DELAWARE
|
94-3171943
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
Title
of each class
|
Name
of each exchange on which registered
|
None
|
None
|
PART
I
|
||
ITEM
1.
|
BUSINESS
|
1
|
ITEM
2.
|
PROPERTIES
|
18
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
18
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
18
|
PART
II
|
||
ITEM
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASE OF EQUITY SECURITIES
|
19
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
20
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
22
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
58
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
59
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
59
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
59
|
ITEM
9B.
|
OTHER
INFORMATION
|
60
|
PART
III
|
||
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
61
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
61
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
61
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
61
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
61
|
PART
IV
|
||
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
62
|
SIGNATURES
|
63
|
ITEM
1.
|
BUSINESS.
|
ITEM
2.
|
PROPERTIES.
|
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Consolidated
Statement of Operations Data:
(in
thousands, except per share data)
|
||||||||||||||||
For
the year ended December 31,
|
||||||||||||||||
2004
|
2003
|
2002
|
2001
|
2000
|
||||||||||||
Revenues
from collaborative agreements
|
$
|
1,209
|
$
|
1,037
|
$
|
1,782
|
$
|
1,112
|
$
|
741
|
||||||
Operating
Expenses:
|
||||||||||||||||
Research
and development
|
25,793
|
19,750
|
14,347
|
8,007
|
7,494
|
|||||||||||
General
and administrative
|
13,322
|
5,722
|
5,458
|
5,067
|
5,145
|
|||||||||||
Corporate
partnership restructuring charges
|
8,126
|
-
|
-
|
-
|
-
|
|||||||||||
Total
expenses
|
47,241
|
25,472
|
19,805
|
13,074
|
12,639
|
|||||||||||
Operating
loss
|
(46,032
|
)
|
(24,435
|
)
|
(18,023
|
)
|
(11,962
|
)
|
(11,898
|
)
|
||||||
Other
income and expense
|
(171
|
)
|
155
|
580
|
816
|
1,037
|
||||||||||
Net
loss
|
$
|
(46,
203
|
)
|
$
|
(24,280
|
)
|
$
|
(17,443
|
)
|
$
|
(11,146
|
)
|
$
|
(10,861
|
)
|
|
Net
loss per common share - basic and diluted
|
$
|
(1.00
|
)
|
$
|
(0.65
|
)
|
$
|
(0.64
|
)
|
$
|
(0.51
|
)
|
$
|
(0.58
|
)
|
|
Weighted
average number of common
shares
outstanding
|
46,179
|
37,426
|
27,351
|
22,038
|
18,806
|
Consolidated
Balance Sheet Data:
|
||||||||||||||||
(in
thousands)
|
For
the year ended December 31,
|
|||||||||||||||
2004
|
2003
|
2002
|
2001
|
2000
|
||||||||||||
ASSETS
|
||||||||||||||||
Current
Assets:
|
||||||||||||||||
Cash/cash
equivalents and marketable securities
|
$
|
32,654
|
$
|
29,422
|
$
|
19,152
|
$
|
16,696
|
$
|
18,868
|
||||||
Prepaid
expenses and other current assets
|
688
|
668
|
327
|
1,582
|
149
|
|||||||||||
Total
Current Assets
|
33,342
|
30,090
|
19,479
|
18,278
|
19,017
|
|||||||||||
Property
and equipment, net of depreciation
|
4,063
|
2,414
|
1,231
|
822
|
697
|
|||||||||||
Other
assets
|
232
|
211
|
352
|
965
|
3
|
|||||||||||
Total
Assets
|
$
|
37,637
|
$
|
32,715
|
$
|
21,062
|
$
|
20,065
|
$
|
19,717
|
||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
Credit
facility, current portion
|
$
|
-
|
$
|
2,436
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Other
current liabilities
|
8,823
|
4,593
|
3,202
|
1,794
|
2,399
|
|||||||||||
Total
Current Liabilities
|
8,823
|
7,029
|
3,202
|
1,794
|
2,399
|
|||||||||||
Deferred
revenue
|
134
|
672
|
1,393
|
615
|
851
|
|||||||||||
Credit
facility, non-current portion
|
5,929
|
-
|
1,450
|
-
|
-
|
|||||||||||
Capitalized
lease
|
1,654
|
711
|
256
|
33
|
31
|
|||||||||||
Total
Liabilities
|
16,540
|
8,412
|
6,301
|
2,442
|
3,281
|
|||||||||||
Stockholders'
Equity
|
21,097
|
24,303
|
14,761
|
17,623
|
16,436
|
|||||||||||
Total
Liabilities and Stockholders' Equity
|
$
|
37,637
|
$
|
32,715
|
$
|
21,062
|
$
|
20,065
|
$
|
19,717
|
||||||
Common
Stock, $0.001 par value, issued and outstanding
|
48,434
|
42,491
|
32,818
|
25,546
|
20,871
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
(i)
|
manufacturing
for the production of our precision-engineered surfactant drug products to
meet anticipated clinical and commercial needs, if approved, in the United
States and Europe. We are investing in the further development and
scale-up of our current contract manufacturer of our SRT, Laureate, and
securing additional manufacturing capabilities to meet production needs as
they expand, including alternative contract manufacturers and building our
own manufacturing facility. In January 2005, the FDA issued an inspection
report (Form FDA-483) to Laureate citing certain observations concerning
Laureate’s compliance with current Good Manufacturing Practices (cGMPs) in
connection with the FDA’s review of our NDA for Surfaxin for the
prevention of RDS in premature infants. The general focus of the
inspection observations relates to basic quality controls, process
assurances and documentation requirements to support the commercial
production process. In response, Discovery and Laureate submitted a cGMP
Action Plan to the FDA on January 31, 2005, outlining corrective measures
anticipated to be completed by July 2005. Assuming the adequacy of such
corrective actions and the approval of our NDA, we anticipate that the
commercial launch of Surfaxin will occur in the first quarter of 2006. Our
other clinical programs currently in progress are not affected by this
inspection report and remain on track. However, if the inspection
observations noted in the Form 483 are not resolved in the time period
stated above, a delay may occur in these programs. We do not expect that
the foregoing will have an effect on our European regulatory filings;
|
(ii) |
building
sales and marketing capabilities to execute the launch of Surfaxin in the
United States, if approved. We are
building
our own specialty pulmonary United States sales and marketing organization
to focus initially on opportunities in the NICU and, as products are
developed, to expand to critical care and hospital settings. This
strategic initiative, led by the anticipated launch of Surfaxin, is
intended to allow us to fully control our own sales and marketing
operation, establish a strong presence in the NICU, and optimize company
economics; and
|
(iii) |
implementing
our commercialization strategy for Surfaxin in Europe and the rest of the
world through corporate partnerships.
|
(Dollars
in thousands)
|
Year
Ended December 31,
|
|||||||||
Research
and Development Expenses:
|
2004
|
2003
|
2002
|
|||||||
Research
and pre-clinical operations
|
$
|
2,916
|
$
|
1,958
|
$
|
1,683
|
||||
Manufacturing
development
|
7,010
|
4,268
|
834
|
|||||||
Unallocated
development - clinical and regulatory operations
|
8,588
|
5,966
|
3,275
|
|||||||
Direct
clinical trial expenses
|
7,279
|
7,558
|
8,555
|
|||||||
Total
Research and Development Expenses
|
$
|
25,793
|
$
|
19,750
|
$
|
14,347
|
· |
Completion
of pre-clinical and clinical trials of the product candidate with the
scientific results that support further development and/or regulatory
approval;
|
· |
Receipt
of necessary regulatory approvals;
|
· |
Obtaining
adequate supplies of surfactant raw materials on commercially reasonable
terms;
|
· |
Obtaining
capital necessary to fund our operations, including our research and
development efforts, manufacturing requirements and clinical
trials;
|
· |
Performance
of third-party collaborators on whom we rely for the commercialization and
manufacture of Surfaxin;
|
· |
Timely
resolution of the cGMP-related matters at Laureate, our contract
manufacturer for Surfaxin and certain of our other Surfactant Replacement
Therapies presently under development, that were noted by the FDA in its
inspectional report on Form FDA-483; and
|
· |
Obtaining
manufacturing, sales and marketing capabilities for which we presently
have limited resources.
|
· | Slow patient enrollment; |
· | Long treatment time required to demonstrate effectiveness; |
· | Lack of sufficient clinical supplies and material; |
· | Adverse medical events or side effects in treated patients; |
· | Lack of effectiveness of the product candidate being tested; and |
· | Lack of sufficient funds. |
(i) |
increase
our research, development and regulatory activities in an effort to
develop a broad pipeline of potential SRT for respiratory diseases. The
drug development, clinical trial and regulatory process is lengthy,
expensive and uncertain and subject to numerous risks including, without
limitation, the following risks discussed in the “Risks Related to Our
Business” - “Our technology platform is based solely on our proprietary,
precision-engineered surfactant technology. Our ongoing clinical trials
for our lead surfactant replacement therapies may be delayed, or fail,
which will harm our business”; - “The clinical trial and regulatory
approval process for our products is expensive and time consuming, and the
outcome is uncertain.”
|
(ii) |
invest
in and support a long-term manufacturing strategy for the production of
our precision-engineered surfactant drug product including: (i) further
development and scale-up of our current contract manufacturer, Laureate;
(ii) corrective measures related to the observations cited by the FDA
concerning
Laureate’s compliance with cGMPs in connection with its review of our NDA
for Surfaxin for the prevention of RDS; (iii) securing additional
manufacturing capabilities to meet production needs as they expand,
including alternative contract manufacturers and building our own
manufacturing facility. We anticipate that our manufacturing capabilities
through Laureate, upon successful completion and implementation of our
cGMP Action Plan dated January 31, 2005, should allow sufficient
commercial production of Surfaxin, if approved, to supply the present
worldwide demand for the treatment of RDS in premature infants and all of
our anticipated clinical-scale production requirements including Surfaxin
for the treatment of ARDS in adults. See “Risks Related to Our Business” -
“In order to conduct our clinical trials we need adequate supplies of our
drug substance and drug product which may not be readily available” and
“If the parties we depend on for manufacturing our pharmaceutical products
do not timely supply these products, it may delay or impair our ability to
develop and market our products”;
|
(iii) |
build
our sales and marketing capabilities to execute the launch of Surfaxin in
the U.S., if approved. We are building its own specialty pulmonary United
States sales and marketing organization to focus initially on
opportunities in the NICU and, as products are developed, to expand to
critical care and hospital settings. This strategic initiative, led by the
anticipated launch of Surfaxin, is intended to allow us to fully control
our own sales and marketing operation, establish a strong presence in the
NICU, and optimize company economics;
|
(iv) | implement our commercialization strategy for Surfaxin in Europe and the rest of the world through corporate partnerships; and |
(v)
|
invest
in additional general and administrative resources primarily to support
our business development initiatives, financial systems and controls and
management information technologies.
|
(i) |
manufacturing
activities, including manufacturing personnel costs to support further
development and scale-up of our current contract manufacturer, Laureate
and securing additional manufacturing capabilities to meet production
needs as they expand, including alternative contract manufacturers and
building our own manufacturing facility. Also included in manufacturing
activities are expenses associated with the transfer and validation of our
manufacturing equipment to Laureate (completed in 2004), to support the
production of clinical and commercial drug supply of Surfaxin in
conformance with cGMPs. Expenses related to manufacturing activities were
$7,010,000, $4,268,000 and $834,000 for the years ended December 31, 2004,
2003 and 2002, respectively;
|
(ii) |
non-cash
compensation charges associated with stock options granted to certain
employees and non-employees of $832,000, $89,000, and $34,000 for the
years ended December 31, 2004, 2003 and 2002, respectively;
|
(iii) |
development
and regulatory efforts for Surfaxin - primarily the Phase 3 clinical
trials for Surfaxin for the prevention of RDS in premature
infants;
|
(iv) |
development
activities, including drug supply, for the Phase 2 clinical trial of
Surfaxin for the treatment of ARDS in adults;
|
(v) |
investment
in our clinical and regulatory capabilities to manage multiple Phase 2 and
anticipated Phase 3 clinical trials for other SRT products in several
geographic areas, including the United States, western and eastern Europe,
and South America; and
|
(iv)
|
research
and development activities of aerosolized formulations of our SRT
technology.
|
(i) |
commercialization
activities, including building a sales and marketing senior management
team, in anticipation of the launch of Surfaxin for RDS in the United
States and Europe, if approved. Expenses for commercialization activities
were $5,886,000, $986,000 and $1,450,000 for the years ended December 31,
2004, 2003 and 2002, respectively. These commercialization expenses were
financed by use of the secured, revolving credit facility with PharmaBio
in the amounts of $2,693,000, $986,000 and $1,450,000, during the years
ended December 31, 2004, 2003 and 2002, respectively. See “Liquidity and
Capital Resources”;
|
(ii) |
non-cash
compensation charges associated with stock options granted to certain
employees and non-employees of $432,000, $119,000, and $368,000 for the
years ended December 31, 2004, 2003 and 2002, respectively;
|
(iii) |
financial
and information technology capabilities in preparation for the potential
approval and launch of Surfaxin for RDS;
|
(iv) |
corporate
governance and other regulatory compliance initiatives related to the
Sarbanes-Oxley Act and other recent regulatory changes concerning public
companies generally; and
|
(v) |
legal
activities related to the preparation and filing of patents and other
activities associated with our intellectual property in connection with
the expansion of our SRT pipeline.
|
(Dollars
in thousands)
|
||||||||||||||||||||||
2005
|
2006
|
2007
|
2008
|
2009
|
Thereafter
|
Total
|
||||||||||||||||
Credit
facility with corporate partner
(1)
|
$
|
—
|
$
|
5,929
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
5,929
|
||||||||
Capital
lease obligations
(1)
|
1,073
|
886
|
747
|
225
|
—
|
—
|
2,931
|
|||||||||||||||
Operating
lease obligations
(2)
|
1,214
|
1,161
|
1,193
|
1,078
|
957
|
160
|
5,763
|
|||||||||||||||
Purchase
obligations
(3)
|
4,947
|
—
|
—
|
—
|
—
|
—
|
4,947
|
|||||||||||||||
Employment
agreements
(3)
|
2,203
|
—
|
—
|
—
|
2,203
|
|||||||||||||||||
Total
|
$
|
9,437
|
$
|
7,976
|
$
|
1,940
|
$
|
1,303
|
$
|
957
|
$
|
160
|
$
|
21,773
|
(1) |
See
Item 7:
“Management’s
Discussion and Analysis of Financial Condition and Operations - Liquidity
and Capital Resources - Secured Revolving Credit Facility and Capital
Lease Arrangement”
.
|
(2) |
See
Item 7:
“Management’s
Discussion and Analysis of Financial Condition and Operations - Liquidity
and Capital Resources - Lease Agreements”
.
|
(3) | See discussion below. |
— | the number of clinical sites; |
— | the size of the patient population; |
— | the proximity of patients to the clinical sites; |
— | the eligibility criteria for the study; |
— | the existence of competing clinical trials; and |
— | the existence of alternative available products. |
— | defend our patents and otherwise prevent others from infringing on our proprietary rights; |
— | protect trade secrets; and |
— | operate without infringing upon the proprietary rights of others, both in the United States and in other countries. |
— | they will breach these agreements; |
— | any agreements we obtain will not provide adequate remedies for the applicable type of breach or that our trade secrets or proprietary know-how will otherwise become known or competitors will independently develop similar technology; and |
— | our competitors will independently discover our proprietary information and trade secrets. |
· |
we
may be required to relinquish important rights to our products or product
candidates;
|
· |
we
may not be able to control the amount and timing of resources that our
distributors or collaborators may devote to the commercialization of our
product candidates;
|
· |
our
distributors or collaborators may experience financial difficulties;
|
· |
our
distributors or collaborators may not devote sufficient time to the
marketing and sales of our products thereby exposing us to potential
expenses in terminating such distribution agreements; and
|
· |
business
combinations or significant changes in a collaborator’s business strategy
may also adversely affect a collaborator’s willingness or ability to
complete its obligations under any
arrangement.
|
— | developing products; |
— | undertaking preclinical testing and human clinical trials; |
— | obtaining FDA and other regulatory approvals or products; and |
— | manufacturing and marketing products. |
— | announcements of the results of clinical trials by us or our competitors; |
— | adverse reactions to products; |
— | governmental approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency concerns regarding the safety or effectiveness of our products; |
— | changes in the United States or foreign regulatory policy during the period of product development; |
— | developments in patent or other proprietary rights, including any third party challenges of our intellectual property rights; |
— | announcements of technological innovations by us or our competitors; |
— | announcements of new products or new contracts by us or our competitors; |
— | actual or anticipated variations in our operating results due to the level of development expenses and other factors; |
— | changes in financial estimates by securities analysts and whether our earnings meet or exceed the estimates; |
— | conditions and trends in the pharmaceutical and other industries; |
— | new accounting standards; and |
— | the occurrence of any of the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risks Related to Our Business”. |
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES.
|
ITEM
9B.
|
OTHER
INFORMATION
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Date:
March 16, 2005
|
By:
|
/s/
Robert J. Capetola
|
Robert
J. Capetola, Ph.D.
|
||
|
President
and
|
|
|
Chief
Executive Officer
|
Signature
|
Name
& Title
|
Date
|
/s/
Robert J. Capetola
|
Robert
J. Capetola, Ph.D.
President
and Chief Executive Officer
|
March
16, 2005
|
/s/
John G. Cooper
|
John
G. Cooper
Senior
Vice President and Chief Financial Officer
|
March
16, 2005
|
/s/
Kathleen A. McGowan
|
Kathleen
A. McGowan
Controller
(Principal
Accounting Officer)
|
March
16, 2005
|
/s/
Herbert H. McDade, Jr.
|
Herbert
H. McDade, Jr.
Chairman
of the Board of Directors
|
March
16, 2005
|
/s/
Marvin E. Rosenthale, Ph.D.
|
Marvin
E. Rosenthale, Ph.D.
Director
|
March
16, 2005
|
/s/
Max E. Link, Ph.D.
|
Max
E. Link, Ph.D.
Director
|
March
16, 2005
|
/s/
Antonio Esteve, Ph.D.
|
Antonio
Esteve, Ph.D.
Director
|
March
16, 2005
|
/s/
W. Thomas Amick
|
W.
Thomas Amick
Director
|
March
16, 2005
|
Exhibit
No.
|
Description
|
Method
of Filing
|
||
3.1
|
Restated
Certificate of Incorporation of Discovery, dated September 18,
2002.
|
Incorporated
by reference to Exhibit 3.1 to Discovery’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2002, as filed with the SEC on March
31, 2003.
|
||
3.2
|
Amended
and Restated By-laws of Discovery.
|
Incorporated
by reference to Exhibit 3.2 to Discovery’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2003, as filed with the SEC on March
15, 2004.
|
||
3.3
|
Certificate
of Designations, Preferences and Rights of Series A Junior Participating
Cumulative Preferred Stock of Discovery, dated February 6,
2004.
|
Incorporated
by reference to Exhibit 2.2 to Discovery’s Form 8-A, as filed with the SEC
on February 6, 2004.
|
||
3.4
|
Certificate
of Amendment to the Certificate of Incorporation of Discovery, dated as of
May 28, 2004.
|
Incorporated
by reference to Exhibit 3.1 to Discovery’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004, as filed with the SEC on August 9,
2004.
|
||
4.1
|
Form
of Class E Warrant.
|
Incorporated
by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on March 29, 2000.
|
||
4.2
|
Form
of Unit Purchase Option issued to Paramount Capital, Inc.
|
Incorporated
by reference to Exhibit 4.4 to Discovery’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999, as filed with the SEC on
March 30, 2000.
|
||
4.3
|
Class
G Warrant issued to PharmaBio Development Inc., dated as of December 10,
2001.
|
Incorporated
by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on December 19, 2001.
|
Exhibit
No.
|
Description | Method of Filing | ||
4.4
|
Class
H Warrant issued to PharmaBio Development Inc., dated as of December 10,
2001.
|
Incorporated
by reference to Exhibit 4.2 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on December 19, 2001.
|
||
4.5
|
$284,657.37
Promissory Note, dated December 27, 2002, issued to General Electric
Capital Corporation.
|
Incorporated
by reference to Exhibit 4.9 to Discovery’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2002, as filed with the SEC on March
31, 2003.
|
||
4.6
|
Form
of Class A Investor Warrant.
|
Incorporated
by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on June 20, 2003.
|
||
4.7
|
Class
B Investor Warrant issued to Kingsbridge Capital Limited.
|
Incorporated
by reference to Exhibit 4.1 to Discovery’s Current Report on Form 8-K as
filed with the SEC on July 9, 2004.
|
||
4.9
|
$8,500,000
Amended and Restated Promissory Note, amended and restated as of November
3, 2004, by and between Discovery and PharmaBio Development
Inc.
|
Incorporated
by reference to Exhibit 4.2 to Discovery’s Quarterly Report on Form 10-Q,
as filed with the SEC on November 9, 2004.
|
||
4.10
|
Warrant
Agreement, dated as of November 3, 2004, by and between Discovery and
QFinance, Inc.
|
Incorporated
by reference to Exhibit 4.1 of Discovery’s Quarterly Report on Form 10-Q,
as filed with the SEC on November 9, 2004.
|
||
10.1
|
Form
of Registration Rights Agreement between Discovery, Johnson & Johnson
Development Corporation and The Scripps Research
Institute.
|
Incorporated
by reference to Exhibit F to Exhibit 2.1 to Discovery’s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1997, as filed with the
SEC on March 31, 1998.
|
||
10.2+
|
Sublicense
Agreement, dated as of October 28, 1996, between Johnson & Johnson,
Ortho Pharmaceutical Corporation and Acute Therapeutics,
Inc.
|
Incorporated
by reference to Exhibit 10.6 to Discovery’s Registration Statement on Form
SB-2, as filed with the SEC on January 7, 1997 (File No.
333-19375).
|
Exhibit No. | Description | Method of Filing | ||
10.3
|
*Restated
1993 Stock Option Plan of Discovery.
|
Incorporated
by reference to Discovery’s Registration Statement on Form SB-2 (File No.
33-92-886).
|
||
10.4
|
*1995
Stock Option Plan of Discovery.
|
Incorporated
by reference to Discovery’s Registration Statement on Form SB-2 (File No.
33-92-886).
|
||
10.5
|
*Amended
and Restated 1998 Stock Incentive Plan of Discovery (amended as of May 11,
2004)
.
|
Incorporated
by reference to Exhibit 4.1 to Discovery’s Registration Statement on Form
S-8, as filed with the SEC on June 8, 2004 (File No.
333-116268).
|
||
10.6
|
Registration
Rights Agreement, dated June 16, 1998, among Discovery, Johnson &
Johnson Development Corporation and The Scripps Research
Institute.
|
Incorporated
by reference to Exhibit 10.28 to Discovery’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1998, as filed with the SEC on
April 9, 1999.
|
||
10.7
|
Stock
Exchange Agreement, dated June 16, 1998, between Discovery and Johnson
& Johnson Development Corporation.
|
Incorporated
by reference to Exhibit 10.29 to Discovery’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1998, as filed with the SEC on
April 9, 1999.
|
||
10.8
|
Form
of Proprietary Information and Inventions, Non-Solicitation and Non
Competition Agreement.
|
Incorporated
by reference to Exhibit 10.50 to Discovery’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1998, as filed with the SEC on
April 9, 1999.
|
||
10.9*
|
Form
of Notice of Grant of Stock Option under the 1998 Stock Incentive
Plan.
|
Incorporated
by reference to Exhibit 10.2 to Discovery’s Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999, as filed with the SEC on
November 17, 1999.
|
||
10.10+
|
Research
Funding and Option Agreement, dated March 1, 2000, between The Scripps
Research Institute and Discovery.
|
Incorporated
by reference to Exhibit 10.55 to Discovery’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999, as filed with the SEC on
March 31, 2000.
|
||
Exhibit No. | Description | Method of Filing | ||
10.11
|
Master
Security Agreement, dated as of December 23, 2002, between General
Electric Capital Corporation and Discovery.
|
Incorporated
by reference to Exhibit 10.32 to Discovery’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2002, as filed with the SEC on
March 31, 2003.
|
||
10.12
|
Amendment,
dated as of December 23, 2002, to the Master Security Agreement between
General Electric Capital Corporation and Discovery.
|
Incorporated
by reference to Exhibit 10.33 to Discovery’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2002, as filed with the SEC on
March 31, 2003.
|
||
10.13+
|
Technology
Transfer and Manufacturing Agreement dated as of October 3, 2003, between
Discovery and Laureate Pharma, L.P. (now Laureate Pharma,
Inc.).
|
Incorporated
by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on October 22, 2003.
|
||
10.14
|
Shareholder
Rights Agreement, dated as of February 6, 2004, by and between Discovery
and Continental Stock Transfer & Trust Company.
|
Incorporated
by reference to Exhibit 2.4 to Discovery’s Form 8-A12G, as filed with the
SEC on February 6, 2004.
|
||
10.15
|
Common
Stock Purchase Agreement, dated as of July 7, 2004, by and between
Kingsbridge Capital Limited and Discovery.
|
Incorporated
by reference to Exhibit 10.1 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on July 9, 2004.
|
||
10.16
|
Registration
Rights Agreement, dated as of July 7, 2004, by and between Kingsbridge
Capital Limited and Discovery.
|
Incorporated
by reference to Exhibit 10.2 to Discovery’s Current Report on Form 8-K, as
filed with the SEC on July 9, 2004.
|
||
10.17
|
Agreement,
dated as of November 3, 2004, by and between Discovery, Quintiles
Transnational Corp. and PharmaBio Development Inc.
|
Incorporated
by reference to Exhibit 10.1 to Discovery’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, as filed with the SEC on
November 9, 2004.
|
||
10.18
|
Amended
and Restated Loan Agreement, dated as of December 10, 2001, amended and
restated as of November 3, 2004, by and between Discovery and PharmaBio
Development Inc.
|
Incorporated
by reference to Exhibit 10.2 to Discovery’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, as filed with the SEC on
November 9, 2004.
|
Exhibit No. | Description | Method of Filing | ||
10.19
|
Amended
and Restated Security Agreement, dated as of December 10, 2001, amended
and restated as of November 3, 2004, by and between Discovery and
PharmaBio Development Inc.
|
Incorporated
by reference to Exhibit 10.3 to Discovery’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004, as filed with the SEC on
November 9, 2004.
|
||
10.21
|
Employment
Agreement, dated as of January 1, 2004, between Discovery and Robert J.
Capetola, Ph.D.
|
Filed
herewith.
|
||
10.22
|
Employment
Agreement, dated as of January 1, 2004, between Discovery and John G.
Cooper.
|
Filed
herewith.
|
||
10.23
|
Employment
Agreement, dated as of January 1, 2004, between Discovery and David L.
Lopez, Esq., CPA.
|
Filed
herewith.
|
||
10.24
|
Employment
Agreement, dated as of May 24, 2004, between Discovery and Mark
Osterman.
|
Filed
herewith.
|
||
10.25
|
Employment
Agreement, dated as of January 1, 2004, between Discovery and Christopher
J. Schaber, Ph.D.
|
Filed
herewith.
|
||
10.26
|
Employment
Agreement, dated as of January 1, 2004, between Discovery and Robert
Segal, M.D.
|
Filed
herewith.
|
||
10.27
|
Employment
Agreement, dated as of January 1, 2004, between Discovery and Deni M.
Zodda, Ph.D.
|
Filed
herewith.
|
||
10.28+
|
Amended
and Restated Sublicense and Collaboration Agreement made as of December 3,
2004, between Discovery and Laboratorios Del Dr. Esteve,
S.A.
|
Filed
herewith.
|
Exhibit No. | Description | Method of Filing | ||
10.29+
|
Amended
and Restated Supply Agreement, dated as of December 3, 2004, by and
between Discovery and Laboratorios Del Dr. Esteve, S.A.
|
Filed
herewith.
|
||
21.1
|
Subsidiaries
of Discovery.
|
Incorporated
by reference to Exhibit 21.1 to Discovery’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997, as filed with the SEC on
March 31, 1998.
|
||
23.1
|
Consent
of Ernst & Young LLP.
|
Filed
herewith.
|
||
31.1
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange
Act.
|
Filed
herewith.
|
||
31.2
|
Certification
of Chief Financial Officer and Principal Accounting Officer Pursuant to
Rule 13a-14(a) of the Exchange Act.
|
Filed
herewith.
|
||
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
Filed
herewith.
|
+ | Confidential treatment requested as to certain portions of these exhibits. Such portions have been redacted and filed separately with the Commission. |
CONTENTS | Page | ||
Consolidated
Financial Statements
|
|||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
||
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
|
F-3
|
||
Balance
Sheets as of December 31, 2004 and December 31, 2003
|
F-4
|
||
Statements
of Operations for the years ended December 31, 2004, 2003 and
2002
|
F-5
|
||
Statements
of Changes in Stockholders' Equity for the years ended December 31, 2004,
2003 and 2002
|
F-6
|
||
Statements
of Cash Flows for the years ended December 31, 2004, 2003 and
2002
|
F-7
|
||
December
31,
|
December
31,
|
||||||
2004
|
2003
|
||||||
ASSETS
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
29,264,000
|
$
|
29,422,000
|
|||
Restricted
cash
|
646,000
|
—
|
|||||
Available-for-sale
marketable securities
|
2,744,000
|
—
|
|||||
Note
receivable, current portion
|
3,000
|
3,000
|
|||||
Prepaid
expenses and other current assets
|
685,000
|
665,000
|
|||||
Total
Current Assets
|
33,342,000
|
30,090,000
|
|||||
Property
and equipment, net of accumulated depreciation
|
4,063,000
|
2,414,000
|
|||||
Note
receivable, non-current portion
|
190,000
|
192,000
|
|||||
Other
assets
|
42,000
|
19,000
|
|||||
Total
Assets
|
$
|
37,637,000
|
$
|
32,715,000
|
|||
LIABILITIES
& STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
7,969,000
|
$
|
4,210,000
|
|||
Credit
facility, current portion
|
—
|
2,436,000
|
|||||
Capitalized
leases, current portion
|
854,000
|
383,000
|
|||||
Total
Current Liabilities
|
8,823,000
|
7,029,000
|
|||||
Deferred
revenue
|
134,000
|
672,000
|
|||||
Credit
facility, non-current portion
|
5,929,000
|
—
|
|||||
Capitalized
leases, non-current portion
|
1,654,000
|
711,000
|
|||||
Total
Liabilities
|
16,540,000
|
8,412,000
|
|||||
Shareholders'
Equity:
|
|||||||
Common
stock, $.001 par value; 80,000,000 authorized;
48,434,438
and 42,491,438 issued and outstanding
at
December 31, 2004 and December 31, 2003, respectively
|
49,000
|
43,000
|
|||||
Additional
paid-in capital
|
167,627,000
|
122,409,000
|
|||||
Unearned
portion of compensatory stock options
|
(461,000
|
)
|
(2,000
|
)
|
|||
Accumulated
deficit
|
(143,061,000
|
)
|
(96,858,000
|
)
|
|||
Treasury
stock (at cost; 313,383 and 167,179 shares of common
stock
at December 31, 2004 and 2003, respectively)
|
(3,054,000
|
)
|
(1,289,000
|
)
|
|||
Accumulated
other comprehensive income
|
(3,000
|
)
|
—
|
||||
Total
Shareholders' Equity
|
21,097,000
|
24,303,000
|
|||||
Total
Liabilities & Shareholders’ Equity
|
$
|
37,637,000
|
$
|
32,715,000
|
|||
Year
Ended December 31,
|
||||||||||
2004
|
2003
|
2002
|
||||||||
Revenues:
|
||||||||||
Contracts,
licensing, milestones and grants
|
$
|
1,209,000
|
$
|
1,037,000
|
$
|
1,782,000
|
||||
Expenses:
|
||||||||||
Research
& development
|
25,793,000
|
19,750,000
|
14,347,000
|
|||||||
General
& administrative
|
13,322,000
|
5,722,000
|
5,458,000
|
|||||||
Corporate
partnership restructuring charges
|
8,126,000
|
—
|
—
|
|||||||
Total
expenses
|
47,241,000
|
25,472,000
|
19,805,000
|
|||||||
Operating
Loss
|
(46,032,000
|
)
|
(24,435,000
|
)
|
(18,023,000
|
)
|
||||
Other
income and expenses:
|
||||||||||
Interest
income, dividends, realized
gains,
and other income
|
711,000
|
452,000
|
724,000
|
|||||||
Interest
expense
|
(882,000
|
)
|
(297,000
|
)
|
(144,000
|
)
|
||||
Other
(expense) / income, net
|
(171,000
|
)
|
155,000
|
580,000
|
||||||
Net
Loss
|
$
|
(46,203,000
|
)
|
$
|
(24,280,000
|
)
|
$
|
(17,443,000
|
)
|
|
Net
loss per common share - basic and diluted
|
|
(1.00
|
)
|
$
|
(0.65
|
)
|
$
|
(0.64
|
)
|
|
Weighted
average number of common
shares
outstanding - basic and diluted
|
46,178,981
|
37,426,034
|
27,350,835
|
|||||||
Common
Stock
|
Treasury
Stock
|
|||||||||||||||||||||||||||
Shares
|
Amoun
t
|
Additional
Paid-in
Capital
|
Unearned
Portion
of
Compensatory
Stock
Options
|
Accumulated
Deficit
|
Shares
|
Amount
|
Accumulated
Other
Comprehensive
(Loss)
|
Total
|
||||||||||||||||||||
Balance
- January 1, 2002
|
25,546,293
|
$
|
26,000
|
$
|
73,163,000
|
$
|
(264,000
|
)
|
$
|
(55,135,000
|
)
|
(38,243
|
)
|
$
|
(239,000
|
)
|
$
|
72,000
|
$
|
17,623,000
|
||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||||||
Net
loss
|
(17,443,000
|
)
|
(17,443,000
|
)
|
||||||||||||||||||||||||
Other
comprehensive loss - unrealized loss on
marketable
securities available-for-sale
|
105,000
|
105,000
|
||||||||||||||||||||||||||
Total
comprehensive loss
|
(17,338,000
|
)
|
||||||||||||||||||||||||||
Issuance
of common stock, stock option exercises
|
77,925
|
60,000
|
60,000
|
|||||||||||||||||||||||||
Issuance
of common stock, payment for services
|
6,086
|
26,000
|
26,000
|
|||||||||||||||||||||||||
Compensation
charge on modification of options
|
171,000
|
171,000
|
||||||||||||||||||||||||||
Compensation
charge on vesting of options and warrants
|
63,000
|
169,000
|
232,000
|
|||||||||||||||||||||||||
Issuance
of common stock, March 2002 private financing
|
821,862
|
2,666,000
|
2,666,000
|
|||||||||||||||||||||||||
Private
financing expenses
|
(5,000
|
)
|
(5,000
|
)
|
||||||||||||||||||||||||
Issuance
of common stock, November 2002 private financing
|
6,397,517
|
7,000
|
11,937,000
|
11,944,000
|
||||||||||||||||||||||||
Change
in value of Class H warrants
|
(618,000
|
)
|
(618,000
|
)
|
||||||||||||||||||||||||
Issuance
of common stock, warrant exercises
|
6,843
|
|||||||||||||||||||||||||||
Balance
- December 31, 2002
|
32,856,526
|
33,000
|
87,463,000
|
(95,000
|
)
|
(72,578,000
|
)
|
(38,243
|
)
|
(239,000
|
)
|
177,000
|
14,761,000
|
|||||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||||||
Net
loss
|
|
(24,280,000 |
)
|
|
(
24,280,000
|
)
|
||||||||||||||||||||||
Other
comprehensive loss - unrealized gain on
marketable
securities available-for-sale
|
(177,
000
|
)
|
(177,000
|
)
|
||||||||||||||||||||||||
Total
comprehensive loss
|
(24,457,000
|
)
|
||||||||||||||||||||||||||
Issuance
of common stock, stock option exercises
|
993,001
|
1,000
|
1,940,000
|
1,941,000
|
||||||||||||||||||||||||
Issuance
of common stock, warrant exercises
|
3,789,875
|
4,000
|
6,846,000
|
6,850,000
|
||||||||||||||||||||||||
Compensatory
stock options and warrants granted/earned
|
20,000
|
(17,000
|
)
|
3,000
|
||||||||||||||||||||||||
Compensation
charge on modification of options
|
75,000
|
75,000
|
||||||||||||||||||||||||||
Compensation
charge on vesting of options and warrants
|
79,000
|
25,000
|
104,000
|
|||||||||||||||||||||||||
Earned
portion of compensatory stock options
|
10,000
|
10,000
|
||||||||||||||||||||||||||
Issuance
of common stock, June 2003 private financing
|
4,997,882
|
5,000
|
25,925,000
|
25,930,000
|
||||||||||||||||||||||||
Issuance
of common stock, 401k employer match
|
21,333
|
86,000
|
86,000
|
|||||||||||||||||||||||||
Change
in value of Class H warrants
|
50,000
|
50,000
|
||||||||||||||||||||||||||
Shares
tendered for exercise of stock options
|
(128,936
|
)
|
(1,050,000
|
)
|
(1,050,000
|
)
|
||||||||||||||||||||||
Balance
- December 31, 2003
|
42,658,617
|
43,000
|
122,409,000
|
(2,000
|
)
|
(96,858,000
|
)
|
(167,179
|
)
|
(1,289,000
|
)
|
__
|
24,303,000
|
|||||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||||||
Net
loss
|
(46,203,000
|
)
|
(46,203,000
|
)
|
||||||||||||||||||||||||
Other
comprehensive loss - unrealized gain on
marketable
securities available-for-sale
|
(3,000
|
)
|
(3,000
|
)
|
||||||||||||||||||||||||
Total
comprehensive loss
|
(46,206,000
|
)
|
||||||||||||||||||||||||||
Issuance
of common stock, stock option exercises
|
1,271,493
|
1,000
|
2,500,000
|
2,501,000
|
||||||||||||||||||||||||
Issuance
of common stock, warrant exercises
|
1,193,405
|
1,000
|
1,819,000
|
1,820,000
|
||||||||||||||||||||||||
Issuance
of common stock, 401(k) employer match
|
22,564
|
196,000
|
196,000
|
|||||||||||||||||||||||||
Expense
related to stock options
|
1,723,000
|
(459,000
|
)
|
1,264,000
|
||||||||||||||||||||||||
Issuance
of common stock, April 2004 financing
|
2,200,000
|
2,000
|
22,793,000
|
22,795,000
|
||||||||||||||||||||||||
Issuance
of warrants, October 2004 Quintiles restructuring
|
3,978,000
|
3,978,000
|
||||||||||||||||||||||||||
Issuance
of common stock, December 2004 Esteve restructuring
|
500,000
|
|
1,000
|
3,465,000
|
3,466,000
|
|||||||||||||||||||||||
Issuance
of common stock, December 2004 draw on CEFF
|
901,742
|
1,000
|
7,090,000
|
7,091,000
|
||||||||||||||||||||||||
Financing
expenses
|
(63,000
|
)
|
(63,000
|
)
|
||||||||||||||||||||||||
Change
in value of Class H warrants
|
(48,000
|
)
|
(48,000
|
)
|
||||||||||||||||||||||||
Shares
tendered for exercise of stock options
|
1,765,000
|
(146,204
|
)
|
(1,765,000
|
)
|
—
|
||||||||||||||||||||||
Balance
- December 31, 2004
|
48,747,821
|
$
|
49,000
|
$
|
167,627,000
|
$
|
(461,000
|
)
|
$
|
(143,061,000
|
)
|
$
|
(313,383
|
)
|
(3,054,000
|
)
|
$
|
(3,000
|
)
|
$
|
21,097,000
|
Year
Ended December 31,
|
||||||||||
2004
|
2003
|
2002
|
||||||||
Cash
flow from operating activities:
|
||||||||||
Net
loss
|
$
|
(46,203,000
|
)
|
$
|
(24,280,000
|
)
|
$
|
(17,443,000
|
)
|
|
Adjustments
to reconcile net loss to net cash used
In
operating activities:
|
||||||||||
Depreciation
and amortization
|
816,000
|
416,000
|
285,000
|
|||||||
Realized
(gains) losses on marketable securities
|
—
|
(114,000
|
)
|
(174,000
|
)
|
|||||
Non-cash
charge for issuance of common stock and
warrants
related to corporate partnership restructurings
|
7,443,000
|
—
|
—
|
|||||||
Non-cash
stock compensation expense
|
1,264,000
|
192,000
|
403,000
|
|||||||
Stock
issued for 401(k) match
|
196,000
|
86,000
|
—
|
|||||||
Expenses
paid using treasury stock and Common Stock
|
—
|
—
|
26,000
|
|||||||
Loss
on disposal of fixed assets
|
12,000
|
—
|
—
|
|||||||
Changes
in:
|
||||||||||
Prepaid
expenses, inventory and other current assets
|
(68,000
|
)
|
(340,000
|
)
|
1,255,000
|
|||||
Accounts
payable and accrued expenses
|
3,759,000
|
1,197,000
|
1,263,000
|
|||||||
Other
assets
|
(23,000
|
)
|
103,000
|
(40,000
|
)
|
|||||
Proceeds
from research and development
collaborative
agreements
|
—
|
—
|
1,833,000
|
|||||||
Amortization
of deferred revenue
|
(538,000
|
)
|
(721,000
|
)
|
(1,055,000
|
)
|
||||
Net
cash used in operating activities
|
(33,342,000
|
)
|
(23,461,000
|
)
|
(13,647,000
|
)
|
||||
Cash
flow from investing activities:
|
||||||||||
Purchase
of property and equipment
|
(2,207,000
|
)
|
(1,514,000
|
)
|
(661,000
|
)
|
||||
Restricted
cash
|
(646,000
|
)
|
—
|
—
|
||||||
Related
party loan payments received
|
2,000
|
2,000
|
2,000
|
|||||||
Purchase
of marketable securities
|
(18,483,000
|
)
|
(284,000
|
)
|
(8,569,000
|
)
|
||||
Proceeds
from sale or maturity of marketable securities
|
15,465,000
|
10,873,000
|
11,134,000
|
|||||||
Net
cash (used in) / provided by investing activities
|
(5,869,000
|
)
|
9,077,000
|
1,906,000
|
||||||
Cash
flow from financing activities:
|
||||||||||
Proceeds
from issuance of securities, net of expenses
|
35,911,000
|
34,721,000
|
14,665,000
|
|||||||
Proceeds
from use of credit facility
|
3,493,000
|
986,000
|
1,450,000
|
|||||||
Purchase
of treasury stock
|
(1,765,000
|
)
|
(1,050,000
|
)
|
—
|
|||||
Equipment
subsequently financed through capital lease
|
1,928,000
|
908,000
|
434,000
|
|||||||
Principal
payments under capital lease obligation
|
(514,000
|
)
|
(259,000
|
)
|
(66,000
|
)
|
||||
Net
cash provided by financing activities
|
39,053,000
|
35,305,000
|
16,483,000
|
|||||||
Net
(decrease) / increase in cash and cash equivalents
|
(158,000
|
)
|
20,922,000
|
4,742,000
|
||||||
Cash
and cash equivalents - beginning of year
|
29,422,000
|
8,500,000
|
3,758,000
|
|||||||
Cash
and cash equivalents - end of year
|
$
|
29,264,000
|
$
|
29,422,000
|
$
|
8,500,000
|
||||
Supplementary
disclosure of cash flows information:
|
||||||||||
Interest
Paid
|
$
|
186,000
|
$
|
167,000
|
$
|
88,000
|
||||
Noncash
transactions:
|
||||||||||
Class
H warrants issued/revalued
|
$
|
(48,000
|
)
|
$
|
50,000
|
$
|
(618,000
|
)
|
||
Unrealized
gain / (loss) on marketable securities
|
(3,000
|
)
|
(177,000
|
)
|
105,000
|
|||||
|
Property
and equipment is recorded at cost. Depreciation of furniture and equipment
is computed using the straight-line method over the estimated useful lives
of the assets (five to seven years). Leasehold improvements are amortized
over the lower of the (a) term of the lease or (b) useful life of the
improvements.
|
Years
Ended December 31,
|
||||||||||
2004
|
2003
|
2002
|
||||||||
Net
Loss as reported
|
$
|
(46,203,000
|
)
|
$
|
(24,280,000
|
)
|
$
|
(17,443,000
|
)
|
|
Additional
stock-based
employee
compensation
|
$
|
(3,996,000
|
)
|
$
|
(3,738,000
|
)
|
$
|
(2,264,000
|
)
|
|
Pro
forma net loss
|
$
|
(50,199,000
|
)
|
$
|
(28,018,000
|
)
|
$
|
(19,707,000
|
)
|
|
Pro
forma net loss per share
|
$
|
(1.09
|
)
|
$
|
(0.75
|
)
|
$
|
(0.72
|
)
|
December 31,
|
|||||||
2004
|
2003
|
||||||
Equipment
(1)
|
$
|
3,589,000
|
$
|
2,217,000
|
|||
Furniture
|
869,000
|
314,000
|
|||||
Leasehold
improvements
|
330,000
|
174,000
|
|||||
Construction
in progress
|
891,000
|
792,000
|
|||||
Property
and equipment before accumulated depreciation
|
5,679,000
|
3,497,000
|
|||||
Accumulated
depreciation
|
(1,616,000
|
)
|
(1,083,000
|
)
|
|||
Net
property and equipment
|
$
|
4,063,000
|
$
|
2,414,000
|
(1) | The equipment balance consists of (i) manufacturing equipment to produce Surfaxin for use in the Company’s clinical trials and for anticipated commercial needs; (ii) laboratory equipment for research and development activities, including aerosol development; and (iii) computers and office equipment to support the research, development, administrative and commercialization activities of the Company. |
2004
|
2003
|
||||||
Current
|
|||||||
GECC
|
$
|
828,000
|
$
|
305,000
|
|||
All
Other
|
26,000
|
78,000
|
|||||
Capital
Leases, Current
|
854,000
|
383,000
|
|||||
Long
Term
|
|||||||
GECC
|
1,626,000
|
658,000
|
|||||
All
Other
|
28,000
|
52,000
|
|||||
Capital
Leases, Long Term
|
1,654,000
|
711,000
|
|||||
Total
Capital Leases
|
$
|
2,508,000
|
$
|
1,094,000
|
Shares
Reserved for Issuance upon Exercise of Warrants
|
|||||||||||||
December
31,
|
|||||||||||||
2004
|
2003
|
Exercise
Price
|
Expiration
Date
|
||||||||||
Quintiles
Warrant
(2004
business restructuring)
|
850,000
|
—
|
$
|
7.19
|
11/3/2014
|
||||||||
Class
B Investor Warrants
(2004
Kingsbridge CEFF)
|
375,000
|
—
|
$
|
12.07
|
1/6/2010
|
||||||||
Class
A Investor Warrants (2003)
|
945,745
|
954,717
|
$
|
6.88
|
2/19/2010
|
||||||||
Class
G Quintiles Warrants (2001)
|
—
|
357,143
|
$
|
3.49
|
12/9/2011
|
||||||||
Class
H Quintiles Warrants (2001)
|
—
|
320,000
|
$
|
3.03
|
12/9/2011
|
||||||||
Class
E Investor Warrants (2000)
|
310,567
|
549,029
|
$
|
7.38
|
3/21/2005
|
||||||||
Placement
Agent (2000)
|
214,794
|
348,341
|
$
|
8.11
|
9/21/2007
|
||||||||
Placement
Agent Warrants (1999)
|
—
|
193,100
|
$
|
0.67
|
1/1/2010
|
||||||||
Placement
Agent Warrants (1996)
|
4,615
|
41,454
|
$
|
0.64
|
11/15/2006
|
||||||||
Placement
Agent Warrants (1996)
|
138,953
|
433,670
|
$
|
3.53
|
11/15/2006
|
||||||||
Total
|
2,839,674
|
3,197,454
|
|
|
Number of shares
received in lieu of
cash for the exercise
of stock options
|
Average price
Per share
|
|||
January
2004
|
97,226
|
$
|
12.44
|
|||
March
2004
|
18,497
|
12.08
|
||||
May
2004
|
24,702
|
11.27
|
||||
July
2004
|
5,779
|
9.30
|
||||
Total
|
146,204
|
$
|
12.07
|
Price
Per Share
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Life
|
||||||
Balance
at January 1, 2002
|
$0.0026
- $7.00
|
4,246,959
|
$3.15
|
8.01
years
|
|||||
Options
granted
|
1.26
- 3.65
|
1,786,000
|
2.14
|
||||||
Options
exercised
|
0.0821
- 2.10
|
(77,925)
|
0.77
|
||||||
Options
forfeited
|
.3205
- 7.00
|
(349,850)
|
3.34
|
||||||
Balance
at December 31, 2002
|
0.0026
- 5.375
|
5,605,184
|
2.85
|
7.81
years
|
|||||
Options
granted
|
1.70
- 9.17
|
1,111,750
|
6.75
|
||||||
Options
exercised
|
0.0026
- 4.22
|
(993,001)
|
1.95
|
||||||
Options
forfeited
|
0.1923
- 5.06
|
(168,611)
|
2.76
|
||||||
Balance
at December 31, 2003
|
0.0026
- 9.17
|
5,555,322
|
3.80
|
7.44
years
|
|||||
Options
granted
|
5.92
- 10.60
|
2,681,250
|
8.60
|
||||||
Options
exercised
|
.3205
- 9.17
|
(1,271,493)
|
3.41
|
||||||
Options
forfeited
|
1.42
- 10.60
|
(120,425)
|
5.64
|
||||||
Balance
at December 31, 2004
|
$.0026
- $10.60
|
6,844,654
|
$5.69
|
7.76
years
|
Price
per share
|
Shares
Outstanding
|
Weighted
Average
Price
per
Share
|
Weighted
Average
Remaining
Contractual
Life
|
Shares
Exercisable
|
Weighted
Average
Price
per
Share
|
|||||||||||
$0.0026
- $2.00
|
749,831
|
$
|
1.59
|
6.97
years
|
749,831
|
$
|
1.59
|
|||||||||
$2.01
- $4.00
|
1,681,348
|
$
|
2.63
|
7.01
years
|
1,681,348
|
$
|
2.63
|
|||||||||
$4.00
- $6.00
|
1,052,021
|
$
|
4.69
|
5.29
years
|
1,050,021
|
$
|
4.68
|
|||||||||
$6.01
- $8.00
|
856,501
|
$
|
6.74
|
9.45
years
|
341,488
|
$
|
6.84
|
|||||||||
$8.01
- $10.00
|
2,252,953
|
$
|
8.90
|
8.92
years
|
1,342,203
|
$
|
8.67
|
|||||||||
$10.01
- $12.00
|
252,000
|
$
|
10.12
|
9.38
years
|
25,000
|
$
|
10.43
|
|||||||||
6,844,654
|
5,189,891
|
Price
per share
|
Shares
Exercisable
|
Weighted
Average
Price
per
Share
|
Vested
Shares not subject to Repurchase Rights
|
Weighted
Average
Price
per
Share
|
|||||||||
$0.0026
- $2.00
|
749,831
|
$
|
1.59
|
557,085
|
$
|
1.53
|
|||||||
$2.01
- $4.00
|
1,681,348
|
$
|
2.63
|
854,273
|
$
|
2.52
|
|||||||
$4.00
- $6.00
|
1,050,021
|
$
|
4.68
|
1,007,689
|
$
|
4.66
|
|||||||
$6.01
- $8.00
|
341,488
|
$
|
6.84
|
322,720
|
$
|
6.81
|
|||||||
$8.01
- $10.00
|
1,342,203
|
$
|
8.67
|
1,177,668
|
$
|
8.75
|
|||||||
$10.01
- $12.00
|
25,000
|
$
|
10.43
|
25,000
|
$
|
10.43
|
|||||||
5,189,891
|
3,944,435
|
December
31,
|
||||||||||
2004
|
2003
|
2002
|
||||||||
Shares
outstanding
|
200,000
|
240,000
|
480,000
|
|||||||
Weighted
average exercise price
|
$
|
2.11
|
$
|
2.09
|
$
|
2.00
|
||||
Weighted
average fair value
|
$
|
3.52
|
$
|
3.49
|
$
|
3.33
|
2005
|
2006
|
2007
|
2008
|
2009
|
Thereafter
|
Total
|
||||||||||||||||
Credit
facility
|
$
|
—
|
$
|
5,929,000
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
5,929,000
|
||||||||
Capital
lease obligations
|
1,073,000
|
886,000
|
747,000
|
225,000
|
—
|
—
|
2,931,000
|
|||||||||||||||
Operating
lease
obligations
|
1,214,000
|
1,161,000
|
1,193,000
|
1,078,000
|
957,000
|
160,000
|
5,763,000
|
|||||||||||||||
Purchase
obligations
|
4,947,000
|
—
|
—
|
—
|
—
|
—
|
4,947,000
|
|||||||||||||||
Employment
agreements
|
2,203,000
|
—
|
—
|
—
|
2,203,000
|
|||||||||||||||||
Total
|
$
|
9,437,000
|
$
|
7,976,000
|
$
|
1,940,000
|
$
|
1,303,000
|
$
|
957,000
|
$
|
160,000
|
$
|
21,773,000
|
December
31,
|
||||||||||
2004
|
2003
|
2002
|
||||||||
Income
tax benefit, statutory rates
|
$
|
15,739,000
|
$
|
8,255,000
|
$
|
5,938,000
|
||||
State
taxes on income, net of federal benefit
|
2,776,000
|
2,015,000
|
1,088,000
|
|||||||
Research
and development tax credit
|
623,000
|
441,000
|
274,000
|
|||||||
Other
|
(87,000
|
)
|
92,000
|
(755,000
|
)
|
|||||
Income
tax benefit
|
19,051,000
|
10,803,000
|
6,545,000
|
|||||||
Valuation
allowance
|
(19,051,000
|
)
|
(10,803,000
|
)
|
(6,545,000
|
)
|
||||
Income
tax benefit
|
$
|
—
|
$
|
—
|
$
|
—
|
December
31,
|
|||||||
2004
|
2003
|
||||||
Long-term
deferred tax assets:
|
|||||||
Net
operating loss carryforwards
(federal
and state)
|
$
|
55,825,000
|
$
|
35,607,000
|
|||
Research
and development tax credits
|
2,832,000
|
1,868,000
|
|||||
Compensation
Expense on Stock
|
524,000
|
—
|
|||||
Charitable
Contribution Carryforward
|
5,000
|
—
|
|||||
Other
Accrued
|
161,000
|
70,000
|
|||||
Deferred
Revenue
|
55,000
|
273,000
|
|||||
Capitalized
research and development
|
38,000
|
122,000
|
|||||
Total
long-term deferred tax assets
|
59,440,000
|
37,940,000
|
|||||
Long-term
deferred tax liabilities:
|
|||||||
Property
and equipment
|
(651,000
|
)
|
(272,000
|
)
|
|||
Net
deferred tax assets
|
58,789,000
|
37,668,000
|
|||||
Less:
valuation allowance
|
(58,789,000
|
)
|
(37,668,000
|
)
|
|||
|
$ | — |
$
|
—
|
2004 Quarters Ended: |
(in
thousands, except per share data)
|
|||||||||||||||
Mar.
31
|
June
30
(1)
|
Sept.
30
|
Dec.
31
|
Total
Year
|
||||||||||||
Revenues
from collaborative agreements
|
$
|
142
|
$
|
697
|
$
|
236
|
$
|
134
|
$
|
1,209
|
||||||
Operating
Expenses:
|
||||||||||||||||
Research
and development
|
6,710
|
6,373
|
5,673
|
7,037
|
25,793
|
|||||||||||
General
and administrative
|
2,281
|
3,175
|
2,908
|
4,958
|
13,322
|
|||||||||||
Corporate
partnership restructuring charge
|
—
|
—
|
—
|
8,126
|
8,126
|
|||||||||||
Total
expenses
|
8,991
|
9,548
|
8,581
|
20,121
|
47,241
|
|||||||||||
Operating
loss
|
(8,849
|
)
|
(8,851
|
)
|
(8,345
|
)
|
(19,987
|
)
|
(46,032
|
)
|
||||||
Other
expense, net
|
(23
|
)
|
(46
|
)
|
(37
|
)
|
(65
|
)
|
(171
|
)
|
||||||
Net
loss
|
$
|
(8,872
|
)
|
$
|
(8,897
|
)
|
$
|
(8,382
|
)
|
$
|
(20,052
|
)
|
$
|
(46,203
|
)
|
|
Net
loss per common share - basic and diluted
|
$
|
(0.20
|
)
|
$
|
(0.19
|
)
|
$
|
(0.18
|
)
|
$
|
(0.42
|
)
|
$
|
(1.00
|
)
|
|
Weighted
average number of common
shares
outstanding
|
43,320
|
46,683
|
46,988
|
47,236
|
46,179
|
|||||||||||
2003 Quarters Ended: |
(in
thousands, except per share data)
|
|||||||||||||||
Mar.
31
|
June
30
|
Sept.
30
|
Dec.
31
|
Total
Year
|
||||||||||||
Revenues
from collaborative agreements
|
$
|
393
|
$
|
263
|
$
|
198
|
$
|
183
|
$
|
1,037
|
||||||
Operating
Expenses:
|
||||||||||||||||
Research
and development
|
3,844
|
4,011
|
5,096
|
6,799
|
19,750
|
|||||||||||
General
and administrative
|
1,167
|
1,137
|
1,375
|
2,043
|
5,722
|
|||||||||||
Total
expenses
|
5,011
|
5,148
|
6,471
|
8,842
|
25,472
|
|||||||||||
Operating
loss
|
(4,618
|
)
|
(4,885
|
)
|
(6,273
|
)
|
(8,659
|
)
|
(24,435
|
)
|
||||||
Other
income and (expense), net
|
113
|
36
|
54
|
(48
|
)
|
155
|
||||||||||
Net
loss
|
$
|
(4,505
|
)
|
$
|
(4,849
|
)
|
$
|
(6,219
|
)
|
$
|
(8,707
|
)
|
$
|
(24,280
|
)
|
|
Net
loss per common share - basic and diluted
|
$
|
(0.14
|
)
|
$
|
(0.14
|
)
|
$
|
(0.15
|
)
|
$
|
(0.21
|
)
|
$
|
(0.65
|
)
|
|
Weighted
average number of common
shares
outstanding
|
32,857
|
33,487
|
41,084
|
42,391
|
37,426
|
(1)
|
A reclassification has been made to the presentation of operating expenses in the current second quarter of 2004. The expense associated with a milestone payment related to the license of Surfaxin has been reclassifed from general and administrative expenses and is currently reflected in research and development expenses. |
By:
|
/s/ David L. Lopez |
|
|
Name: David L. Lopez, Esq., CPA
Title:
Senior Vice President and General
Counsel
|
|
/s/ Robert J. Capetola |
|
|
Robert J. Capetola, Ph.D. |
By:
|
/s/ Robert J. Capetola |
|
|
Name: Robert J. Capetola, Ph.D.
Title:
President and Chief Executive
Officer
|
|
/s/ John G. Cooper |
|
|
John G. Cooper |
By:
|
/s/ Robert J. Capetola |
|
|
Name: Robert J. Capetola, Ph.D.
Title:
President and Chief Executive
Officer
|
|
/s/ David L. Lopez |
|
|
David L. Lopez, Esq., CPA |
By:
|
/s/ Robert J. Capetola |
|
|
Name: Robert J. Capetola, Ph.D.
Title:
President and Chief Executive
Officer
|
|
/s/ Mark Osterman |
|
|
Mark Osterman |
By:
|
/s/ Robert J. Capetola |
|
|
Name: Robert J. Capetola, Ph.D.
Title:
President and Chief Executive
Officer
|
|
/s/ Deni M. Zodda |
|
|
Deni M. Zodda, Ph.D. |
(i)
|
the
expiration of the last Patent Rights containing a Valid Claim covering the
subject Licensed Product in such country;
|
(ii) |
the
first commercial sale of the first to appear generic formulation of the
subject Licensed Product in such country;
or
|
(iii) |
the
tenth (10
th
)
anniversary of the first commercial sale of the subject Licensed Product
in such country.
|
(i) | In suspension for pulmonary instillation or in aerosol formulation, for the prophylaxis and/or treatment of Respiratory Distress Syndrome (RDS), Meconium Aspiration Syndrome (MAS), Acute Lung Injury (ALI), Acute Respiratory Distress Syndrome (ARDS), and/or Bronchopulmonary Dysplasia (BPD), in each case in the hospital setting; |
(ii) | In any formulations (including, without limitation, any associated devices/ apparatus) for use in conjunction with nasal continuous positive airway pressure for neonatal pulmonary disorders solely treated in the Neonatal Intensive Care Unit (NICU) (collectively, nCPAP Licensed Product(s)); and |
(iii) | In any formulations which may be developed for the treatment of asthma and/or chronic obstructive pulmonary disease (COPD) diagnosed and treated in the hospital setting. |
(i)
|
up-front
cash payment(s) to be paid by Licensee to Licensor in amounts that are
consistent with customary pharmaceutical industry practices and
appropriate with reference to the technology value and potential product
value of such New Product;
|
(ii)
|
Licensor,
Licensee and other sublicensees of the Licensor shall share all future
clinical development work and or expenses with respect to any such New
Product opportunity, in relation with Phase 3 clinical trials necessary to
obtain and/or maintain the Marketing Regulatory Approvals in the Licensed
Territory, on a
[***]
basis using the relevant IMS annual global pharmaceutical data relative to
the aggregate pharmaceutical market size of the proposed licensed
territory for all pharmaceutical products as the basis of determining the
amount of such costs to be borne by each of the parties at the
time.
Licensee and its sublicensees shall be responsible for the work and costs
associated with any and all clinical development activities that is
conducted in the Licensed Territory for the New Product that are not
necessary to obtain or maintain Marketing Regulatory Approval for any such
New Product
;
|
(iii)
|
payment
to Licensor of cash milestones in amounts that are consistent with
customary pharmaceutical industry practices and are reflective of the
value of such New Product created during the development process and which
amounts take into account Licensee’s contribution to development of any
such value;
|
(iv)
|
Licensee
shall be responsible for customary commercialization costs associated with
the New Product including, without limitation, sales, marketing,
distribution, and safety and medical affairs expenses, in a manner similar
to that set forth in this Agreement with respect to Licensed Products;
and
|
(v)
|
Licensor
shall be responsible for the manufacture of any such New Product. The
economic terms for the New Product, which shall duly take into account the
development expenses and cash milestones paid by Licensee for any such New
Product, shall ensure a reasonable profit for the parties in the light of
the prevailing and expected market conditions at that
time.
|
1.
|
$
[***] upon EMEA Marketing Regulatory Approval for RDS.
|
|
2.
|
$
[***] upon EMEA Marketing Regulatory Approval for BPD.
|
|
3.
|
$
[***] upon price approval in the Territory for ARDS
provided
,
however
,
that the parties have reached a mutually satisfactory Transfer Price in
accordance with the Amended and Restated Supply
Agreement.
|
4.
|
$
[***] upon EMEA Marketing Regulatory Approval for ALI
prophylaxis.
|
|
5.
|
$
[***] upon filing for EMEA Marketing Regulatory Approval of the nCPAP
Licensed Product.
|
|
6.
|
$
[***] upon EMEA Marketing Regulatory Approval of the nCPAP Licensed
Product.
|
|
7.
|
$
[***] upon filing for EMEA Marketing Regulatory Approval for asthma in the
hospital setting.
|
|
8.
|
$
[***] upon EMEA Marketing Regulatory Approval for asthma in the hospital
setting.
|
|
9.
|
$
[***] upon filing for EMEA Marketing Regulatory Approval for COPD in the
hospital setting.
|
|
10.
|
$
[***] upon EMEA Marketing Regulatory Approval for COPD in the hospital
setting.
|
(i) |
Licensor,
at its cost, shall be responsible for planning and managing the research
and development work related to Licensed Products that is necessary to
obtain EMEA approval, regardless of where conducted, subject to Section
5.2(a)(ii), below;
|
(ii) |
Subject
to Section 8.6(b) hereinbelow,
Licensee
shall contribute for Phase 3 Development of Licensed Products in the
Licensed Territory by conducting, sponsoring, and funding the cost (up to
the amounts specified below for each category of Licensed Products) of
Phase 3 clinical trials that are conducted in the Licensed Territory (it
being acknowledged by the parties that any such trials are intended to be
a part of a global European development program for the Licensed
Products), as discussed and agreed to by the Development Committee.
Licensee’s contribution under this Section 5.2(a)(ii) shall be solely
limited to those costs that may be incurred with respect to Phase 3
Development conducted with respect to clinical sites located in the
Licensed Territory and shall solely include (x) shipping costs for
investigational product and other materials supplied to clinical sites;
and (y) external costs and payments for the subject Phase 3 clinical trial
including, without limitation, consultants, contract research
organizations, payments to clinical investigators and support staff,
insurance companies, clinical sites, and regulatory fees (“Phase 3
Costs”);
provided
,
however
,
that with regards to each of (x) and (y), above, Licensee’s obligation for
contribution shall apply whether such costs are contracted for and/ or
initially paid by Licensor or Licensee. The Development Committee shall
(A) be responsible for developing and approving the budgets for Phase 3
Costs taking into account the nature of the Phase 3 Costs, and (B) approve
the selection, without limitation, of clinical sites and specific
consultants, contractors and clinical investigators to be used in the
performance of Phase 3 Development. Such approval by the Development
Committee shall constitute the parties’ commitment to undertake the
relevant Phase 3 Development and Licensee’s agreement to contribute to any
such Phase 3 Costs up to a maximum of the following amounts in U.S.
Dollars (“Licensee’s Maximum
Contribution”):
|
1.
|
For
Licensed Products for the ARDS and/ or ALI indications, up to
$[***];
|
|
2.
|
For
Licensed Products for the BPD indication, up to $[***];
|
|
3.
|
For
nCPAP Licensed Product(s), up to $[***];
|
|
4.
|
For
Licensed Products for the asthma and COPD indication in the hospital
setting, up to $[***]; and
|
|
5.
|
For
Licensed Products for the COPD indication in the hospital setting, up to
$[***], only if a separate Phase 3 pivotal trial is conducted for this
indication (i.e. independent from the Phase 3 pivotal trial for
asthma).
|
(iii) |
Promptly
upon the completion of the experimental phase of the
subject
Phase 3 clinical trial in the
Licensed Territory (i.e. when the last visit of the last patient has
occurred), a reconciliation of Licensee’s Phase 3 Cost contributions
determined hereunder (including, without limitation, those costs
previously invoiced, paid or still to be invoiced and paid) shall be made
with reference to Licensee’s Maximum Contribution for such trial. Both
parties shall keep such records as are necessary to determine accurately
the sums due under this Section 5.2(a). Such records shall be retained by
each party and, at any time during the Term of the Agreement, at the prior
written request and expense of the other party, shall be made available
for inspection, review, and audit during normal business hours, by an
internationally recognized independent certified public accounting firm
selected by the auditing Party and reasonably acceptable to the other
Party for the sole purpose of verifying the accounting reports
and
|
payments
made or to be made pursuant to this Section 5.2(a); provided,
however,
that such audits may not be performed more than once per contract year.
The auditing Party shall pay for such inspections, except that in the
event where the adjustment shown by such inspection is greater than 10% of
the amount incurred, then the audited Party shall pay for such
inspection.
|
(iv) |
Licensee
shall be the sponsor in the Licensed Territory of all Phase 3 clinical
trials to which it contributes in accordance with this Section 5.2 and,
subject to the prior approval of the Development Committee, Licensee shall
be entitled to conduct monitoring and auditing of the sites at its own
cost and expense. With respect to Licensee’s sponsorship, monitoring and
auditing, as applicable, Licensor, through the operation of the
Development Committee or directly, shall (i) have the sole authority to
approve the clinical site agreement that may be entered into by Licensee
and a clinical site prior to its signature and, to the greatest extent
possible with reference to then or future applicable law, be named as a
co-sponsor thereto; and (ii) be entitled to oversee and audit clinical
site operations including, without limitation, site interactions, site
initiation, and monitoring and auditing conducted by Licensee, all at
Licensor’s expense.
|
(v) |
Licensor
and Licensee shall keep each other fully informed on the progress of all
clinical trials of Licensed Products and shall promptly provide the other
with copies of all submissions to regulatory authorities in connection
therewith, all significant communications received from such regulatory
authorities and reasonably detailed descriptions (in English) of all
meetings with and verbal communications with such regulatory authorities
which are of significance.
|
(vi) |
Each
of Licensor and Licensee shall use its best commercial efforts to complete
all clinical trials for which it is responsible within the parameters
established by (and as such parameters may be modified by) the Development
Committee.
|
(i)
|
The
Surfaxin® Licensed Product for RDS, the first action of the
Commercialization Committee shall be to establish the schedule for
submission of the applicable pre-launch market development plan by
Licensee.
|
|
(ii)
|
Except
for as set forth in Section 5.7(i), for all Licensed Products Licensee
shall submit pre-launch market development plans as directed by the
Commercialization Committee.
|
|
(iii)
|
For
all Licensed Products, Licensee shall submit within ninety (90) days prior
to the planned launch date for a subject Licensed Product for each country
of the Licensed Territory a Marketing Plan (i.e., a launch
plan).
|
|
(iv)
|
For
all marketed Licensed Products, Licensee shall submit an updated Marketing
Plan for each country of the Licensed Territory before the end of each
calendar year.
|
DISCOVERY LABORATORIES, INC. | |
By:
|
/s/ Robert J. Capetola |
|
|
Name: Robert J. Capetola, Ph.D.
Title:
President and Chief Executive
Officer
|
LABORATORIOS DEL DR. ESTEVE, S.A. | |
By:
|
/s/ Antonio Esteve |
|
|
Name:
Title:
|
|
(i)
|
transportation
charges or allowances, including freight pickup allowances, and packaging
cost, if any;
|
|
(ii)
|
trade,
quantity or cash discounts, services allowances and independent broker’s
or agent’s commissions, if any, allowed or
paid;
|
|
(iii)
|
credits
or allowances for the Licensed Products, if any, given or made on account
of price, adjustments, returns, bad debts, off-invoice promotional
discounts, rebates, chargebacks, any and all federal, state or local,
government rebates or discounts whether in existence now or enacted at any
time during the term of this Agreement, volume reimbursements, the gross
amount billed and collected for rejected Licensed Products or Licensed
Products subject to recall or destruction (voluntarily made or requested
or made by an
appropriate
government agency, sub-division or department);
and
|
|
(iv)
|
any
tax, excise or other governmental charge upon or measured by the
production, sale, transportation, delivery or use of the Licensed
Product;
|
|
(v)
|
in
each case determined in accordance with generally accepted accounting
practices.
|
(i) |
[***]
%
of Seller’s Cost of Goods for the subject Licensed Product supplied for
the Licensed Territory;
|
(ii) |
Seller’s
royalty obligations due with respect to the subject Licensed Product sold
by Buyer in the Territory; and,
|
(iii) |
X%
of Net Sales of the subject Licensed Product in the Territory (to be
determined on a country-by-country basis).
|
(i) |
[***]
%
of Seller’s Cost of Goods for the subject Licensed Product supplied for
the Licensed Territory;
|
(ii) |
[***]
%
of Seller’s royalty obligations due with respect to the subject Licensed
Product sold by Buyer in the Territory;
and,
|
(iii) |
X%
of Net Sales of the subject Licensed Product in the Territory (to be
determined on a country-by-country basis).
|
(i) |
[***]
%
of Seller’s Cost of Goods for the subject Licensed Product supplied for
the Licensed Territory;
|
(ii) |
[***]
%
of Seller’s royalty obligations due with respect to the subject Licensed
Product sold by Buyer in the Territory;
and,
|
(iii) |
X%
of Net Sales of the subject Licensed Product in the Territory (to be
determined on a country-by-country basis).
|
(i) |
Reconciliation
.
Within 15 days of Seller’s receipt of a Report provided by Buyer to Seller
in accordance with Section 2.3(b), Seller shall inform Buyer in writing of
Seller’s assent or non-assent with respect to the calculations contained
therein. In the event that Seller does not agree with such calculations,
it shall notify Buyer of the reasons therefor and the parties hereby agree
to promptly discuss and reconcile any material differences in the
calculation of Transfer Price amounts owed by Buyer to Seller and make
appropriate adjustment with respect
thereto.
|
(ii) |
Audit
.
Each party shall keep such records as are necessary to determine
accurately the sums due under this Agreement. Such records shall be
retained by the party (in such capacity, the “Recording Party”) and, at
any time during the applicable contract year and for 3 contract years
thereafter, at the prior written request and expense of the other party,
shall be made available for inspection, review, and audit during normal
business hours, by an internationally recognized independent certified
public accounting firm appointed by such other party and reasonably
acceptable to the Recording Party for the sole purpose of verifying the
Recording Party’s accounting reports and payments made or to be made
pursuant to this Agreement; provided, however, that such audits may not be
performed by either party more than once per contract year.
The results of each inspection, if any, shall be binding on both parties
except in the event of fraud. The auditing party shall pay for such
inspections, except that in the event where the adjustment shown by such
inspection is greater than 10% of the amount incurred, then the Recording
Party shall pay for such inspection.
|
DISCOVERY LABORATORIES, INC. | |
By:
|
/s/ Robert J. Capetola |
|
|
Name: Robert J. Capetola, Ph.D.
Title:
President and Chief Executive
Officer
|
LABORATORIOS DEL DR. ESTEVE, S.A. | |
By:
|
/s/ Antonio Esteve |
|
|
Name:
Title:
|
|
|
|
Date: March 16, 2005 | /s/ Robert J. Capetola | |
Robert J. Capetola, Ph.D. |
||
President and Chief Executive Officer |
|
|
|
Date: March 16, 2005 | /s/John G. Cooper | |
John G. Cooper |
||
Chief Financial Officer |
Date: | March 16, 2005 |
Name: | /s/ Robert J. Capetola |
Name: | Robert J. Capetola, Ph.D. |
Title: | President, and Chief Executive Officer |
Name: | /s/ John G. Cooper |
Name: | John G. Cooper |
Title: | Executive Vice President, Chief Financial Officer |