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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1997 0-23490
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VIVUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3136179
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
605 EAST FAIRCHILD DRIVE, MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(650) 934-5200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE PREFERRED SHARE PURCHASE RIGHTS
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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 [X] No [ ]
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 Registrant's 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. [ ]
As of February 27, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $350,150,127 (based upon the
closing sales price of such stock as reported by The Nasdaq Stock Market on such
date). Shares of Common Stock held by each officer, director, and holder of 5
percent or more of the outstanding Common Stock on that date have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 27, 1998, the number of outstanding shares of the
Registrant's Common Stock was 31,721,292.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 6, 7 and 8 of Form 10-K is
incorporated by reference from the Registrant's annual report to security
holders furnished pursuant to Rule 14a-3 (the "Annual Report"). Certain
information required by Items 10, 11, 12 and 13 of Form 10-K is incorporated by
reference from the Registrant's proxy statement for the 1998 Annual
Stockholders' Meeting (the "Proxy Statement"), which will be filed with the
Securities and Exchange Commission within 120 days after the close of the
Registrant's fiscal year ended December 31, 1997.
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This Form 10-K contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that might cause
such differences include, but are not limited to, the risk factors described
beginning on page 15, in addition to the other information contained in this
Form 10-K.
PART I
ITEM 1. BUSINESS
OVERVIEW
VIVUS, Inc. ("VIVUS" or the "Company") is a leader in the development of
advanced therapeutic systems for the treatment of erectile dysfunction. Erectile
dysfunction, commonly referred to as impotence, is the inability to achieve and
maintain an erection of sufficient rigidity for sexual intercourse. The
Company's transurethral system for erection is a minimally invasive, easy to use
system that delivers pharmacologic agents topically to the urethral lining. In
November 1996, the Company obtained marketing clearance by the U.S. Food and
Drug Administration (the "FDA") to manufacture and market its first product,
MUSE(R) (alprostadil). The Company commenced product shipments to wholesalers in
December 1996 and commercially introduced MUSE (alprostadil) in the United
States through its direct sales force beginning in January 1997. Furthermore,
the Company received FDA clearance in December 1996 for ACTIS(R), an adjustable
elastomeric venous flow control device designed for those patients who suffer
from veno-occlusive dysfunction (commonly referred to as venous leak syndrome).
The Company commenced commercial sales of ACTIS in the United States through its
direct sales force in July 1997. ACTIS is currently being studied for adjunctive
use with MUSE (alprostadil); however, there can be no assurance that such
studies will be completed and if completed that such studies will demonstrate
that adjunctive use of ACTIS with MUSE (alprostadil) is a safe and effective
treatment for erectile dysfunction.
The Company has entered into international marketing agreements with Astra
AB ("Astra") and Janssen Pharmaceutica International ("Janssen") under which
Astra and Janssen will purchase MUSE (alprostadil) for resale in various
international markets. In November 1997, the Company obtained regulatory
marketing clearance by the Medicines Control Agency ("MCA") to market MUSE
(alprostadil) in the United Kingdom. The Company began selling MUSE
(alprostadil) to Astra in the fourth quarter of 1997. Astra began selling MUSE
(alprostadil) in the United Kingdom in February 1998. In addition, applications
for regulatory approval to market MUSE (alprostadil) have been submitted in
several other countries, including China, Australia, Canada and Mexico. These
applications will be subject to rigorous approval processes, and there can be no
assurance such approval will be granted in a timely manner, if at all.
The Company has limited experience in manufacturing and selling MUSE
(alprostadil) in commercial quantities. Since the commercial launch of MUSE
(alprostadil) in January 1997, the Company has experienced product shortages due
to higher than expected demand and difficulties encountered in scaling up
production of MUSE (alprostadil). The Company leased 90,000 square feet of space
in New Jersey in which it has constructed additional manufacturing and testing
facilities. The Company has filed for regulatory authorization of this facility
with both the FDA and MCA. In March 1998, the MCA authorized the Company to
begin commercial production and shipment of MUSE (alprostadil) from its new
facility. In addition, the Company has negotiated a long-term lease for a site
in Ireland for construction of a European manufacturing operation. Until the
Company receives the required approvals for its new New Jersey facility,
domestic and certain international markets will need to be supplied from its
current facility at Paco Pharmaceutical Services, Inc. ("Paco"). There can be no
assurance that such approvals will be granted in a timely manner, if at all. If
international sales increase as anticipated, product available for the domestic
market will be reduced and gross margins will be adversely impacted. If the
Company encounters further difficulties with its current manufacturing facility
or delays in regulatory approvals of its new manufacturing facility, capacity
constraints could continue for an extended period of time, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
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The Company anticipates an operating loss in the first quarter of 1998
primarily due to the impact of the continued capacity constraints, allocation of
product to international markets which results in a lower gross margin, higher
costs of goods sold as the Company ramps up its new manufacturing facility, and
higher marketing and sales costs related to the Company's direct to consumer
marketing campaign.
In connection with post-approval inspections of the Company's New Jersey
manufacturing facility at Paco, the FDA issued to the Company FDA Form 483s and
a Warning Letter, which detailed specific areas where the FDA observed that the
Company's operations were not in full compliance with some areas of the current
Good Manufacturing Practices (cGMP) requirements. On November 19, 1997, after
taking corrective action and providing the FDA with a written response to the
FDA observations, the Company received a letter from the FDA affirming that the
Company's facility at Paco is in substantial compliance with cGMP requirements.
Failure to maintain satisfactory cGMP compliance would have a material adverse
effect on the Company's ability to continue to market and distribute its
products and, in the most serious cases, could result in the issuance of
additional Warning Letters, seizure or recall of products, civil fines or
closure of the Company's manufacturing facility until cGMP compliance is
achieved.
Because of the production capacity constraints, the Company did not
initiate significant MUSE advertising programs throughout 1997 and experienced
declining demand for MUSE (alprostadil) in late 1997. In anticipation of
receiving regulatory approvals of its new manufacturing facility and because of
available inventories at the wholesale level, the Company launched its first
domestic direct-to-consumer advertising campaign in January 1998. This campaign
includes major television, newspaper and magazine placements. In February 1998,
the FDA notified the Company that it objected to, among other things, the
prominence and balance of side effect information relative to efficacy
information in certain written materials and the Company's television
advertisements. The Company is no longer utilizing the prior written materials
and has modified its written materials in response to the FDA's comments. If the
FDA does not believe the modified written materials respond to its concerns then
further modifications will be required resulting in additional cost and delay
prior to the Company resuming its written advertising. The Company has ceased
running its television advertisements and requested a meeting with the FDA to
discuss necessary changes to the Company's television advertisements. If the
Company and the FDA cannot reach a prompt resolution regarding the necessary
changes to the Company's television advertisements, this could result in
additional cost and delay, and may prevent broadcast advertising on major
networks. Cost and delay associated with the FDA's objections to the Company's
direct-to-consumer advertising materials could have a negative effect upon the
Company's domestic sales and marketing efforts. There can be no assurance that
the Company's domestic sales and marketing efforts will be successful at
increasing the demand for MUSE (alprostadil). In addition, there can be no
assurance that the Company's capacity constraints will not prevent the Company
from supplying any increased demand.
The Company has sought and will continue to seek pharmacologic agents
suitable for transurethral delivery for which significant safety data already
exists. The Company believes that such agents may progress more rapidly through
clinical development and the regulatory process than agents without preexisting
safety data. The Company expects to begin a Phase III multi-center trial in 1998
for its second product candidate, a combination of alprostadil and prazosin
delivered via the Company's transurethral system for erection. The Company has
several other product candidates in preclinical development.
Based on a published study of more than 1,200 men in Massachusetts, the
Company estimates that more than 30 percent of males in the United States
between the ages of 40 and 70 suffer from moderate to complete erectile
dysfunction. The Company believes that similar rates of erectile dysfunction
prevail outside the United States. An estimate from the National Institutes of
Health ("NIH") Consensus Statement on Impotence (1992) suggests that the number
of men in the United States with erectile dysfunction may be 10 to 20 million.
The rate of erectile dysfunction increases significantly with age. In addition
to the Company's transurethral system for erection, the primary medical
therapies currently used to treat erectile dysfunction are needle injection of
pharmacologic agents into the penis, vacuum constriction devices, penile
implants and oral medications. Despite the detrimental effect erectile
dysfunction may have on a couple's quality of life, the Company believes that,
due in part to the limitations of available therapies, less than 10 percent of
men
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suffering from erectile dysfunction received medical treatment prior to the
introduction of MUSE (alprostadil).
BACKGROUND
Erectile dysfunction results from (i) an inadequate supply of blood to the
penis, (ii) a failure to relax the smooth muscle tissue in the penis so it can
become engorged with blood, or (iii) a failure to retain blood in the penis.
Blood is carried to the penis in two large arteries that terminate in a maze of
blood vessels contained in the three erectile bodies of the penis, the corpus
spongiosum, which surrounds the urethra, and two corpora cavernosa. Smooth
muscle tissue surrounds each individual blood vessel in the erectile bodies.
When the penis is flaccid, the smooth muscle tissue is in a contracted state,
which constricts the blood vessels resulting in reduced blood flow. During
stimulation, a signal is sent to nerve endings in the penis that causes the
smooth muscle tissue to relax. This relaxation allows the blood vessels to
expand, and, as arterial blood fills the erectile bodies, the penis becomes
engorged with blood and erect. As the erectile bodies expand, the venous outflow
of blood is restricted so that the erection can be maintained.
CAUSES OF ERECTILE DYSFUNCTION
Historically, psychological factors were considered the primary cause of
erectile dysfunction. It is now widely understood that a substantial majority of
all cases have a physiological cause. The Company believes that its therapeutic
treatments of erectile dysfunction can be effective, whether the cause is
psychological or physiological. The primary physiological causes of erectile
dysfunction fall into the following general categories:
Vascular Diseases. Atherosclerosis, hypertension and other diseases
can impede or obstruct the flow of blood to the penis.
Neurological Diseases. Multiple sclerosis, Parkinson's disease and
other diseases can interrupt nerve impulses to the penis.
Diabetes. Diabetes mellitus can alter both nerve function and vascular
flow, inhibiting the ability to achieve an erection.
Prescription Drugs. Certain antihypertensive and cardiac medications,
as well as a number of other prescription drugs, can affect nerve function
in the penis by altering neurotransmitter levels.
Spinal Injury. Injury to the spinal column can interrupt nerve
impulses from the spinal cord to the penis.
Pelvic Surgery. Radical prostatectomies, cystoprostatectomies and
colectomies may traumatize or cut nerves or blood vessels to the penis.
Other Causes. Hormonal imbalance, renal failure and dialysis, and drug
and substance abuse (particularly smoking) can also impair the
neurovascular system and cause erectile dysfunction.
MARKET SIZE
Based on a published study of more than 1,200 men in Massachusetts, the
Company estimates that over 30 percent of males in the United States between the
ages of 40 to 70 suffer from moderate to complete erectile dysfunction. The
Company believes that similar rates prevail outside the United States. An
estimate from the NIH Consensus Statement on Impotence (1992) suggests that the
number of men in the United States with erectile dysfunction may be 10 to 20
million men. The rate of erectile dysfunction increases significantly with age.
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CURRENT THERAPIES
In addition to the Company's first product, MUSE (alprostadil), the primary
physiological therapies currently utilized for the treatment of erectile
dysfunction are:
Needle Injection Therapy. This form of treatment involves the needle
injection of pharmacologic agents directly into the penis. These agents are
generally vasoactive compounds such as alprostadil alone or in combination
with phentolamine and papaverine. This form of treatment requires a
prescription from a physician and instruction on self-injection. Side
effects may include pain associated with injection, local pain and aching,
priapism (persistent prolonged erections), fibrosis (build-up of scar
tissue) and bleeding.
Vacuum Constriction Devices. This form of treatment involves the use
of a mechanical system that creates a vacuum around the penis, causing the
erectile bodies to fill with blood. A constriction band is then placed
around the base of the penis to impede blood drainage and maintain the
erection. Vacuum constriction devices are large, mechanical devices that
can be unwieldy and somewhat difficult to use. In addition, the erection
may not seem natural since only the part of the penis beyond the
constriction band is rigid, and the penis can become cold and discolored
due to the constriction of blood flow. Complications encountered by some
users of vacuum constriction devices include pain and difficulty
ejaculating.
Penile Implants. This therapy involves the surgical implantation of a
semi-rigid, rigid or inflatable device into the penile structure to
mechanically simulate an erection. In addition to the risks associated with
surgical procedures, there is a significant rate of complication with
implants such as infection and mechanical failure of the device. This may
necessitate a second surgical procedure to remove or reposition the device.
In addition, due to the scarring associated with the implant procedure, the
patient may no longer be a viable candidate for less radical therapies.
Oral Medications. In March 1998, Pfizer Inc. received marketing
approval from the FDA for its oral treatment for erectile dysfunction,
Viagra. Commercial introduction of this new competitive product could have
a material adverse effect on the Company's business, financial condition
and results of operations. Before the approval of Viagra, yohimbine had
been the primary oral medication currently prescribed in the United States
for the treatment of erectile dysfunction. While easily administered,
yohimbine must be taken multiple times daily and may cause irritability,
sweating, nausea and possibly hypertension. See "Business -- Competition".
THE VIVUS SOLUTION
VIVUS is addressing the significant market opportunity for erectile
dysfunction therapy with its transurethral system for erection. The Company's
transurethral system for erection represents a unique approach to treating
erectile dysfunction and is based on the discovery that the urethra, although an
excretory duct, can absorb certain pharmacologic agents into the surrounding
erectile tissues. This results in enhanced blood flow to the penis. The Company
believes that MUSE (alprostadil), introduced in the United States in 1997, is a
leading treatment and has contributed to the increase in the number of men who
seek and receive treatment for erectile dysfunction. The Company's transurethral
system for erection is designed to overcome the limitations of other available
therapies through its unique product attributes which include:
Ease of Administration. The Company's transurethral system for
erection is easy to use with minimal instruction, unlike needle injection
therapy that requires precise injection into a corpus cavernosum.
Minimally-invasive. The Company's transurethral system for erection
utilizes urethral delivery, permitting topical application to the urethral
lining.
Discreet. The Company's transurethral system for erection utilizes a
small, easily carried, single-use disposable applicator that can be
discreetly applied and is easily integrated into the normal sexual life of
the patient. Administration takes less than a minute.
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Quality of Erection. The Company's transurethral system for erection
therapy mimics the normal vasoactive process, producing an erection that is
more natural than those resulting from needle injection therapy, vacuum
constriction devices or penile implants.
THE TRANSURETHRAL SYSTEM FOR ERECTION
Administration. Administration of the transurethral system for erection is
an easy and painless procedure. The end of the applicator is less than half the
diameter of a man's urine stream and is inserted approximately three centimeters
into the urethra. To use the transurethral system for erection, a patient
urinates, shakes the penis to remove excess urine, inserts the transurethral
system for erection into the urethra, releases the medication and then massages
the penis between the hands for 10 seconds to distribute the medication.
The application process takes less than a minute. Once administered, the
pharmacologic agent dissolves in the small amount of urine that remains in the
urethra. The pharmacologic agent is absorbed by the urethral mucosa and moves
across the adjacent tissue and into the erectile bodies. When successful, an
erection is produced within 15 minutes of administration and lasts approximately
30-60 minutes. Many patients experience transient penile pain and/or local
aching after administration and during intercourse.
Initial Pharmacologic Agent. Alprostadil is the first pharmacologic agent
used in the transurethral system for erection. Alprostadil is the generic name
for the synthetic version of prostaglandin E1, a naturally occurring vasodilator
present throughout the body and at high levels in seminal fluid.
Other Pharmacologic Agents. The Company is also engaged in the evaluation
and development of additional pharmacologic agents to treat erectile dysfunction
either alone or in combination with other agents. One such agent is prazosin, a
generic alpha-receptor blocker. The Company expects to begin a Phase III
multi-center trial in 1998 for its second product candidate, a combination of
alprostadil and prazosin delivered via the Company's transurethral system for
erection. The Company has several other product candidates in preclinical
development.
THE VIVUS STRATEGY
The Company's objective is to become the global leader in the development
and commercialization of innovative therapies for erectile dysfunction. The
Company is pursuing this objective with the following strategies:
Focus on Clinical Development and Regulatory Review. The Company has
sought and plans to continue to seek additional pharmacologic agents
suitable for transurethral delivery for which significant safety data
already exists. The Company believes that such agents may progress more
rapidly through the clinical development and regulatory process than agents
without preexisting safety data.
Expand the Market. The Company is seeking to increase the number of
men receiving treatment for erectile dysfunction by developing safe,
effective, discreet, easy to use, minimally-invasive products and by
heightening physician and consumer awareness of erectile dysfunction
through education.
Maintain Proprietary Technology. The Company has sought and will
continue to seek a strong proprietary position for the Company's
transurethral system for erection by pursuing patent protection in the
United States and key international countries.
Develop Novel Pharmacologic Agents. The Company is engaged in the
research and development of and may seek to license novel pharmacologic
agents that may provide an enhanced therapeutic benefit in the treatment of
erectile dysfunction, either alone or in combination with other agents.
Achieve Broad Distribution. The Company is initially marketing and
selling its products through a direct sales force in the United States, and
through distribution, co-promotion or license agreements with corporate
partners in foreign markets. In May 1996, the Company completed an
international marketing agreement with Astra AB (Astra) whereby Astra will
purchase the Company's products for resale in Europe, South America,
Central America, Australia and New Zealand. In January 1997, the Company
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signed an international marketing agreement with Janssen, a subsidiary of
Johnson & Johnson, whereby Janssen will purchase the Company's products for
resale in China, multiple Pacific Rim countries (excluding Japan), Canada,
Mexico and South Africa. In October 1997, the Company signed an
international marketing agreement, amending the earlier agreement with
Janssen, that expanded Janssen's territories to include the Middle East,
Russia, the Indian sub-continent, and Africa.
MANUFACTURING AND RAW MATERIALS
The Company has limited experience in manufacturing and selling MUSE
(alprostadil) in commercial quantities. Since the commercial launch of MUSE
(alprostadil) in January 1997, the Company has experienced product shortages due
to higher than expected demand and difficulties encountered in scaling up
production of MUSE (alprostadil). The Company leased 90,000 square feet of space
in New Jersey in which it has constructed additional manufacturing and testing
facilities. The Company has filed for regulatory authorization of this facility
with both the FDA and MCA. In March 1998, the MCA authorized the Company to
begin commercial production and shipment of MUSE (alprostadil) from its new
facility. In addition, the Company has negotiated a long-term lease for a site
in Ireland for construction of a European manufacturing operation. Until the
Company receives the required approvals for its new New Jersey facility,
domestic and certain international markets will need to be supplied from its
current facility at Paco. There can be no assurance that such approvals will be
granted in a timely manner, if at all. If international sales increase as
anticipated, product available for the domestic market will be reduced and gross
margins will be adversely impacted. If the Company encounters further
difficulties with its current manufacturing facility or delays in regulatory
approvals of its new manufacturing facility, capacity constraints could continue
for an extended period of time, which would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company obtains its supply of alprostadil from two sources. The first
is Spolana Chemical Works a.s. in Neratovice, Czech Republic ("Spolana")
pursuant to a supply agreement that was executed in May 1997. In January 1996,
the Company entered into an alprostadil supply agreement with CHINOIN
Pharmaceutical and Chemical Works Co., Ltd. ("Chinoin"). Chinoin is the
Hungarian subsidiary of the French pharmaceutical company Sanofi Winthrop.
Alprostadil, a generic drug, is extremely difficult to manufacture and is only
available to the Company from a limited number of other suppliers, none of which
currently produce it in commercial quantities. The Company is seeking additional
sources of alprostadil. In addition, the Company relies on a single injection
molding company, The Kipp Group ("Kipp"), for its supply of plastic applicator
components. In turn, Kipp obtains its supply of resin, a key ingredient of the
applicator, from a single source, Huntsman Corporation. The Company also relies
on a single source, E-Beam Services, Inc. ("E-Beam"), for sterilization of its
product. There can be no assurance that the Company will be able to identify and
qualify additional sources of alprostadil and plastic components and an
additional sterilization facility. The Company is required to receive FDA
approval for suppliers. The FDA may require additional clinical trials or other
studies prior to accepting a new supplier. Unless the Company secures and
qualifies additional sources of alprostadil and plastic components and an
additional sterilization facility, it will be entirely dependent upon the
existing suppliers and E-Beam. If interruptions in these supplies or services
were to occur for any reason, including a decision by existing suppliers and/or
E-Beam to discontinue manufacturing or services, political unrest, labor
disputes or a failure of existing suppliers and/or E-Beam to follow applicable
regulations, the development and commercial marketing of MUSE (alprostadil) and
other potential products could be delayed or prevented. An interruption in
sterilization services or the Company's supply of alprostadil or plastic
components would have a material adverse effect on the Company's business,
financial condition and results of operations.
The formulation, filling and packaging of MUSE (alprostadil) is performed
at Paco at its facility in Lakewood, New Jersey. In April 1995, Paco was
acquired by The West Company. In June 1995, the Company completed construction
of its approximately 6,000 square feet of dedicated manufacturing and testing
space within Paco's facility. This space is dedicated to manufacturing and
testing activities for the Company. Until the Company further develops its
in-house manufacturing capability, it will be substantially dependent upon Paco
for the manufacture of its products. There can be no assurance that the
Company's
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reliance on Paco will not result in problems with product supply. Interruptions
in the availability of MUSE (alprostadil) and other potential products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company obtains the necessary raw materials and components for the
manufacture of MUSE (alprostadil), as well as certain services, such as testing
and sterilization, from third parties. The Company currently contracts with
suppliers and service providers, including foreign manufacturers, that are
required to comply with strict standards established by the Company. Certain
suppliers and service providers are required by the Federal Food, Drug, and
Cosmetic Act, as amended, and by FDA regulations to follow cGMP requirements and
are subject to routine periodic inspections by the FDA and certain state and
foreign regulatory agencies for compliance with cGMP and other applicable
regulations. Certain of the Company's suppliers were inspected for cGMP
compliance as part of the approval process. However, upon routine re-inspection
of these facilities, there can be no assurance that the FDA will find the
manufacturing process or facilities to be in compliance with cGMP and other
regulations. A routine re-inspection of Chinoin, one of the Company's two
sources of alprostadil, resulted in the issuance of an FDA Form 483 which set
forth areas where Chinoin was not in compliance with cGMP requirements. Failure
to achieve satisfactory cGMP compliance as confirmed by routine inspections
could have a material adverse effect on the Company's ability to continue to
manufacture and distribute its products and, in the most serious case, result in
the issuance of a regulatory Warning Letter or seizure or recall of products,
injunction and/or civil fines.
In connection with post-approval inspections of the Company's New Jersey
manufacturing facility at Paco, the FDA issued the Company FDA Form 483s and a
Warning Letter, which detailed specific areas where the FDA observed that the
Company's operations were not in full compliance with some areas of cGMP
requirements. On November 19, 1997, after taking corrective action and providing
the FDA with a written response to the FDA observations, the Company received a
letter from the FDA affirming that the Company's facility at Paco is in
substantial compliance with cGMP requirements. Failure to maintain satisfactory
cGMP compliance would have a material adverse effect on the Company's ability to
continue to market and distribute its products and, in the most serious cases,
could result in the issuance of additional Warning Letters, seizure or recall of
products, civil fines or closure of the Company's manufacturing facility until
cGMP compliance is achieved.
SALES AND MARKETING
Before commercially launching its first product, MUSE (alprostadil), in
January 1997, the Company had no experience in the sale, marketing and
distribution of pharmaceutical products. The Company is marketing and selling
its products through a direct sales force in the United States. VIVUS currently
employs approximately 75 sales representatives who call upon urologists and
other specialists. Effective February 1998, the Company entered into a Sales
Force Services Agreement with Innovex Inc. ("Innovex"). Pursuant to the Sales
Force Services Agreement, Innovex will provide approximately 200 additional
contract sales representatives, the substantial majority of whom will be calling
upon primary care physicians. Accordingly, the Company's ability to increase
sales will be highly dependent upon the efforts of Innovex. There can be no
assurance that Innovex's sales efforts will be successful or that primary care
physicians will recommend the use of MUSE (alprostadil).
Because of production capacity constraints experienced by VIVUS, the
Company did not initiate significant MUSE advertising programs throughout 1997
and experienced declining demand for MUSE (alprostadil) in late 1997. In
anticipation of receiving regulatory approvals of its new manufacturing facility
and because of available inventories at the wholesale level, the Company
launched its first domestic direct-to-consumer advertising campaign in January
1998. This campaign includes major television, newspaper and magazine
placements. In February 1998, the FDA notified the Company that it objected to,
among other things, the prominence and balance of side effect information
relative to efficacy information in certain written materials and the Company's
television advertisements. The Company is no longer utilizing the prior written
materials and has modified its written materials in response to the FDA's
comments. If the FDA does not believe the modified written materials respond to
its concerns then further modifications would be required resulting in
additional cost and delay prior to the Company resuming its written advertising.
The Company has
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ceased running its television advertisements and requested a meeting with the
FDA to discuss necessary changes to the Company's television advertisements. If
the Company and the FDA cannot reach a prompt resolution regarding the necessary
changes to the Company's television advertisements, this could result in
additional cost and delay, and may prevent broadcast advertising on major
networks. Cost and delay associated with the FDA's objections to the Company's
direct-to-consumer advertising materials could have a negative effect upon the
Company's domestic sales and marketing efforts. There can be no assurance that
the Company's domestic sales and marketing efforts will be successful. In
addition, there can be no assurance that the Company's capacity restraints will
not prevent the Company from supplying any increased demand.
The Company markets and sells its products in foreign markets through
distribution, co-promotion or license agreements with corporate partners. To
date, the Company has entered into international marketing agreements with Astra
and Janssen. There can be no assurance that the Company will be able to
successfully enter into additional agreements with corporate partners upon
reasonable terms, if at all. To the extent that the Company enters into
distribution, co-promotion or license agreements for the sale of its products,
the Company will be dependent upon the efforts of third parties. There can be no
assurance that such efforts will be successful.
In February 1996, the Company entered into a distribution agreement with
CORD Logistics, Inc. ("CORD"), a wholly-owned subsidiary of Cardinal Health,
Inc. Under this agreement, CORD warehouses the Company's finished goods, takes
customer orders, picks, packs and ships its product, invoices customers and
collects related receivables. The Company also has access to CORD information
systems that support these functions. As a result of this distribution agreement
with CORD, the Company is heavily dependent on CORD's efforts to fulfill orders
and warehouse its products effectively. There can be no assurance such efforts
will be successful.
In May 1996, the Company entered into an international marketing agreement
with Astra to purchase the Company's products for resale in Europe, South
America, Central America, Australia and New Zealand. As consideration for
execution of the marketing agreement, Astra paid the Company $10 million in June
1996. In September 1996, the Company received a $10 million milestone payment
from Astra upon filing an application for marketing authorization for MUSE
(alprostadil) in the United Kingdom, and, in December 1997, received a $2
million milestone payment upon receiving approval of this application by the
MCA. The Company will be paid up to an additional $8 million in the event
certain other milestones are achieved. However, there can be no assurance that
such milestones will be achieved. As a result of this marketing agreement with
Astra, the Company is dependent on Astra's efforts to market, distribute and
sell the Company's products effectively in the above mentioned markets. There
can be no assurance that such efforts will be successful.
In July 1996, the Company entered into a distribution agreement with
Alternate Site Distributors, Inc. ("ASD"), a subsidiary of Bergen Brunswig
Corporation. ASD provides "direct-to-physician" distribution, telemarketing and
customer service capabilities in support of the U.S. marketing and sales
efforts. Pursuant to the terms of this agreement, ASD developed a customer
service organization to respond to all the Company's sales representative and
physician inquiries. A central feature of this customer service is a dedicated
Company owned toll free number with an automated response menu covering various
options. As a result of this distribution agreement with ASD, the Company is
dependent on ASD's efforts to distribute, telemarket, and provide customer
service effectively. There can be no assurance that such efforts will be
successful.
In January 1997, the Company signed an international marketing agreement
with Janssen, a subsidiary of Johnson & Johnson. Janssen will purchase the
Company's products for resale in China, multiple Pacific Rim countries
(excluding Japan), Canada, Mexico and South Africa. As consideration for
execution of the international marketing agreement, Janssen paid the Company $5
million. In October 1997, the Company signed an international marketing
agreement, amending the earlier agreement with Janssen, that expanded Janssen's
territories to include the Middle East, Russia, the Indian sub-continent, and
Africa. As consideration for execution of the expanded international territory
marketing agreement, Janssen paid the Company $2 million. The Company will
receive additional payments in the event certain other milestones are achieved.
However, there can be no assurance that such milestones will be achieved. As a
result of this distribution
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agreement with Janssen, the Company is dependent on Janssen's efforts to
distribute and sell the Company's products effectively in the above mentioned
markets. There can be no assurance that such efforts will be successful.
CLINICAL STUDIES AND COMMERCIAL EXPERIENCE
In mid-1995, the Company completed its Phase III Confirmatory studies for
MUSE (alprostadil) that were used as a basis for the New Drug Application
("NDA") submitted to the FDA in March 1996. MUSE (alprostadil) was cleared for
marketing by the FDA in November 1996. During in-clinic titration, 66 percent of
patients treated with MUSE (alprostadil) achieved an erection judged to be
sufficient for intercourse and tolerated the treatment. Of patients successfully
titrated, successful intercourse was reported by 64.9 percent of participants
using MUSE (alprostadil) versus 18.6 percent receiving placebo. Of all active
doses administered, 50.2 percent resulted in intercourse, compared to 10.4
percent of placebo doses. No increased risk of serious adverse events due to
MUSE (alprostadil) was found, and there were no reports of priapism (persistent
abnormal erection) or penile scarring. Eighty-eight (88) percent of patient
couples that commenced the Phase III Confirmation Study completed it. The most
common side effect reported was transient penile pain and less than one percent
of participants discontinued use due to discomfort. In patients who responded to
treatment with MUSE (alprostadil), there was a statistically significant
improvement in the patient's perception of his emotional well-being and in his
relationship with his partner compared to patients treated with placebo. From
the partner's perspective, there also was a statistically significant
improvement in her relationship with the patient compared to partners in the
placebo group. The Company has continued open label Extended Maintenance studies
for those patients electing to continue treatment.
During 1997, the first year of commercial use of MUSE (alprostadil), the
incidence of adverse side effects was consistent with that experienced in
clinical trials.
The Company's ongoing clinical trials will evaluate the long-term safety of
MUSE (alprostadil) for both the patient and his partner. Additional adverse side
effects may arise during the course of ongoing clinical trials or during
post-marketing surveilance. There can be no assurance that additional adverse
side effects will not arise that result in the FDA requiring limitations on use
or warnings that make the Company's products not commercially viable. Any
additional adverse side effects could have a material adverse effect on the
Company's business, financial condition and results of operations.
LICENSED PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to aggressively maintain its patent position and to
enforce all of its intellectual property rights.
The Company is the exclusive licensee of United States and Canadian patents
originally filed in the name of Dr. Gene Voss. These patents claim methods of
treating erectile dysfunction by the topical application of an ointment
containing a vasodilator. There are also claims to methods of treatment
involving the insertion of a catheter into the urethra to deliver vasodilators.
The Company is the exclusive licensee of patents and patent applications
filed in the name of Dr. Nils Kock in numerous countries. Five United States
patent applications are pending, and patents have been issued in Australia,
Canada, Japan, New Zealand, Sweden, South Africa and Europe (Austria, Belgium,
Germany, France, Great Britain, Ireland, Italy, Luxembourg, Netherlands, Sweden,
Greece and Spain). Patent applications are pending in Denmark and Finland. The
European patents claim compositions for the treatment of erectile dysfunction
through the urethra of certain active substances including alpha-receptor
blockers, vasoactive polypeptides, prostaglandins or nitroglycerin dispersed in
a hydrophilic vehicle. A competitor has filed a patent opposition against this
patent with the European Patent Office. The Company is vigorously defending this
patent, however, an adverse decision could affect the Company's ability, based
on its patent rights, to prevent potential competition in Europe. Failure to
defend its patent position could have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company is the exclusive assignee of two United States patents and
divisional patent applications from Alza Corporation ("Alza"), covering
inventions of Dr. Virgil Place made while he was an employee of Alza. The
patents and patent applications describe dosage forms for administering a
therapeutic agent to the urethra, methods for treating erectile dysfunction and
specific drug formulations that can be delivered transurethrally for the
treatment of erectile dysfunction. Five additional divisional or continuation
applications claiming subject matter disclosed but not claimed in the issued
patents or applications were filed in the United States on June 7, 1995; one of
these was re-filed October 28, 1997. All patents in force on June 8, 1995, or
that will issue on an application filed before June 8, 1995, will automatically
have a term that is the greater of twenty years from effective filing date or
seventeen years from the date of patent grant. Patent applications filed on or
after June 8, 1995 will be granted for a term which begins on the date the
patent issues and ends twenty years from the date on which the application was
filed in the United States or, if the application claims priority to an early
United States application, twenty years from the earliest effective United
States filing date. Foreign patents have been issued in South Africa and
Australia and foreign applications are pending in Canada, Finland, Ireland,
Mexico, Portugal, New Zealand, Japan, South Korea, Norway and Europe (Austria,
Belgium, Switzerland, Germany, Denmark, Spain, France, United Kingdom, Italy,
Luxembourg, Netherlands, Sweden and Greece).
The Company's license and assignment agreements for these patents and
patent applications are royalty bearing and do not expire until the licensed
patents expire. These license and assignment agreements provide that the Company
may assume responsibility for the maintenance and prosecution of the patents and
bring infringement actions.
In addition, the Company filed fifteen patent applications in the United
States, forty patent applications in foreign jurisdictions, and two Patent
Cooperation Treaty applications in 1997. Several of these applications further
address the prevention, treatment and diagnosis of erectile dysfunction, while
others are directed to prevention and/or treatment of other types of sexual
dysfunction, including premature ejaculation in men, and female sexual
dysfunction, generally. Other applications focus on prevention and/or treatment
of other conditions, including incontinence, prostate disorders such as benign
prostatic hyperplasia ("BPH"), and vascular disorders including peripheral
vascular disease ("PVD").
The Company's success will depend in large part on the strength of its
current and future patent position relating to the transurethral delivery of
pharmacologic agents for the treatment of erectile dysfunction. The Company's
patent position, like other pharmaceutical companies, is highly uncertain and
involves complex legal and factual questions. Claims made under patent
applications may be denied or significantly narrowed and the issued patents may
not provide significant commercial protection to the Company. The Company could
incur substantial costs in proceedings before the United States Patent and
Trademark Office, including interference proceedings. These proceedings could
also result in adverse decisions as to the priority of the Company's licensed or
assigned inventions. There is no assurance that the Company's patents will not
be successfully challenged or designed around by others.
The Company is presently involved in an opposition proceeding that was
instigated by the Pharmedic Company against a European patent that is
exclusively licensed to VIVUS. As a result of the opposition proceeding, certain
claims in the European patent were held to be unpatentable by the Opposition
Division of the European Patent Office ("EPO"). These claims all related to
pharmaceutical compositions that include prostaglandin E1. The patentability of
all other claims in the patent was confirmed (i.e., claims directed to the use
of active agents in the treatment of erectile dysfunction by administration via
the urethra to the corpora cavernosa, and a pharmaceutical composition claim for
prazosin). The Company appealed the EPO's decision with respect to the
pharmaceutical composition claims that were held unpatentable. The Pharmedic
Company appealed the EPO's decision with respect to the claims that were held
patentable, but has since withdrawn. Despite the withdrawal of the Pharmedic
Company from the appeal process, the Company has continued with its own appeal
in an attempt to reinstate the composition claims. The EPO Appeals Board must
make its own finding whether the claims that were deemed unpatentable by the
Opposition Division are indeed patentable before it can reverse the Opposition
Division's decision. There can be no assurance that the appeal will be
successful or that further challenges to the Company's European patent will not
occur should the Company try to enforce the patent in the various European
courts.
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There can be no assurance that the Company's products do not or will not
infringe on the patent or proprietary rights of others. The Company may be
required to obtain additional licenses to the patents, patent applications or
other proprietary rights of others. There can be no assurance that any such
licenses would be made available on terms acceptable to the Company, if at all.
If the Company does not obtain such licenses, it could encounter delays in
product introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring such licenses could be
precluded. The Company believes there will continue to be significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights.
A former consultant to the Company had claimed that he was the inventor of
certain technology disclosed in two of the Company's patents. The former
consultant further claimed that the Company and certain of its officers and
directors defrauded him by allegedly failing to inform him that it intended to
use and patent this technology and by failing to compensate him for the
technology in the manner allegedly promised. In May 1996, the Company filed a
complaint for declaratory judgment against the former consultant in the United
States District Court for the Northern District of California, which sought a
declaration from the court that the former consultant was not an inventor of any
of the technology. In September 1996, the consultant filed his counterclaim. In
December 1997, the Company reached a settlement with the former consultant
whereby the former consultant dismissed his claims against the Company and the
Company's officers and directors involved in the lawsuit. In return, the Company
paid the consultant $5.1 million. The Company recorded the settlement on its
books in the fourth quarter of 1997 and paid the settlement on January 5, 1998.
In addition to its patent portfolio, the Company also relies on trade
secrets and other unpatented proprietary technology. No assurance can be given
that the Company can meaningfully protect its rights in such unpatented
proprietary technology or that others will not independently develop
substantially equivalent proprietary products and processes or otherwise gain
access to the Company's proprietary technology. The Company seeks to protect its
trade secrets and proprietary know-how, in part, with confidentiality agreements
with employees and consultants. There can be no assurance that the agreements
will not be breached, that the Company will have adequate remedies for any
breach or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. In addition, protracted and costly
litigation may be necessary to enforce and determine the scope and validity of
the Company's proprietary rights.
COMPETITION
Competition in the pharmaceutical and medical products industries is
intense and characterized by extensive research efforts and rapid technological
progress. Certain treatments for erectile dysfunction exist, such as needle
injection therapy, vacuum constriction devices, penile implants and oral
medications, and the manufacturers of these products will continue to improve
these therapies. In July 1995, the FDA approved the use of alprostadil in The
Upjohn Company's needle injection therapy product for erectile dysfunction.
Previously, Upjohn had obtained approval in a number of European countries. In
June 1997, Schwartz Pharma announced the FDA approval of their needle injection
treatment for erectile dysfunction. Additional competitive therapies include an
oral medication by Pfizer Inc., for which they received regulatory approval in
the United States in March 1998 and have filed for regulatory approvals in
Europe. Commercial introduction of Pfizer Inc.'s oral medication could have a
material adverse affect on the Company's business, financial condition and
results of operations. Other large pharmaceutical companies are also actively
engaged in the development of therapies for the treatment of erectile
dysfunction. These companies have substantially greater research and development
capabilities as well as substantially greater marketing, financial and human
resources than the Company. In addition, these companies have significantly
greater experience than the Company in undertaking preclinical testing, human
clinical trials and other regulatory approval procedures. There are also small
companies, academic institutions, governmental agencies and other research
organizations that are conducting research in the area of erectile dysfunction.
For instance, Zonagen, Inc. and Pentech Pharmaceutical, Inc. have oral
medications in Phase III clinical trials. These entities may also market
commercial products either on their own or through collaborative efforts. For
example, Zonagen, Inc. announced a worldwide marketing agreement with
Schering-Plough in November 1997. The Company's competitors may develop
technologies and products that are more effective than those currently marketed
or
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being developed by the Company. Such developments would render the Company's
products less competitive or possibly obsolete. The Company is also competing
with respect to marketing capabilities and manufacturing efficiency, areas in
which it has limited experience.
GOVERNMENT REGULATION
The production and marketing of the Company's proposed products and its
research and development activities are subject to regulation for safety,
effectiveness and quality by numerous governmental authorities in the United
States and other countries. In the United States, drug products are subject to
rigorous FDA regulation. The Federal Food, Drug, and Cosmetic Act, as amended,
the regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, advertising and promotion of
the Company's products. Product development and approval within this regulatory
framework takes a number of years to achieve and involves the expenditure of
substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an
Investigational New Drug ("IND") application for human clinical testing, which
must become effective before human clinical trials commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and effectiveness
of the drug, (iv) the submission of an NDA to the FDA, and (v) the FDA clearance
for marketing of the NDA prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic and foreign manufacturing establishments are subject to biennial
inspections by the FDA and must comply with cGMPs for both drugs and devices. To
supply products for use in the United States, foreign manufacturing
establishments must comply with cGMPs and are subject to periodic inspection by
the FDA or by corresponding regulatory agencies in such countries under
reciprocal agreements with the FDA. The Company's contract manufacturing and new
manufacturing sites, both located in New Jersey, must also be licensed by the
State of New Jersey and must comply with New Jersey's regulatory requirements.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
effectiveness of the product. Compounds must be adequately manufactured and
preclinical safety tests must be conducted by laboratories that comply with FDA
requirements. The results of the preclinical tests are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to the commencement of human
clinical trials. There can be no assurance that submission of an IND will result
in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to patients, under the supervision of a qualified clinical investigator.
Clinical trials are conducted in accordance with Good Clinical Practices under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be conducted under the auspices of an independent Institutional Review
Board ("IRB"). The IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy subjects, the drug is tested for safety, dosage tolerance, absorption,
distribution, metabolism, excretion and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to (i)
determine the effectiveness of the drug for specific, targeted indications, (ii)
determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. When a compound is found to be effective and
to have an acceptable safety profile in Phase II evaluations, Phase III trials
are undertaken to further evaluate clinical effectiveness and to further test
for safety within an expanded patient population at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed within any specific time period, if at all, with
respect to any of the Company's products subject to such testing. Furthermore,
the Company or
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the FDA may suspend clinical trials at any time if it is believed that the
patients are being exposed to an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The Company submitted an NDA
for MUSE (alprostadil) in March 1996, and the FDA approved the NDA in November
1996. Although MUSE (alprostadil) received FDA approval, the testing and
approval process for the Company's other potential products will require
substantial time and effort, and there can be no assurance that any approval
will be granted on a timely basis, if at all. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, require additional testing or
information, or require postmarketing testing and surveillance to monitor the
safety of the Company's products if they do not view the NDA as containing
adequate evidence of the safety and effectiveness of the drug. Notwithstanding
the submission of such data, the FDA may ultimately decide that the application
does not satisfy its regulatory criteria for approval. Moreover, if regulatory
approval of a drug is granted, such approval may entail limitations on the
indicated uses for which it may be marketed. In addition, after regulatory
approval is obtained, the Company's products are subject to continual review.
Manufacturing, labeling and promotional activities are continually regulated by
the FDA, and the Company must also report certain adverse events involving its
drugs to the FDA under regulations issued by the Agency. Previously unidentified
adverse events or an increased frequency of adverse events that occur
post-approval could result in labeling modifications of approved products, which
could adversely effect future marketing of a drug. Finally, approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Among the conditions for an NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMPs. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance.
The Company and certain of its suppliers and service providers are subject
to routine periodic inspections by the FDA and certain state and foreign
regulatory agencies for compliance with cGMP and other applicable regulations.
Certain of the Company's suppliers and service providers were inspected for cGMP
compliance as part of the approval process. However, upon routine re-inspection
of these facilities, there can be no assurance that the FDA will find the
manufacturing process or facilities to be in compliance with cGMP and other
regulations. A routine re-inspection of Chinoin, one of the Company's two
sources of alprostadil, resulted in the issuance of an FDA Form 483 which set
forth areas where Chinoin was not in compliance with cGMP requirements. Failure
to achieve satisfactory cGMP compliance as confirmed by routine regulatory
inspections could have a material adverse effect on the Company's ability to
continue to manufacture and distribute its products and, in the most serious
cases, result in the issuance of a regulatory Warning Letter or seizure or
recall of products, injunction and/or civil fines.
In connection with post-approval inspections of the Company's New Jersey
manufacturing facility at Paco, the FDA issued the Company FDA Form 483s and a
Warning Letter, which detailed specific areas where the FDA observed that the
Company's operations were not in full compliance with some areas of cGMP
requirements. On November 19, 1997, after taking corrective action and providing
the FDA a written response to the FDA observations, the Company received a
letter from the FDA affirming that the Company's facility at Paco is in
substantial compliance with cGMP requirements. Failure to maintain satisfactory
cGMP compliance could have a material adverse effect on the Company's ability to
continue to market and distribute its products and, in the most serious cases,
could result in the issuance of additional Warning Letters, seizure or recall of
products, civil fines or closure of the Company's manufacturing facility until
cGMP compliance is achieved.
For clinical investigation and marketing in Europe, the Company is also
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for drugs. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely for European
countries both within and outside the European Union ("EU"). The Company's
approach to the European regulatory process involved the identification of
respected clinical investigators in the member states of the EU and other
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European countries to conduct clinical studies. The Company designed these
studies to meet FDA, EU and other European countries' standards. Within the EU,
while marketing authorizations must be supported by clinical trial data of a
type and extent set out by EU directives and guidelines, the approval process
for the commencement of clinical trials is just beginning to be harmonized by EU
law, and still varies from country to country. The system for obtaining
marketing authorizations within the EU changed on January 1, 1995. The new EU
registration system is a dual one in which certain products, such as
biotechnology and high-technology products and those containing new active
substances, have access to a central regulatory system that provides
registration throughout the entire EU. Other products will be registered by
national authorities in individual EU member states, operating on a principle of
mutual recognition. As far as possible, the Company's studies were designed to
develop a regulatory package sufficient for multi-country approval in the
European markets without the need to duplicate studies for individual country
approvals. In November 1997, the Company obtained regulatory marketing clearance
by the MCA to market MUSE (alprostadil) in the United Kingdom. In addition,
applications for regulatory approval to market MUSE (alprostadil) have been
submitted in several other European countries, including Sweden, Norway and
Switzerland. These applications will be subject to rigorous approval processes,
and there can be no assurance such approval will be granted in a timely manner,
if at all.
Outside the United States and Europe, the Company's ability to market a
product is contingent upon receiving a marketing authorization from the
appropriate regulatory authority. Applications for regulatory approval have been
filed in several other countries, including China, Australia, Canada and Mexico.
These foreign regulatory approval processes include all of the risks associated
with FDA approval previously discussed.
EMPLOYEES
As of February 27, 1998 the Company employed 233 persons, of whom four are
part-time. Of these employees, 62 are in manufacturing, 16 are in clinical and
regulatory affairs, 10 are in research and development, 29 are in quality
assurance, 90 are in sales and marketing, one is in corporate development and 25
are in finance and administration. None of the Company's current employees are
represented by a labor union or are the subject of a collective bargaining
agreement. The Company believes that it maintains good relations with its
employees.
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This Annual Report on Form 10-K contains forward looking statements that
involve risks and uncertainties. The Company's actual results could differ from
those set forth in such forward looking statements as a result of certain
factors, including those set forth in this Risk Factors section.
RISK FACTORS
LIMITED MANUFACTURING EXPERIENCE; CAPACITY CONSTRAINTS
The Company has limited experience in manufacturing MUSE (alprostadil) in
commercial quantities. Since the commercial launch of MUSE (alprostadil) in
January 1997, the Company has experienced product shortages due to higher than
expected demand and difficulties encountered in scaling up production of MUSE
(alprostadil). The Company leased 90,000 square feet of space in New Jersey in
which it has constructed additional manufacturing and testing facilities. The
Company has filed for regulatory authorization of this facility with both the
FDA and MCA. In March 1998, the MCA authorized the Company to begin commercial
production and shipment of MUSE (alprostadil) from its new facility. Before the
new facility in New Jersey can produce commercial product for the United States
and certain other markets, the Company must obtain FDA approval. There is no
assurance FDA approval will be completed and obtained in a timely manner, if at
all. Until the Company receives the required approvals for its new New Jersey
facility, domestic and certain international markets will need to be supplied
from its current facility at Paco Pharmaceutical Services, Inc. ("Paco"). If
international sales increase as anticipated, product available for the domestic
market will be reduced and gross margins will be adversely impacted. If the
Company encounters further difficulties with its current manufacturing facility
or delays in regulatory approval of its new manufacturing facility, capacity
constraints could continue for an extended period of time. Such extended
capacity constraints could strain relationships with distribution partners due
to the need to allocate product between domestic and international markets, and
possibly cause patients to seek alternative therapies. Such events could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company anticipates an operating loss in the first
quarter of 1998 primarily due to the impact of the continued capacity
constraints, allocation of product to international markets which results in a
lower gross margin, higher costs of goods sold as the Company ramps up its new
manufacturing facility, and higher marketing and sales costs related to the
Company's direct to consumer marketing campaign.
The formulation, filling and packaging of MUSE (alprostadil) is performed
at Paco, a wholly owned subsidiary of The West Company, at its facility in
Lakewood, New Jersey. In June 1995, the Company completed construction of its
approximately 6,000 square feet of dedicated manufacturing and testing space
within Paco's facility. Due to higher than expected demand, the Company has
leased two adjacent buildings in New Jersey, totalling 90,000 square feet, in
which it has constructed additional manufacturing and testing facilities. Until
the Company further develops its in-house manufacturing capability, it will be
substantially dependent upon Paco for the manufacture of its products. There can
be no assurance that the Company's reliance on Paco for the manufacture of its
products will not result in problems with product supply, and there can be no
assurance that the Company will receive FDA approval for or be able to ramp-up
its second manufacturing facility in a timely manner, if at all. Interruptions
in the availability of products could delay or prevent the further development
and commercial marketing of MUSE (alprostadil) and other potential products and
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company and certain of its suppliers and service providers are subject
to routine periodic inspections by the FDA and certain state and foreign
regulatory agencies for compliance with cGMP and other applicable regulations.
Certain of the Company's suppliers were inspected for compliance with cGMP
requirements as part of the approval process. However, upon routine
re-inspection of these facilities, there can be no assurance that the FDA will
find the manufacturing process or facilities to be in compliance with cGMP and
other regulations. A routine re-inspection of Chinoin, one of the Company's two
sources of alprostadil, resulted in the issuance of an FDA Form 483 which set
forth areas where Chinoin was not in compliance with cGMP requirements. Failure
to achieve satisfactory cGMP compliance as confirmed by routine regulatory
inspections would have a significant adverse effect on the Company's ability to
continue to manufacture and distribute its
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products and, in the most serious cases, result in the issuance of a regulatory
warning letter or seizure or recall of products, injunction and/or civil fines.
In connection with post-approval inspections of the Company's New Jersey
manufacturing facility at Paco, the FDA issued the Company FDA Form 483s and a
Warning Letter, which detailed specific areas where the FDA observed that the
Company's operations were not in full compliance with some areas of cGMP
requirements. On November 19, 1997, after taking corrective action and providing
the FDA a written response to the FDA observations, the Company received a
letter from the FDA affirming that the Company's facility at Paco is in
substantial compliance with cGMP requirements. Failure to maintain satisfactory
cGMP compliance could have a material adverse effect on the Company's ability to
continue to market and distribute its products and, in the most serious cases,
could result in the issuance of additional Warning Letters, seizure or recall of
products, civil fines or closure of the Company's manufacturing facility until
cGMP compliance is achieved.
LIMITED SALES AND MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
Before commercially launching its first product, MUSE (alprostadil), in
January 1997, the Company had no experience in the sale, marketing and
distribution of pharmaceutical products. The Company is marketing and selling
its products initially through a direct sales force in the United States. VIVUS
currently employs approximately 75 sales representatives who call upon
urologists and other specialists. Effective February 1998, the Company entered
into a Sales Force Services Agreement with Innovex Inc. ("Innovex"). Pursuant to
the Sales Force Services Agreement, Innovex will provide approximately 200
additional contract sales representatives, the substantial majority of whom will
be calling upon primary care physicians. Accordingly, the Company's ability to
increase sales will be highly dependent upon the efforts of Innovex. There can
be no assurance that Innovex's sales efforts will be successful or that primary
care physicians will recommend the use of MUSE (alprostadil).
Because of production capacity constraints experienced by VIVUS, the
Company did not initiate significant MUSE (alprostadil) advertising programs
throughout 1997 and experienced declining demand for MUSE (alprostadil) in late
1997. In anticipation of receiving regulatory approvals of its new manufacturing
facility and because of available inventories at the wholesale level, the
Company launched its first domestic direct-to-consumer advertising campaign in
January 1998. This campaign includes major television, newspaper and magazine
placements. In February 1998, the FDA notified the Company that it objected to,
among other things, the prominence and balance of side effect information
relative to efficacy information in certain written materials and the Company's
television advertisements. The Company is no longer utilizing the prior written
materials and has modified its written materials in response to the FDA's
comments. If the FDA does not believe the modified written materials respond to
its concerns then further modifications would be required resulting in
additional cost and delay prior to the Company resuming its written advertising.
The Company has ceased running its television advertisements and requested a
meeting with the FDA to discuss necessary changes to the Company's television
advertisements. If the Company and the FDA cannot reach a prompt resolution
regarding the necessary changes to the Company's television advertisements, this
could result in additional cost and delay, and may prevent broadcast advertising
on major networks. Cost and delay associated with the FDA's objections to the
Company's direct-to-consumer advertising materials could have a negative effect
upon the Company's domestic sales and marketing efforts. There can be no
assurance that the Company's domestic sales and marketing efforts will be
successful at increasing the demand for MUSE (alprostadil). In addition, there
can be no assurance that the Company's capacity restraints will not prevent the
Company from supplying any increased demand.
In February 1996, the Company entered into a distribution agreement with
CORD Logistics, Inc. ("CORD"), a wholly-owned subsidiary of Cardinal Health,
Inc. Under this agreement, CORD warehouses the Company's finished goods, takes
customer orders, picks, packs and ships its product, invoices customers and
collects related receivables. The Company also has access to CORD's information
systems that support these functions. As a result of this distribution agreement
with CORD, the Company is heavily dependent on CORD's efforts to fulfill orders
and warehouse its products effectively. There can be no assurance such efforts
will be successful.
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In May 1996, the Company entered into an international marketing agreement
with Astra to purchase the Company's products for resale in Europe, South
America, Central America, Australia and New Zealand. As consideration for
execution of the international marketing agreement, Astra paid the Company $10
million in June 1996. In September 1996, the Company received a $10 million
milestone payment from Astra upon filing an application for marketing
authorization for MUSE (alprostadil) in the United Kingdom, and, in December
1997, received a $2 million milestone payment upon receiving approval of this
application by the MCA. The Company will be paid up to an additional $8 million
in the event certain other milestones are achieved. However, there can be no
assurance that such milestones will be achieved. The marketing agreement does
not have minimum purchase commitments, and Astra may take up to twelve months to
introduce a product in a given country following regulatory approval in such
country. As a result of this marketing agreement with Astra, the Company is
dependent on Astra's efforts to market, distribute and sell the Company's
products effectively in the above mentioned markets. There can be no assurance
that such efforts will be successful.
In July 1996, the Company entered into a distribution agreement with ASD, a
subsidiary of Bergen Brunswig Corporation. ASD provides "direct-to-physician"
distribution, telemarketing and customer service capabilities in support of the
U.S. marketing and sales efforts. As a result of this distribution agreement
with ASD, the Company is dependent on ASD's efforts to distribute, telemarket,
and provide customer service effectively. There can be no assurance that such
efforts will be successful.
In January 1997, the Company signed an international marketing agreement
with Janssen, a subsidiary of Johnson & Johnson. Janssen will purchase the
Company's products for resale in China, multiple Pacific Rim countries
(excluding Japan), Canada, Mexico and South Africa. As consideration for
execution of the international marketing agreement, Janssen paid the Company $5
million. In October 1997, the Company signed an international marketing
agreement, amending the earlier agreement with Janssen, that expanded Janssen's
territories to include the Middle East, Russia, the Indian sub-continent, and
Africa. As consideration for execution of the expanded international territory
marketing agreement, Janssen paid the Company $2 million. The Company will
receive additional payments in the event certain other milestones are achieved.
However, there can be no assurance that such milestones will be achieved. As a
result of this distribution agreement with Janssen, the Company is dependent on
Janssen's efforts to distribute and sell the Company's products effectively in
the above mentioned markets. There can be no assurance that such efforts will be
successful.
The Company intends to market and sell its products in other foreign
markets through distribution, co-promotion or license agreements with corporate
partners. To date, the Company has entered into international marketing
agreements with Astra and Janssen. There can be no assurance that the Company
will be able to successfully enter into additional agreements with corporate
partners upon reasonable terms, if at all. To the extent that the Company enters
into distribution, co-promotion or license agreements for the sale of its
products, the Company will be dependent upon the efforts of third parties. These
third parties may have other commitments, and there can be no assurance that
they will commit the necessary resources to effectively market, distribute and
sell the Company's product.
INTENSE COMPETITION
Competition in the pharmaceutical and medical products industries is
intense and is characterized by extensive research efforts and rapid
technological progress. Certain treatments for erectile dysfunction exist, such
as needle injection therapy, vacuum constriction devices, penile implants and
oral medications, and the manufacturers of these products will continue to
improve these therapies. In July 1995, the FDA approved the use of alprostadil
in The Upjohn Company's needle injection therapy product for erectile
dysfunction. Previously, Upjohn had obtained approval in a number of European
countries. In June 1997, Schwartz Pharma announced the FDA approval of their
needle injection treatment for erectile dysfunction. Additional competitive
therapies include an oral medication by Pfizer Inc., for which they received
regulatory approval in the United States in March 1998 and have filed for
regulatory approval in Europe. Commercial introduction of Pfizer Inc.'s oral
medication could have a material adverse affect on the Company's business,
financial condition and results of operations. Other large pharmaceutical
companies are also actively engaged in the
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development of therapies for the treatment of erectile dysfunction. These
companies have substantially greater research and development capabilities as
well as substantially greater marketing, financial and human resources than the
Company. In addition, these companies have significantly greater experience than
the Company in undertaking preclinical testing, human clinical trials and other
regulatory approval procedures. There are also small companies, academic
institutions, governmental agencies and other research organizations that are
conducting research in the area of erectile dysfunction. For instance, Zonagen,
Inc. and Pentech Pharmaceutical, Inc. have oral medications in Phase III
clinical trials. These entities may market commercial products either on their
own or through collaborative efforts. For example, Zonagen, Inc. announced a
worldwide marketing agreement with Schering-Plough in November 1997. The
Company's competitors may develop technologies and products that are more
effective than those currently marketed or being developed by the Company. Such
developments would render the Company's products less competitive or possibly
obsolete. The Company is also competing with respect to marketing capabilities
and manufacturing efficiency, areas in which it has limited experience.
DEPENDENCE ON THE COMPANY'S TRANSURETHRAL SYSTEM FOR ERECTION
The Company currently relies upon a single therapeutic approach to treat
erectile dysfunction, its transurethral system for erection. Certain side
effects have been found to occur with the use of MUSE (alprostadil). Mild to
moderate transient penile/perineal pain was experienced by 21 percent to 42
percent of patients (depending on dosage) treated with MUSE (alprostadil) in the
Company's Phase II/III Dose Ranging study. Moderate to severe decreases in blood
pressure were experienced by 1 percent to 4 percent of patients (depending on
dosage) treated with MUSE (alprostadil) in such study, and rarely (0.4 percent)
patients experienced syncope (fainting). During 1997, the first year of
commercial use of MUSE (alprostadil), the incidence of adverse side effects was
consistent with that experienced in clinical trials.
The existence of side effects or dissatisfaction with product results may
impact a patient's decision to use or continue to use, or a physician's decision
to recommend, MUSE (alprostadil) as a therapy for the treatment of erectile
dysfunction thereby affecting the commercial viability of MUSE (alprostadil). In
addition, technological changes or medical advancements could diminish or
eliminate the commercial viability of the Company's products. As a result of the
Company's single therapeutic approach and its current focus on MUSE
(alprostadil), the failure to successfully commercialize such product would have
an adverse effect on the Company and could threaten the Company's ability to
continue as a viable entity.
GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
The Company's research, preclinical development, clinical trials,
manufacturing and marketing of its products are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Clinical trials, manufacturing and marketing of the Company's products will be
subject to the rigorous testing and approval processes of the FDA and equivalent
foreign regulatory agencies. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The Company completed pivotal
clinical trials in 1995 and submitted an NDA for its first product, MUSE
(alprostadil), to the FDA in March 1996. In November 1996, the Company received
final marketing clearance from the FDA for MUSE (alprostadil). In November 1997,
the Company obtained regulatory marketing clearance by the MCA to market MUSE
(alprostadil) in the United Kingdom.
After regulatory approval is obtained, the Company's products are subject
to continual review. Manufacturing, labeling and promotional activities are
continually regulated by the FDA, and the Company must also report certain
adverse events involving its drugs to the Agency under regulations issued by the
FDA. Additionally, previously unidentified adverse events or an increased
frequency of adverse events that occur post-approval could result in labeling
modifications of approved products, which could adversely effect future
marketing of a drug. Finally, approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. The restriction, suspension or revocation of regulatory approvals or
any other failure to comply with regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
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The Company has submitted applications for approval of MUSE (alprostadil)
in several other countries, including China, Australia, Canada and Mexico. These
applications will be subject to rigorous approval processes. There can be no
assurance that approval in these or other countries will be granted on a timely
basis, if at all, or if granted, that such approval will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to condition of use. Any delay in obtaining, or failure to obtain such
approval would adversely affect the Company's ability to generate product
revenue.
The Company's clinical trials for future products will generate safety data
as well as efficacy data and will require substantial time and significant
funding. There is no assurance that clinical trials related to future products
will be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it is believed
that the subjects participating in such trials are being exposed to unacceptable
health risks. There can be no assurance that FDA or other regulatory approvals
for any products developed by the Company will be granted on a timely basis, if
at all, or if granted, that such approval will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to conditions of use. Any delay in obtaining, or failure to obtain, such
approvals would adversely affect the Company's ability to generate product
revenue. Failure to comply with the applicable regulatory requirements can,
among other things, result in fines, suspensions of regulatory approvals,
product recalls, operating restrictions and criminal prosecution. In addition,
the marketing and manufacturing of pharmaceutical products are subject to
continuing FDA review, and later discovery of previously unknown problems with a
product, manufacturer or facility may result in the FDA requiring further
clinical research or restrictions on the product or the manufacturer, including
withdrawal of the product from the market. The restriction, suspension or
revocation of regulatory approvals or any other failure to comply with
regulatory requirements would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company obtains the necessary raw materials and components for the
manufacture of MUSE (alprostadil) as well as certain services, such as testing
and sterilization, from third parties. The Company currently contracts with
suppliers and service providers, including foreign manufacturers, that are
required to comply with strict standards established by the Company. Certain
suppliers and service providers are required by the Federal Food, Drug, and
Cosmetic Act, as amended, and by FDA regulations to follow cGMP requirements and
are subject to routine periodic inspections by the FDA and certain state and
foreign regulatory agencies for compliance with cGMP and other applicable
regulations. Certain of the Company's suppliers were inspected for cGMP
compliance as part of the approval process. However, upon routine re-inspection
of these facilities, there can be no assurance that the FDA will find the
manufacturing process or facilities to be in compliance with cGMP and other
regulations. A routine re-inspection of Chinoin, one of the Company's two
sources of alprostadil, resulted in the issuance of an FDA Form 483 which set
forth areas where Chinoin was not in compliance with cGMP requirements. Failure
to achieve satisfactory cGMP compliance as confirmed by routine inspections
could have a material adverse effect on the Company's ability to continue to
manufacture and distribute its products and, in the most serious case, result in
the issuance of a regulatory Warning Letter or seizure or recall of products,
injunction and/or civil fines.
In connection with post-approval inspections of the Company's New Jersey
manufacturing facility at Paco, the FDA issued the Company FDA Form 483s and a
Warning Letter, which detailed specific areas where the FDA observed that the
Company's operations were not in full compliance with some areas of cGMP
requirements. On November 19, 1997, after taking corrective action and providing
the FDA a written response to the FDA observations, the Company received a
letter from the FDA affirming that the Company's facility at Paco is in
substantial compliance with cGMP requirements. Failure to maintain satisfactory
cGMP compliance could have a material adverse effect on the Company's ability to
continue to market and distribute its products and, in the most serious cases,
could result in the issuance of additional Warning Letters, seizure or recall of
products, civil fines or closure of the Company's manufacturing facility until
cGMP compliance is achieved.
PROPRIETARY RIGHTS AND RISK OF PATENT LITIGATION
The Company's success will depend, in large part, on the strength of its
current and future patent position relating to the transurethral delivery of
pharmacologic agents for the treatment of erectile dysfunction. The
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Company's patent position, like that of other pharmaceutical companies, is
highly uncertain and involves complex legal and factual questions. Claims made
under patent applications may be denied or significantly narrowed and issued
patents may not provide significant commercial protection to the Company. The
Company could incur substantial costs in proceedings before the United States
Patent Office, including interference proceedings. These proceedings could also
result in adverse decisions as to the priority of the Company's licensed or
assigned inventions. There is no assurance that the Company's patents will not
be successfully challenged or designed around by others.
The Company is presently involved in an opposition proceeding that was
instigated by the Pharmedic Company against a European patent that is
exclusively licensed to VIVUS. As a result of the opposition proceeding, certain
claims in the European patent were held to be unpatentable by the Opposition
Division of the European Patent Office ("EPO"). These claims all related to
pharmaceutical compositions that include prostaglandin E1. The patentability of
all other claims in the patent was confirmed (i.e., claims directed to the use
of active agents in the treatment of erectile dysfunction by administration via
the urethra to the corpora cavernosa, and a pharmaceutical composition claim for
prazosin). The Company appealed the EPO's decision with respect to the
pharmaceutical composition claims that were held unpatentable. The Pharmedic
Company appealed the EPO's decision with respect to the claims that were held
patentable, but has since withdrawn. Despite the withdrawal of the Pharmedic
Company from the appeal process, the Company has continued with its own appeal
in an attempt to reinstate the composition claims. The EPO Appeals Board must
make its own finding whether the claims that were deemed unpatentable by the
Opposition Division are indeed patentable before it can reverse the Opposition
Division's decision. There can be no assurance that the appeal will be
successful or that further challenges to the Company's European patent will not
occur should the Company try to enforce the patent in the various European
courts.
There can be no assurance that the Company's products do not or will not
infringe on the patent or proprietary rights of others. The Company may be
required to obtain additional licenses to the patents, patent applications or
other proprietary rights of others. There can be no assurance that any such
licenses would be made available on terms acceptable to the Company, if at all.
If the Company does not obtain such licenses, it could encounter delays in
product introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring such licenses could be
precluded. The Company believes there will continue to be significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights.
A former consultant to the Company had claimed that he was the inventor of
certain technology disclosed in two of the Company's patents. The former
consultant further claimed that the Company and certain of its officers and
directors defrauded him by allegedly failing to inform him that it intended to
use and patent this technology and by failing to compensate him for the
technology in the manner allegedly promised. In May 1996, the Company filed a
complaint for declaratory judgment against the former consultant in the United
States District Court for the Northern District of California, which sought a
declaration from the court that the former consultant was not an inventor of any
of the technology. In September 1996, the consultant filed his counterclaim. In
December 1997, the Company reached a settlement with the former consultant
whereby the former consultant dismissed his claims against the Company and the
Company's officers and directors involved in the lawsuit. In return, the Company
paid the consultant $5.1 million. The Company recorded the settlement on its
books in the fourth quarter of 1997 and paid the settlement on January 5, 1998.
The Company also relies on trade secrets and other unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. The
Company seeks to protect its trade secrets and proprietary know-how, in part,
with confidentiality agreements with employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights.
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DEPENDENCE ON DUAL AND SINGLE SOURCE OF SUPPLY
The Company obtains its supply of alprostadil from two sources. The first
is Spolana Chemical Works a.s. in Neratovice, Czech Republic ("Spolana")
pursuant to a supply agreement that was executed in May 1997. In January 1996,
the Company entered into an alprostadil supply agreement with CHINOIN
Pharmaceutical and Chemical Works Co., Ltd. ("Chinoin"). Chinoin is the
Hungarian subsidiary of the French pharmaceutical company Sanofi Winthrop.
Alprostadil, a generic drug, is extremely difficult to manufacture and is only
available to the Company from a limited number of other suppliers, none of which
currently produce it in commercial quantities. The Company is seeking additional
sources of alprostadil. In addition, the Company relies on a single injection
molding company, The Kipp Group ("Kipp"), for its supply of plastic applicator
components. In turn, Kipp obtains its supply of resin, a key ingredient of the
applicator, from a single source, Huntsman Corporation. The Company also relies
on a single source, E-Beam Services, Inc. ("E-Beam"), for sterilization of its
product. There can be no assurance that the Company will be able to identify and
qualify additional sources of alprostadil and plastic components and an
additional sterilization facility. The Company is required to receive FDA
approval for suppliers. The FDA may require additional clinical trials or other
studies prior to accepting a new supplier. Unless the Company secures and
qualifies additional sources of alprostadil and plastic components and an
additional sterilization facility, it will be entirely dependent upon the
existing suppliers and E-Beam. If interruptions in these supplies or services
were to occur for any reason, including a decision by existing suppliers and/or
E-Beam to discontinue manufacturing or services, political unrest, labor
disputes or a failure of the existing suppliers and/or E-Beam to follow
regulatory guidelines, the development and commercial marketing of MUSE
(alprostadil) and other potential products could be delayed or prevented. An
interruption in sterilization services or the Company's supply of alprostadil or
plastic components would have a material adverse effect on the Company's
business, financial condition and results of operations.
HISTORY OF LOSSES AND LIMITED OPERATING HISTORY
The Company has generated a cumulative net loss of $29.5 million for the
period from its inception through December 31, 1997. To sustain profitability,
the Company must successfully manufacture and market MUSE (alprostadil). The
Company is subject to a number of risks including its ability to scale-up
manufacturing capabilities and secure adequate supplies of raw materials, its
ability to successfully market, distribute and sell its product, its reliance on
a single therapeutic approach to erectile dysfunction and intense competition.
There can be no assurance that the Company will be able to achieve profitability
on a sustained basis. Accordingly, there can be no assurance of the Company's
future success. The Company anticipates an operating loss in the first quarter
of 1998 primarily due to the impact of the continued capacity constraints,
allocation of product to international markets which results in a lower gross
margin, higher cost of goods sold as the Company ramps up its new manufacturing
facility, and higher marketing and sales costs related to the Company's direct
to consumer marketing campaign.
The Company began generating revenues from product sales in January 1997.
The Company has limited experience in manufacturing and selling MUSE
(alprostadil) in commercial quantities. Until the Company receives FDA approval
for its New New Jersey manufacturing facility, domestic and certain
international markets will need to be supplied from its current facility at
Paco. There can be no assurance such approval will be granted in a timely
manner, if at all. If international sales increase as anticipated, product
available for the domestic market will be reduced and gross margins will be
adversely impacted. If the Company encounters further difficulties with its
current manufacturing facility or delays in regulatory approval of its new
manufacturing facility, capacity constraints could continue for an extended
period of time. Such extended capacity constraints could strain relationships
with distribution partners due to the need to allocate product between domestic
and international markets, and possibly cause patients to seek alternative
therapies. Such events could have a material adverse effect on the Company's
business, financial condition and results of operations. Whether the Company can
successfully manage the transition to a large scale commercial enterprise will
depend upon successful further development of its manufacturing capability and
its distribution network and attainment of foreign regulatory approvals for MUSE
(alprostadil). Failure to make such a
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transition successfully would have a material adverse effect on the Company's
business, financial condition and results of operations.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company expects to incur substantial additional costs, including
expenses related to building its marketing and sales organization, ramping up
its second manufacturing plant in the United States, building another
manufacturing plant in Ireland, new product preclinical and clinical costs,
ongoing research and development activities, and general corporate purposes. The
Company anticipates that its existing capital resources will be sufficient to
support the Company's operations through commercial introduction of MUSE
(alprostadil) internationally but may not be sufficient for the introduction of
any additional future products. Accordingly, the Company anticipates that it may
be required to issue additional equity or debt securities and may use other
financing sources including, but not limited to, corporate alliances and lease
financing to fund the future development and possible commercial launch of its
future products. The sale of additional equity securities would result in
additional dilution to the Company's stockholders. There can be no assurance
that additional funds will be available on terms satisfactory to the Company, if
at all. Failure to obtain adequate funding could cause a delay or cessation of
the Company's product development and marketing efforts and would have a
material adverse effect upon the Company's business, financial condition and
results of operations. The Company's working capital and additional funding
requirements will depend upon numerous factors, including: (i) the level of
resources that the Company devotes to sales and marketing capabilities; (ii) the
level of resources that the Company devotes to expanding manufacturing capacity;
(iii) the activities of competitors; (iv) the progress of the Company's research
and development programs; (v) the timing and results of preclinical testing and
clinical trials; (vi) technological advances; and (vii) operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been highly dependent upon the skills of
a limited number of key management personnel. To reach its future business
objectives, the Company will need to hire and retain numerous qualified
personnel in the areas of sales, manufacturing, clinical trial management and
preclinical testing. There can be no assurance that the Company will be able to
hire and retain such personnel, as the Company must compete with other
companies, academic institutions, government entities and other agencies. The
loss of any of the Company's key personnel or the failure to attract or retain
necessary new employees could have an adverse effect on the Company's research,
product development and business operations.
RISKS RELATING TO INTERNATIONAL OPERATIONS
As the Company receives necessary foreign regulatory approvals, the Company
will market its products internationally. Changes in overseas economic and
political conditions, currency exchange rates, foreign tax laws or tariffs or
other trade regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. The anticipated
international nature of the Company's business is also expected to subject it
and its representatives, agents and distributors to laws and regulations of the
foreign jurisdictions in which they operate or the Company's products are sold.
The regulation of drug therapies in a number of such jurisdictions, particularly
in the European Union, continues to develop, and there can be no assurance that
new laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The commercial launch of MUSE (alprostadil) exposes the Company to a
significant risk of product liability claims due to its availability to a large
population of patients. In addition, pharmaceutical products are subject to
heightened risk for product liability claims due to inherent side effects. The
Company details potential side effects in the patient package insert and the
physician package insert, both of which are included with MUSE (alprostadil),
and the Company maintains product liability insurance coverage. However, the
Company's product liability coverage is limited and may not be adequate to cover
potential product liability
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exposure. Product liability insurance is expensive, difficult to maintain and
current or increased coverage may not be available on acceptable terms, if at
all. Product liability claims brought against the Company in excess of its
insurance coverage, if any, could have a material adverse effect upon the
Company's business, financial condition and results of operations.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
In the United States and elsewhere, sales of pharmaceutical products
currently are dependent, in part, on the availability of reimbursement to the
consumer from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. While more than 70 percent of prescriptions for
MUSE (alprostadil) were reimbursed by third party payors in 1997, there can be
no assurance that the Company's products will be considered cost effective and
that reimbursement to the consumer will continue to be available or sufficient
to allow the Company to sell its products on a competitive basis.
In addition, certain health care providers are moving towards a managed
care system in which such providers contract to provide comprehensive health
care services, including prescription drugs, for a fixed cost per person. The
Company hopes to further qualify its transurethral system for erection for
reimbursement in the managed care environment. However, the Company is unable to
predict the reimbursement policies employed by third-party health care payors.
Furthermore, attempts at qualifying its transurethral system for erection for
reimbursement could be adversely affected by changes in reimbursement policies
of governmental or private health care payors.
UNCERTAINTY AND POSSIBLE NEGATIVE EFFECTS OF HEALTHCARE REFORM
The healthcare industry is undergoing fundamental changes that are the
result of political, economic and regulatory influences. The levels of revenue
and profitability of pharmaceutical companies may be affected by the continuing
efforts of governmental and third party payors to contain or reduce healthcare
costs through various means. Reforms that have been and may be considered
include mandated basic healthcare benefits, controls on healthcare spending
through limitations on the increase in private health insurance premiums and
Medicare and Medicaid spending, the creation of large insurance purchasing
groups and fundamental changes to the healthcare delivery system. Due to
uncertainties regarding the outcome of healthcare reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of the
reform proposals will be adopted or the effect such adoption may have on the
Company. There can be no assurance that future healthcare legislation or other
changes in the administration or interpretation of government healthcare or
third-party reimbursement programs will not have a material adverse effect on
the Company. Healthcare reform is also under consideration in some other
countries.
POTENTIAL VOLATILITY OF STOCK PRICE
The stock market has recently experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies. In
addition, the market price of the Company's Common Stock has been highly
volatile and is likely to continue to be so. Factors such as variations in the
Company's financial results, comments by security analysts, the Company's
ability to scale up its manufacturing capability to commercial levels, adverse
regulatory actions or decisions, the Company's ability to increase demand for
its product in the United States, the Company's ability to successfully sell its
product in the United States and internationally, any loss of key management,
the results of the Company's clinical trials or those of its competition,
announcements of technological innovations or new products by the Company or its
competition, changing governmental regulations, patents or other proprietary
rights, product or patent litigation or public concern as to the safety of
products developed by the Company, may have a significant effect on the market
price of the Company's Common Stock.
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ANTI-TAKEOVER EFFECT OF PREFERRED SHARES RIGHTS PLAN AND CERTAIN CHARTER AND
BYLAW PROVISIONS
In February 1996, the Company's Board of Directors authorized its
reincorporation in the State of Delaware (the "Reincorporation") and adopted a
Preferred Shares Rights Plan. The Company's reincorporation into the State of
Delaware was approved by its stockholders and effective in May 1996. The
Preferred Shares Rights Plan provides for a dividend distribution of one
Preferred Shares Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock. The Rights will become exercisable following the tenth
day after a person or group announces acquisition of 20 percent or more of the
Company's Common Stock, or announces commencement of a tender offer, the
consummation of which would result in ownership by the person or group of 20
percent or more of the Company's Common Stock. The Company will be entitled to
redeem the Rights at $0.01 per Right at any time on or before the tenth day
following acquisition by a person or group of 20 percent or more of the
Company's Common Stock.
The Preferred Shares Rights Plan and certain provisions of the Company's
Certificate of Incorporation and Bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. The Company's Certificate of
Incorporation allows the Company to issue Preferred Stock without any vote or
further action by the stockholders, and certain provisions of the Company's
Certificate of Incorporation and Bylaws eliminate the right of stockholders to
act by written consent without a meeting, specify procedures for director
nominations by stockholders and submission of other proposals for consideration
at stockholder meetings, and eliminate cumulative voting in the election of
directors. Certain provisions of Delaware law could also delay or make more
difficult a merger, tender offer or proxy contest involving the Company,
including Section 203, which prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years unless certain conditions are met. The Preferred Shares Rights Plan, the
possible issuance of Preferred Stock, the procedures required for director
nominations and stockholder proposals and Delaware law could have the effect of
delaying, deferring or preventing a change in control of the Company, including
without limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of the Company's Common Stock.
ITEM 2. PROPERTIES
The Company currently occupies approximately 53,000 square feet of space in
Mountain View, California under a fifteen year non-cancelable operating lease
which expires in 2012. The Company's facility serves as the principal site for
administration, clinical trial management, regulatory affairs and monitoring of
product production and quality control, as well as its research and development
lab.
In June 1995, the Company completed constructing and equipping to its
specifications approximately 6,000 square feet of manufacturing and testing
space within Paco's facility in Lakewood, New Jersey. In January and February
1997, the Company executed a five year lease for two buildings in New Jersey
totalling 90,000 square feet in which it has constructed additional
manufacturing and testing facilities.
ITEM 3. LEGAL PROCEEDINGS
On February 18, 1998 a purported shareholder class action entitled Crain,
et al. v. Vivus, Inc., et al., was filed in Superior Court of the State of
California for the County of San Mateo. Two identical complaints were
subsequently filed in the same court. The complaints were filed on behalf of a
purported class of persons who purchased stock between May 15 and December 9,
1997. The complaints allege that the Company and certain current and former
officers or directors artificially inflated the Company's stock price by issuing
false and misleading statements concerning the Company's prospects and by
issuing false financial statements. The complaints do not specify the damages
resulting from the alleged conduct. On March 20, 1998, the Company learned that
a federal class action had been filed against the Company and certain current
and former officers and directors in the United States District Court for the
Northern District of California. The federal complaint asserts the same factual
allegations, but asserts legal claims under the Federal Securities Laws. The
Company believes the complaints lack merit and the Company will vigorously
defend itself in the pending actions.
24
26
A former consultant to the Company had claimed that he was the inventor of
certain technology disclosed in two of the Company's patents. The former
consultant further claimed that the Company and certain of its officers and
directors defrauded him by allegedly failing to inform him that it intended to
use and patent this technology and by failing to compensate him for the
technology in the manner allegedly promised. In May 1996, the Company filed a
complaint for declaratory judgment against the former consultant in the United
States District Court for the Northern District of California, which sought a
declaration from the court that the former consultant was not an inventor of any
of the technology. In September 1996, the consultant filed his counterclaim. In
December 1997, the Company reached a settlement with the former consultant
whereby the former consultant dismissed his claims against the Company and the
Company's officers and directors involved in the lawsuit. In return, the Company
paid the consultant $5.1 million. The Company recorded the settlement on its
books in the fourth quarter of 1997 and paid the settlement on January 5, 1998.
In the normal course of business, the Company receives and makes inquiries
regarding patent infringement and other legal matters. The Company believes that
it has meritorious claims and defenses and intends to pursue any such matters
vigorously. The Company is not aware of any asserted or unasserted claims
against it where the resolution would have an adverse material impact on the
operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the quarter ended December 31, 1997.
25
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades publicly on The Nasdaq Stock Market under
the symbol "VVUS". The following table sets forth for the periods indicated the
quarterly high and low closing sales prices of the Common Stock on The Nasdaq
Stock Market.
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1997
High.............................. $39.06 $25.88 $38.13 $40.56
Low............................... 18.75 15.31 22.81 9.94
1996*
High.............................. $15.63 $16.38 $20.38 $19.00
Low............................... 11.88 13.00 14.44 14.50
- ---------------
* Adjusted to reflect the Company's two-for-one stock split reflected on the
Nasdaq Stock Market on June 24, 1997.
As of February 27, 1998, there were no outstanding shares of Preferred
Stock and 659 holders of record of 31,721,292 shares of outstanding Common
Stock. The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from the
section captioned "Selected Financial Data" of the Registrant's Annual Report.
Such information is also set forth in Exhibit 13.1 attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference from the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of the Registrant's Annual Report. Such information
is also set forth in Exhibit 13.1 attached hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information required by this item is incorporated by reference from the
sections captioned "Consolidated Balance Sheets", "Consolidated Statements of
Operations", "Consolidated Statements of Shareholders' Equity", "Consolidated
Statements of Cash Flows", "Notes to Consolidated Financial Statements" and
"Report of Independent Public Accountants" of the Registrant's Annual Report.
Such information is also set forth in Exhibit 13.1 attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Proposal One: Election of
Directors."
26
28
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Record Date and Share Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information required by this item is incorporated by reference from
the discussion in the Proxy Statement captioned "Certain Transactions and
Reports."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS
Financial statements have been incorporated by reference to the
Registrant's Annual Report.
2. FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto incorporated by reference herein.
3. EXHIBITS
NUMBER
------
##3.2 Amended and Restated Certificate of Incorporation of the
Company
****3.3 Bylaws of the Registrant, as amended
###3.4 Certificate of Designations of Rights, Preferences and
Privileges of Series A Participating Preferred Stock
##4.1 Specimen Common Stock Certificate of the Registrant
*4.2 Registration Rights, as amended
*4.4 Form of Preferred Stock Purchase Warrant issued by the
Registrant to Invemed Associates, Inc., Frazier Investment
Securities, L.P., and Cristina H. Kepner
###4.5 Second Amended and Restated Preferred Shares Rights
Agreement, dated as of April 15, 1997 by and between the
Registrant and Harris Trust Company of California, including
the Certificate of Determination, the form of Rights
Certificate and the Summary of Rights attached thereto as
Exhibits A, B, and C, respectively
*+10.1 Assignment Agreement by and between Alza Corporation and the
Registrant dated December 31, 1993
*+10.2 Memorandum of Understanding by and between Ortho
Pharmaceutical Corporation and the Registrant dated February
25, 1992
*10.3 Assignment Agreement by and between Ortho Pharmaceutical
Corporation and the Registrant dated June 9, 1992
27
29
NUMBER
------
*+10.4 License Agreement by and between Gene A. Voss, M.D., Allen
C. Eichler, M.D., and the Registrant dated Decmeber 28, 1992
*+10.5A License Agreement by and between Ortho Pharmaceutical
Corporation and Kjell Holmquist AB dated June 23, 1989
*+10.5B Amendment by and between Kjell Holmquist AB and the
Registrant dated July 3, 1992
*10.5C Amendment by and between Kjell Holmquist AB and the
Registrant dated April 22, 1992
*+10.5D Stock Purchase Agreement by and between Kjell Holmquist AB
and the Registrant dated April 22, 1992
*+10.6A License Agreement by and between Amsu, Ltd., and Ortho
Pharmaceutical Corporation dated June 23, 1989
*+10.6B Amendment by and between Amsu, Ltd., and the Registrant
dated July 3, 1992
*10.6C Amendment by and between Amsu, Ltd., and the Registrant
dated April 22, 1992
*+10.6D Stock Purchase Agreement by and between Amsu, Ltd., and the
Registrant dated July 10, 1992
*10.7 Supply Agreement by and between Paco Pharmaceutical
Services, Inc., and the Registrant dated November 10, 1993
*10.10 Lease by and between McCandless-Triad and the Registrant
dated November 23, 1992, as amended
****10.11 Form of Indemnification Agreements by and among the
Registrant and the Directors and Officers of the Registrant
**10.12 1991 Incentive Stock Plan and Form of Agreement, as amended
*10.13 1994 Director Option Plan and Form of Agreement
*10.14 Form of 1994 Employee Stock Purchase Plan and Form of
Subscription Agreement
*10.17 Letter Agreement between the Registrant and Leland F. Wilson
dated June 14, 1991 concerning severance pay
***+10.21 Distribution Services Agreement between the Registrant and
Synergy Logistics, Inc. (a wholly-owned subsidiary of
Cardinal Health, Inc.) dated February 9, 1996
***+10.22 Manufacturing Agreement between the Registrant and CHINOIN
Pharmaceutical and Chemical Works Co., Ltd. dated December
20, 1995
++10.22A Amendment One, dated as of December 11, 1997, to the
Manufacturing Agreement by and between VIVUS and CHINOIN
Pharmaceutical and Chemical Works Co., Ltd. dated December
20, 1995
#+10.23 Distribution and Services Agreement between the Registrant
and Alternate Site Distributors, Inc. dated July 17, 1996
*****+10.24 Distribution Agreement made as of May 29, 1996 between the
Registrant and Astra AB
#10.25 Menlo McCandless Office Lease made as of August 30, 1996 by
and between Registrant and McCandless-Triad
#10.26 Sublease Agreement made as of August 22, 1996 by and between
Registrant and Plant Research Technologies
28
30
NUMBER
------
##+10.27 Distribution Agreement made as of January 22, 1997 between
the Registrant and Jenssen Pharmaceutical International, a
division of Cilag AG International
++10.27A Amended and Restated Addendum 1091, dated as of October 29,
1997, between VIVUS International Limited and Janssen
Pharmaceutical International
##10.28 Lease Agreement made as of January 1, 1997 between the
Registrant and Airport Associates
##10.29 Lease Amendment No. 1 as of February 15, 1997 between
Registrant and Airport Associates
#####10.29A Lease Amendment No. 2 dated July 24, 1997 by and between the
Registrant and Airport Associates
#####10.29B Lease Amendment No. 3 dated July 24, 1997 by and between the
Registrant and Airport Associates
## 10.30 Lease agreement by and between 605 East Fairchild
Associates, L.P. and Registrant dated as of March 5, 1997
####++10.31 Manufacture and Supply Agreement between Registrant and
Spolana Chemical Works, A.S. dated May 30, 1997
10.32A Agreement between ADP Marshall, Inc. and the Registrant
dated December 19, 1997
10.32B General Conditions of the Contract for Construction
10.32C Addendum to General Conditions of the Contract for
Construction
++10.33 Sales Force Services Agreement dated as of February 1, 1998
between the Registrant and Innovex, Inc.
13.1 Portions of the 1997 Annual Report to Security Holders......
21.2 List of Subsidiaries........................................
23.1 Consent of Independent Public Accountants...................
24.1 Power of Attorney (see "Power of Attorney").................
27.1 Financial Data Schedule
- ---------------
* Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-75698, as
amended.
** Incorporated by reference to the same numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-90390, as
amended.
*** Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995, as amended.
**** Incorporated by reference to the same numbered exhibit filed with the
Registrant's Form 8-B filed with the Commission on June 24, 1996.
***** Incorporated by reference to the same numbered exhibit filed with the
Registrant's Current Report on Form 8-K/A filed with the Commission on
June 21, 1996.
# Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
## Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, as amended.
29
31
### Incorporated by reference to exhibit 99.1 filed with Registrant's
Amendment Number 2 to the Registration Statement of Form 8-A (File No.
0-23490) filed with the Commission on April 23, 1997.
#### Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
##### Incorporated by reference to the same numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
+ Confidential treatment granted.
++ Confidential treatment requested.
- ---------------
(b) Reports on Form 8-K
None
(c) Exhibits
See Item 14(a)(3) above
(d) Financial Statement Schedule
See Item 14(a)(2) above
30
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
VIVUS, INC.,
a Delaware Corporation
By: /s/ DAVID C. YNTEMA
-------------------------------------
David C. Yntema
Vice President of Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
Date: March 31, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Leland F. Wilson and David C.
Yntema as his attorney-in-fact for him, in any and all capacities, to sign each
amendment to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LELAND F. WILSON President, Chief Executive March 31, 1998
- -------------------------------------------------------- Officer (Principal Executive
Leland F. Wilson Officer) and Director
/s/ VIRGIL A. PLACE Chairman of the Board and March 31, 1998
- -------------------------------------------------------- Chief Scientific Officer and
Virgil A. Place Director
/s/ DAVID C. YNTEMA Vice President of Finance and March 31, 1998
- -------------------------------------------------------- Chief Financial Office
David C. Yntema (Principal Financial and
Accounting Officer)
/s/ RICHARD L. CASEY Director March 31, 1998
- --------------------------------------------------------
Richard L. Casey
/s/ JOSEPH E. SMITH Director March 31, 1998
- --------------------------------------------------------
Joseph E. Smith
/s/ BRIAN H. DOVEY Director March 31, 1998
- --------------------------------------------------------
Brian H. Dovey
/s/ LINDA JENCKES Director March 31, 1998
- --------------------------------------------------------
Linda Jenckes
/s/ ELIZABETH A. FETTER Director March 31, 1998
- --------------------------------------------------------
Elizabeth A. Fetter
31
33
VIVUS, INC.
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX TO EXHIBITS*
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NAME NUMBERED PAGE
- ------- ------------ -------------
**10.22A Amendment One, dated as of December 11, 1997, to the
Manufacturing Agreement by and between VIVUS and Chinoin
Pharmaceutical and Chemical Works Co., Ltd. dated December
20, 1995....................................................
**10.27A Amended and Restated Addendum 1091, dated as of October 29,
1997, between VIVUS International Limited and Janssen
Pharmaceutica International.................................
10.32A Agreement between ADP Marshall, Inc. and the Registrant
dated December 19, 1997.....................................
10.32B General Conditions of the Contract for Construction.........
10.32C Addendum to General Conditions of the Contract for
Construction................................................
**10.33 Sales Force Services Agreement dated as of February 1, 1998
between the Registrant and Innovex, Inc.....................
13.1 Portions of the 1997 Annual Report to Security Holders......
21.2 List of Subsidiaries........................................
23.1 Consent of Independent Public Accountants...................
24.1 Power of Attorney (see "Power of Attorney").................
27.1 Financial Data Schedule.....................................
- ---------------
* Only exhibits actually filed are listed. Exhibits incorporated by reference
are set forth in the exhibit listing included in Item 14 of the Report on
Form 10-K.
** Confidential treatment requested.