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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-10736
MGI PHARMA, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1364647
- ------------------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612/935-7335
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value,
Common Stock
Purchase Rights
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. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant as of March 17, 1997 was approximately $60,801,886 (based on the
closing price of such stock as reported by The Nasdaq Stock Market on such
date).
The number of shares outstanding of each of the Registrant's classes
of common stock, as of March 17, 1997, was: Common Stock, $.01 par value;
14,091,665 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G, the responses to Items 5, 6, 7 and
8 of Part II of this report are incorporated herein by reference to certain
information contained in the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1996, and the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference to certain
information contained in the Registrant's definitive Proxy Statement for its
1997 Annual Meeting of Shareholders to be held on May 13, 1997.
PART I
ITEM 1. BUSINESS
General
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MGI PHARMA, INC. ("MGI" or "the Company") is a human pharmaceutical company
that acquires, develops and markets pharmaceutical for niche areas of medicine,
addressing currently unmet medical needs.
During 1996, its primary business activities were (i) marketing
pharmaceutical products in the United States, (ii) developing potential new
pharmaceutical products, and (iii) acquiring additional product candidates for
both development and marketing opportunities. Commercial efforts focused on
marketing Salagen(R) Tablets, sales of which increased 60 percent over the
previous year. The Company also marketed Didronel(R) I.V. Infusion, which
continued to lose market share during 1996. Clinical development efforts
included preparing a supplemental new drug application ("sNDA") for a second
indication of Salagen(R) Tablets; conducting Phase IV post-marketing studies for
the initial, approved indication of Salagen Tablets; initiating and advancing a
Phase I clinical study with MGI 114; and conducting several preclinical animal
studies. The Company also continued to work on manufacturing and related
processes for all of its marketed and development-stage products. Product
acquisition efforts resulted in the addition of Dihydro-5-Azacytidine ("DHAC")
from ILEX Oncology, Inc. During the year, MGI discontinued development of its
phosphoramidate compound.
MGI currently markets oncology products through its own commercial
organization in the United States. The Company sells to pharmaceutical
wholesalers in the United States who distribute MGI's drugs to retail and
hospital pharmacies. To commercialize its products in foreign markets, MGI uses
international partnerships. As of December 1996, MGI had agreements with three
international pharmaceutical companies to develop and market Salagen(R) Tablets
for the European, Japanese and Canadian markets, respectively, as well as
distribution agreements with three additional companies for the smaller markets
of Taiwan, Israel and Korea. MGI also has a marketing alliance for DIDRONEL(R)
I.V. Infusion in Canada, and a development and marketing agreement for MGI 114
in Japan.
The Company was incorporated in Minnesota in November 1979. Its principal
executive offices are located at 9900 Bren Road East, Suite 300E, Minnetonka,
Minnesota 55343, and its phone number is (612) 935-7335.
2
Business Strategy
- -----------------
The Company acquires, develops and markets pharmaceutical for niche areas of
medicine, addressing currently unmet medical needs. To date, MGI has focused on
the oncology (cancer) market, but it intends to expand into the rheumatology
sector.
MGI focuses on medical niche markets because it believes such markets can be
reached effectively by a relatively small sales force. In the United States, the
number of physicians in a particular subspecialty is usually relatively small
and these physicians tend to be concentrated in major metropolitan areas.
Current trends in pharmaceutical detailing are expected to reduce the number of
pharmaceutical sales targets as decisions relating to use of prescription drugs
consolidate and become more centralized.
The Company believes that its ability to accomplish its long-term business
plan depends upon its success in acquiring new compounds to develop and market.
The Company is actively searching for new products to acquire, preferably later-
stage development opportunities or already marketable pharmaceutical products.
This strategy reduces MGI's risk of product failure since most products acquired
are past the initial discovery stage. Such products have already passed, or have
a higher than average chance of passing, preliminary toxicity testing and have
demonstrated some efficacy in animals or humans. MGI also focuses its efforts
on small molecule products because they are generally easier and less costly to
make. MGI believes that acquiring products that meet such requirements may
allow it to reduce product development time frames, reduce the research
rejection rate due to safety and toxicity concerns, and achieve a higher
probability of product effectiveness. MGI believes there are a number of
compounds that meet these requirements available for licensing from universities
and other research organizations such as biotechnology companies and other
pharmaceutical companies.
By using contract manufacturers to make its products, MGI also controls its
investment in capital. MGI believes there are a sufficient number of high
quality contract manufacturers available to fulfill its near-term production
needs for both clinical and commercial use. MGI intends to continue to utilize
contract manufacturing until it is necessary and economical to add internal
capacity.
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Principal Products
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SALAGEN(R) TABLETS
Salagen(R) Tablets (pilocarpine hydrochloride) have been marketed in the
United States by MGI PHARMA since 1994 as a treatment for radiation-induced
xerostomia (chronic dry mouth) in head and neck cancer patients. To further
expand potential revenues from Salagen Tablets, MGI studied the drug's ability
to treat dry mouth and dry eyes (keratoconjunctivitis sicca) associated with
Sjogren's Syndrome, an autoimmune disease that gradually destroys the moisture
producing glands in the body. In February 1997, MGI submitted a supplemental New
Drug Application to the FDA for this second indication.
Head and Neck Cancer Market
Radiation therapy used to treat head and neck cancers can permanently damage
salivary glands, resulting in significant chronic reduction of saliva
production. This reduction in saliva can result in pain, discomfort, difficulty
in eating and sleeping, rapid tooth decay, periodontal disease, oral infection
and severe halitosis. More than 25,000 head and neck cancer patients receive
radiation therapy annually, and currently, over 100,000 patients suffer from
this chronic condition in the U.S. Other therapies used to treat this condition
are generally considered by physicians and patients to be inadequate and are
limited to products that act as wetting agents such as water, lozenges, and
saliva substitutes. Salagen(R) Tablets work by stimulating the residual
functioning tissue in the damaged salivary glands to increase saliva production,
providing patients with a longer-term solution for chronic dry mouth.
Following the marketing launch of Salagen(R) Tablets in the head and neck
cancer market in 1994, the FDA required MGI to conduct several Phase IV studies
which the Company is pursuing. These studies include (i) a two-year
carcinogenicity bioassay in rats; (ii) long-term clinical trials in Sjogren's
syndrome patients to further clarify the relationship of baseline salivary flow
to the effect of Salagen(R) Tablet therapy as well as provide additional safety
data for 5 mg and 10 mg doses; and (iii) determination of the metabolic
clearance rate of Salagen(R) Tablets in a subset of patients with renal and
hepatic insufficiency.
Sjogren's Syndrome Market
Sjogren's syndrome is a chronic and progressive autoimmune disorder in which
the body's own immune system attacks the moisture producing glands, particularly
the salivary and lacrimal glands, causing them to lose their ability to produce
saliva and tears.
4
The syndrome is characterized by dryness and discomfort in the mouth and
eyes and can be manifested alone (primary Sjogren's) or together with one of
several connective tissue disorders (secondary Sjogren's).
The complexity of the disorder as well as the lack of an accepted set of
diagnostic criteria have resulted in a range of estimates of the prevalence
(between 500,000 and 1,000,000+). It should be noted that the total prevalence
of the disease exceeds the actual number of diagnosed and treated patients,
The majority of people affected by Sjogren's syndrome are women aged 40 and
older. Primary Sjogren's often remains undiagnosed until the symptoms become
sufficiently severe and intolerable that a physician is consulted. Secondary
Sjogren's is frequently detected as part of an examination for a connective
tissue disorder, particularly rheumatoid arthritis. Thus, the actual number of
diagnosed Sjogren's syndrome patients at any point in time is approximately
500,000 patients or half the prevalence of the disease.
Current therapies address symptoms of the condition rather than its exact
underlying cause, which is unknown. The decision to initiate treatment as well
as the intensity of therapy is directly related to the severity of the patient's
symptoms and level of patient complaints, resulting in a true prescription
market potential of an estimated 200,000 individuals.
DIDRONEL(R) I.V. INFUSION
DIDRONEL(R) I.V. Infusion is used to treat hypercalcemia (elevation of blood
calcium) of malignancy, which is the most common life-threatening metabolic
disorder associated with cancer. Hypercalcemia causes mental confusion, nausea
and vomiting, loss of kidney function, and, if left untreated, death. The
condition affects up to 20% of all cancer patients sometime during the course of
their disease, but appears to be most prevalent with tumors that have
metastasized to bone (usually lung and breast tumors).
MGI purchased DIDRONEL(R) I.V. Infusion from Procter & Gamble
Pharmaceutical, Inc. in January 1990 for the purpose of setting up MGI's sales
and marketing organization in advance of introducing a major product to the
market. Although sales of DIDRONEL(R) I.V. Infusion have declined over the last
several years following the introduction of more effective competing products,
sales of this product enabled MGI to establish its sales and marketing
organization, develop relationships with key oncologists across the United
States, and build a presence in the medical community.
5
ACYLFULVENES
In September 1993, MGI acquired the rights to the acylfulvenes, a new
category of anti-cancer agents that have the potential to treat solid tumors,
including those that do not respond to or have become resistant to other
therapies. While still in the early stages of development, these compounds have
a novel mechanism of action that appears to inhibit the growth of tumor cells
without being excessively toxic to healthy cells. Laboratory and animal studies
with these agents have demonstrated their ability to kill human tumors growing
in animals more effectively than conventional anti-cancer agents. During 1994,
MGI made progress in the preclinical development of one particular acylfulvene
analog, MGI 114 (6-HMAF). Preclinical efficacy studies with this analog showed
impressive results against human tumors transplanted to mice, especially non-
small cell lung, breast, squamous cell carcinoma and colon tumors. Dainippon
Pharmaceutical Co., Ltd., MGI's Japanese partner for acylfulvene development,
replicated MGI's results against these tumor lines in addition to others.
Preclinical toxicity testing of MGI 114 began in late 1994 and is ongoing. An
Investigational New Drug application was submitted to the FDA in September 1995
and human Phase I clinical safety testing was initiated in December 1995 and
advanced throughout 1996. MGI expects this study to continue in 1997 until such
time that a maximum tolerated dose is reached. The Company also anticipates that
it will initiate a second Phase I trial with this drug during 1997 to broaden
the number of patients exposed to the drug. The combined data will then be used
in determining appropriate guidelines for entering a Phase II study. In October
1996, the Company entered into a clinical trials agreement with the National
Cancer Institute ("NCI") under which NCI will sponsor and oversee (at its own
expense) clinical research using MGI 114 in its network of designated cancer
centers. MGI anticipates that these trials will commence during 1997.
DHAC (DIHYDRO-5-AZACYTIDINE)
DHAC is a drug acquired by MGI in December 1996 from ILEX Oncology, Inc. It
is a hypomethylating agent that has the potential to treat several types of
cancers and genetic blood diseases, including myelodysplastic syndromes ("MDS"),
mesothelioma lung cancers associated with asbestos exposure, prostate cancer,
and thalassemia major (a fatal genetic blood disorder). Many of these diseases,
as well as numerous others, are characterized by the loss of critical gene
expression. In theory, the hypomethylation of these genes and reactivation of
their expression could reduce cancer growth and restore normal cell development.
As a hypomethylating agent, DHAC has demonstrated its therapeutic value and
human anti-tumor activity in line with this theory in early human clinical tests
with malignant melanoma and mesothelioma.
6
During 1997, MGI intends to initiate a Phase II study with DHAC to treat
MDS, a family of blood-related cancers affecting up to 10,000 people in the
United States annually. The Company also plans to initiate a Phase I/II study in
hormone refractory prostate cancer by the end of 1997. In the United States,
approximately 40,000 men die each year from prostate cancer, while another
240,000 new cases are diagnosed.
Research and Development
- ------------------------
MGI maintains active development programs for several other new drug
candidates for possible future marketing opportunities. In doing so, MGI has
incurred significant research and development costs and anticipates more of the
same in the coming years. The Company's research and development expenses
increased 8 percent in 1996 over 1995 due mostly to the preparation of the sNDA
for Salagen Tablets and the ongoing Phase I program for MGI 114. In 1997, MGI
anticipates that research and development spending will in part be related to
the Company's ability to generate revenues mainly from sales in the United
States of Salagen(R) Tablets, as well as funds received from Dainippon
Pharmaceutical, the Company's Japanese partner for the acylfulvenes. Future
research and development funds may be secured from internally generated funds,
debt or equity financings, joint ventures, strategic alliances, co-promotion
arrangements or other sources of capital. A merger or acquisition may also be
considered in order to expand the research and development pipeline and allow
for a greater capital mass of products to be introduced in the market by the MGI
sales force.
Manufacturing
- -------------
MGI does not have and does not intend to develop facilities to manufacture
any of its drugs in the near future. The Company's marketed and development
stage pharmaceutical are manufactured under various agreements with third party
manufacturers. MGI's manufacturing and quality assurance personnel do, however,
authorize, monitor, and approve virtually all aspects of the manufacturing
process. In-process and finished product inventories are analyzed through
independent testing laboratories and the results reviewed and approved by MGI
prior to release for distribution.
MGI generally carries at least one year of inventory of each of its
marketable products as safety stock. To support this practice, the Company tries
to secure dual suppliers for each product category whenever possible. The
Company also has a policy to fill orders by wholesalers on demand, and does not
carry a backlog of orders at any time.
7
SALAGEN(R) TABLETS
MGI obtains pilocarpine hydrochloride, the active drug substance for the
manufacture of Salagen(R) Tablets, under a supply agreement with EM Industries,
Incorporated of Hawthorne, New York. The refined raw material is an extract from
a plant grown and processed in South America. The Company believes that the
supply of pilocarpine hydrochloride is adequate for the foreseeable future.
Salagen(R) Tablets are currently manufactured at Boehringer Ingelheim
Pharmaceutical, Inc. ("Boehringer") in Ridgefield, Connecticut and at Global
Pharm Inc. in Toronto, Ontario, Canada pursuant to manufacturing contracts
between MGI and each of those companies. Boehringer has notified MGI that it
will be closing its Ridgefield plant and will discontinue providing contract
manufacturing services to third parties such as MGI, although Boehringer will
continue to provide contract manufacturing services to MGI through the
expiration of the Company's supply agreement in March 1998. The Company is
presently in the process of identifying a backup manufacturer for Salagen(R)
Tablets to replace Boehringer at the expiration of the Company's supply
agreement.
DIDRONEL(R) I.V. INFUSION
Pharmaceutical grade etidronate disodium for the manufacture of DIDRONEL(R)
I.V. Infusion is obtained from Procter & Gamble Pharmaceutical, Inc. in Norwich,
New York, under a supply agreement. The agreement provides for automatic renewal
for one-year terms unless either party gives written notice of termination at
least 180 days prior to the end of each calendar year. DIDRONEL(R) I.V. Infusion
is currently manufactured at a wholly owned subsidiary of Akorn, Inc. in
Decatur, Illinois. Ben Venue Laboratories, Inc. of Bedford, Ohio is an approved
alternate contract manufacturer of DIDRONEL(R) I.V. Infusion.
OTHER MANUFACTURING AGREEMENTS
As a regular part of its business, MGI establishes from time to time
contract manufacturing arrangements for its development-stage pharmaceutical.
These arrangements are typically short-term and generally include supply
agreements for the active pharmaceutical drug substance and development-scale
manufacturing contracts for the production of clinical supplies.
Patents and Protection of Proprietary Technology
- ------------------------------------------------
MGI intends to use patents and orphan drug designation to protect its
licensed technology. The term of a U.S. patent issued from an application filed
before June 8, 1995 is the longer of seventeen years from its issue date or
twenty years from its effective filing date. The term of a U.S. patent issuing
from an
8
application filed after June 8, 1995 is twenty years from its effective filing
date. All of the allowed applications or patents referenced below were filed
prior to, or issued from applications filed before June 8, 1995. The Drug Price
and Competition and Patent Term Restoration Act of 1984 (Public Law 98-417) and
the Generic Animal Drug and Patent Term Restoration Act (Public Law 100-670)
generally provide that a patent relating to, among other items, a human drug
product, may be extended for a period of up to five years by the United States
Commissioner of Patents and Trademarks if the patented item was subject to
regulatory review by the FDA before the item was marketed. Under these acts, a
product's regulatory review period (which consists generally of the period from
the time when the exemption to permit clinical investigations becomes effective
until the FDA grants marketing approval for the product) forms the basis for
determining the length of the extension an applicant may receive. There can be
no assurance that any issued patents will provide competitive advantages for
particular products or will not be challenged or circumvented by competitors, or
that any patent applications will be approved.
Orphan drugs are currently provided seven years market exclusivity for an
approved indication following approval to market by the FDA. Orphan drug
designation for the Company's products does not, however, insulate the Company
from other manufacturers attempting to develop an alternate drug for the
designated indication, or the designated drug for another, separate indication.
There can be no assurance that the Company will be able to obtain orphan drug
status with respect to any of its products or as to the precise scope of
protection that may be afforded by such status.
Current patent and orphan drug status with respect to certain of MGI's
products are as follows:
. Pilocarpine hydrochloride (the active drug in Salagen(R) Tablets) was
designated an orphan drug for the treatment of radiation-induced xerostomia
in head and neck cancer patients by the FDA in September 1990. Upon FDA
approval of Salagen(R) Tablets for marketing on March 22, 1994, MGI notified
the Office of Orphan Products Development of the FDA of its intention to
exercise orphan drug exclusivity, thereby affording seven years of
exclusivity for Salagen(R) Tablets for that indication. In February 1992,
pilocarpine hydrochloride was designated an orphan drug as a treatment for
xerostomia and keratoconjunctivitis sicca in Sjogren's syndrome patients.
. In April 1996, the U.S. Patent and Trademark Office notified the Company
that it would grant two patents covering MGI 114 and additional acylfulvene
analogs. In June and October 1996, these patents were issued to the
University of California, from which the Company holds an exclusive license,
covering MGI 114 and certain other acylfulvene analogs. These
9
patents complement two previously issued (both on August 8, 1995) U.S.
patents covering a method of using MGI 114 and other acylfulvene analogs to
inhibit certain tumor cell growth. The Company also has licensed, pending or
granted foreign patents on MGI 114 and its analogs in over 30 countries
worldwide. Patent applications covering an even broader base of acylfulvene
analogs compounds are pending in the United States.
. DHAC was designated an orphan drug for the treatment of mesothelioma by
the FDA in 1992. A provisional patent application related to the use of DHAC
in the treatment of hormone refractory prostate cancer was filed by ILEX
Oncology, Inc. in the U. S. Patent and Trademark Office on July 22, 1996.
The Company has obtained federal trademark registration on the "Salagen"
trademark and is seeking broad trademark protection for "Salagen" worldwide. In
addition, the Company uses the federally registered "DIDRONEL" trademark under a
license agreement with Proctor & Gamble Pharmaceutical.
Competition
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The pharmaceutical industry is intensely competitive, based mostly on
product performance and pricing. Many members of the industry have resources far
greater than MGI, providing them with potentially greater flexibility in
developing and marketing their products. Additionally, the biotechnology
industry may intensify competition as new developments are brought to market.
While the Company will seek to protect its products from direct competition
through filing patents, seeking marketing exclusivity under the Orphan Drug Act,
and maintaining technical information as trade secrets, there is no way to
insulate the Company from competition from products with different chemical
composition or products made using different technology. There can be no
assurance that the Company will be successful in its plan to gain product
specific protection for each of its pharmaceutical or that developments by
others will not render the Company's products noncompetitive or obsolete. The
pharmaceutical industry is also characterized by a large number of companies,
none of which have a major market share. consolidation within the industries
has already become a means by which companies are expanding market share and
additional consolidation within the industry is expected.
Salagen(R) Tablets is the first systemic pharmacologic treatment for dry
mouth. Persons suffering from dry mouth in the past have used water, sugar-free
hard candies and lozenges and over-the-counter saliva substitutes to moisten
their mouths. The Company does not believe that any of these products are direct
competitors, but anticipates that they may be used in conjunction with
Salagen(R) Tablets.
10
Government Regulation
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In order to manufacture and market most health care products for human use,
approval of the FDA and comparable agencies in foreign countries must first be
obtained. The FDA has established mandatory procedures to regulate the
manufacturing and testing process to assure safety, potency and efficacy of the
final product. The procedure for seeking and obtaining FDA approval of a new
product involves many steps, including animal testing and clinical testing on
humans to determine safety, efficacy and potential toxicity. Even after initial
FDA approval has been obtained, further studies may be required to provide
additional data on safety in order to obtain approval for uses other than those
for which the product was initially tested. The process of seeking and obtaining
FDA approval of a new product can take several years and often involves the
expenditure of substantial resources without any assurance that approval for
marketing will be granted. Moreover, such approval may entail limitations on the
indicated uses for which a drug may be marketed. Even if FDA approval is
obtained, there can be no assurance of commercial success for any product. Post-
marketing testing and surveillance programs may also be required. In addition,
before, during and after the process of approval, the Company's prescription
drug products must all be manufactured in accordance with Good Manufacturing
Practices as set forth by the FDA. FDA approval may also be required to export
certain human health care products. As the Company expands the reach of its
products world-wide through alliances such as those described earlier, the
Company's products will be subject to similar regulatory requirements of
regulatory agencies comparable to the FDA in other countries.
The health care industry is changing rapidly as the public, government,
medical professionals and the pharmaceutical industry examine ways to broaden
medical coverage while controlling health care costs. The Company is unable to
predict when any proposed health care reforms will be implemented, if ever, or
the effect of any implemented reforms on the Company's business.
Federal, state and local environmental laws and regulations do not
materially affect the Company's operations and the Company believes that it is
currently in material compliance with such applicable laws and regulations.
Human Resources
- ---------------
As of March 17, 1997, MGI had 63 full time employees. Twenty seven of MGI's
employees are engaged in the Company's marketing and selling effort, 21 are
involved in pharmaceutical development, including regulatory interaction and
manufacturing, and 15 are in other management or administrative positions. No
employee of the Company is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are satisfactory.
11
Export Sales
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Although MGI provides bulk drug substance and marketable drug product (for
Salagen(R) Tablets) to its international partners and distributors,
respectively, the dollar amount relative to such transfers have, to date, been
immaterial to MGI's financial condition. The Company does have, and will
continue to maintain, appropriate international transfer prices for the sale of
products to licensees and distributors.
ITEM 2. PROPERTIES
The Company leases office space consisting of approximately 15,000 square
feet in the Opus Center complex located in Minnetonka, Minnesota for its
operations. The office lease will expire in September 1999. The Company
believes that its existing facilities will be adequate to meet its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq National Market under
the symbol "MOGN." The information contained under the headings "Market Price
and Related Matters" and "Stock Prices" on the inside back cover of the
Company's Annual Report to Shareholders for the year ended December 31, 1996
(the "Annual Report to Shareholders"), is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the heading "Selected Financial Data"
on page 28 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 14
through 16 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained in the Financial Statements and Notes thereto
and the Independent Auditors' Report on pages 17 through 26 of the Annual Report
to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the headings "Election of Directors"
and "Executive Officers of the Company" on pages 2 through 5 of the Company's
Proxy Statement for its 1997 Annual Meeting of Shareholders, to be held on May
13, 1997 (the "Proxy Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation"
on pages 6 through 14 of the Proxy Statement is incorporated herein by
reference, other than the subsection thereunder entitled "Report of Compensation
Committee on Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of
Certain Beneficial Owners and Management" on pages 16 through 17 of the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Transactions" on
page 17 of the Proxy Statement is incorporated herein by reference.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
--------------------
Section Reference in the
Annual Report to Shareholders
-----------------------------
Balance Sheets at *
December 31, 1996 and 1995
Statements of Operations *
for the Three Years Ended December 31, 1996
Statements of Cash Flows *
for the Three Years Ended December 31, 1996
Statements of Stockholders' *
Equity for the Three Years Ended December 31, 1996
Notes to Financial Statements *
Independent Auditors' Report *
* The financial statements and the Independent Auditors' Report listed above,
which are included in the Annual Report to Shareholders, are incorporated by
reference in Item 8 hereof.
Except for the financial statements listed above and the items specifically
incorporated by reference in Items 5, 6, 7 and 8 hereof, the Annual Report to
Shareholders is not deemed to be "filed" as part of this Annual Report on Form
10-K.
2. Financial Statement Schedules
-----------------------------
Page in this
Annual Report
-------------
Independent Auditors' Report on 22
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 23
All other schedules have been omitted because they are not applicable or
not
15
required, or because the required information is included in the financial
statements or the notes thereto.
3. Exhibits
--------
Exhibit No.
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3.1 Restated Articles of Incorporation (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-2, File No. 33-
40763).
3.2 Restated Bylaws of the Company, as amended to date (Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
4.2 Rights Agreement, dated as of January 19, 1988, between the Company and
Norwest Bank Minneapolis, National Association (including the form of
Right Certificate attached as Exhibit A thereto) (Incorporated by
reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.1 1993 Nonemployee Director Stock Option Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.2 Nonemployee Director Stock Option Plan (Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.3 Deferred Compensation Plan for Nonemployee Directors (Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
*10.4 1994 Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
*10.5 1984 Stock Option Plan (Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
16
*10.6 1982 Incentive Stock Option Plan (Incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
*10.7 Stock Acquisition Assistance Loan Program (Incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.8 1997 Stock Incentive Plan
*10.9 Money Purchase Retirement Plan Supplement Program (Incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.10 Retirement, Separation Agreement and Release, dated December 31, 1995
with Kenneth F. Tempero. (Incorporated by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1995.)
*10.11 Termination Agreement, dated as of January 1, 1992, with Charles C.
Muscoplat (Incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
*10.12 Termination Agreement, dated as of January 1, 1992, with James V. Adam
(Incorporated by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
*10.13 Termination Agreement, dated as of January 1, 1992, with Lori-jean Gille.
(Incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
*10.14 Termination Agreement, dated as of July 10, 1995, with Jon C. Lee.
(Incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
*10.15 Separation Agreement and Mutual Release, dated as of October 21, 1996,
with Rajesh C. Shrotriya.
*10.16 Termination Agreement, dated as of April 29, 1996, with Charles N.
Blitzer.
*10.17 Stock Purchase and Loan Agreement, dated May 14, 1996, between the
Company and Charles N. Blitzer.
17
10.18 Lease Agreement, dated August 7, 1989, with ALSCOR Investors Joint
Venture, as amended by that certain Amendment to Office Lease, dated
October 30, 1989, with ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.19 Second Amendment to Office Lease, dated May 3, 1991 between the Company
and ALSCOR Investors Joint Venture (Incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.20 Third Amendment to Office Lease, dated September 23, 1992 between the
Company and ALSCOR Investors Joint Venture (Incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.21 Fourth Amendment to Office Lease, dated September 23, 1992 between the
Company and ALSCOR Investors Joint Venture (Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.22 Fifth Amendment to Office Lease, dated March 10, 1995 between the Company
and ALSCOR Investors Joint Venture (Incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Sixth Amendment to Office Lease, dated March 21, 1997 between the Company
and ALSCOR Investors Joint Venture.
10.24 Trademark License Agreement, dated as of December 31, 1989, between the
Company and Norwich Eaton Pharmaceutical, Inc. (Incorporated by reference
to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.25 Supply and License Agreement, dated March 19, 1992, among E Merck Fine
Chemicals Division, EM Industries and the Company (Incorporated by
reference to Exhibit A to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.26 Supply Agreement, dated December 21, 1993, between the Company and
Boehringer Ingelheim Pharmaceutical, Inc. (Incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
18
10.27 Development, Marketing and Cooperation Agreement, dated October 23,
1995, between the Company and Dainippon Pharmaceutical Co., Ltd.
(Incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
10.28 Manufacturing Agreement, dated December 12, 1995, between the Company
and Global Pharm Inc. (Incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
**10.29 Promotion Agreement, dated March 11, 1997, between the Company and
Schein Pharmaceutical, Inc.
11 Computation of Net Income (Loss) Per Common Share.
13 1996 Annual Report to Shareholders.
23 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Cautionary Statements under the Private Securities Litigation Reform Act
of 1995.
* Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of Exhibit 10.29 have been deleted and filed
separately with the Securities and Exchange Commission pursuant to a request
for confidential treatment.
(b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended December
31, 1996.
19
MGI PHARMA, INC. RETIREMENT SAVINGS PLAN
The following financial statements and schedules of the Company's Retirement
Savings Plan are included herein in lieu of filing a Form 11-K for such plan,
pursuant to General Instruction F to Form 10-K and Rule 15d-21:
Page in this
Annual Report
-------------
Statements of Net Assets Available for
Participants at December 31, 1996 and 1995 25
Statements of Changes in Net Assets Available
for Participants in the years ended December 31,
1996 and 1995 26
Notes to Financial Statements 28
Schedule 1 - Schedule of Investments Held at
End of Plan Year 32
Schedule 2 - Reportable Transactions 33
20
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.
Dated: March 28, 1997 MGI PHARMA, INC.
By /s/ James V. Adam
---------------------------------------
James V. Adam
Vice President, Chief Financial Officer
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 date indicated.
Signature Title
- --------- -----
Charles N. Blitzer* President, Chief )
Executive Officer )
(principal executive )
officer) and Director )
)
James V. Adam Vice President, Chief )
Financial Officer )
(principal financial )
and accounting officer)
) By /s/ James V. Adam
-----------------
Frederick W. Armstrong* Director ) James V. Adam
) Pro se and as
Charles E. Austin* Director ) Attorney-in Fact*
)
David E. Collins* Director )
)
Hugh E. Miller* Director ) Dated: March 28, 1997
)
Robert W. Powell, Jr.* Director )
)
Timothy G. Rothwell* Director )
)
Lee J. Schroeder* Director )
* By Power of Attorney filed with this report as Exhibit 24 hereto.
21
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
MGI PHARMA, INC.:
Under date of February 7, 1997, we reported on the balance sheets of MGI PHARMA,
INC., as of December 31, 1996 and 1995, and the related statements of
operations, cash flows, and stockholders' equity for each of the years in the
three-year period ended December 31, 1996, as contained in the 1996 Annual
Report to Shareholders. These financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1996.
In connection with our audits of the aforementioned financial statements, we
also have audited the related financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth herein.
/s/KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1997
22
Schedule II
MGI PHARMA, INC.
VALUATION AND QUALIFYING ACCOUNTS
Additions
----------------------------------
Balance at Charged to Costs Charged to Balance at
Description Beginning of Period and Expenses Other Accounts Deductions End of Period
- ----------------------------- ------------------- ---------------- -------------- ---------- -------------
Year ended December 31, 1996
Deducted from asset accounts:
Accounts receivable allowance $160,535 $152,795 $ -- $245,075 (1) $ 68,255
Inventory valuation allowance 181,458 160,000 70,685 25,662 (2) 386,481
-------- -------- ------- -------- --------
Total $341,993 $312,795 $70,685 $270,737 $454,736
======== ======== ======= ======== ========
Year ended December 31, 1995
Deducted from asset accounts:
Accounts receivable allowance $146,606 $114,157 $ -- $100,228 (1) $160,535
Inventory valuation allowance 13,562 300,000 -- 132,104 (2) 181,458
-------- -------- ------- -------- --------
Total $160,168 $414,157 $ -- $232,332 $341,993
======== ======== ======= ======== ========
Year ended December 31, 1994:
Deducted from asset accounts:
Accounts receivable allowance $ 14,770 $234,566 $ -- $102,730 (1) $146,606
Inventory valuation allowance -- 51,294 -- $ 37,732 (2) 13,562
-------- -------- ------- -------- --------
Total $ 14,770 $285,860 $ -- $140,462 $160,168
======== ======== ======= ======== ========
(1) Discounts by customers, or write-off of uncollectible accounts, net of
recoveries.
(2) Destruction of returned or obsolete inventory, or inventory rework costs.
23
MGI PHARMA, INC. Retirement Savings Plan
Financial Statements and Schedules
1996
STATEMENTS OF NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
December 31,
----------------------------
1996 1995
---------- ----------
INVESTMENTS AT FAIR VALUE:
Shares of registered investments companies:
Invesco Stable Value $ 183,800 $ 315,301
Vanguard Group:
Fixed Income, GNMA 72,550 85,502
World, International Growth 228,750 207,416
Fidelity Investments:
Puritan 274,097 183,847
Retirement Growth 267,475 205,432
MGI PHARMA, INC. common stock 532,160 506,786
Participant notes receivable 48,284 17,574
---------- ----------
1,607,116 1,521,858
---------- ----------
RECEIVABLES:
Contributions receivable:
Employer 137,033 103,212
Employees - 3,098
---------- ----------
137,033 106,310
---------- ----------
CASH 14,125 -
---------- ----------
NET ASSETS AVAILABLE FOR PARTICIPANTS $ 1,758,274 $ 1,628,168
========== ==========
____________________________________________
See accompanying notes to financial statements.
25
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
Year Ended December 31, 1996
-----------------------------------------------------------------------------------------------------
Shares of registered investment companies
-----------------------------------------------------------
Invesco Vanguard Group Fidelity Investments MGI
---------------------- ----------------------
Stable Fixed Income, World Intl. Retirement Common Participant
Value GNMA Growth Puritan Growth Stock Notes Other Total
----- ---- ------ ------- ------ ----- ----- ----- -----
ADDITIONS TO NET ASSETS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $ -- $ (1,485) $ 21,351 $ 5,395 $ (12,960) $ (32,648) $ -- $ -- $ (20,347)
Dividends 12,395 5,054 9,769 29,909 32,434 -- -- -- 89,561
Interest -- -- -- -- -- -- 4,406 -- 4,406
--------- --------- --------- --------- --------- --------- -------- --------- ----------
12,395 3,569 31,120 35,304 19,474 (32,648) 4,406 -- 73,620
--------- --------- --------- --------- --------- --------- -------- --------- ----------
Contributions:
Employer -- -- -- -- -- 78,195 -- 137,033 215,228
Participants 29,845 9,355 41,378 56,247 63,944 25,196 -- -- 225,965
--------- --------- --------- --------- --------- --------- -------- --------- ----------
29,845 9,355 41,378 56,247 63,944 103,391 -- 137,033 441,193
--------- --------- --------- --------- --------- --------- -------- --------- ----------
Total additions 42,240 12,924 72,498 91,551 83,418 70,743 4,406 137,033 514,813
--------- --------- --------- --------- --------- --------- -------- --------- ----------
DISTRIBUTIONS (64,650) (14,692) (114,055) (44,124) (29,160) (113,496) (4,530) -- (384,707)
TRANSFERS BETWEEN FUNDS, NET (109,091) (11,184) 62,891 42,823 7,785 68,127 30,834 (92,185) --
--------- --------- --------- --------- --------- --------- -------- --------- ----------
Net increase (decrease) (131,501) (12,952) 21,334 90,250 62,043 25,374 30,710 44,848 130,106
NET ASSETS AVAILABLE FOR
PARTICIPANTS:
BEGINNING OF YEAR 315,301 85,502 207,416 183,847 205,432 506,786 17,574 106,310 1,628,168
--------- --------- --------- --------- --------- --------- -------- --------- ----------
END OF YEAR $183,800 $ 72,550 $ 228,750 $ 274,097 $ 267,475 $ 532,160 $ 48,284 $ 151,158 $1,758,274
========= ========= ========= ========= ========= ========= ======== ========= ==========
__________________________________________
See accompanying notes to financial statements.
26
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
Year Ended December 31, 1995
----------------------------------------------------------------------------------------
Shares of registered investment companies
--------------------------------------------------------------------
Guaranteed Invesco Vanguard Group Fidelity Investments
---------------------------- ---------------------
Investment Stable Fixed Income World Intl. Retirement
Contract Value GNMA Growth Puritan Growth
-------- ----- ---- ------ ------- ------
ADDITIONS TO NET ASSETS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $ - $ - $ 5,956 $ 20,110 $ 17,679 $ 13,156
Dividends - 16,937 5,218 5,511 8,649 18,168
Interest 3,693 - - - - -
------------ ----------- -------------- -------- -------- ----------
3,693 16,937 11,174 25,621 26,328 31,324
------------ ----------- -------------- -------- -------- ----------
Contributions:
Employer - - - - - -
Participants 1,611 37,960 15,226 36,308 60,701 55,728
------------ ----------- -------------- -------- -------- ----------
1,611 37,960 15,226 36,308 60,701 55,728
------------ ----------- -------------- -------- -------- ----------
Total additions 5,304 54,897 26,400 61,929 87,029 87,052
------------ ----------- -------------- -------- -------- ----------
DISTRIBUTIONS - (1,810) (1,915) (1,668) (1,749) (9,541)
TRANSFERS BETWEEN FUNDS, NET (306,284) 262,214 2,058 1,636 12,006 30,907
------------ ----------- -------------- -------- -------- ----------
Net increase (decrease) (300,980) 315,301 26,543 61,897 97,286 108,418
NET ASSETS AVAILABLE FOR PARTICIPANTS:
BEGINNING OF YEAR 300,980 - 58,959 145,519 86,561 97,014
------------ ----------- -------------- -------- -------- ----------
END OF YEAR $ - $ 315,301 $ 85,502 $207,416 $183,847 $ 205,432
============ =========== ============== ======== ======== ==========
Year Ended December 31, 1995
---------------------------------------------------------------------------
Shares of registered investment companies
---------------------------------------------------------------
MGI
Common Participant
Stock Notes Receivables Total
----- ----- ----------- -----
ADDITIONS TO NET ASSETS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $(172,654) $ - $ - $ (115,753)
Dividends - - - 54,483
Interest - 1,225 - 4,918
--------- ----------- ------------- ----------
(172,654) 1,225 - (56,352)
--------- ----------- ------------- ----------
Contributions:
Employer 139,174 - 103,212 242,386
Participants 30,523 - 3,098 241,155
--------- ----------- ------------- ----------
169,697 - 106,310 483,541
--------- ----------- ------------- ----------
Total additions (2,957) 1,225 106,310 427,189
--------- ----------- ------------- ----------
DISTRIBUTIONS (5,331) (1,600) - (23,614)
TRANSFERS BETWEEN FUNDS, NET (3,853) 1,544 (78,801) (78,573)
--------- ----------- ------------- ----------
Net increase (decrease) (12,141) 1,169 27,509 325,002
NET ASSETS AVAILABLE FOR PARTICIPANTS:
BEGINNING OF YEAR 518,927 16,405 78,801 1,303,166
--------- ----------- ------------- ----------
END OF YEAR $ 506,786 $ 17,574 $ 106,310 $1,628,168
========= =========== ============= ==========
___________________________________________
See accompanying notes to financial statements.
27
NOTES TO FINANCIAL STATEMENTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
1. Description of Plan
-------------------
The following description of the MGI PHARMA, INC. Retirement Savings Plan
(the "Plan") provides only general information. Participants should refer
to the Summary Plan Description for a more complete description of the
Plan's provisions. The plan is a defined contribution retirement savings
plan sponsored by MGI PHARMA, INC. ("MGI"). It conforms to Section 401(k)
of the Internal Revenue Code and therefore defers income taxes on
qualifying contributions and Plan earnings. The Plan benefits eligible
employees by accumulating retirement assets during their working careers
through employee participation in a systematic savings and investment
program to which MGI also contributes. The Plan is administered by an
Administrative Committee appointed for that purpose by MGI's Board of
Directors and all Plan administrative costs are currently borne by MGI.
At December 31, 1996, 51 employees were participants in the Plan. The Plan
is available to every employee of MGI who completes six months of
employment, is at least 21 years old, and is scheduled for at least 1,000
hours of service annually. Eligible employees may participate in the Plan
through: (1) contributions of up to 10% of their compensation; (2) employer
matching contributions equal to 50% of employee contributions, up to 6% of
an employee's compensation; (3) employer discretionary contributions; and
(4) employee rollover contributions. Contributions are subject to certain
limitations.
Employee contributions and related earnings are directed by the participant
into available investment options and are fully vested at all times.
Employer contributions are in the form of MGI common stock. At December 31,
1996, employer directed balances totaled $405,142 of the MGI common stock
fund. Employer contributions are 20% vested after completion of two years
of employment, 40% after three years, 75% after four years and 100% after
five years. Employer discretionary contributions are allocated to a
participant's account based upon his/her pro rata share of total recognized
compensation during the year. Forfeitures are used to reduce the amount of
MGI's contributions to the Plan.
28
A participant's account may mature and be distributed upon the occurrence
of one of the following: (1) death, (2) retirement, (3) the attainment of
70-1/2 years of age, (4) termination of employment, (5) termination of the
Plan or (6) upon certain MGI "change in control" events. Distributions may
be a lump sum of cash and MGI common stock held in a participant's account.
Investments
-----------
The following investment alternatives are available to participants:
Registered Investment Companies Funds:
Invesco Funds Group:
Stable Value - The INVESCO Retirement Trust Stable Value Fund ("Stable
Value Fund") seeks to provide a high level of current income while
preserving principal, primarily by investing in a diversified
portfolio of investment contracts with insurance companies, banks or
other financial institutions. An investment contract is an agreement
to provide a specific rate of return for a period of time. Risk in
these contracts relates to the financial performance of the issuing
entity and in certain cases a portfolio of marketable securities
securing the investment.
Vanguard Group:
Fixed Income, GNMA - The GNMA portfolio is part of the Fixed Income
Securities Fund, a no-load, open-end, diversified fund that seeks to
provide a high level of current income while maintaining a high level
of principal protection and liquidity. The portfolio invests at least
80% of its assets in Government National Mortgage Association ("GNMA"
or "Ginnie Mae") pass-through mortgage backed certificates
representing part ownership of a pool of mortgage loans. The mortgage
loans underlying GNMA certificates are guaranteed by the full faith
and credit of the U.S. Government.
World, International Growth - The International Growth Portfolio is
part of the World Fund, a no load, open end, diversified equity
security fund. The portfolio seeks to provide long-term capital growth
by investing primarily in equity securities of growth companies
located outside the United States.
Fidelity Investments:
Puritan - The Puritan fund is an open-end, diversified security fund
that seeks to primarily provide income by investing in common stocks,
preferred stocks and bonds.
29
Retirement Growth - The Retirement Growth fund is an open-end,
diversified securities fund that seeks long-term capital growth by
investing primarily in common stocks. It may realize capital gains
without regard to shareholders' current tax liability since it is
designed for investors in tax qualified retirement plans.
MGI PHARMA, INC. common stock - MGI PHARMA, INC. (the Plan Sponsor) common
stock is publicly traded, with trades reported on the NASDAQ National
Market System. MGI is a pharmaceutical company that acquires, develops and
markets innovative and differentiated products for niche markets of unmet
medical need. MGI has not paid, and has no present intention of paying cash
dividends on its common stock.
Participant Notes Receivable
----------------------------
Participants may borrow from their accounts a minimum of $1,000 up to the
lesser of $50,000 or one-half of their balances. Loan transactions are
treated as transfers between the relevant investment fund and the
Participant Notes fund. Loan terms generally cannot exceed five years. The
loans are secured by balances in the participant's accounts and bear
interest fixed at 1% above the prime rate upon initiation of the loan.
Principal and interest is paid by monthly or more frequent installments.
2. Summary of Accounting Policies
------------------------------
Basis of Accounting
-------------------
The financial statements of the Plan are prepared under the accrual method
of accounting.
Investment Valuation and Income Recognition
-------------------------------------------
Plan investments are stated at fair value. Shares of registered investment
companies are valued at quoted market prices that represent the net asset
value of shares held by the Plan at year-end. Company stock is valued at
its quoted market price of $4.25 and $4.4375 per share at December 31, 1996
and 1995, respectively. Participant notes receivable are valued at cost
which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date. Investment income is allocated to participants'
accounts based upon their pro rata share of the respective investment
balance during the income period.
Payment of Benefits
-------------------
Benefits are recorded when paid.
30
3. Federal Income Taxes
--------------------
The Plan received a tax qualification letter from the Internal Revenue
Service stating that it is a qualified plan under the Internal Revenue Code
("IRC"), and therefore the associated trust is exempt from federal income
taxes. Following the qualification letter, the Plan administration believes
operation of the Plan has been performed in a manner to maintain compliance
with the applicable requirements of the IRC.
4. Party-in-interest Transactions
------------------------------
The Plan engaged in transactions involving the acquisition or disposition
of units of participation in collective investment funds of the Trustee,
which is a party-in-interest with respect to the Plan. These transactions
are not considered "prohibited transactions" under ERISA and are for short-
term investment of cash balances pending reinvestment.
5. Plan Termination
----------------
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
31
Schedule 1
SCHEDULE OF INVESTMENTS HELD AT END OF PLAN YEAR
MGI PHARMA, INC. Retirement Savings Plan
December 31, 1996
(unaudited)
Number Fair Market
Description of shares/units Cost Value
- ----------- --------------- ---------- -----------
Shares of registered investment companies:
Invesco Stable Value 183,800 $ 183,800 $ 183,800
Vanguard Group:
Fixed Income, GNMA 7,099 70,467 72,550
World, International Growth 13,897 205,522 228,750
Fidelity Investments:
Puritan 15,899 259,274 274,097
Retirement Growth 15,470 280,184 267,475
MGI PHARMA, INC. common stock 125,214 801,704 532,160
Participant notes receivable 48,284 48,284 48,284
---------- ----------
Total $1,849,235 $1,607,116
========== ==========
32
Schedule 2
REPORTABLE TRANSACTIONS
MGI PHARMA, INC. Retirement Savings Plan
Year ended December 31, 1996
(unaudited)
Total Total Total Dollar Total Dollar
Number Number Value of Value Net Gain
Description of Purchases of Sales Purchases of Sales or (Loss)
- ----------- ------------ -------- --------- -------- ---------
Shares of registered investment companies:
Invesco Stable Value 88 12 57,074 190,331 -0-
Vanguard Group:
Fixed Income, GNMA 55 9 15,074 21,209 (5,004)
World, International Growth 80 7 107,067 104,719 (1,042)
Fidelity Investments:
Puritan 82 13 145,358 60,424 1,622
Retirement Growth 79 11 119,791 44,774 943
MGI PHARMA, INC. common stock 25 12 185,974 124,188 (13,643)
33
EXHIBIT INDEX
MGI PHARMA, INC.
Annual Report on Form 10-K
For
Year Ended December 31, 1996
Exhibit
Number Description
- ------ -----------
3.1 Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-2, File No. 33-40763).
3.2 Restated Bylaws of the Company, as amended to date
(Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
4.1 Specimen certificate for shares of Common Stock of
the Company (Incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
4.2 Rights Agreement, dated as of January 19, 1988, between
the Company and Norwest Bank Minneapolis, National
Association (including the form of Right Certificate
attached as Exhibit A thereto) (Incorporated by referenc
to Exhibit 4.2 to the Company's Annual Report on Form 10
for the year ended December 31, 1994).
10.1 1993 Nonemployee Director Stock Option Plan (Incorporate
by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.2 Nonemployee Director Stock Option Plan (Incorporated by
reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.3 Deferred Compensation Plan for Nonemployee Directors
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
10.4 1994 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.5 1984 Stock Option Plan (Incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.6 1982 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.7 Stock Acquisition Assistance Loan Program (Incorporated
by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.8 1997 Stock Incentive Plan.
10.9 Money Purchase Retirement Plan Supplement Program
(Incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.10 Retirement, Separation Agreement and Release, dated
December 31, 1995 with Kenneth F. Tempero. (Incorporated
by reference to Exhibit 10.9 the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.)
10.11 Termination Agreement, dated as of January 1, 1992, with
Charles C. Muscoplat (Incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.12 Termination Agreement, dated as of January 1, 1992,
with James V. Adam (Incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.13 Termination Agreement, dated as of January 1, 1992,
with Lori-jean Gille. (Incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.)
10.14 Termination Agreement, dated as of July 10, 1995, with
Jon C. Lee. (Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report of
Form 10-K for the year ended December 31, 1995.)
10.15 Separation Agreement and Mutual Release, dated as of
October 21, 1996 with Rajesh C. Shrotriya.
10.16 Termination Agreement, dated as of April 29, 1996,
with Charles N. Blitzer.
10.17 Stock Purchase and Loan Agreement, dated May 14, 1996,
between the Company and Charles N. Blitzer.
10.18 Lease Agreement, dated August 7, 1989, with ALSCOR
Investors Joint Venture, as amended by that certain
Amendment to Office Lease, dated October 30, 1989, with
ALSCOR Investors Joint Venture (Incorporated by reference
to Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.19 Second Amendment to Office Lease, dated May 3, 1991
between the Company and ALSCOR Investors Joint Venture
(Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.20 Third Amendment to Office Lease, dated September
23, 1992 between the Company and ALSCOR Investors
Joint Venture (Incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.21 Fourth Amendment to Office Lease, dated September 23,
1992 between the Company and ALSCOR Investors Joint
Venture (Incorporated by reference to Exhibit 10.14
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.22 Fifth Amendment to Office Lease, dated March 10, 1995
between the Company and ALSCOR Investors Joint Venture
(Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.23 Sixth Amendment to Office Lease, dated March 21, 1997
between the Company and ALSCOR Investors Joint Venture.
10.24 Trademark License Agreement, dated as of December
31, 1989, between the Company and Norwich Eaton
Pharmaceutical, Inc. (Incorporated by reference to
Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.25 Supply and License Agreement, dated March 19, 1992,
among E Merck Fine Chemicals Division, EM Industries
and the Company (Incorporated by reference to Exhibit A
to Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992).
10.26 Supply Agreement, dated December 21, 1993, between
the Company and Boehringer Ingelheim Pharmaceutical,
Inc. (Incorporated by reference to Exhibit 10.18
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.27 Development, Marketing and Cooperation Agreement,
dated October 23, 1995, between the Company and Dainippon
Pharmaceutical Co., Ltd. (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995).
10.28 Manufacturing Agreement, dated December 12, 1995,
between the Company and Global Pharm Inc. (Incorporated
by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
**10.29 Promotion Agreement, dated March 11, 1997, between the
Company and Schein Pharmaceutical, Inc.
11 Computation of Net Income (Loss) Per Common Share.
13 1996 Annual Report to Shareholders.
23 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Cautionary Statements under the Private Securities Litigation Reform
Act of 1995
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibit 10.29 have been deleted and
filed separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment.