practice of such license by Allergan in the Allergan Territory shall be borne by Allergan,
provided
,
however
, that Allergan may deduct **** of the royalty payments to such
Third Party from its payments due to Spectrum hereunder, including under the Co-Promotion
Agreement, provided that such payments shall not reduce the royalties due to Spectrum under Section
6.4 by more than ****.
6.13
Withholding Taxes
. Notwithstanding anything to the contrary herein, in the event
that withholding taxes apply with respect to any amounts due by Allergan hereunder, Allergan shall
be entitled to withhold from any payment due to Spectrum under this Agreement any taxes that
Allergan is required to pay and such withholding shall decrease by an equivalent amount the
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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payment
due to Spectrum. Allergan shall provide Spectrum with notification of any anticipated withholding
requirements with as much advance notice as practicable and shall cooperate in
good faith with Spectrum to legally minimize such withholding taxes. Allergan will timely pay
to the proper governmental authority the amount of any taxes withheld and will provide Spectrum
with an official tax certificate or other evidence of tax obligation, together with proof of
payment from the relevant governmental authority sufficient to enable Spectrum to claim such
payment of taxes.
6.14
Spectrums Obligations
. Spectrum shall be solely responsible for, and shall pay,
any royalties or other payments due under the ****, the **** or any other license to the Licensed
Intellectual Property existing as of the Effective Date. No royalties and other payments borne
exclusively by Spectrum under this Section 6.14 shall be considered as a cost or expense under any
JDP, JSP or JMP budget. Further, no Indemnifiable Amounts due under this Agreement shall be
considered as a cost or expense, as part of any JDP, JSP or JMP budget.
Indemnifiable Amounts
as it is used herein means any amount payable to the other Party by way of an indemnification
clause under this Agreement or other indemnification.
6.15
Late Payment
. If a Party does not receive payment of any sum due to it on or
before the due date, simple interest shall thereafter accrue on the sum due to such Party from the
due date until the date of payment at a rate equal to LIBOR, as reported in the Wall Street
Journal, plus one percent (1%) or the maximum rate allowable by applicable law, whichever is less.
ARTICLE 7
TRADEMARK ASSIGNMENT
7.1
Assignment
. Spectrum hereby assigns all right, title, and interest in and to the
Acquired Trademarks, including the accompanying goodwill, pursuant to that certain trademark
assignment agreement between the Parties dated as of the Effective Date identical to the form
attached hereto as
Schedule 7.1
(the
Trademark Assignment Agreement
). Allergan may, at its sole
discretion, rebrand and rename the Licensed Product in connection with Allergans marketing,
distribution and sale of the Licensed Product. Allergan shall be the sole and exclusive owner of
any such brand or name and all Trademarks therein.
7.2
No Use by Spectrum
. Except as provided in the Co-Promotion Agreement, Spectrum
shall make no use of the Acquired Trademarks, or any Trademark that includes any of the Acquired
Trademarks or is confusingly similar thereto, or any of Allergans or its Affiliates Trademarks,
on or in connection with any product or service anywhere in the world. Without limiting the
generality of the foregoing, Spectrum shall not use any Trademark that is the same as, or similar
to (so as to cause confusion in consumers), the Acquired Trademarks or any other Trademark used by
Allergan or its Affiliates to market the Licensed Product. The foregoing shall not be construed as
restricting Spectrum from making factual references to the Acquired Trademarks in its regulatory
filings or to satisfy its legal and regulatory obligations. Unless otherwise agreed to by the
Parties, within one hundred twenty (120) days after the Effective
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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Date, Spectrum shall cease using
the Acquired Trademarks and, thereafter, the JMC will shall have the authority to determine how the
Licensed Product shall be referenced.
ARTICLE 8
INTELLECTUAL PROPERTY
8.1
Ownership
. The Parties agree as follows:
(a) subject to the licenses granted herein during the Term of this Agreement, Spectrum retains
ownership of all Spectrum Intellectual Property;
(b) Allergan retains ownership of all Allergan Solely Developed Know How (subject to any
licenses agreed upon pursuant to Sections 2.4, 2.5 and/or 13.2(c)(i)); and
(c) subject to the licenses granted herein during the Term of this Agreement, the Joint
Intellectual Property shall be owned jointly by the Parties in accordance with joint ownership
interests of co-inventors under United States patent and copyright laws, with each Party owning an
undivided half interest in such Joint Intellectual Property, with the right to exploit and license
such intellectual property without the duty of accounting to the other Party or seeking consent
from the other Party. For the purpose of determining inventorship under this Section 8.1(c),
inventorship shall be determined in accordance with United States patent and copyright laws.
8.2
Prosecution
.
(a)
Notice
. Spectrum shall promptly notify Allergan in writing of the issuance of any patent
in the Licensed Intellectual Property.
(b)
Prosecution
. Spectrum at its expense shall diligently prosecute and maintain the patents
and patent applications in the Licensed Intellectual Property (including in the Joint Intellectual
Property) using counsel of its choice, which counsel shall also be subject to the reasonable
approval of Allergan. Allergan and Spectrum shall consult in good faith with each other prior to
any filings or other actions before the U.S. Patent and Trademark Office and other offices with
respect to the patents and patent applications in the Licensed Intellectual Property (including the
Joint Intellectual Property), including any continuations, and the Parties shall jointly make all
decisions pertaining thereto. Allergan may request Spectrum to obtain patent protection for
Licensed Intellectual Property (including the Joint Intellectual Property) and, if so requested,
Spectrum shall cooperate and diligently file, prosecute and maintain such rights. Upon request,
Spectrum shall promptly provide Allergan and its counsel with copies of all relevant documentation
so that Allergan may be informed and apprised of the continuing prosecution of the patents and
patent applications in the Licensed Intellectual Property (including the Joint Intellectual
Property). In the event that Spectrum decides not to prosecute, or otherwise to abandon, a patent
or application therefor relating to the Licensed Intellectual Property (including the Joint
Intellectual Property) in a country in which it is required to do so, Spectrum shall send Allergan
written notice of said decision at least ninety (90) days in advance of the action or payment due
date. Allergan shall thereupon have the option to take over the patent or
43
application, and
Spectrum shall assign to Allergan all rights in such patent or application in such jurisdiction.
In the event that Allergan takes over the prosecution and maintenance of the applicable patents and
patent applications in the Licensed Intellectual Property (including the Joint Intellectual
Property), Allergan may deduct Spectrums share of the Patent Expenses (defined below) from any
amounts due hereunder, provided, however, that if Spectrum assigns such patent or application in
such jurisdiction to Allergan, then Allergan shall bear the Patent Expenses for such patent or
application at its sole expense.
(c)
Patent Expenses
.
Patent Expenses
means the reasonable fees and expenses of outside
counsel and payments to Third Parties incurred after the Effective Date in connection with the
preparation, filing, prosecution and maintenance of patent applications and patents included in the
Licensed Intellectual Property (including the Joint Intellectual Property) that cover the Licensed
Product in the Field of Use in the Allergan Territory or its manufacture or use (including the
costs of patent interference and opposition proceedings). Except as set forth in subsection (b),
all Patent Expenses incurred for the protection of market exclusivity in the Allergan Territory
shall be ****. Spectrum shall deliver to Allergan within sixty (60) days of the end of the Fiscal
Quarter in which such Patent Expenses were incurred by Spectrum an accounting of all such Patent
Expenses. Allergan shall reimburse Spectrum for its undisputed share within thirty (30) days of
receipt thereof.
(d)
License Recordals
. Should local counsel in a given country recommend that Allergan be
appointed as a licensee of Spectrum for the patents and patent applications in the Licensed
Intellectual Property (including the Joint Intellectual Property) and that such license be recorded
with the appropriate patent office, then Spectrum at its expense (subject to Section 8.2(c) above)
shall prepare and file the necessary documents subject to Allergans approval, which shall not be
unreasonably withheld or delayed.
8.3
Enforcement
.
(a)
Notice of Infringement
. If either Party learns of the actual, suspected, threatened or
likely infringement or misappropriation of any of the Licensed Intellectual Property (including the
Joint Intellectual Property), then that Party shall give written notice thereof to the other Party
and shall provide the other Party with any evidence of such infringement or misappropriation in its
possession.
(b)
Pre-Issuance
. Where the suspected or actual infringement or other suspected or actual
unauthorized use relates to the claims in a patent application in the Licensed Intellectual
Property (including the Joint Intellectual Property) in the Allergan Territory for which no patent
has yet been issued, Spectrum shall promptly give notice to the Third Party infringer of the
publication of the patent application.
(c)
Infringement by Third Parties in the Allergan Territory
.
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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(i) Allergan may, but shall be under no obligation to, unilaterally take, at its
expense, any court or administrative action to enforce any suspected or actual infringement
or other unauthorized use of the Licensed Intellectual Property (including the Joint
Intellectual Property and including responding to Paragraph IV patent certifications) in the
Allergan Territory. If Allergan takes such enforcement action, Spectrum may elect to join
as a party in that action at Spectrums expense, provided that if Allergan does not have
standing without Spectrum joining the action, Spectrum shall join the action at Allergans
expense and hereby consents to the exercise of personal jurisdiction by the relevant courts.
(ii) If Allergan fails to commence enforcement of a court or administrative action
within ninety (90) days following the earlier of: (A) Allergan becoming aware of
such matter at the level of direct reports to the Chief Executive Officer of Allergan;
or (B) written request by Spectrum for Allergan to do so, then Spectrum may, but shall be
under no obligation to, in its own name, and at its own expense, commence any court or
administrative enforcement action Spectrum deems necessary. Notwithstanding the foregoing
sentence, if there is a deadline to take that court or administrative action, then, at least
one (1) week prior to such filing deadline, Allergan shall either commence such enforcement
action or give written notice to Spectrum that it has declined to do so. If Spectrum
commences such enforcement action and Spectrum requests Allergan to join as a party to that
action, Allergan shall join as a party to that action at Spectrums expense and hereby
consents to the exercise of personal jurisdiction by the relevant courts.
(iii) If Allergan commences any such enforcement action, Allergan shall have the
exclusive right to employ counsel of its own selection and to direct and control the
litigation or any settlement thereof;
provided
,
however
, that Allergan shall
not, without obtaining Spectrums prior written consent, settle any such actions in any way
that would limit Spectrums rights in the Licensed Intellectual Property (including the
Joint Intellectual Property). Allergan may reimburse itself for **** of the reasonable
costs and expenses it incurs in enforcing any such action that relates to Licensed Product
in the Allergan Territory by deducting such amounts from the royalties and milestone
payments due to Spectrum hereunder. To the extent Allergan is paid any settlement amount or
awarded damages, costs or expenses, Allergan may first apply such settlement or award to
reimburse itself for all remaining reasonable costs and expenses it incurred in enforcing
the action and Spectrum for all costs and expenses paid or deducted as set forth above (each
Party shall receive such amounts on a pro rated basis). Any amount remaining after this
reimbursement shall result in a payment to ****, calculated by applying the ****. However,
if the Co-Promotion Agreement has not been terminated, for infringement in the Co-Promotion
Region, the Parties shall ****.
(iv) If Spectrum commences any such enforcement action, Spectrum shall have the
exclusive right to employ counsel of its own selection and to direct and control the
litigation or any settlement thereof;
provided
,
however
, that Spectrum shall
not, without obtaining Allergans prior written consent, settle any such actions in any way
that
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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would limit Allergans rights hereunder. Spectrum may reimburse itself for **** of the
reasonable costs and expenses it incurs in enforcing any such action that relates to
Licensed Product in the Field of Use in the Allergan Territory by deducting such amounts
from any payment due to Allergan, by including such amount in its calculation of PSMM to be
reimbursed by Allergan, or, after the profit share arrangement has been terminated, by
providing Allergan with an invoice therefor, which Allergan shall pay within thirty (30)
days of its receipt. To the extent Spectrum is paid any settlement amount or awarded
damages, costs or expenses, Spectrum may first apply such settlement or award to reimburse
itself for all remaining reasonable costs and expenses it incurred in enforcing the action
and Allergan for all costs and expenses paid or deducted as set forth above (each Party
shall receive such amounts on a pro rated basis). Any amount remaining after this
reimbursement shall result in a payment to ****, calculated by applying the ****, with the
remainder paid to ****. However, if the Co-Promotion Agreement has not been terminated, for
infringement in the Co-Promotion Region, the Parties shall ****.
(v) In any suit or dispute involving any Third Party infringer, the Parties shall
cooperate fully, and upon the request of the enforcing Party, the non-enforcing Party shall
make available to the enforcing Party all relevant records, papers, information, samples,
specimens, and the like which may be relevant and in its possession.
ARTICLE 9
CONFIDENTIAL INFORMATION
9.1
Confidentiality Obligations
.
(a) Both Spectrum and Allergan acknowledge that, in furtherance of this Agreement, including
the Co-Promotion Agreement, they have and will receive from the other Party certain Confidential
Information.
(b) All proprietary or confidential materials and information, whether oral or in writing,
exchanged by the Parties or their Affiliates in furtherance of this Agreement (including the
Co-Promotion Agreement) shall be considered confidential information of the disclosing Party or its
Affiliates, including testing protocols, research, formulations, business methods and practices,
information about the expertise of employees or consultants, other technical, business, financial,
customer and product development plans, training materials and methods of training the sales force,
identity and location of customers, supplier information, forecasts, strategies and similar
information, prospective customers and suppliers, financial information, inventions, processes,
Know How, methods, products, patent applications, specifications, drawings, sketches, models,
samples, designs, ideas, technical information, and all other confidential business information and
trade secrets (
Confidential Information
). This Agreement shall supersede the Mutual
Confidentiality Agreement between Spectrum and Allergan, effective December 14, 2007, and all
confidential information disclosed by a Party to the other Party thereunder shall be deemed
Confidential Information of the disclosing Party under this
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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Agreement.
(c) Notwithstanding the foregoing, Confidential Information shall not include any
information which was: (i) in the public domain at the time of disclosure; (ii) in the possession
of the receiving Party at the time of disclosure to it whether prior to or during the Term of this
Agreement, including the Co-Promotion Agreement, and not as a result of disclosure by or on behalf
of the other Party, as evidenced by written records; (iii) received by the receiving Party from a
Third Party who had a lawful right to disclose such information to it; or (iv) independently
developed by the receiving Party without reference to Confidential Information of the other Party
or its Affiliates, as evidenced by the receiving Party.
(d) Each Party for itself and its Affiliates hereby acknowledges and agrees that all
Confidential Information is proprietary to the disclosing Party or its disclosing Affiliates.
(e) Each Party for itself and its Affiliates agrees: (i) to use Confidential Information
disclosed by the disclosing Party or its Affiliates only for the purposes described herein,
including the Co-Promotion Agreement; and (ii) to hold in confidence and protect such Confidential
Information from dissemination to, and use by, any Third Party (except for Affiliates of such
Party), except as may be permitted in this Agreement.
(f) Neither Party shall, and each Party shall cause its Affiliates not to, without the prior
written consent of the disclosing Party, in any manner whatsoever, disclose or communicate any
Confidential Information received from the disclosing Party or its Affiliates to any employee,
officer or director, subcontractor, agents, advisor, and/or consultants of the receiving Party or
its Affiliates or to any other Third Party, except for those who need to know such information
solely for the purpose of this Agreement (including the Co-Promotion Agreement) and who have been
advised of and have agreed to treat such information in accordance with the terms of this Agreement
(including the Co-Promotion Agreement). Each Party is responsible for any breach of this Article 9
by those to whom such Party or its Affiliates disclose the other Partys or its Affiliates
Confidential Information.
9.2
Disclosure Required by Law
. Nothing in this Agreement shall be construed as
preventing or in any way inhibiting either Party or its Affiliates from disclosing Confidential
Information of the other Party or its Affiliates or taking any other actions necessary to comply
with applicable Laws (subject to the terms of Section 14.12 for press releases and public
announcements). In the event a Party or its Affiliates shall deem it reasonably necessary to
disclose Confidential Information belonging to the disclosing Party or its Affiliates under this
Section 9.2, such Party or its Affiliates (a) shall to the extent possible give reasonable advance
notice of such disclosure to the disclosing Party or its Affiliates in order that the disclosing
Party or its Affiliates may seek an appropriate protective order, and barring such protective
order, that a copy of such legally compelled disclosure or announcement is delivered to the
disclosing Party or its Affiliates prior to dissemination, and (b) shall consider in good faith the
disclosing Partys or its Affiliates objections to such disclosure, including suggestions to
redact Confidential Information, and take reasonable measures to seek confidential treatment of
such information.
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9.3
Equitable Relief
. Each Party and its Affiliates acknowledges that a breach of
this Article 9 cannot reasonably or adequately be compensated in damages in an action at law and
that such a breach shall cause the other Party irreparable injury and damage. By reason thereof,
each Party and its Affiliates agree that the other Party shall be entitled, in addition to any
other remedies it may have under this Agreement or otherwise, to preliminary and permanent
injunctive and other equitable relief to prevent or curtail any breach of the obligations relating
to Confidential Information set forth herein by the other Party. Each Party and its Affiliates
agree that the existence of any claim, demand, or cause of action of it against the other Party,
whether predicated upon this Agreement, or otherwise, shall not constitute a defense to the
enforcement by the other Party, or its successors or assigns, of the obligations relating to
Confidential Information set forth herein.
9.4
Independent Development; Residuals
. Each Party acknowledges that the other Party
may currently or in the future be developing information internally, or receiving information from
Third Parties, that is similar to the Confidential Information. Accordingly, except as set forth
in Section 2.6, nothing in this Agreement will be construed as a representation or agreement that
the Parties will not develop or have developed for it products, concepts, systems or techniques
that are similar to or compete with the Licensed Product, concepts, systems or techniques
contemplated by or embodied in the Confidential Information, provided that the Parties do not
violate any of their obligations under this Agreement in connection with such development.
Additionally, each Party shall be free to use the Residuals resulting from access to or work with
the other Partys Confidential Information for any purpose. The term
Residuals
means information in intangible form, retained in the unaided memory (without the
assistance of notes or other memory aids and without any conscious attempt to memorize or refresh
recollections) of Persons employed or retained by a Party who have had access to or worked with the
Confidential Information, including ideas, concepts, know-how or techniques contained therein. The
Parties shall not have any obligation to limit or restrict the assignment of such Persons or to pay
royalties for any work resulting from the use of Residuals.
ARTICLE 10
CERTAIN REMEDIES; NOTICE RIGHT
10.1
Development Trigger
. In the event of a Development Trigger, in addition to all
other remedies available to Allergan under this Agreement, at law, or in equity, if any, Allergan
at its option, and with written notice to Spectrum (effective upon receipt), may select any or all
of the following options; provided, however, that Allergan may only select the option provided in
Section 10.1(c) if it also selects the option provided in Section 10.1(b):
(a) take over control of all development activities;
(b) **** or ****Spectrums **** or****associated with the ****and ****Allergan ****the ****and
****;
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filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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(c) require Spectrum to **** Allergan ****all ****and ****is not ****Spectrum ****Allergan
**** relating to the Licensed Product in the Field of Use in the Allergan Territory;
(d) take over the **** relating to the Licensed Product in the Field of Use in the Allergan
Territory under this Agreement. In such event, Allergan shall be ****; and
(e) ****, rather than ****, shall have ****and ****as set forth in****Allergans ****shall
be****Allergans ****shall be **** In addition****shall be ****to allow ****set forth ****as
compared to the ****as of the ****Also, Allergan ****of the ****which ****and ****Spectrums ****.
10.2
Change in Control Trigger
. In the event of a Change in Control Trigger,
Allergan at its option, and with written notice to Spectrum (effective upon receipt), may select
any or all of the following options:
(a) require Spectrum to **** Allergan **** all **** and **** is not **** Spectrum ****
Allergan **** relating to the Licensed Product in the Field of Use in the Allergan Territory;
(b) take over the **** relating to the Licensed Product in the Field of Use in the Allergan
Territory under this Agreement. In such event, Allergan shall be ****;
(c) **** with written notice to Spectrum**** written notification to Spectrum) within thirty
(30) days of being notified by Spectrum of such Change in Control pursuant to Section 10.5. In the
event Allergan **** as set forth above, ****In the event **** in lieu of the terms set forth in
****, the Parties ****, pursuant to the ****; and
(d) ****, rather than ****, shall have **** and **** as set forth in **** Allergans ****
shall be **** Allergans **** shall be **** In addition**** shall be **** to allow **** set forth
**** as compared to the **** as of the **** Also, Allergan **** of the **** which **** and ****
Spectrums ****.
10.3
Co-Promotion Trigger
. In the event that the Co-Promotion Agreement terminates,
the following shall apply:
(a) if the Co-Promotion Agreement terminates because Spectrum opts out of the Co-Promotion
Agreement (pursuant to the terms thereof), then ****, Allergan may, upon written notice to
Spectrum, require Spectrum to assign to Allergan the ownership of all NDAs, sNDAs, MMAs and other
Regulatory Approvals relating to the Licensed Product in the Field of Use in the Co-Promotion
Region; or
(b) if the Co-Promotion Agreement terminates for any reason other than as set forth in
subsection (a), then within three (3) months after the date of termination, Allergan may, upon
written notice to Spectrum, require Spectrum to assign to Allergan the ownership of all NDAs,
sNDAs, MMAs and other Regulatory Approvals relating to the Licensed Product in the Field of
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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49
Use in
the Co-Promotion Region.
10.4
Clarification
. Notwithstanding Allergan taking over control of development under
Section 10.1 or 10.2, Spectrum shall still remain on the JDC and shall still be responsible for its
payment obligations hereunder. However, to the extent that Allergan assumes development
responsibilities pursuant to Section 10.1 or 10.2 of this Agreement, Spectrum or Spectrums
successor in interest, as applicable, shall no longer be obligated to perform the services
associated with such responsibilities.
10.5
Notice
. Spectrum shall provide Allergan with written notice of any bona fide
discussions it has with a Third Party to acquire Spectrum through the consummation of a Change in
Control; provided, however, that Spectrum shall not be obligated to disclose the identity of such
Third Party or terms of the discussions. Spectrum shall provide written notice to Allergan thirty
(30) days in advance of a closing of a transaction that will result in a Change in Control Trigger.
ARTICLE 11
REPRESENTATIONS, WARRANTIES AND COVENANTS
11.1
Both Parties
. Each of the Parties provides the following representations,
warranties and covenants during the Term of this Agreement for this Agreement, including the
Co-Promotion Agreement (collectively,
the Agreement
for the purposes of this Section 11.1):
(a) Each Party hereby represents, warrants and covenants to the other Party that: (i) it has
all requisite right, power and authority to enter into the Agreement on behalf of itself and its
Affiliates and to perform its respective obligations hereunder and to cause its Affiliates to
perform their respective obligations hereunder; (ii) the execution, delivery and performance by
such Party of the Agreement has been duly authorized and approved by all necessary action by such
Party; and (iii) assuming due authorization, execution and delivery by the other Party, the
Agreement constitutes the legal, valid and binding obligations of such Party, enforceable against
such Party in accordance with its respective terms.
(b) Each Party represents, warrants and covenants to the other Party that the execution and
delivery of the Agreement and the performance of such Partys and its Affiliates obligations
hereunder: (i) do not conflict with or violate any requirement of applicable Law as of the
Effective Date; (ii) do not, and will not, conflict with or otherwise interfere with in such a
manner as to result in a violation, breach, or default under or require any consent that has not
been obtained under any Contract between such Party or any of its Affiliates and any Third Party;
and (iii) there are no, and shall be no, liens, conveyances, mortgages, assignments, encumbrances,
or other Contracts that would prevent or impair such Partys or any of its Affiliates full and
complete exercise of the terms and conditions of the Agreement.
(c) Each Party hereby represents, warrants and covenants to the other Party that it and its
Affiliates shall at all times comply with all applicable Laws relating or pertaining to their
50
obligations under the Agreement.
11.2
Licensed Intellectual Property: Ownership/Right to License; Non-Infringement;
Validity
. Spectrum represents, warrants and covenants that:
(a) except to the extent that it would not cause a material adverse consequence, (i) as of the
Effective Date, it is the sole and exclusive owner of all right, title and interest, in, to and
under the Licensed Intellectual Property; (ii) other than Allergans interest in Joint Intellectual
Property, it is the sole and exclusive owner of or has the sole and exclusive license to all right,
title and interest, in, to and under the Licensed Intellectual Property incorporated in or used in
manufacturing the Final Licensed Product, and (iii) other than Allergans interest in Joint
Intellectual Property, it is the sole and exclusive owner of or has the sole and exclusive license
to all right, title and interest, in, to and under the Extension Patents, in each case free and
clear of any security interests, claims, encumbrances or charges of any kind;
(b) it has sufficient rights to grant the licenses and rights granted herein, free and clear
of any security interests, claims, encumbrances or charges of any kind;
(c) it has not assigned and/or granted licenses, nor shall it assign and/or grant licenses, to
the Licensed Intellectual Property to any Third Party that would restrict or impair the rights
granted hereunder, and it has not granted to anyone any rights that cover the Licensed Product in
the Field of Use in the Allergan Territory that remain in effect as of the Effective Date;
(d) the making or having made, use, marketing, sale, offering for sale, import, export and
other exploitation of Final Licensed Product in the Field of Use in the Allergan Territory does
not, and shall not, infringe upon, misappropriate or otherwise violate any Intellectual Property
Rights of any Third Party;
(e) ****, as of the Effective Date: (i) the patents in the Original Patent Rights are valid
and enforceable; (ii) to its actual knowledge, there is no reason why the claims that may issue
from the patent applications in the Original Patent Rights would not be valid and enforceable;
(iii) no Third Party has asserted that any Licensed Intellectual Property is invalid or not
enforceable; and (iv) Spectrum has obtained assignment of the Original Patent Rights from
the inventors named therein, and all such assignments of inventorship rights are valid and
enforceable. As of the Effective Date, all applications, registrations, maintenance and renewal
fees in respect of the Original Patent Rights have been paid and all documents and certificates
required to be filed with the relevant agencies for the purpose of maintaining the Original Patent
Rights have been filed. ****, all inventors who should have been listed in the Original Patent
Rights as inventors have been listed in the Original Patent Rights as inventors. As of the
Effective Date, none of the Licensed Intellectual Property was developed with federal or state
funding from any Governmental Authority such that any Governmental Authority has any march in
rights or other rights to use the Licensed Intellectual Property;
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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51
(f) to its actual knowledge, no Third Party has infringed the Licensed Intellectual Property;
and
(g) it has provided to Allergan the patent searches, and ****.
11.3
All Rights Granted
. Spectrum represents, warrants and covenants that: (a) it
shall not invoke any dominant patent or patent application owned or controlled by, or licensed to,
Spectrum or its Affiliates to in any way restrict the rights and/or licenses granted to Allergan
and its Affiliates under this Agreement (including the Co-Promotion Agreement); (b) the Licensed
Intellectual Property licensed under Section 2.1(a) constitutes all of the Intellectual Property
Rights that are necessary to make, have made, use, market, sell, offer for sale, have sold, import,
export and otherwise exploit the Final Licensed Product in the Field of Use in the Allergan
Territory; and (c) as of the Effective Date, Spectrum has delivered to Allergan copies of all
material Documents relating to the development, manufacture and sale of Licensed Product in the
Field of Use and other material Licensed Intellectual Property, and has made all applicable
Spectrum employees involved in the development of material Licensed Intellectual Property available
to Allergan to assist Allergan in understanding the data delivered to Allergan.
11.4
No Law Suits
. Spectrum represents, warrants and covenants that, as of the
Effective Date, there is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature, judgment, decree, decision, injunction, writ or order pending or, to the
knowledge of Spectrums senior management, threatened by, against or involving Spectrum, the
Licensed Intellectual Property, or this Agreement, including the Co-Promotion Agreement, whether at
law or in equity, before or by any Person. Spectrum shall provide notice of any of the foregoing
to the extent they involve the Licensed Product, the Licensed Intellectual Property, or this
Agreement, including the Co-Promotion Agreement. Allergan represents, warrants and covenants that,
as of the Effective Date, there is no legal, administrative, arbitration, or other proceeding,
suit, claim or action of any nature, judgment, decree, decision, injunction, writ or order pending
or, to the knowledge of Allergans senior management, threatened by, against or involving this
Agreement, including the Co-Promotion Agreement, whether at law or in equity, before or by any
Person. Allergan shall provide notice of any of the foregoing to the extent they involve this
Agreement, including the Co-Promotion Agreement.
11.5
Trademarks
. Spectrum represents, warrants and covenants that as of Effective
Date:
(a) it is the sole and exclusive owner of all right, title and interest in the Acquired
Trademarks, free and clear of any security interests, claims, encumbrances or charges of any
kind;
(b) it has not assigned and/or granted licenses to the Acquired Trademarks to any Third Party
that would restrict or impair the rights granted hereunder;
(c)
Schedule 11.
5(c)
constitutes a complete and accurate list of all of trademark and
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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domain
name applications and registrations for the Acquired Trademarks, both active and inactive;
(d) **** no Third Party has asserted that the Acquired Trademarks are invalid or not
enforceable;
(e) **** all Acquired Trademarks that are registered trademarks or are the subject of pending
trademark applications are in full force and effect, and all actions required to keep such
registrations or application pending or in effect or to provide full available protection,
including payment of filing and maintenance fees and filing of renewals, statements of use or
affidavits of incontestability, have been taken, and no such applications or registrations are the
subject of any opposition, cancellation, or other proceeding placing in question the validity or
scope of such rights; and
(f) **** Spectrum has received no notice that the use, presentation or display of the Acquired
Trademarks on or in connection with the Licensed Product infringes or otherwise violates any
Trademark or Intellectual Property Rights of any Third Parties. Spectrum is not aware of any
circumstances likely to give rise to any claim of infringement or other violation of any Third
Partys Trademark by use of the Acquired Trademarks.
11.6
Confidentiality
. Except to the extent that it would not cause a material adverse
consequence, Spectrum represents, warrants and covenants as of the Effective Date that all Know How
known to Spectrum and relating to the Licensed Product in the Field of Use and all other Licensed
Intellectual Property which has not been patented has been kept confidential, except for public
disclosures customarily made in the industry, and all employees, consultants, agents and
contractors of Spectrum and its Affiliates, or other Third Parties, to whom Spectrum has disclosed
such Know How or other Licensed Intellectual Property have executed, and are subject to,
confidential and proprietary information agreements that protect and limit the use and disclosure
of the Licensed Intellectual Property in a manner comparable to the confidentiality and non-use
provisions contained in Article 9.
11.7
Regulatory Approvals
. Spectrum represents, warrants and covenants as of
subsections (a)-(d) below and Allergan represents, warrants and covenants as of subsection (e)
below that:
(a) as of the Effective Date, Spectrum has provided Allergan with all applicable details on
the regulatory status of all Licensed Product in the Field of Use in the Allergan Territory, and
Spectrum has provided copies of all clearances and applications therefor;
(b) Spectrum is the owner of record of the Investigational New Drug Application (filed with
the FDA) for the 611 Study and 612 Study, except to the extent that Allergan takes
ownership pursuant to its rights under this Agreement;
(c) with respect to all regulatory filings to obtain Regulatory Approvals for the Licensed
Product in the Field of Use: (i) the data and information in the Spectrum Groups
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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53
submissions were,
are and shall be free from fraud or material falsity; (ii) the Regulatory Approvals have not been
and will not be obtained either through bribery or the payment of illegal gratuities by the
Spectrum Group; (iii) the data and information in the Spectrum Groups submissions are, were and
shall be accurate and reliable for purposes of supporting approval of the submissions; and (iv) the
Regulatory Approvals shall be obtained without illegal or unethical behavior of any kind by the
Spectrum Group; provided that Spectrum shall not be deemed to be in breach of this Section 11.7(c)
if the violation of this Section 11.7(c) results from the action or omission of Allergan, its
Affiliates or sublicensees;
(d) as of the Effective Date, neither Apaziquone nor any of its corresponding active moieties
(following enzymatic activation), nor any of the salts, esters, isomers, mixtures of isomers,
complexes or derivatives of Apaziquone have been (i) previously approved as an active ingredient
under section 505(b) of the FD&C Act, or (ii) authorized by the EMEA or other regulatory
authorities in the EU; and
(e) except for information provided by Spectrum, its Affiliates or sublicensees or others in
the Spectrum Group, with respect to all regulatory filings to obtain Regulatory Approvals for the
Licensed Product in the Field of Use: (i) the data and information in the Allergan Groups
submissions and modifications thereof shall be free from fraud or material falsity; (ii) the
Regulatory Approvals will not be obtained either through bribery or the payment of illegal
gratuities by the Allergan Group; (iii) the data and information in the Allergan Groups
submissions and modifications thereof shall be accurate and reliable for purposes of supporting
approval of the submissions; and (iv) the Regulatory Approvals shall be obtained without illegal or
unethical behavior of any kind by the Allergan Group; provided that Allergan shall not be deemed to
be in breach of this Section 11.7(e) if the violation of this Section 11.7(e) results from the
action or omission of Spectrum, its Affiliates or sublicensees.
11.8
Professional Standards
. Each Party represents, warrants and covenants that, with
respect to the services provided hereunder to the other Party, it, its Affiliates and their
respective employees, contractors and agents who perform services have the experience, capability
and resources to efficiently and skillfully perform the services, and shall perform, where
applicable, all such services in a professional and workmanlike manner and in accordance with the
generally accepted then-current standards, forms, procedures and techniques established from time
to time by the industry (including eCTD where applicable).
11.9
No Conflict
. Spectrum represents, warrants and covenants that: (a) no Contracts
that it or its Affiliates may have with any Third Party provide such Third Party with any rights of
first offer, rights of first refusal, or any other rights to make, have made, use, conduct clinical
trials for, sell, offer for sale, have sold, import, export, or otherwise exploit the Licensed
Product in the Field of Use in the Allergan Territory or the use of the Licensed Intellectual
Property in connection with the making, developing or commercializing of the Licensed Product in
the Field of Use in the Allergan Territory; and (b) it has received no notice from a Third Party of
any suit, action, proceeding or arbitration pending or threatened against it that the proposed
terms and
conditions of this Agreement, including the Co-Promotion Agreement, and the Parties
54
performance in accordance therewith, do or shall conflict or interfere with in a manner resulting
in a breach or default under, or other violation of, any Contracts that Spectrum or its Affiliates
may have with any Third Party.
11.10
Additional Warranties
. Spectrum represents, warrants and covenants that:
(a) Apaziquone is a member of the series of compounds known as Indoloquinones licensed to
Spectrum under the ****;
(b) Spectrum dissolved its subsidiary known as NeoOncoRx, Inc. on January 23, 2003, and as a
result, Spectrum was the sole licensee under the **** and no other Third Party has any claims as a
licensee under the ****;
(c) prior to the Effective Date, Allergan has been supplied with a true and correct copy of
the **** and ****, together with all amendments, waivers or other changes thereto;
(d) Spectrum has performed all obligations required to be performed by it in connection with
the **** and ****, Spectrum is not in breach of the **** or **** as of the Effective Date, and
Spectrum is not in receipt of any claim of default, cure notice or show cause notice under the ****
or ****;
(e) Spectrum has no present expectation or intention of not fully performing any material
obligation pursuant to the **** or ****, and, to the knowledge of Spectrum, there is no current
breach or anticipated breach by any other party to the **** or **** and Spectrum shall fully
perform all material obligations pursuant to the **** and ****;
(f) the **** and the **** are valid and enforceable in accordance with their terms, are in
full force and effect, and there are no approvals or consents required to make the **** and the
**** effective; and
(g) as of the Effective Date: (i) Spectrum has provided complete and accurate factual
responses to all material requests for information that were made by the Allergan Group prior to
the Effective Date, and Spectrum has not omitted to supply Allergan with any material information
in its possession concerning the Licensed Intellectual Property or Licensed Product in the Field of
Use in the Allergan Territory or the transactions contemplated by this Agreement that would be
material to Allergans decision to enter into this Agreement and undertake the commitments and
obligations set forth in this Agreement; and (ii) the Data (as hereinafter defined) provided in
writing to Allergan or its Affiliates by Spectrum relating to the Licensed Product has been
accurate in all material respects and Spectrum has made no material misrepresentation or material
omission in connection with such Data. Data means any and all research data, pharmacology data,
preclinical data, clinical data and/or all other Documents, with respect to the Licensed Product
that have been submitted, or are required to be submitted, to the FDA or EMEA in association with a
Regulatory Approval.
11.11
Licensed Product Warranties
. For Licensed Product supplied to Allergan by
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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55
Spectrum or its subcontractors prior to agreement on the supply agreement pursuant to Section
3.3(d), Spectrum represents, warrants and covenants that: (i) all Licensed Product are provided
free of defects in materials and workmanship and manufacturing; (ii) all Licensed Product
shall be manufactured in compliance with the applicable Specifications and shall be free and clear
of all liens, security interests and encumbrances; (iii) Spectrums and it subcontractors
manufacturing facilities will be in compliance, as applicable, with all GMP/QSR Regulations and ISO
13485:1996, EN 46001 requirements; and (iv) if applicable, no Licensed Product, at the time of
delivery to Allergan, shall be adulterated or misbranded or an article which may not be introduced
into interstate commerce within the meaning of the FD&C Act. Allergan represents, warrants and
covenants that after such Licensed Product has been delivered to Allergan by or on behalf of
Spectrum, Allergan shall (either by itself or through its subcontractor), prior to sale of the
Licensed Product, store, handle and transport such Licensed Product under appropriate conditions in
compliance with all applicable Laws.
11.12
Inaccuracies
. Without limiting either Partys rights and remedies at law, in
equity or under this Agreement, if, at any point in time (not just at the times when the warranties
are deemed granted), either Party becomes aware of any inaccuracies in the foregoing warranties and
representations, such Party shall promptly notify the other Party of such inaccuracies, with a
detailed written explanation.
11.13
DISCLAIMER OF ALL OTHER WARRANTIES
. THE WARRANTIES SET FORTH IN THIS AGREEMENT
AND THE CO-PROMOTION AGREEMENT ARE THE PARTIES ONLY WARRANTIES WITH RESPECT HERETO AND ARE MADE
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED,
INCLUDING ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR
OTHERWISE.
ARTICLE 12
INDEMNIFICATION; LIMITATIONS ON LIABILITY; INSURANCE
REQUIREMENTS
12.1
Indemnification By Spectrum
. Except to the extent of any Losses covered by
Section 12.2, Spectrum agrees to defend, indemnify and hold harmless Allergan, its Affiliates, and
their respective directors, officers, employees, and agents (
Allergan Indemnitees
) from and
against any and all Losses arising out of a Claim by a Third Party (other than an Affiliate of
Allergan arising out of, resulting from or relating to: (a) any breach or alleged breach of a
representation or warranty made by Spectrum in this Agreement, including the Co-Promotion
Agreement; (b) any breach or alleged breach of any covenant of, or obligation required to be
performed by, Spectrum contained in this Agreement, including the Co-Promotion Agreement; (c) any
allegation regarding the negligent or willful act or misconduct of anyone in the Spectrum Group in
connection with this Agreement, including the Co-Promotion Agreement; (d) when Spectrum has the
right to conduct a Remedial Action under this Agreement, any allegation regarding Spectrums
handling of such Remedial Action or Spectrum electing not to commence such Remedial Action; (e) any
allegation regarding a Remedial Action relating to Spectrums
56
products including those which
contain Apaziquone; (f) any allegation that the development, manufacture, marketing, promotion,
use, sale, import, export, distribution or any other exploitation of the Final Licensed Product in
the Field of Use in the Allergan Territory, or the use of Licensed Intellectual Property existing
as of the Effective Date in connection therewith, violates, infringes upon or misappropriates the
Intellectual Property Rights of any Third Party;
(g) any allegation that the use of the Licensed Intellectual Property (other than Allergans
contributions to Joint Intellectual Property) as permitted herein misappropriates the Intellectual
Property Rights of any Third Party; (h) any allegation that personal injury or death, or any damage
to any property, was caused or allegedly caused by a manufacturing defect in any Licensed Product
manufactured by Spectrum or for Spectrum by Third Parties; (i) any design defect in the
Closed-System Packaging System that forms part of the Final Licensed Product (but expressly
excluding the formulation of the Licensed Product); or (j) any violation by Spectrum of any
Regulatory Approval involving the Licensed Product.
12.2
Indemnification By Allergan
. Except to the extent of any Losses covered by
Section 12.1, Allergan agrees to defend, indemnify and hold harmless Spectrum, its Affiliates, and
their respective directors, officers, employees, and agents from and against any and all Losses
arising out of a Claim by a Third Party (other than an Affiliate of Spectrum) arising out of,
resulting from or relating to: (a) any breach or alleged breach of a warranty made by Allergan in
this Agreement, including the Co-Promotion Agreement; (b) breach or alleged breach of any covenant
or obligation required to be performed by Allergan contained in this Agreement, including the
Co-Promotion Agreement; (c) the negligent or willful act or misconduct of any of the Allergan Group
in connection with this Agreement, including the Co-Promotion Agreement; (d) when Allergan has the
right to conduct a Remedial Action under this Agreement, any allegation regarding Allergans
handling of such Remedial Action or Allergan electing not to commence such Remedial Action; (e) any
allegation that personal injury or death, or any damage to any property, was caused or allegedly
caused by a manufacturing defect in any Licensed Product manufactured by Allergan or directly for
Allergan by Third Parties (after Allergan assumes manufacturing responsibility under this
Agreement; or (f) the violation by Allergan of any Regulatory Approval involving the Licensed
Product.
12.3
Procedure
. A Party entitled to be indemnified under Sections 12.1 or 12.2 (the
Indemnified Party
) shall promptly notify the other Party liable for such indemnification (the
Indemnifying Party
) in writing of any Claim which the Indemnified Party has determined has given
or could give rise to a right of indemnification under this Agreement, including the Co-Promotion
Agreement. Failure to promptly notify the Indemnifying Party of any such claim shall not relieve
the Indemnifying Party of any such duty to so indemnify except to the extent that the Indemnifying
Party can demonstrate actual loss and prejudice as a result of such failure. The Indemnifying
Party shall have the right, but not the obligation, to control the defense of the Indemnified Party
against any such Third Party Claim, utilizing counsel chosen in the Indemnifying Partys sole
discretion; provided, however, that the Indemnified Party may participate in any such defense, at
its own expense, by separate counsel of its choice; provided further, that any such participation
shall not limit the Indemnifying Partys right to control such defense. Notwithstanding the
foregoing, the Indemnifying Party: (a) shall not be entitled to have
57
sole control over any Third
Party Claim that seeks an order, injunction or other equitable relief against any Indemnified
Party; and (b) shall obtain the prior written approval of the Indemnified Party before ceasing to
defend against any Third Party indemnification Claim or entering into any settlement, adjustment or
compromise of such Claim involving injunctive or similar equitable relief being asserted against
any Indemnified Party or any of its Affiliates. The Indemnified Party shall cooperate with the
Indemnifying Party in the provision of any such defense by providing to the Indemnifying Party all
such information, assistance and authority as may reasonably be requested by the Indemnifying
Party.
12.4
Allocation of Product Liability Risks
. The Parties hereby agree that all Losses
arising out of a Claim(s) by a Third Party (other than an Affiliate of either Party) asserted
against a Party, its Affiliates, or their respective directors, officers, employees, and agents
that result from, arise out of or relate to an allegation that personal injury or death, or any
damage to any property, was caused or allegedly caused by any Licensed Product in the Field of Use
in the Allergan Territory used or sold by or on behalf of either Party or their respective
Affiliates or sublicensees, except to the extent such Claim is attributable to a matter covered
under Section 12.1 or 12.2, shall be allocated between the Parties as follows: (a) within the
Co-Promotion Region so long as the Parties continue to share product profit, **** (Spectrum:
Allergan) and (b) in all other cases in the Allergan Territory, **** (Spectrum: Allergan). The
Parties shall indemnify each other so as to allocate the Losses according to the preceding ratios.
Each Party shall promptly notify the other Party in writing of any Claim which could give rise to
the rights set forth in this Section 12.4. Failure to promptly notify the other Party of any such
claim shall not relieve the other Party of any such duty to so indemnify except to the extent that
the other Party can demonstrate actual loss and prejudice as a result of such failure.
(a) Allergan shall have the first right, but not the obligation, to control the defense of any
such Third Party Claim, utilizing counsel chosen in Allergans sole discretion (with the costs and
expenses incurred by Allergan included in the calculation of the Losses subject to the ratio
above);
provided
,
however
, that Spectrum may participate in any such defense, at
its own expense (outside the ratios set forth above), by separate counsel of its choice; provided
further, that any such participation shall not limit Allergans right to control such defense.
Notwithstanding the foregoing, Allergan shall obtain the prior written approval of Spectrum before:
(i) ceasing to defend against any such Third Party Claim (if Allergan elects to defend an action
and, then, after commencement of the defense decides to no longer defend); and (ii)
entering into any settlement, adjustment or compromise of such claim or demand involving
injunctive or similar equitable relief being asserted against Spectrum or its Affiliates or an
admission of liability by Spectrum or its Affiliates. Spectrum shall cooperate with Allergan in
the provision of any such defense by providing to Allergan all such information, assistance and
authority as may reasonably be requested by Allergan.
(b) If Allergan does not initiate the defense of such Third Party Claim within sixty (60) days
receiving such Claim, then Spectrum shall have the right to control such defense utilizing counsel
chosen in Spectrums sole discretion (with the costs and expenses incurred by Spectrum included in
the calculation of the Losses subject to the ratio above). In such event,
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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58
Allergan may participate
in any such defense, at its own expense (outside the ratios set forth above), by separate counsel
of its choice; provided further, that any such participation shall not limit Spectrums right to
control such defense. Notwithstanding the foregoing, Spectrum shall obtain the prior written
approval of Allergan before: (i) ceasing to defend against any such Third Party Claim (if Spectrum
elects to defend an action and, then, after commencement of the defense decides to no longer
defend); and (ii) entering into any settlement, adjustment or compromise of such claim or demand
involving injunctive or similar equitable relief being asserted against Allergan or its Affiliates
or an admission of liability by Allergan or its Affiliates. Allergan shall cooperate with Spectrum
in the provision of any such defense by providing to Spectrum all such information, assistance and
authority as may reasonably be requested by Spectrum.
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12.5
Infringement Remedies
. Without limiting Spectrums other obligations set forth
herein, in the event that the development, manufacturing, marketing, use, sale, import, export,
distribution or any other exploitation of the Final Licensed Product in the Field of Use in the
Allergan Territory, or the use of Licensed Intellectual Property in connection therewith, is
alleged to violate, infringe upon or misappropriate the Intellectual Property Rights of any Third
Party, Spectrum shall, at its expense, obtain a license from such Third Party and shall have the
first right to negotiate with such Third Party for such license, provided, however, that, if
Spectrum does not obtain such license on a timely basis given the timeline and circumstance of the
development and/or commercialization of the Final Licensed Product at such time, then Allergan
shall have the right to, upon written notice to Spectrum, obtain such license itself under
reasonable terms, and, if Allergan and Spectrum cannot obtain a license, Spectrum shall indemnify
Allergan for any Losses arising in relation thereto.
12.6
LIMITATIONS ON LIABILITY
. EXCEPT FOR BREACH BY EITHER PARTY OF SECTIONS 2.6(a),
(b) OR (c), OR ARTICLE 9, OR SPECTRUMS REVOCATION OF ALLERGANS EXCLUSIVE AGENT STATUS UNDER
SECTION 5.1(a)(ii), IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD
PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES ARISING
FROM OR RELATING TO THIS AGREEMENT, INCLUDING THE CO-PROMOTION AGREEMENT, OR FOR ANY AMOUNTS
REPRESENTING LOSS OF PROFITS OR LOSS OF BUSINESS, WHETHER THE BASIS OF THE LIABILITY IS BREACH OF
CONTRACT, TORT, STATUTES, OR ANY OTHER LEGAL THEORY, AND WHETHER SUCH FIRST PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES OR NOT. THE FOREGOING EXCLUSIONS OF DAMAGES ARE NOT INTENDED TO
LIMIT THE INDEMNIFICATION OBLIGATIONS HEREUNDER TO THE EXTENT THAT THE THIRD PARTY (OTHER THAN ANY
AFFILIATE OF THE INDEMNIFIED PARTY) CLAIMS COVERED BY SUCH OBLIGATIONS INCLUDE THE TYPE OF DAMAGES
THAT ARE EXCLUDED HEREUNDER.
12.7
Insurance
.
(a) At all times during the Term and for **** thereafter, Spectrum shall: (i) except as
provided in subsection (ii), maintain Commercial General Liability (comparable to standard ISO
general liability form) insurance (including bodily injury and property damage coverage and all of
Spectrums indemnification obligations hereunder)) including coverages of: (A) products and
completed operations; (B) premises operations; and (C) broad form contractual liability at limits
not less than **** during the pre-commercialization period, and **** during the commercialization
period (collectively the
Spectrum Insurance Policies
); (ii) obtain and maintain the maximum
available Extended Discovery Period insurance, if Spectrum terminates the Spectrum Insurance
Policies during the Term; (iii) include Allergan as Additional Insured under the Spectrum
Insurance Policies; (iv) provide, within thirty (30) days of Allergans request, Certificates of
Insurance verifying insurance limits agreed upon as well as a thirty (30) day notice of
cancellation, non-renewal, or material change; (v) maintain all risk Property
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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60
insurance at limits
not less than ****; (vi) maintain Automobile Liability insurance with minimum limits of ****,
combined single limits for bodily injury and property damage with coverage extending to all owned,
hired and non-owned vehicles; and (vii) maintain adequate
coverage as respects any clinical trial activity. Spectrum shall obtain all the insurance
policies described in clauses (i) through (vii) from
insurers having A.M. Bests Ratings of A
VII or higher.
(b) At all times during the Term and for **** thereafter, Allergan shall: (i) except as
provided in subsection (ii), maintain Commercial General Liability insurance (including bodily
injury and property damage coverage) including coverages of: (A) products and completed
operations; (B) premises operations; and (C) broad form contractual liability at limits not less
than **** (collectively the
Allergan Insurance Policies
); (ii) obtain and maintain the maximum
available Extended Discovery Period insurance if Allergan terminates the Allergan Insurance
Policies during the Term; (iii) include Spectrum as Additional Insured under the Allergan
Insurance Policies; (iv) provide, within thirty (30) days of Spectrums request, Certificates of
Insurance verifying insurance limits agreed upon as well as a thirty (30) day notice of
cancellation, non-renewal or material change; (v) maintain all risk Property insurance at limits
not less than ****; and (vi) maintain Automobile Liability insurance with minimum limits of ****,
combined single limits for bodily injury and property damage with coverage extending to all owned,
hired and non-owned vehicles. Allergan shall obtain all the insurance policies described in
clauses (i) through (vi) from insurers having A.M. Bests Ratings of A VII or equivalent.
ARTICLE 13
TERM AND TERMINATION
13.1
Term
. This Agreement shall continue until terminated as set forth herein
(
Term
). If the Co-Promotion Agreement has been terminated (regardless of the cause) then, upon
expiration of the Royalty Term in the last country of the Royalty Territory the following
provisions shall be null and void and without further effect on either Party or its Affiliates:
Articles 3, 4, 10 and 11 and Sections 2.5, 2.6, 2.7, 2.8, 2.9, 5.1(a)(i), (iii), (iv), (v), and
(vi), 5.1(b)(ii) and (iii), 5.1(c), 5.2, 5.3, 5.4, 5.8, 5.9, 6.1 through 6.8 (inclusive), 6.12,
6.14, 6.15, 8.2 (except as it relates to Joint Intellectual Property), 8.3 (except as it relates to
Joint Intellectual Property), 12.1 through 12.5 (inclusive, but only to the extent that the facts
underlying the Claim arose after such expiration) and all the Schedules except for
Schedule 1.1
and
Schedule 7.1
.
13.2
Termination at Will
. Allergan may terminate this Agreement at will by providing
Spectrum with six (6) months prior written notice. Upon such termination, in addition to those
provisions that survive the termination as set forth in Section 13.5 below, the following shall
also apply:
(a) the licenses granted to Allergan under Article 2 shall terminate after Allergan has
completed the Inventory Sell-Off (as hereinafter defined);
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****
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Certain confidential information contained in this document, marked with four asterisks, has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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61
(b) the Co-Promotion Agreement shall terminate in its entirety; and
(c) Allergan shall negotiate in good faith with Spectrum the terms of a commercially
reasonable agreement (which may be royalty bearing or one time payment as negotiated by the
Parties) reflecting Allergans economic contribution to the manufacturing, development and
commercialization of the Licensed Product in the Field of Use up to the date of such termination
(considering all Allergan contributions (including both positive as well as negative factors)
including obligations, commitments and payments made hereunder or as a result hereof such as
upfront or milestone payments, whether the trademarks are included for marketed products) with
respect to the Licensed Product in the Field of Use which negotiation shall include, but not be
limited to the following:
(i) a license under the Allergan Solely Developed Know How and Allergans rights under
the Joint Intellectual Property, in each case only if such Intellectual Property Rights have
been incorporated in the Licensed Product in the Field of Use, or the making or using
thereof, as of the effective date of such termination, for Spectrum to develop and
commercialize the Licensed Product in the Field in the Allergan Territory to the extent
mutually agreeable to the Parties;
(ii) Spectrums continued right to use the data and results generated under this
Agreement for its manufacture, development and/or commercialization of the Licensed Product
in the Field of Use anywhere in the world;
(iii) assignment of regulatory filings and Regulatory Approvals relating to the
Licensed Product in the Field of Use in the Allergan Territory that are in the name of
Allergan, its Affiliates and sublicensees;
(iv) assignment to Spectrum (to the extent mutually agreed between the Parties) to
contracts entered into by Allergan in connection with the development, manufacturing and/or
commercialization of the Licensed Product in the Field of Use in the Allergan Territory;
(v) if, at time of such termination, Allergan has terminated Spectrums right and has
itself assumed the responsibility to manufacture the Licensed Product pursuant to Section
3.3(f), and Spectrum has assumed all contracts entered into by Allergan in connection with
the development, manufacturing and/or commercialization of the Licensed Product in the Field
of Use in the Allergan Territory, then transfer of manufacturing responsibility to
Spectrum, which shall include providing Spectrum with a copy of all of the then-current
Know-How Controlled by Allergan necessary or useful for the manufacture of the Licensed
Product and assignment to Spectrum of all supply contracts for the Licensed Product or
otherwise to enable Spectrum to procure supply of the Licensed Product in the Field of Use
in the Allergan Territory; and
62
(vi) Spectrums purchase from Allergan all of the inventory of the Licensed Product
held by Allergan as of the date of termination at a price equal to one hundred percent
(100%) of Allergans actual costs in procuring such Licensed Product, but only to the extent
such costs have not been already paid or reimbursed by Spectrum.
13.3
Material Breach
.
(a) In the event that Spectrum materially breaches this Agreement, and fails to cure such
breach within sixty (60) days of receipt of written notice thereof specifying the breach in detail
from Allergan, unless such breach cannot be cured within the sixty (60) day period, in which case
Spectrum shall have undertaken good faith efforts to cure such breach within such
sixty (60) day period and diligently prosecuted such cure to prompt completion, then Allergan
shall have the right to seek all available remedies under this Agreement, at law or in equity.
Notwithstanding the foregoing, termination shall only be available as a remedy for such uncured
material breaches by Spectrum if the uncured material breach results in a material adverse impact
on Allergan or its Affiliates such that termination is the only reasonable remedy. This Section
13.3(a) shall not limit Allergans right to terminate under Section 13.2.
(b) In the event that Allergan materially breaches this Agreement, and fails to cure such
breach within sixty (60) days of receipt of written notice thereof specifying the breach in detail
from Spectrum, unless such breach cannot be cured within the sixty (60) day period, in which case
Allergan shall have undertaken good faith efforts to cure such breach within such sixty (60) day
period and diligently prosecuted such cure to prompt completion, then Spectrum shall have the right
to seek all available remedies under this Agreement, at law or in equity except that Spectrum may
not under any circumstance (whether for breach, uncured breach, material breach or uncured material
breach) (i) terminate this Agreement; and/or (ii) seek or enforce injunctive relief which
interferes with the scope or use of the license granted in Section 2.1(a).
13.4
365(n)
. THE PARTIES INTEND FOR THIS AGREEMENT AND THE LICENSES GRANTED HEREIN TO
COME WITHIN SECTION 365(n) OF THE U.S. BANKRUPTCY CODE AND, NOTWITHSTANDING THE BANKRUPTCY OR
INSOLVENCY OF SPECTRUM, THIS AGREEMENT AND THE LICENSES GRANTED HEREIN SHALL REMAIN IN FULL FORCE
AND EFFECT SO LONG AS ALLERGAN IS IN MATERIAL COMPLIANCE WITH THE TERMS AND CONDITIONS HEREOF.
13.5
Effect of Termination
. Upon any termination of this Agreement under Section 13.2
or 13.3(a):
(a) the following provisions shall survive: Articles 1, 9, 12 (to the extent any Loss arises
prior to the effective date of such expiration or termination) and 14, Sections 2.4, 5.1(a)(ii)
(except that if Allergan terminates this Agreement at will, the appointment of Allergan as
Spectrums agent shall be deemed terminated on the effective date of termination), 5.5, 5.6, 5.7,
6.9, 6.10, 6.11, 6.13, 6.15, 8.1, 8.2 (as it relates to Joint Intellectual Property only), 8.3 (as
it
63
relates to Joint Intellectual Property only), 13.1, 13.2, 13.3 and 13.5 and
Schedule 1.1
. In
addition, if Allergan terminates this Agreement under Section 13.3(a), or if the licenses become
fully paid up, then Sections 2.1, 2.2, 2.3, 2.5, 2.8 and 2.9 (on a fully paid up basis) shall also
survive any termination of this Agreement;
(b) unless otherwise agreed in writing by the Parties, Spectrum shall promptly deliver to
Allergan or destroy (at Allergans sole discretion) all Confidential Information of Allergan,
subject to Spectrum retaining a copy of such Confidential Information for legal archival purposes
only and/or as may be required by Law;
(c) if Allergan terminates this Agreement at will under Section 13.2, unless otherwise agreed
in writing by the Parties, Allergan shall promptly deliver to Spectrum or destroy (at Spectrums
sole discretion) all Confidential Information of Spectrum, subject to Allergan retaining a copy of
such Confidential Information solely as may be reasonably necessary for
Allergan to perform under subsection (e) below and for legal archival purposes and/or as may
be required by Law;
(d) the Co-Promotion Agreement shall automatically terminate upon termination of this
Agreement;
(e) termination of this Agreement shall not release either Party from the obligation to make
payment of all amounts then due and payable; and
(f) if Allergan terminates this Agreement at will under Section 13.2, Allergan shall be
permitted to sell any inventory of the Licensed Product (to the extent not purchased by Spectrum
under Section 13.2(c)(vi)) in the Field of Use in its (or its Affiliates or licensees) possession
or in production at the time of termination (the
Inventory Sell-Off
) and the licenses shall
continue on a non-exclusive basis until all such units have been sold, provided Allergan continues
to pay the applicable royalty, Spectrums share of product profits, and, if applicable, sales
milestones, on resulting applicable Royalty-Bearing Net Sales of Royalty-Bearing Product in the
Royalty-Bearing Territory (and Co-Promotion Region, if applicable under Section 6.4(b)).
ARTICLE 14
MISCELLANEOUS
14.1
Relationship of Parties
. The relationship of the Parties established by this
Agreement is solely that of independent contractors, and nothing shall be deemed to create or imply
any employer/employee, principal/agent, partner/partner or co-venturer relationship, or that the
Parties are participants in a common undertaking. Except as permitted in Section 5.1(a) regarding
Allergans role as authorized agent, neither Party shall have the right to direct or control the
activities of the other Party or incur, assume or create any obligation, representation, warranty
or guarantee, express or implied, on behalf of the other Party or bind such other Party to any
obligation for any purpose whatsoever.
64
14.2
Force Majeure Event
.
(a) Neither Allergan nor Spectrum shall be considered in default in performance of their
obligations hereunder to the extent that performance is delayed, hindered or prevented by a Force
Majeure Event, but only to the extent and only for the period that its performance of such
obligations is prevented by the Force Majeure Event.
Force Majeure Event
means any event or
condition, not existing as of the date of this Agreement, not reasonably foreseeable as of such
date and not reasonably within the control of the affected Party, which prevents in whole or in
material part the performance by the affected Party of its obligations hereunder or which renders
the performance of such obligations so difficult or costly as to make such performance commercially
unreasonable, including without limitation riots, civil or military disturbances, war, strikes,
lockouts, labor slowdowns or stoppages, prolonged shortage of energy supplies, epidemics, fire,
flood, hurricane, typhoon, earthquake, lightning, and explosion. The Party claiming relief under
this Section 14.2 shall promptly notify the other Party in writing, but in no event later than ten
(10) calendar days of the occurrence, should any such cause arise and shall promptly take steps to
remedy any delay or failure in performance upon removal of the circumstances causing such delay or
failure. In no event shall any Party be required to prevent or settle any labor disturbance or
dispute. For clarity, the Development Trigger shall not be extended by reason of this Section
14.2.
(b) During the period that the performance by one of the Parties of its obligations under this
Agreement has been suspended by reason of a Force Majeure Event, the other Party may likewise
suspend the performance of all or part of its obligations hereunder to the extent that such
suspension is commercially reasonable.
14.3
Entire Agreement
. This Agreement, including the Schedules (including the
Co-Promotion Agreement) attached hereto and incorporated as an integral part of this Agreement,
constitutes the entire agreement of the Parties with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings, whether written or oral,
relating to such subject matter in any way.
14.4
No Waiver; Amendment
. No waiver of any term or condition of this Agreement shall
be valid or binding on any Party unless agreed to in writing by the Party to be charged. No course
of dealing between or among any Persons having any interest in this Agreement shall be deemed
effective to modify, amend or discharge any part of this Agreement or any rights or obligations of
any Person under or by reason of this Agreement. The failure of either Party to enforce at any
time any of the provisions of this Agreement, or the failure to require at any time performance by
the other Party of any of the provisions of this Agreement, shall in no way be construed to be a
present or future waiver of such provisions, nor in any way affect the validity of either Party to
enforce each and every such provision thereafter. This Agreement may not be amended or modified
except by the written agreement of the Parties.
14.5
Partial Invalidity
. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable Law, but if any provision
65
of this Agreement is held to be invalid by a court of competent jurisdiction, then the
remaining provisions shall remain, nevertheless, in full force and effect. The Parties agree to
renegotiate in good faith, or request the court to rewrite, any term held invalid and to be bound
by the mutually agreed substitute provision in order to give the most approximate effect intended
by the Parties.
14.6
Assignment
. This Agreement shall be binding upon and shall inure to the benefit
of, the Parties and their Affiliates and their respective successors and permitted assigns. Except
as expressly provided in this Agreement, Spectrum and its Affiliates may not assign any rights or
delegate any duties under this Agreement to any Third Party without the prior written consent of
Allergan, which consent shall not be unreasonably withheld, delayed or conditioned; provided,
however, that Spectrum may freely assign all of its rights and obligations hereunder to an
Affiliate of Spectrum if Spectrum guarantees the performance of such Affiliate. Spectrum may also
freely assign all of its rights and obligations hereunder as part of a merger, consolidation or
sale of all or substantially all of the stock or assets of Spectrum, or sale of the business of
Spectrum or the business relating to activities under this Agreement, without Allergans consent.
Allergan may freely assign its rights hereunder to an Affiliate of Allergan; provided, however,
that Allergan guarantees the performance of such Affiliate. Allergan may also freely assign all of
its rights and obligations hereunder as part of a merger, consolidation or sale of all or
substantially all of the stock or assets of Allergan, or sale of the business of Allergan or the
business relating to activities under this Agreement, without Spectrums consent. All other
assignments of this Agreement by Allergan shall be subject to Spectrums prior written consent, not
to be unreasonably withheld, delayed or conditioned. Any attempted assignment without such consent
shall be null and void.
14.7
Governing Law
. This Agreement shall be governed by, and interpreted and
construed in accordance with the laws of the State of New York, without reference to rules of
conflicts or choice of laws, except that the federal law of the United States of America shall
apply to question regarding the validity, infringement or enforceability of United States federal
patent, copyright and trademark rights relating in any way to this Agreement. The Parties agree to
submit to the jurisdiction of the state or federal courts (as applicable) in New York.
14.8
Remedies
. The exercise of any remedies hereunder shall be cumulative and in
addition to and not in limitation of any other remedies available to such Party at law or in
equity.
14.9
Further Assurances
. Each Party agrees to cooperate fully with the other and
execute such instruments, documents and agreements and take such further actions to carry out the
intents and purposes of this Agreement.
14.10
Counterparts; Facsimile
. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which, taken together, shall
constitute one instrument. For purposes hereof, a facsimile copy of this Agreement, including the
signature pages hereto, shall be deemed to be an original.
14.11
Notices
. All notices required to be given under this Agreement shall be in
writing
66
and shall be deemed to have been given: (a) when personally delivered or sent by confirmed
telecopy (with hard copy to follow); (b) one (1) business day after sent by reputable overnight
express courier (charges prepaid); or (c) five (5) business days following mailing by certified or
registered mail, postage prepaid and return receipt requested. Unless another address is specified
in writing, such notices to Spectrum and Allergan shall be sent to the addresses indicated below:
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If to Allergan:
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Allergan Sales, LLC
2525 Dupont Drive
Irvine, CA 92612
Attn: General Counsel
Facsimile No.: (714) 246 6987
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Allergan USA, Inc.
2525 Dupont Drive
Irvine, CA 92612
Attn: General Counsel
Facsimile No.: (714) 246 6987
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Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Attn: General Counsel
Facsimile No.: (714) 246 6987
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and
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Dorsey & Whitney, LLP
38 Technology Drive
Irvine, CA 92618
Attn: David Hayes, Esq.
Facsimile No.: (949) 932-3601
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If to Spectrum:
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Spectrum Pharmaceuticals, Inc.
157 Technology Drive
Irvine, CA 92618
Attn: Legal Counsel
Facsimile No.: (949) 788-6706
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with a copy to:
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Cooley Godward Kronish LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Robert L. Jones, Esq.
Facsimile No.: (650) 849-7400
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14.12
Press Releases and Announcements
. The Parties shall jointly issue a press
release concerning the transactions contemplated by this Agreement, with the prior written consent
of each Party, upon execution of this Agreement. Except as set forth in the preceding sentence,
neither Party may issue any press release or make any public announcement concerning the
transactions contemplated by this Agreement without the prior written consent of the other Party
(except for filings made to the U.S. Securities and Exchange Commission or similar requirements
under applicable Law in which case the Party proposing to make such release or announcement will
allow the other Party a reasonable opportunity to review and comment on such release or
announcement in advance of such issuance and will redact any copies of this Agreement (including
the Co-Promotion Agreement) to the extent reasonably permitted by applicable Law). Notwithstanding
the foregoing, any such release noted in the preceding sentence will be limited in its disclosure,
based on advice of legal counsel, only to information that is required for such disclosing Party to
be in compliance with applicable Law. Neither Party may disclose any information regarding the
prospective or expected or potential sales of Licensed Product without the prior written consent of
the other Party, at its sole discretion. Spectrum may not issue any publications concerning the
Licensed Product in the Field of Use, and, except as provided by Law or in the Co-Promotion
Agreement, Spectrum shall make no use of Allergans name or the Allergan Trademarks (as that term
is defined in the Co-Promotion Agreement).
14.13
Use of Subcontractors
. Each Party will remain obligated for the performance of
its obligations under this Agreement notwithstanding its use of subcontractors as permitted herein,
and, as between the Parties, Allergan shall be responsible for its subcontractors and Spectrum
shall be responsible for its subcontractors to the same extent as each Party is responsible
hereunder.
[Signature page to follow]
68
IN WITNESS WHEREOF,
the Parties have caused this Agreement to be executed on the Effective
Date.
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ALLERGAN SALES, LLC
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By:
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/s/ Jeffrey L. Edwards
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Name:
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Jeffrey L. Edwards
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Title:
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Vice President and
Chief Financial Officer
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ALLERGAN USA, INC.
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By:
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/s/ Jeffrey L. Edwards
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Name:
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Jeffrey L. Edwards
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Title:
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Vice President and
Chief Financial Officer
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ALLERGAN, INC.
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By:
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/s/ Jeffrey L. Edwards
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Name:
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Jeffrey L. Edwards
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Title:
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Executive Vice President,
Finance and Business Development,
Chief Financial Officer
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SPECTRUM PHARMACEUTICALS, INC.
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By:
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/s/ Rajesh C. Shrotriya
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Name:
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Rajesh C. Shrotriya
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Title:
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Chief Executive Officer and
President
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70
Schedule 1.1
Definitions
(a)
611 Study
means the Phase III study as detailed within the current study protocol filed
with the FDA under ****.
(b)
612 Study
means the Phase III study as detailed within the current study protocol filed
with the FDA under ****.
(c)
Acquired Trademarks
means the Trademarks listed on
Schedule 7.1
,
Exhibit A
.
(d)
Affiliate
means, with respect to a party, any Person (other than an individual) that
currently or in the future is directly or indirectly controlled by, under common control with, or
that controls such party. For the avoidance of doubt, any such Person shall cease to be an
Affiliate of such party under this Agreement when such Person is no longer directly or indirectly
controlled by, under common control with, or controlling such party. For purposes of this
definition,
controls
,
control
and
controlling
mean the direct or indirect ownership or
control (whether through contract or otherwise) of shares entitled to more than fifty percent (50%)
of the vote for the election of directors in the case of corporate entities and in the case of
non-corporate entities, more than fifty percent (50%) of the equity interest with the power to
direct management policies, or the direct or indirect power to direct or cause the direction of the
management or policies of the party.
(e)
Allergan Group
means Allergan, its Affiliates and/or their respective employees, agents
and Third Party independent contractors.
(f)
Allergan Solely Developed Know How
means all Know How (and all Intellectual Property
Rights therein) conceived or developed during the Term of this Agreement solely by the Allergan
Group (without the participation of the Spectrum Group or funding by Spectrum or its Affiliates) in
the course of Allergans performance of its obligations under the Agreement which relate to, or are
necessary or useful to manufacture, have manufactured, use, sell, offer for sale, have sold,
import, export or otherwise exploit the Licensed Product or manufacture Apaziquone (including
submitting for Regulatory Approval).
(g)
Allergan Territory
means, collectively, the Royalty Territory and the Co-Promotion
Region.
(h)
ANDA
means Abbreviated New Drug Application, as defined in the FD&C Act.
(i)
Anticipated Approval Date
means the then-current date of expected first Regulatory
Approval (as well as any pricing and reimbursement approval, if necessary) for the Licensed Product
in the Field of Use in the Co-Promotion Region as determined by the JMC.
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S1.1-1
(j)
Apaziquone
means the compound having the structure set forth on
Exhibit A
to this
Schedule 1.1
.
(k)
Asia
means Bangladesh, Bhutan, Brunei, Burma (Myanmar), Cambodia, China, Hong Kong,
India, Indonesia, Japan, North Korea, Laos, Macao, Malaysia, Maldives, Mongolia, Nepal, Pakistan,
Philippines, Qatar, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, and Vietnam, as their
boundaries are defined as of the Effective Date, and including any successors of the foregoing
countries to the extent within the boundaries of the countries set forth above as of the Effective
Date.
(l)
BCG Refractory
means a case of bladder cancer that ****.
(m)
BCG Refractory Indication
means the intravesical use of the Licensed Product for the
treatment of BCG Refractory.
(n)
BCG Refractory Study
means pre-clinical studies and clinical trials designed
specifically to support the application for Regulatory Approval of the Licensed Product for use in
the BCG Refractory Indication.
(o)
****
means ****.
(p)
Change in Control
means, with respect to a Party, (i) any sale, assignment or other
transfer of such Partys voting securities by an equity holder resulting in any Third Party
owning, directly or indirectly, securities which comprise more than fifty percent (50%) of such
Partys outstanding voting securities, (ii) the sale, assignment or other transfer of all or
substantially all of such Partys assets (determined on a consolidated basis) to any Third Party,
(iii) the issuance or sale of voting securities, or any merger, consolidation, combination,
reorganization, recapitalization or other transaction or series of related transactions that
results in the ownership by any Third Party prior thereto owning, directly or indirectly,
securities which comprise more than fifty percent (50%) of such Partys outstanding voting
securities, or (iv) acquisition by a Third Party of the direct or indirect power to cause the
direction of the management or policies of such Party.
(q)
Change in Control Trigger
means a Change in Control with respect to Spectrum.
(r)
Claim
means any claim, action, demand, inquiry or investigation.
(s)
Closed-System Packaging
****, an example of which is illustrated in
Exhibit B
to
Schedule 1.1
.
(t)
Confidential Information
has the meaning set forth in Section 9.1.
(u)
Contract
means any contract, agreement, license, commitment, guarantee, undertaking,
memorandum of understanding, memorandum of agreement and any other
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S1.1-2
understanding or arrangement, whether written or oral.
(v)
Control
or
Controlled
means, with respect to any Know How or Intellectual Property
Rights, that a Party owns or has a license to.
(w)
Co-Promotion Agreement
has the meaning set forth in Section 3.4(a).
(x)
Co-Promotion Region
means the United States of America and its territories and
possessions, including Puerto Rico, Guam and the Virgin Islands.
(y)
Development Costs
means the costs that are included in the JDP (including regulatory
filing fees in the Co-Promotion Region) that are actually incurred by a Party or for its account
and that are specifically attributable to the development of the Licensed Product in the Field of
Use pursuant to such Partys obligations under the applicable JDP in the Co-Promotion Region,
provided that such costs are less than or equal to the amount specified therefor in the budget
associated with such JDP. Development Costs shall include out-of-pocket costs actually incurred by
each Party, and all internal costs (including FTE expenses calculated using the then-current FTE
Rate) incurred by a Party in connection with the development of the Licensed Product in the Field
of Use, which are specified in the JDP.
(z)
Development Trigger
means any or all of the following: (i) Spectrum materially breaches
any of its development obligations (and fails to cure after **** written notice thereof from
Allergan); (ii) the screen failure rate for the 611 Study or 612 Study is equal to or greater than
****; (iii) Spectrum fails to achieve the last patient enrolled by at least **** after the final
specified Last Patient Enrollment (
LPE
) date for the 611 Study or 612 Study as set forth in the
611 Study and 612 Study JDP attached to this Agreement as of the Effective Date; (iv) Spectrum
fails to achieve the last patient enrolled by at least **** after the final specified LPE date for
the BCG Refractory Study as set forth in the BCG Refractory Study JDP attached to this Agreement as
of the Effective Date; (v) Spectrum materially breaches Section 3.1(c); or (vi) a Force Majeure
Event has occurred materially affecting Spectrums performance obligations pertaining to
development for a period of **** or longer.
(aa)
Documents
means the original and all non-identical copies or reproductions of any
written, printed, typed or recorded matter, including letters, correspondence, facsimile, emails,
memoranda, instructions, reports, studies, surveys, minutes, pamphlets, notes, records, charts,
writings, drawings, tabulations, and accounting records, as well as all licenses, permits and
certificates from federal, state, local and foreign authorities.
(bb)
****
means ****.
(cc)
eCTD
means the electronic common technical document, as specified by the applicable
Governmental Authority.
(dd)
EMEA
means the European Medicines Agency.
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S1.1-3
(ee)
EU
means the European Union.
(ff)
EU Marketing Clearance
means Regulatory Approval of a Licensed Product (which in final
form is in Closed-System Packaging) in the Field of Use in the EU, including MAAs.
(gg)
Extension Patents
has the meaning set forth in Section 6.4(e).
(hh)
FDA
means the United States Food and Drug Administration, or any of its successor
agencies.
(ii)
FD&C Act
means the United States Federal Food, Drug and Cosmetics Act, as amended from
time to time, and the regulations promulgated thereunder.
(jj)
Field of Use
means use for the treatment of bladder cancer, or pre-bladder cancer,
conditions.
(kk)
Final Licensed Product
means the then-current Licensed Product (in Closed-System
Packaging) in any stages of development during the Term up to and including the Licensed Product
first sold in commercial quantities to the public as an approved product by Allergan in the Field
of Use in the Co-Promotion Region and the EU.
(ll)
First Commercial Sale
means sale of a Licensed Product in the Field of Use, after
product launch, for value.
(mm)
Fiscal Quarter
means each calendar quarter within each Fiscal Year.
(nn)
Fiscal Year
means January 1st through December 31st of any year.
(oo)
FTE
means the equivalent of one person working full time for one twelve (12)-month
period in a research, development, commercialization, regulatory or other relevant capacity,
approximating **** hours per year. For clarity, a single individual who works more than **** hours
in a single year shall be treated as one FTE regardless of the number of hours worked.
(pp)
FTE Rate
means an initial annual rate of **** per FTE. The FTE Rate for each FTE shall
include compensation and ****; but shall not include any costs described above specifically and
forming a part of the independent line items of the JDP budget and reimbursed as such. The FTE
Rate shall be adjusted annually to reflect ****.
(qq)
Generic Product
has the meaning set forth in Section 6.4(d).
(rr)
GMP/QSR Regulations
shall mean the Good Manufacturing Practices/Quality System
Regulations set forth in 21 C.F.R. Section 820.
(ss)
Governmental Authority
means any legislative, executive, judicial, regulatory
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S1.1-4
or administrative unit of any governmental entity (multinational, foreign, federal, state or
local) or any department, commission, board, agency, bureau, ministry, official, arbitrator
(public) or other similar body exercising executive, legislative, regulatory, administrative or
judicial authority or functions of or pertaining to government, including any authority or other
quasi-governmental entity established by any of the foregoing to perform any such functions.
(tt)
Indications
means the Initial Indication and the BCG Refractory Indication.
(uu)
Initial Indication
means the intravesical instillation of a Licensed Product into the
bladder for the treatment of non-muscle invasive bladder cancer, administered immediately ****after
transurethral resection.
(vv)
Intellectual Property Rights
means any and all intellectual property and industrial
design rights, whether protected, created or arising under the Laws of the United States or any
other foreign jurisdiction, including the following: (i) patents, patent applications (along with
all patents issuing thereon), statutory invention registrations, divisions, continuations,
continuations-in-part, substitute applications of the foregoing and any extensions, reissues,
restorations and reexaminations thereof, and all rights therein provided by international treaties
or conventions; (ii) copyrights, mask work rights, database rights and design rights, whether or
not registered, published or unpublished, and registrations and applications for registration
thereof, and all rights therein whether provided by international treaties or conventions or
otherwise; (iii) trade secrets; and (iv) all other applications and registrations related to any of
the rights set forth in the foregoing clauses (i) (iii) above. As used in this Agreement, the
term Intellectual Property Rights expressly excludes Trademarks.
(ww)
JDP
is defined in Section 3.1(a).
(xx)
Joint Intellectual Property
means all Know How, and all Intellectual Property Rights
therein, that is: (i) not Allergan Solely Developed Know How or Spectrum Intellectual Property but
that is conceived or developed jointly by one or more of the Allergan Group and one or more of the
Spectrum Group under or in performance of this Agreement, including the Co-Promotion Agreement, and
during the Term of this Agreement; or (ii) conceived or developed solely by or on behalf of either
Party (without the participation of the other Party, or their Affiliates, or their respective
employees, agents and Third Party independent contractors) but funded, at least in part, by the
other Party under or in performance of this Agreement, including the Co-Promotion Agreement, and
during the Term of this Agreement.
(yy)
Know How
means, individually and collectively, the data, information, discoveries,
conceptions, ideas, inventions, innovations, improvements, enhancements, modifications,
technological developments, processes, procedures, methods, techniques, systems, designs,
protocols, formulae, formulations, molecules, compounds, compositions, specifications, trade
secrets, know how, show how, test results, studies, analyses, raw material sources, samples,
production technology, results of research and development, programs and information and works of
authorship, and all recordings, graphs, drawings, reports, analyses, and other
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S1.1-5
Documents and other information in any form whether or not specifically listed herein and
whether or not patentable, copyrightable, or susceptible to any other form of legal protection.
(zz)
Law
means any domestic or foreign federal, state, provincial or local statute, law
(including common law), ordinance, regulation, rule, code or governmental order, or any other
requirement or rule of law.
(aaa)
Licensed Intellectual Property
means the Spectrum Intellectual Property and all of
Spectrums and its Affiliates rights in the Joint Intellectual Property.
(bbb)
Licensed Product
means any formulation that includes Apaziquone that is suitable for
use in treating cancer or precancerous conditions via instillation in any body cavity, but
expressly excluding formulations for intravenous use, oral tablets or capsules for systemic use,
topical dermatological application or direct local administration to the brain.
(ccc)
Losses
means all losses, expenses, damages, liabilities, fines, penalties,
assessments, judgments, settlements, costs and expenses (including reasonable external and internal
attorneys fees and court costs).
(ddd)
MAA
means a Marketing Authorization Application, which is issued by the EMEA.
(eee)
NDA
means a New Drug Application, as defined in the FD&C Act.
(fff)
Net Sales
means, with respect to a given period of time, gross amounts invoiced by a
Party or its Affiliates in such period, less the following deductions from such gross amounts which
are actually incurred, allowed, paid, accrued or specifically allocated:
(i) credits or allowances actually granted for damaged products, returns or rejections
of product, price adjustments and billing errors;
(ii) governmental and other rebates (or equivalents thereof) granted to managed health
care organizations, pharmacy benefit managers (or equivalents thereof), federal,
state/provincial, local and other governments, their agencies and purchasers and reimbursers
or to trade customers;
(iii) normal and customary trade, cash and quantity discounts, allowances and credits
actually allowed or paid;
(iv) distribution services agreement fees allowed or paid to Third Party distributors;
(v) transportation costs, including insurance, for outbound freight related to delivery
of the product to the extent included in the gross amount invoiced;
S1.1-6
(vi) sales taxes, VAT taxes and other taxes directly linked to the sales of the
Licensed Product to the extent included in the gross amount invoiced; and
(vii) any other items that reduce gross sales amounts as required by United States
Generally Accepted Accounting Principles applied on a consistent basis.
Sales between or among a Party or its Affiliates shall be excluded from the computation of Net
Sales, but the subsequent final sales to Third Parties by such Affiliates shall be included in the
computation of Net Sales.
(ggg)
Original Patent Rights
means the patent rights to any of the subject matter described
in, claimed in or covered by any of the following patents or patent applications: **** and any
continuing applications of the foregoing including divisions, substitutions and
continuation-in-part applications, any patents issuing on said applications or continuing
applications including reissues, re-examinations and extensions, and any corresponding foreign
applications or patents.
(hhh)
Patent Rights
means: (i) the Original Patent Rights; and (ii) any and all other patent
rights (including covenants not to sue) Controlled solely (as between the Parties) by Spectrum or
its Affiliates whether now or during the Term of this Agreement which relate to, or are necessary
or useful to manufacture, have manufactured, use, sell, offer for sale, have sold, import, export
or otherwise exploit the Licensed Product (including submitting for Regulatory Approval), and any
continuing applications thereof including divisions, substitutions and continuation-in-part
applications, any patents issuing on said applications or continuing applications including
reissues, re-examinations and extensions, and any corresponding foreign applications or patents.
(iii)
Person
means an individual, partnership, corporation, joint stock company, estate,
trust (including a business trust), limited liability company, unincorporated association, joint
venture or other entity or a Governmental Authority.
(jjj)
PSMM
is defined in the Co-Promotion Agreement.
(kkk)
Regulatory Approval
means all registrations, approvals (including labeling, pricing,
or reimbursement approvals), licenses (including product and/or establishment licenses) and
authorizations required for the marketing, importation, exportation, transport, storage,
manufacture, commercial use and sale of a product in a country or jurisdiction.
(lll)
Royalty-Bearing Net Sales
means (a) a Partys and its Affiliates Net Sales; less (b)
Net Sales invoiced by such Party or any of its Affiliate(s) for sales to its or their
Sublicensee(s); and plus (c) Sublicensee Net Sales reported by any and all of the Sublicensees of
such Party or any of its Affiliate(s) (after such Party makes its adjustments set forth in the
definition of Net Sales in subsections (fff) (i) (vii) inclusive above, if any).
(mmm)
Royalty-Bearing Product
means a Licensed Product in the Field of Use that is
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S1.1-7
developed under this Agreement.
(nnn)
Royalty Term
has the meaning set forth in Section 6.4(e).
(ooo)
Royalty Territory
means all countries and territories of the world, except for Asia
and the Co-Promotion Region.
(ppp)
sNDA
means a Supplemental New Drug Application, as defined in the FD&C Act.
(qqq)
Spectrum Group
means Spectrum, its Affiliates and/or their respective employees,
agents and Third Party independent contractors.
(rrr)
Spectrum Intellectual Property
means all of the: (i) Patent Rights; (ii) Know How (and
all Intellectual Property Rights therein) Controlled solely (as between the Parties) by Spectrum or
its Affiliates whether now or during the Term of this Agreement which relate to, or are necessary
or useful to manufacture, have manufactured, use, sell, offer for sale, have sold, import, export
or otherwise exploit the Licensed Product (including submitting for Regulatory Approval); and (iii)
Spectrum Solely Developed Know How (to the extent not already covered in subsections (i) and (ii)).
(sss)
Spectrum Solely Developed Know How
means all Know How (and all Intellectual Property
Rights therein) conceived or developed during the Term of this Agreement solely by the Spectrum
Group (without the participation of the Allergan Group or funding by Allergan or its Affiliates) in
the course of Spectrums performance of its obligations under the Agreement which relate to, or are
necessary or useful to manufacture, have manufactured, use, sell, offer for sale, have sold,
import, export or otherwise exploit the Licensed Product (including submitting for Regulatory
Approval).
(ttt)
Spectrum Territory
means all countries and territories in Asia.
(uuu)
Sublicensee
means a Third Party to whom a Party (or its Affiliate(s)) (i) will have
granted a license or sublicense under its rights under this Agreement (which for Allergan is a
sublicense under the Licensed Intellectual Property, and for Spectrum is a license under Spectrums
retained rights) to sell, offer for sale, or import Royalty-Bearing Product in one or more
countries, and (ii) will have granted the right to distribute Royalty-Bearing Product wherein such
Third Party pays to such Party (or its Affiliate(s)) granting such license (or sublicense) a
royalty based upon the revenues received by the such Third Party for the sale of Royalty-Bearing
Product; provided, however, Sublicensee will not include (A) any Third Party who receives a
license to use a unit of Royalty-Bearing Product arising by operation of law or otherwise, or as a
consequence of the purchase of said unit of Royalty-Bearing Product, or (B) any Third Party where
such Party (or its Affiliate(s)) granting the license (or sublicense) sells Royalty-Bearing Product
under a Trademark license or under a fixed price to such distributor for resale by such distributor
and in each case such Party (or its Affiliate(s)) is not compensated based on the resale price of
such Royalty-Bearing Product by such distributor.
S1.1-8
(vvv)
Sublicensee Net Sales
means, with respect to a given period of time, gross amounts
invoiced by a Sublicensee of a Party or any of its Affiliates in such period, less the following
deductions from such gross amounts which are actually incurred, allowed, paid, accrued or
specifically allocated:
(i) credits or allowances actually granted for damaged products, returns or rejections
of product, price adjustments and billing errors;
(ii) governmental and other rebates (or equivalents thereof) granted to managed health
care organizations, pharmacy benefit managers (or equivalents thereof), federal,
state/provincial, local and other governments, their agencies and purchasers and reimbursers
or to trade customers;
(iii) normal and customary trade, cash and quantity discounts, allowances and credits
actually allowed or paid;
(iv) distribution services agreement fees allowed or paid to Third Party distributors;
(v) transportation costs, including insurance, for outbound freight related to delivery
of the product to the extent included in the gross amount invoiced;
(vi) sales taxes, VAT taxes and other taxes directly linked to the sales of the
Licensed Product to the extent included in the gross amount invoiced; and
(vii) any other items that reduce gross sales amounts as required by United States
Generally Accepted Accounting Principles applied on a consistent basis.
(www)
Term
has the meaning set forth in Section 13.1.
(xxx)
Third Party
means any Person other than Allergan or Spectrum.
(yyy)
TPP
means targeted product profile, the initial draft of which is attached as
Exhibit
C
to this
Schedule 1.1
.
(zzz)
Trademark Assignment Agreement
has the meaning set forth in Section 7.1.
(aaaa)
Trademarks
means rights in trademarks, trade names, service marks, service names,
design marks, logos, slogans, trade dress, or similar rights with respect to indicators of origin,
whether registered or unregistered, as well as rights in internet domain names, uniform resource
locators and e-mail addresses.
(bbbb)
Upfront Payment
has the meaning set forth in Section 6.1.
(cccc)
US Marketing Clearance
means Regulatory Approval of a Licensed Product (which in
final form is in Closed System Packaging) in the Field of Use in the Co-Promotion
S1.1-9
Region, including NDAs and sNDAs.
S1.1-10
Exhibit A to Schedule 1.1
Apaziquone
A-1
Exhibit A to Schedule 1.1 Apaziquone Chemical Structure
Exhibit B to Schedule 1.1
Example of Closed System Packaging
B-1
Exhibit B to Schedule 1.1 Closed System
Illustration of Closed-System Packaging
****
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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Exhibit C to Schedule 1.1
TPP
C-1
Exhibit C to Schedule 1.1 TPP
EOquin
®
Target Product Profile Document
****
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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Minimum VS. Expected TPPs
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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Schedule 3.1(a)
Joint Development Plan
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.1(a)-1
Schedule 3.1(c)
Key Development Personnel
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Key Employee Name
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Term
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1. ****or his replacement under Section 3.1(c)
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Latter of ****
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2. ****or her replacement under Section 3.1(c)
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Latter of ****
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3. ****or his replacement under Section 3.1(c)
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Latter of ****
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4. ****or his replacement under Section 3.1(c)
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Latter of ****
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5. ****or his replacement under Section 3.1(c)
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****
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6. ****or his replacement under Section 3.1(c)
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****
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7. ****or his replacement under Section 3.1(c)
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****
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8. ****or his replacement under Section 3.1(c)
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****
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.1(c)-1
Schedule 3.2 (f)(i)
List of Subcontractors
****
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.2(f)(i)-1
Schedule 3.2(f)(ii)
Hospitals and Institutions that are clinical trial sites
****
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****
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.2(f)(ii)-1
Schedule 3.3(b)
Spectrum Manufacturing Agreements
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.3(b)-1
Schedule 3.3(d)
Specifications
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.3(d)-1
Schedule 3.4(a)
Co-Promotion Agreement
S3.4(a)-1
EXECUTION COPY
CO-PROMOTION AGREEMENT
This Co-Promotion Agreement (this
Agreement
) is made and entered into effective as of
October 28, 2008 (the
Effective Date
) by and among Allergan Sales, LLC, a Delaware corporation
with its principal place of business at 2525 Dupont Drive, Irvine, California 92612 (
Allergan
Sales
), Allergan USA, Inc., a Delaware corporation with its principal place of business at 2525
Dupont Drive, Irvine, California 92612 (
Allergan USA
, and, collectively with Allergan Sales,
Allergan
), and Spectrum Pharmaceuticals, Inc. (
Spectrum
), a Delaware corporation with its
principal place of business at 157 Technology Drive, Irvine, CA 92618. Allergan and Spectrum are
collectively referred to herein as the
Parties
and individually as a
Party
.
RECITALS
WHEREAS, Allergan, Allergan, Inc. and Spectrum have entered into a License, Development,
Supply and Distribution Agreement dated October 28, 2008 (the
License Agreement
) which includes
agreement to a pre-launch JMP;
WHEREAS, the License Agreement grants Allergan certain exclusive rights to make, use and sell
the Licensed Product; and
WHEREAS, the Parties desire for Spectrum and Allergan (via Allergan USA) to co-promote the
Licensed Product in the Field of Use in the Co-Promotion Region pursuant to the terms and
conditions of this Agreement and the License Agreement.
NOW THEREFORE, in consideration of the foregoing promises and the mutual representations,
warranties, covenants and agreements contained herein and in the License Agreement, and other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1
Definitions
. All capitalized terms not otherwise defined herein shall have the
meaning given to them in the License Agreement; provided, however, that when used in this
Agreement,
Licensed Product
means Royalty-Bearing Product. The following terms shall have the
meanings set forth next to them when used in this Agreement:
(a)
Call
or
Calling
means an interactive, face-to-face visit by a member of a Partys
Sales Force to a member of the Target Audience to discuss the patient and physician benefits and
features associated with the Licensed Products FDA-approved indicated uses in the Field of Use,
safety, effectiveness, contraindications, side effects, warnings and other relevant characteristics
of the Licensed Product in a fair and balanced manner consistent with the
requirements of the FD&C Act, the PDMA and all other applicable Laws, codes and policies,
using the Labeling and Promotional Materials.
(b)
Costs of Goods Sold
means fully-burdened standard costs of supplying Licensed Product in
the Field of Use for the Co-Promotion Region calculated in accordance with Allergans accounting
methods consistently applied, which methodology will be calculated in compliance with local
generally accepted accounting principles or International Financial Reporting Standards. Standard
costs include raw materials, active pharmaceutical ingredient, components, labor and overhead
attributed to the production, processing, quality control, labeling, packaging, shipping and
warehousing of the Licensed Product.
(c)
DDMAC
means the Division of Drug Marketing, Advertising and Communication.
(d)
Deficiency
means, for any Deficient Quarter, with respect to the applicable Party, the
percentage calculated using the following formula: ((A-B)/A), where A is the number of PDEs (as
defined below) assigned to such Party under the then-current JMP for such Fiscal Quarter, and B is
the number of PDEs actually delivered by the Sales Force of such Party during such Fiscal Quarter.
(e)
Deficient Quarter
means, with respect to a Party, the Fiscal Quarter during which the
Sales Force of such Party delivered fewer PDEs than the number of PDEs assigned to such Party for
such Fiscal Quarter under the then-current JMP.
(f)
Gross Margin
means Royalty-Bearing Net Sales of Licensed Product in the Co-Promotion
Region less Costs of Goods Sold.
(g)
Labeling
means (i) the FDA full prescribing information for the Licensed Product in the
Field of Use, including any required patient information, and (ii) all labels and other written,
printed or graphic matter upon any container, wrapper or any package insert or outsert utilized
with or for the Licensed Product in the Field of Use.
(h)
PDMA
means the Prescription Drug Marketing Act of 1987, as amended from time to time,
and the regulations promulgated thereunder.
(i)
Promotional Material(s)
means all training materials and all written, printed, graphic,
electronic, audio or video matter, including journal advertisements, sales visual aids, leave
items, formulary binders, reprints, direct mail, direct-to-consumer advertising, Internet postings,
broadcast advertisements, and sales reminder aids (for example, scratch pads, pens and other such
items), in each case created by Allergan or on its behalf, reviewed by the JMC and used or intended
for use by the Sales Forces in connection with any promotion of the Licensed Product hereunder, but
excluding the Labeling.
(j)
Promotional, Sales, Marketing, and Medical Affairs Expenses
or
PSMM
means those costs
which are incurred by a Party or for its account which are specifically
identifiable to the promotion, marketing, distribution and customer support, medical affairs
support, Calling and detailing of the Licensed Product in the Field of Use in the Co-Promotion
2
Region during the Term and related professional promotion and education expenses (to the extent not
performed by the Sales Forces), including television and electronic advertisements, advertorials
and infomercials, print advertisements, direct mail, exhibitions at seminars and conferences,
promotional samples, sales and promotional literature or other materials and market research, and
Promotional Materials, in each case consistent with the JMP and otherwise with the terms of this
Agreement.
(k)
Sales Force
means each Partys respective sales personnel Calling on the Target Audience
with regard to the Licensed Product in the Field of Use in the Co-Promotion Region that are
qualified to do so pursuant to the terms and conditions of this Agreement.
(l)
Target Audience
means the Persons identified as such in the then-current JMP.
1.2
Interpretation
. This Agreement shall be governed by the following rules of
construction, unless otherwise specified by this Agreement: (a) words of one gender shall be
deemed to include words of other genders; (b) any reference to an Article, Section, Exhibit,
clause, subclause, paragraph, subparagraph, Schedule or Recital is a reference to an Article,
Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule or Recital of this
Agreement; (c) any reference to any statute shall be construed as including all statutory
provisions consolidating, amending or replacing such statute; (d) the terms hereof, hereby,
hereto, hereunder and similar terms shall refer to this Agreement as a whole; (e) the word
including and words of similar import means including, without limitation and including, but
not limited to; (f) the headings contained herein are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement; (g) this Agreement shall be
construed without regard to any presumption or rule requiring construction or interpretation
against the Party drafting or causing any instrument to be drafted; (h) all references to dollars
or $ refer to United States dollars; and (i) all references to days refer to calendar days.
ARTICLE 2
OBLIGATIONS
2.1
Performance
. Allergan shall have the sole right and responsibility for fielding
personnel and taking actions related to the development of Promotional Materials, medical affairs,
managed care contracting and all other promotional and marketing matters and distribution of the
Licensed Product in the Field of Use in the Co-Promotion Region during the Term, except as set
forth below:
(a) each Party shall perform their respective obligations under the JMP;
(b) each Party shall build and deploy a Sales Force that can adequately deliver the specified
number of primary detail equivalents (
PDE
) as set forth in the then-current JMP. Each Party
shall, throughout the Term, deliver **** of the overall PDEs as set forth in the then-current JMP;
provided
,
however
, that after the annual call plan is established prior to the
beginning of a Fiscal Year, any adjustments in the quarterly PDE goals during such Fiscal Year
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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cannot be increased by more than **** of the amounts set forth in the annual call plan without the
written consent of both Parties;
(c) Spectrum may, in its sole discretion, use its own medical affairs field based personnel to
assist its medical affairs support efforts for the Licensed Product in the Field of Use in the
Co-Promotion Region during the Term for on label medical information support only subject to the
conditions in this Section 2.1(c):
i. Spectrum shall inform Allergan at least two (2) Fiscal Quarters prior to exercising
its right to field its own medical affairs function. The final number of Spectrum field
based personnel and their pro rata allocations per Section 2.1(c)(iii) must be approved by
Allergan, with reasonable consent not being withheld; and
ii. Spectrums field based medical affairs activities must always conform to the
requirements herein, including compliance with Sections 2.2(c), (d), and (e), and to the
standards set by Allergans regulatory affairs department; and
iii. the costs and expenses incurred by Spectrum in connection with such function after
the First Commercial Sale of the Licensed Product in the Field of Use in the Co-Promotion
Region (on a pro rata basis to the extent allocated to the support of the Licensed Product
in the Field of Use in the Co-Promotion Region) shall be included in the PSMM. Prior to the
First Commercial Sale of the Licensed Product in the Field of Use in the Co-Promotion
Region, compensation for such function shall be at Spectrums sole expense; and
(d) Spectrum may, in its sole discretion, maintain a small marketing alliance management
function, equivalent to one (1) FTE, to support its marketing efforts for the Licensed Product in
the Field of Use in the Co-Promotion Region during the Term. Compensation for this function shall
be included in the calculation of the PSMM after the First Commercial Sale of the Licensed Product
in the Field of Use in the Co-Promotion Region. Prior to the First Commercial Sale of the Licensed
Product in the Field of Use in the Co-Promotion Region, compensation for this function shall be at
Spectrums sole expense. Spectrum shall not allocate any additional FTEs to such function without
prior approval by the JMC.
2.2
Promotion of the Licensed Product
.
(a) The Parties acknowledge that their Sales Forces must be trained, qualified and ready to
launch the marketing, promotion, Calling and detailing of the Licensed Product in the Field of Use
in the Co-Promotion Region on the date of launch as specified in the then-current JMP. During the
Term, after US Marketing Clearance has been received for the Initial Indication for the Licensed
Product, and subject to the terms and conditions of this Agreement, the Parties shall deploy their
respective Sales Forces to market, promote, Call and detail the Licensed Product in the Field of
Use in the Co-Promotion Region in accordance with the then-current JMP.
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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(b) Allergan shall be solely responsible for preparing all training materials with regard to
the Licensed Product in the Field of Use in the Co-Promotion Region, such training to include a
reasonable proficiency examination, with oversight by the JMC. Both Parties agree to only utilize
sales training materials that have been reviewed by the JMC and approved by Allergans regulatory
department. Training shall include a home study period and an initial classroom-setting training
program, which shall include medical and technical information about use of the Licensed Product in
the Field of Use. The JMC shall direct which personnel shall receive training on the use of the
Licensed Product in the Field of Use and which Party shall perform the training. Only personnel
who have passed the proficiency examination with a minimum 85% proficiency are qualified to
promote, market, Call or detail the Licensed Product in the Field of Use in the Co-Promotion
Region.
(c) The Parties shall in all material respects conform their practices and procedures relating
to the marketing, detailing, Calling and promotion of the Licensed Product in the Field of Use in
the Co-Promotion Region to Allergans policies and procedures, as amended by Allergan from time to
time (the
Allergan Policies
), but in no event less than the requirements of all applicable Laws
and guidelines, including the FD&C Act, the PDMA, the requirements of DDMAC, the Federal Health
Care Programs Anti-Kickback Law, 42 U.S.C. 1320a-7b(b), the Pharmaceutical Research and
Manufacturers of America (
PhRMA
) Code of Pharmaceutical Marketing Practices (the
PhRMA Code
)
and the American Medical Association (
AMA
) Guidelines on Gifts to Physicians from Industry (the
AMA Guidelines
), as the same may be amended from time to time. Each Party shall promptly notify
the other Party of and provide the other Party with a copy of any correspondence or other reports
with respect to the marketing, detailing, Calling and/or promotion of the Licensed Product in the
Field of Use in the Co-Promotion Region submitted to or received from the U.S. Department of
Health and Human Services or its components (including the FDA and the Office of the Inspector
General), PhRMA or the AMA relating to such Laws and guidelines.
(d) The Parties shall in all material respects conform their practices and procedures relating
to educating the medical community in the Co-Promotion Region with respect to the Licensed Product
in the Field of Use to the Allergan Policies, the Accreditation Council for Continuing Medical
Education (
ACCME
) Standards for Commercial Support of Continuing Medical Education (the
ACCME
Standards
) and any applicable FDA regulations or guidelines, as the same may be amended from time
to time. Each Party shall promptly notify the other Party of and provide the other Party with a
copy of any correspondence or other reports submitted to or received from the ACCME with respect to
the Licensed Product in the Field of Use in the Co-Promotion Region relating to the ACCME Standards
or such FDA regulations or guidelines.
(e) Allergan shall provide Spectrum, and Spectrum shall provide each member of its Sales Force
(prior to performance of services hereunder), with a copy of the then-current
Allergan code of ethics (such copy to be included along with Spectrums standard employee
manual). Spectrum shall ensure that each member of its Sales Force acknowledges receipt of
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and agrees to comply with the then-current Allergan code of ethics in performing services under
this Agreement.
(f) Allergan and Spectrum shall each provide an electronic call reporting system to each
member of their respective Sales Force. The deployed system shall be in compliance with Allergans
Policies and all PDMA regulations and other applicable regulations. The applicable member of each
Sales Force shall produce detailed electronic notes following each Call. Each member of the Sales
Force shall be responsible for Call planning and Call routing, using sales data to plan, monitor
and measure territory performance, as well as reporting to the JMC useful marketing information
obtained in the Co-Promotion Region regarding the Licensed Product in the Field of Use, competitors
and product trends. Within thirty (30) days after the end of each calendar month, each Party will
deliver a report to the other Party summarizing its Sales Forces activity collected from their
respective electronic call reporting system in the prior calendar month. Specific reportable
information shall be determined by the JMC but shall, at minimum, include: (i) total number of PDEs
reported for each Sales Force personnel, by month, by Fiscal Quarter and Year-To-Date; (ii)
aggregate PDEs by month, by Fiscal Quarter and Year-To-Date to each unique member of the Target
Audience; and (iii) roll-up of each Partys monthly, Fiscal Quarter and Year-To-Date aggregate PDEs
versus the monthly, by Fiscal Quarter and Year-To-Date goal as specified in the JMP. Such
information shall be reported in a Microsoft Excel format or such other format as reasonably
requested by Allergan.
(g) For any Deficient Quarter in which Spectrums Sales Force delivers fewer than one hundred
percent (100%) of the PDEs assigned to Spectrum under the then-current JMP for such Fiscal Quarter:
i. if the Deficiency is less than **** for such Deficient Quarter, the Spectrum Sales
Force shall cure the Deficiency by delivering the deficient number of PDEs during the Fiscal
Quarter immediately following the Deficient Quarter in addition to its required PDEs for
such Fiscal Quarter as set forth in the then-current JMP;
ii. if the Deficiency is equal to or more than **** but less than **** for such
Deficient Quarter, then: (A) the Spectrum Sales Force shall cure the Deficiency by
delivering the deficient number of PDEs during the Fiscal Quarter immediately following the
Deficient Quarter in addition to its required PDEs for such Fiscal Quarter as set forth in
the then-current JMP; and (B) after calculation of the profit or loss for such Deficient
Quarter, as set forth in Section 3.4 and
Exhibit A
, the Parties will share profit or loss
for such Deficient Quarter as follows: if there is a profit, **** of the profit to Spectrum
and **** to Allergan; if there is a loss, **** of the loss to Allergan and **** to Spectrum;
and
iii. if the Deficiency is equal to or more than **** for such Deficient Quarter, then:
(A) the Spectrum Sales Force shall cure the Deficiency by delivering the deficient number of
PDEs during the Fiscal Quarter immediately following the Deficient Quarter
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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in addition to its required PDEs for such Fiscal Quarter as set forth in the then-current
JMP; and (B) after calculation of the profit or loss for such Deficient Quarter, as set
forth in Section 3.4 and
Exhibit A
, the Parties will share profit or loss for such Deficient
Quarter as follows: if there is a profit, **** of the profit to Spectrum and **** to
Allergan; if there is a loss, **** of the loss to Allergan and **** to Spectrum.
(h) For any Deficient Quarter in which Allergans Sales Force delivers fewer than one hundred
percent (100%) of the PDEs assigned to Allergan under the then-current JMP for such Fiscal Quarter:
i. if the Deficiency is less than **** for such Deficient Quarter, the Allergan Sales
Force shall cure the Deficiency by delivering the deficient number of PDEs during the Fiscal
Quarter immediately following the Deficient Quarter in addition to its required PDEs for
such Fiscal Quarter as set forth in the then-current JMP;
ii. if the Deficiency is equal to or more than **** but less than **** for such
Deficient Quarter, then: (A) the Allergan Sales Force shall cure the Deficiency by
delivering the deficient number of PDEs during the Fiscal Quarter immediately following the
Deficient Quarter in addition to its required PDEs for such Fiscal Quarter as set forth in
the then-current JMP; and (B) after calculation of the profit or loss for such Deficient
Quarter, as set forth in Section 3.4 and
Exhibit A
, the Parties will share profit or loss
for such Deficient Quarter as follows: if there is a profit, **** of the profit to Allergan
and **** to Spectrum; if there is a loss, **** of the loss to Spectrum and **** to Allergan;
and
iii. if the Deficiency is equal to or more than **** for such Deficient Quarter, then:
(A) the Allergan Sales Force shall cure the Deficiency by delivering the deficient number of
PDEs during the Fiscal Quarter immediately following the Deficient Quarter in addition to
its required PDEs for such Fiscal Quarter as set forth in the then-current JMP; and (B)
after calculation of the profit or loss for such Deficient Quarter, as set forth in Section
3.4 and
Exhibit A
, the Parties will share profit or loss for such Deficient Quarter as
follows: if there is a profit, **** of the profit to Allergan and **** to Spectrum; if
there is a loss, **** of the loss to Spectrum and **** to Allergan.
(i) For a Deficient Quarter in which both Parties Sales Forces deliver fewer than one hundred
percent (100%) of the PDEs assigned to such Party under the then-current JMP for such Fiscal
Quarter: (A) each Partys Sales Force shall cure its Deficiency by delivering the deficient number
of PDEs during the Fiscal Quarter immediately following the Deficient Quarter in addition to its
required PDEs for such Fiscal Quarter as set forth in the then-current JMP; and (B) the Party
having the smaller actual Deficiency shall be deemed to have delivered **** of the PDEs assigned to
it under the then-current JMP (for sole purposes of this Section 2.2(i)(B)), and
its Deficiency for the purpose of determining the consequence under Section 2.2(g) or (h)
above shall be reduced to ****, and the Party having the larger actual Deficiency shall, for the
purpose
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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of determining the consequence under Section 2.2(g) or (h) above, have its Deficiency reduced by
****, and shall be subject to the applicable terms of Section 2.2(g) or (h). For example, for a
Deficient Quarter in which Spectrums Deficiency is **** and Allergans Deficiency is ****: (i)
Spectrum shall be deemed to not have any Deficiency (for sole purposes of this Section 2.2(i)(B))
in which event none of the provisions under Section 2.2(g) shall apply to such Deficiency; and (ii)
Allergan shall be deemed to have a Deficiency of ****, in which event Section 2.2(h)(i) (instead of
Section 2.2(h)(ii)) shall apply to such Deficiency.
(j) Deficiencies that are carried forward to the next Fiscal Quarter under Sections 2.2(g),
(h) or (i) shall be included in the calculation of the PDEs assigned in the successive Fiscal
Quarters, until satisfied in full.
(k) Each Party shall be entitled to audit the records of the other Party (as well as the
records of the other Partys subcontractors) to verify such other Partys delivery of PDEs under
this Agreement pursuant to the audit provisions of the License Agreement.
(l) At each meeting of the JMC, the Parties shall furnish to each other a summary of
information coming to their attention in the Co-Promotion Region concerning introductions and
promotional activities of products competitive with the Licensed Product in the Field of Use, and
of any serious complaints regarding the Licensed Product, it being understood that there is no
obligation on the Parties to solicit such information.
(m) At Allergans reasonable request, Spectrum shall provide Allergan with copies of any
written communications disseminated by Spectrum generally to its Sales Force promoting the Licensed
Product or relating to any marketing strategy for the Licensed Product.
(n) In connection with the marketing, promotion, Calling and detailing of the Licensed Product
hereunder, neither Party nor any member(s) of their respective Sales Forces shall make any
statement, representation or warranty, oral or written, to Third Parties, concerning the Licensed
Product that is inconsistent with, or contrary to, the Labeling or Promotional Materials or that is
disparaging to the Licensed Product, the other Party, or any of other Partys Affiliates, officers,
directors or employees.
2.3
Promotional Materials
.
(a) During the Term, the JMC shall determine which Promotional Materials, including
positioning and key messages, are necessary or appropriate to be distributed in the Co-Promotion
Region under the JMP. Allergan shall create and develop such Promotional Materials, and such
Promotional Materials shall be subject to review by the JMC. The Parties shall establish a
tracking system or utilize Allergans tracking system (if appropriate and mutually agreed) for
Promotional Materials to ensure that all such Promotional Materials are accurately tracked and
submitted to the FDA. Allergan will file all Promotional Materials with the FDA if, and as
required, by FDA regulations.
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been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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(b) Spectrum shall not create, develop or distribute any sales, promotional content or other
similar materials (including Labeling) relating to the Licensed Product in the Co-Promotion Region
except as set forth in this Section. All oral communications that Spectrum or its Sales Force has
with Third Parties relating to the Licensed Product shall conform to the pre-approved talking
points (which shall be the same for the Sales Force of both Parties) as agreed to within the JMC
and provided by Allergan in writing. Spectrum shall not be required to distribute any Promotional
Materials prepared after the Effective Date which: (i) do not mention the Licensed Product; (ii)
are inaccurate or misleading; or (iii) were not approved by the JMC and Allergan. Spectrum shall
distribute Promotional Materials of the type identified in this subsection in accordance with the
JMP and with the terms of this Agreement. Print marketing materials produced by Allergan for use
for the Target Audience shall include Spectrums name, and shall display the names and logos of
Allergan and Spectrum in equal prominence. Except as specifically permitted by this Section or
under the License Agreement, neither Party shall distribute or have distributed any materials
bearing the name or any Trademarks of the other Party without the prior written approval of the
other.
(c) Allergan shall own all right, title and interest in and to the Promotional Materials,
including all Intellectual Property Rights and all Trademarks appurtenant thereto but excluding any
rights in or to the Spectrum name (the
Allergan Trademarks
). Allergan hereby grants to Spectrum
the right, during the Term, to use Promotional Materials generated pursuant to the JMP in
connection with its promotion of the Licensed Product and in accordance with this Agreement.
Spectrum shall only be able to use the Allergan Trademarks in connection with the Licensed Product
as required by law. In addition, Spectrum shall be able to use the Allergan Trademarks that are
used in connection with the Licensed Product on its website and in press releases with the prior
written consent of Allergan. All rights of Allergan in and to the Allergan Trademarks not
expressly granted under this Article 2 are reserved by Allergan.
(d) Spectrum shall promptly notify Allergan of any apparent infringement by a Third Party of
any of the Allergan Trademarks.
(e) Spectrum acknowledges and agrees that Allergan is the owner of all rights in the Allergan
Trademarks, that all use of the Allergan Trademarks shall inure to the benefit of Allergan, that
Spectrum will not take any action which is inconsistent with Allergans ownership of the Allergan
Trademarks, and that upon termination or expiration of this Agreement, all rights in the Allergan
Trademarks shall remain the property of Allergan.
2.4
Subcontracting
. Spectrum may not subcontract its rights hereunder to Third
Parties without the prior written consent of Allergan. Allergan may freely subcontract is rights
hereunder except to the extent restricted under Section 2.3(a) of the License Agreement.
ARTICLE 3
SALES AND EXPENSES
9
3.1
Sales and Distribution
. Notwithstanding the JMP or any other provision herein and
in the License Agreement to the contrary, Allergan shall have the sole right and responsibility for
establishing and modifying the terms and conditions with respect to the sale of Licensed Product in
the Field of Use in the Co-Promotion Region, including, without limitation, the price at which the
Licensed Product will be sold, reimbursement, and any discounts attributable to payments on
receivables and the distribution of the Licensed Product. Allergan shall make the actual sale of
all Licensed Product to each customer, and shall book each sale.
3.2
Budget
. Without limiting the obligations set forth in Section 2.1, each Party
shall spend the amounts set forth in the JMP as their spending obligations thereunder.
3.3
Promotional, Sales, Marketing, and Medical Affairs Expenses
. Spectrum and
Allergan shall each be responsible for the expenses it incurs, and the Parties shall share equally
in the PSMM within the Co-Marketing Region on a fifty-fifty basis as part of the profit sharing
discussed in Section 3.4 below and illustrated in
Exhibit A
. Each Party warrants and represents
that it will maintain accurate and complete records of the PSMM incurred by it hereunder, including
the nature of each such expense. Pursuant to Section 3.2, each Party represents and warrants that
it will only incur and submit to the other Party expenses that are consistent with its commercial
rights in the Co-Promotion Region and as set forth in the then-current JMP. For each Fiscal Year
during the Term, each Party shall issue a report to the other Party at each meeting of the JMC,
setting forth the PSMM incurred by such Party since the immediately preceding meeting of the JMC.
Each Party shall be entitled to audit the source data and documents used to compile the PSMM
reports of the other Party pursuant to the audit provisions of the License Agreement.
3.4
Profit and Loss
. The Parties shall account for the profits and loss arising from
the sale of Licensed Product in the Field of Use in the Co-Promotion Region pursuant to the terms
of
Exhibit A
. Profit and loss will be shared equally by the Parties on a fifty-fifty basis as
illustrated in
Exhibit A
subject to adjustments pursuant to Sections 2.2(g), (h), and (i).
ARTICLE 4
OPERATING PROCEDURES
4.1
Exchange of Information
.
(a) Each Party shall provide the other Party with such information as the other Party may
reasonably request during the Term in order to support the requesting Partys Sales Forces
promotion, marketing, Calling and detailing of the Licensed Product in the Field of Use in the
Co-Promotion Region.
(b) During the Term and subject to the provisions of this Agreement, each Party will provide
the other with all information relevant to the marketing, detailing, Calling and promotion of the
Licensed Product in the Field of Use within the Co-Promotion Region within a
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reasonable time after such information becomes known to the Party;
provided
,
however
, that such information is not received from an independent Third Party under a
secrecy obligation.
(c) Each Party shall promptly communicate to the other Party all comments, statements,
requests and inquiries of the medical profession or any other Third Parties relating to the
Licensed Product in the Field of Use in the Co-Promotion Region that are out of the ordinary, or
not covered by the Labeling, of which such Party becomes aware. All responses to the medical
profession or such other Third Parties within the Co-Promotion Region shall be handled solely by
Allergan (except to the extent permitted under Section 2.1(c)). Spectrum shall refer all medical
inquiries concerning the Licensed Product in the Field of Use and all quality complaints within the
Co-Promotion Region to the following address/number:
Director, Scientific Information Medical Compliance
Allergan Sales, LLC
2525 Dupont Drive
PO Box 19534
Irvine, CA 92713-4285
714-246-4285
(d) Spectrum shall assist Allergan with respect to customer communications (as reasonably
requested by Allergan) within the Co-Promotion Region and shall keep Allergan advised of market,
economic, regulatory and other developments of which Spectrum may become aware which may affect the
sale of the Licensed Product in the Field of Use in the Co-Promotion Region.
(e) Both Parties shall utilize an electronic sales force automation system for data collection
and data management consistent with industry standard practices to produce reports and analyses of
their respective Sales Forces activities and the Licensed Products performance in the Field of
Use in the Co-Promotion Region. Allergan reserves the right to review and approve the Spectrum
sales force automation system utilized in the Co-Promotion Region.
(f) Spectrum and Allergan shall report to each other all information necessary to permit
Allergan to make timely reports as required by any governmental regulatory agency in the
Co-Promotion Region regarding the Licensed Product in the Field of Use.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1
Spectrum Representations, Warranties, and Covenants
. Spectrum represents,
warrants and covenants that:
(a) Spectrum has the requisite personnel, facilities, equipment, expertise, experience and skill
to perform its obligations hereunder and to render the services contemplated hereby;
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(b) Spectrum and its Sales Force shall perform the services in a professional, timely,
competent and efficient manner, and it and its Sales Force shall abide by all Laws that apply to
its and their performance; and
(c) any negligent or wrongful act or omission on the part of Spectrums Sales Force (both
individually and as a group) shall be deemed to be negligent or wrongful acts or omissions of
Spectrum. Spectrum shall notify Allergan in writing as promptly as practicable of any alleged
negligent or wrongful acts or omissions on the part of Spectrums Sales Force, and of any
allegations of negligent or wrongful acts or omissions made against Allergans Sales Force.
5.2
Allergan Warranties and Covenants
. Allergan warrants and covenants that:
(a) Allergan has the requisite personnel, facilities, equipment, expertise, experience and
skill to perform its obligations hereunder and to render the services contemplated hereby;
(b) Allergan and its Sales Force shall perform such services in a professional, timely,
competent and efficient manner, and it and its Sales Force shall abide by all Laws that apply to
its and their performance; and
(c) any negligent or wrongful act or omission on the part of Allergans Sales Force (both
individually and as a group) shall be deemed to be negligent or wrongful acts or omissions of
Allergan. Allergan shall notify Spectrum in writing as promptly as practicable of any alleged
negligent or wrongful acts or omissions on the part of Allergans Sales Force, and of any
allegations of negligent or wrongful acts or omissions made against Spectrums Sales Force.
5.3
Performance by Affiliates
. Spectrum recognizes that Allergan may perform some or
all of its obligations under this Agreement through its Affiliates.
5.4
DISCLAIMER OF ALL OTHER WARRANTIES
. THE WARRANTIES SET FORTH IN THIS AGREEMENT
AND THE LICENSE AGREEMENT ARE THE PARTIES ONLY WARRANTIES WITH RESPECT HERETO AND ARE MADE
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED,
INCLUDING ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR
OTHERWISE.
ARTICLE 6
TERM AND TERMINATION
6.1
Term
. The term of this Agreement shall commence on the Effective Date and
continue until the earlier of (a) termination of the License Agreement or (b) the date on which
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this Agreement is terminated pursuant to the provisions herein (the
Term
).
6.2
Termination
.
(a) Spectrum may, in its sole discretion, opt out of performing under this Agreement only by
providing written notice of its intent to opt-out of (and terminate) this Agreement delivered on
the first day of any Fiscal Quarter during 2011, or on the first day of the first Fiscal Quarter of
2012. Such termination shall be effective (the
Opt-Out Effective Date
) on the last day of the
Fiscal Quarter in which such notice is delivered. During the period between delivery of
notification and the Opt-Out Effective Date, Spectrum shall continue to be responsible for its
thirty-five percent (35%) share of Development Costs incurred during such period pursuant to the
terms of the License Agreement, and for its fifty-percent (50%) share of pre-market planning
expenses and any other costs related to the planned commercialization of the Licensed Product
pursuant to the terms of the JMP and
Exhibit A
. On the Opt-Out Effective Date:
i. Spectrums obligation to pay future Development Costs under Section 6.6 of the
License Agreement shall automatically be reduced to **** and Allergans obligation to pay
future Development Costs under Section 6.6 of the License Agreement shall be automatically
increased to ****; and
ii. provided that Spectrum is in compliance with the terms and conditions of this
Agreement as of the Opt-Out Effective Date, Allergan will reimburse Spectrum retroactively,
in the form of a one time payment, an amount equal to **** of the aggregate Development
Costs and pre-launch costs pursuant to the JMP incurred by Spectrum under the License
Agreement and this Agreement (and not, for clarity, Development Costs incurred or paid by
Spectrum prior to January 1, 2009); and
iii. this Agreement shall be deemed automatically terminated and the sales milestones
and royalties set forth in the License Agreement shall apply as provided therein.
(b) Without limiting the rights set forth in subsection (c) below, either Party may terminate
this Agreement by giving notice in writing to the other Party in the event the other Party is in
material breach of this Agreement and shall have failed to cure such breach within sixty (60) days
of receipt of written notice thereof specifying the breach in detail from the non-breaching Party.
In addition, each Party shall have the right to seek all available rights and remedies to it, under
law or equity (including injunctive relief) for such uncured material breach by such other Party.
(c) In addition to the rights set forth in subsection (b) above, Allergan may:
i. terminate Spectrums rights under this Agreement with written notice to Spectrum in
the event of: (A) **** consecutive Deficient Quarters by Spectrum in which
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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the Deficiency is greater than **** for each such quarter and Allergans Sales Force
delivers a higher percentage of its assigned PDEs in each such quarter than Spectrum
delivers for its assigned PDEs; (B) **** Deficient Quarters by Spectrum in a **** Fiscal
Quarter period and Allergans Sales Force delivers a higher percentage of its assigned PDEs
in each such Deficient Quarter than Spectrum delivers for its assigned PDEs; or (C) a
material breach of such a nature, duration or frequency (I) that there occurs a material
failure of consideration under such section that cannot be adequately remedied by money
damages, or (II) that demonstrates that Spectrum is an unreliable co-promotion partner, such
as material repetitive violations (even if cured);
ii. immediately terminate this Agreement with written notice to Spectrum (with no right
to cure) in the event of a material breach by Spectrum of Sections 2.1(c)(ii), 2.2(c), (d),
or (n), or 2.3(b) which has an adverse effect on Allergan or the Licensed Product.
6.3
Effect of Termination or Expiration
. Termination or expiration of this Agreement
in whole or in part shall not relieve the Parties of any amounts owing between them at the date
termination or expiration. Upon termination or expiration of this Agreement, Spectrum shall, at
its sole expense and within thirty (30) days of such termination or expiration, return to Allergan
all Promotional Materials and any samples of the Licensed Product then in the possession of
Spectrum and any of its Sales Force. The following provisions shall survive any termination or
expiration of this Agreement: Articles 1 and 7 and Sections 2.3(c) and (e), 5.4, 6.2(a)(i), (ii)
and (iii) and 6.3.
ARTICLE 7
GENERAL PROVISIONS
7.1
Incorporation of Terms from the License Agreement
. This Agreement forms an
integral part of the License Agreement, and is incorporated into the License Agreement. As a part
of the License Agreement, this Agreement is subject to all terms and conditions of the License
Agreement. Without limiting the generality of the foregoing, Article 14 (Miscellaneous) of the
License Agreement applies to this Agreement as if stated herein. In the event of any
contradictions or inconsistencies between the terms of this Agreement and those of the License
Agreement, the terms of the License Agreement shall govern.
[Signature page to follow]
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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14
EXECUTION COPY
IN WITNESS WHEREOF, the Parties, intending to be bound hereby, have executed this Agreement as
of the date first written above.
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ALLERGAN SALES, LLC
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By:
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/s/ Jeffrey L. Edwards
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Name:
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Jeffrey L. Edwards
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Title:
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Vice President and
Chief Financial Officer
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ALLERGAN USA, INC.
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By:
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/s/ Jeffrey L. Edwards
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Name:
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Jeffrey L. Edwards
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Title:
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Vice President and
Chief Financial Officer
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SPECTRUM PHARMACEUTICALS, INC.
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By:
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/s/ Rajesh C. Shrotriya
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Name:
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Rajesh C. Shrotriya
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Title:
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Chief Executive Officer and
President
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Exhibit A
Profit Split and PSMM Share Process
Prior to the launch of the Licensed Product in the Field of Use in the Co-Promotion Region, each
Party will share equally in the PSMM incurred by the Parties. During this time, each Party will be
responsible for their share of the PSMM and by the third day of each Fiscal Quarter, each Party
will deliver to the other Party a report itemizing the total PSMM incurred by such Party in the
prior Fiscal Quarter. Each Party shall then deliver a check, within thirty (30) days, to the other
Party reimbursing the other Party for 50% of the PSMM incurred by the other Party in the prior
Fiscal Quarter.
After the launch of the Licensed Product in the Field of Use in the Co-Promotion Region, Spectrum
will deliver to Allergan an invoice by the third day of each Fiscal Quarter itemizing its aggregate
PSMM for the Licensed Product for the prior Fiscal Quarter. Allergan shall then deliver a check,
within thirty (30) days, to Spectrum reimbursing Spectrum for the PSMM incurred by Spectrum in the
prior Fiscal Quarter. Allergan shall aggregate the amounts specified on Spectrums invoice with
Allergans aggregate PSMM for the Licensed Product for the prior Fiscal Quarter, and will deduct
the total from the Licensed Products Gross Margin from the prior Fiscal Quarter to yield a product
profit or loss. Each Party will share equally in this profit or loss, when there is a profit
Allergan will pay Spectrum 50% of the profit and when there is a loss Spectrum will reimburse
Allergan 50% of the loss (except as set forth in Sections 2.2(g), (h), and (i)). Allergan will
complete and distribute the analysis within thirty (30) days after the end of the prior Fiscal
Quarter. The Party responsible to make payment based on such analysis will do so within thirty
(30) days of issuance of such analysis.
Examples (the following table is for illustration purposes only and makes no representation to the
accuracy of the assumptions):
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(1)
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Assumptions:
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Total Sales
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$
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50M
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COGS
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$
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7M
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Total-to-Net Deductions
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$
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8M
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PSMM
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$
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10M
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Allergan
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$
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8M
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Spectrum Invoice
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$
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2M
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Example P&L:
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Total Sales
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$
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50M
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Deductions
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$
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8M
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Royalty-Bearing Net Sales
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$
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42M
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COGS
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$
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7M
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Manufacturing Margin
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$
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35
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PSMM
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$
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10
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Operating Margin
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$
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25
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Licensed Product Profit/(Loss)
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$
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25M
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$12.5M will be paid by Allergan to Spectrum in
the form of the profit and loss split.
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(2)
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Assumptions:
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Total Sales
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$
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8M
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COGS
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$
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1M
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Total-to-Net Deductions
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$
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1M
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PSMM
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$
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8M
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Allergan
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$
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6M
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Spectrum Invoice
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$
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2M
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Example P&L:
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Total Sales
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$
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8M
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Deductions
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$
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1M
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Royalty-Bearing Net Sales
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$
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7M
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COGS
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$
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1M
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Manufacturing Margin
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$
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6M
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PSMM
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$
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8M
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Operating Margin
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($2M
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)
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Licensed Product Profit/(Loss)
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($2M
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)
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$1M will be paid to Allergan by Spectrum in
the form of the profit and loss split
reimbursement.
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Schedule 3.4(b)(i)
Initial Joint Marketing Plan
****
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S3.4(b)(i)-1
Schedule 6.4(a)
Example of Royalties
If, in Fiscal Year One, Allergan earns **** in Royalty-Bearing Net Sales from Royalty-Bearing
Product sales in the Royalty Territory, Spectrum would be due royalties as follows:
(i) **** x **** = ****.
So, the total royalties due Spectrum for Fiscal Year One would be ****.
If, in Fiscal Year Two, Allergan earns **** in Royalty-Bearing Net Sales from Royalty-Bearing
Product sales in the Royalty Territory, Spectrum would be due royalties as follows:
(i) on the first **** of the ****, Spectrum would be due **** x **** = ****; and
(ii) on the next **** of the ****, Spectrum would be due **** x **** = ****.
So, the total royalties due Spectrum for Fiscal Year Two would be **** + **** = ****.
If, in Fiscal Year Three, Allergan earns **** in Royalty-Bearing Net Sales from
Royalty-Bearing Product sales in the Royalty Territory, Spectrum would be due royalties as follows:
(i) on the first **** of the ****, Spectrum would be due **** x **** = ****;
(ii) on the next **** of the ****, Spectrum would be due **** x **** = ****; and
(iii) on the next **** of the ****, Spectrum would be due **** x **** = ****.
So, the total royalties due Spectrum for Fiscal Year Three would be **** + **** + **** = ****.
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S6.4(a)-1
Schedule 7.1
Trademark Assignment Agreement
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S7.1-1
Schedule 11.2(e)
Disclosures
****
****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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S11.2(e)-1
Schedule 11.5(c)
Trademark and Domain Name Applications and Registrations for the Acquired
Trademarks
See Schedule 7.1 Exhibit A and Exhibit B
TRADEMARK AND DOMAIN NAME ASSIGNMENT
This
TRADEMARK AND DOMAIN NAME ASSIGNMENT
(this Assignment) is made and entered into
effective as of October 28, 2008 (the Effective Date) by and between Allergan, Inc.
(Allergan), a Delaware corporation with its principal place of business at 2525 Dupont Drive,
Irvine, California 92612, and Spectrum Pharmaceuticals, Inc. (Spectrum), a Delaware corporation
with its principal place of business at 157 Technology Drive, Irvine, CA 92618.
Allergan and Spectrum are two of the parties to a License, Development, Supply and
Distribution Agreement entered into on the date hereof (the License Agreement). Pursuant to
Section 7.1 of the License Agreement, the parties wish to document the transfer of certain
trademarks and domain names covered by the License Agreement.
1. Assignment.
In partial consideration of the fees paid by Allergan under the License Agreement,
receipt of which is hereby acknowledged, Spectrum does hereby sell, convey, assign and transfer to
Allergan, absolutely and not as security, all of Spectrums worldwide right, title and interest in
and to the following:
1.1.
All of the trademarks identified on Exhibit A (Acquired Trademarks) and all of the
domain names identified on Exhibit B (Acquired Domain Names);
1.2.
All goodwill of Spectrums business symbolized by the Acquired Trademarks and Acquired
Domain Names; and
1.3.
All claims by Spectrum against any Third Party for past, present or future infringement
of the Acquired Trademarks or Acquired Domain Names and all rights to payment with respect to any
cause of action affecting or relating to such Acquired Trademarks or Acquired Domain Names.
2. Further Assurances for Acquired Trademarks.
Spectrum will deliver to Allergan reasonably
promptly after the Effective Date, appropriate trademark assignments for recordation by Allergan
with the appropriate Patent and Trademark Offices duly executed by Spectrum. Spectrum agrees that,
upon reasonable request from time to time, it shall execute and deliver all such additional
documents as may be required, and do all other acts which may be reasonably necessary or
appropriate, in the reasonable opinion of Allergans counsel to perfect or record the right or
title of Allergan to the Acquired Trademarks transferred hereby.
3. Further Assurances for Acquired Domain Names.
The parties acknowledge that in order to effect
the sale, transfer, assignment and transfer of registration of the Acquired Domain Names from
Spectrum to Allergan, the parties must follow certain procedures stipulated by the registrar of
each such Acquired Domain Name (the Domain Transfer
-1-
Procedures). The parties agree to fully cooperate with each other and to promptly take all
necessary actions in order to comply with the Domain Transfer Procedures so as to effect the
transactions contemplated in this Agreement within fifteen days from the Effective Date, including
Spectrum directing the registrar(s) to release and unlock the Acquired Domain Names and, upon
notice from Registrar that such Acquired Domain Names have been unlocked, immediately requesting
that the Acquired Domain Names be transferred to Allergan.
[
Remainder of page intentionally left blank.
]
-2-
IN WITNESS WHEREOF, the parties herein have executed this Assignment as of the Effective
Date.
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ALLERGAN, INC.
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By:
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/s/
Jeffrey L. Edwards
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Name:
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Jeffrey L. Edwards
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Title:
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Executive Vice President,
Finance and Business Development,
Chief Financial Officer
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SPECTRUM PHARMACEUTICALS, INC.
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By:
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/s/
Rajesh C. Shrotriya
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Name:
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Rajesh C. Shrotriya
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Title:
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Chief Executive Officer and President
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-3-
EXHIBIT A TO TRADEMARK AND DOMAIN NAME ASSIGNMENT
Acquired Trademarks
EOQUIN either (a) as a stand-alone mark or (b) as the mark has been used in combination with any other words, stylizations, logos, or designs so as to create a unitary trademark
Applications
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Country
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Mark
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Application No.
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Filing Date
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Status
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****
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****
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****
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****
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****
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Registrations
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Registration
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Country
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Mark
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Registration No.
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Date
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Status
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****
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****
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****
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****
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****
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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-4-
EXHIBIT B TO TRADEMARK AND DOMAIN NAME ASSIGNMENT
Acquired Domain Names
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Domain Name
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Registrar
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Registration Date
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Expiration Date
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****
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****
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****
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****
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****
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Certain confidential information contained in this document, marked with four asterisks, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
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- 5 -