Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-19410
Sepracor Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2536587
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 Locke Drive, Marlborough, Massachusetts 01752
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 481-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
2
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 the
Form 10-K. [ ]
The aggregate market value of voting Common Stock held by nonaffiliates of the
registrant was approximately $1,108,820,000, based on the last reported sale
price of the Common Stock on the Nasdaq consolidated transaction reporting
system on March 13, 1998.
Number of shares outstanding of the registrant's class of Common Stock as of
March 13, 1998: 27,851,045 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1997 Annual Report to Stockholders - Part II
Proxy Statement for the 1998 Annual Meeting of Stockholders - Part III
3
PART I
ITEM 1. BUSINESS.
THE COMPANY
Sepracor Inc. ("Sepracor" or the "Company") is a specialty
pharmaceutical company focused on the cost-effective development of safer, purer
and more effective drugs that are improved versions of widely-prescribed
pharmaceutical compounds. Typically, these Improved Chemical Entities
("ICE(TM)s") are patented, single-isomer or active-metabolite forms of the
parent compound. Sepracor was incorporated in Delaware in 1984.
In its ICE development program, Sepracor identifies existing,
widely-prescribed drugs that might be replaced by improved single-isomer or
active-metabolite forms of such drugs. Sepracor then seeks to develop ICEs that
offer one or more benefits over the parent drugs, such as reduced side effects,
improved therapeutic efficacy, effectiveness for new indications or improved
dosage forms.
The Company believes that it may be able to develop its ICEs in less
time, at lower cost and at reduced risk than is the case with typical drug
development. Because the Company's strategy focuses on improving existing,
widely-prescribed drugs, the Company believes it can reduce: (i) discovery
efforts for its ICEs; (ii) the cost and duration of clinical trials if Sepracor
can rely on preclinical and clinical trial data used in the course of obtaining
regulatory approval for the parent drug; (iii) the risk that regulatory approval
will not be obtained because the parent drug has already been approved; and (iv)
certain of the marketing risks due to an existing market for the parent drug.
The Company has filed, and expects to continue to file, applications for
patents directed to potential benefits of ICEs over the parent drugs. These
patent applications typically cover the use of the single-isomer or
active-metabolite forms of a parent compound for specific therapeutic benefits.
Sepracor's strategy for commercializing its ICEs is to seek licensing or
co-promotion collaborations with major pharmaceutical companies and, for
selected prescription products, to develop a sales force to facilitate the
independent marketing of ICEs. When licensing or seeking to co-promote its
products, the Company typically seeks partners which have composition-of-matter
patent positions for the licensed drug or which have marketing and distribution
strength in the market served by the drug. Most of the ICEs for which the
Company has obtained use patents or filed patent applications are covered by
composition-of-matter or other patents or patent applications typically held by
third party drug companies. The ICEs may not be commercialized until the
expiration of the relevant third party composition-of-matter or other patents
(unless a license is obtained thereunder or the patent expires or is determined
to be invalid, unenforceable or not infringed by a court of proper
jurisdiction). See "Patents and Proprietary Information."
4
ICE DEVELOPMENT PROGRAM
Sepracor has licensed or is developing the following ICEs intended to
treat a broad range of indications:
RESPIRATORY
Norastemizole, an active metabolite of Hismanal(R). Hismanal, marketed
by Johnson & Johnson, carries a "black box" label warning of the potential for
serious cardiac side effects and adverse drug-drug interactions. Hismanal must
also be administered for up to a week before reaching full efficacy. Sepracor's
Phase I and Phase II clinical trials indicate that norastemizole is potentially
a safe and potent non-sedating antihistamine with rapid onset and long duration
of action, making once-a-day dosing possible. Sepracor is currently conducting
Phase III clinical trials with norastemizole. The Company has a method-of-use
patent application pending covering norastemizole. On February 4, 1998, Sepracor
and Janssen Pharmaceutica N.V, a wholly owned subsidiary of Johnson & Johnson
("Janssen"), entered into an agreement with respect to the joint development and
co-promotion of norastemizole. Janssen has a composition of matter patent
expiring in 1999 and a patent claiming anti-allergic use and pharmaceutical
formulations expiring in 2006.
Descarboethoxyloratadine (DCL), an active metabolite of Claritin(R).
Claritin is marketed by Schering Corporation. Sepracor's preclinical studies
have shown that DCL may be more potent than other commercially available
antihistamines. Sepracor's patent portfolio for DCL includes a U.S. patent
covering the use of DCL as a non-sedating antihistamine that expires in 2014 and
U.S. patent applications pending covering pharmaceutical formulations and
additional uses.
In December 1997, Sepracor and Schering-Plough Ltd. ("Schering-Plough")
entered into a licensing agreement giving Schering-Plough exclusive worldwide
rights to Sepracor's patents covering DCL. Schering-Plough has indicated it
intends to develop and market DCL worldwide. Sepracor received $5 million as an
upfront license fee and is entitled to royalty payments upon the initial sale of
the product, at a rate increasing over time and upon the achievement of
specified sales volume and other milestones.
Fexofenadine, an active metabolite of Seldane(R). Seldane, marketed by
Hoechst Marion Roussel, Inc. ("HMRI"), was the leading non-sedating
antihistamine until the U.S. Food and Drug Administration (the "FDA") mandated
that Seldane carry a "black box" label warning of its potential cardiovascular
side effects and adverse drug-drug interactions. HMRI introduced Allegra(R) in
October 1996 as a second-generation non-sedating antihistamine without the side
effects of Seldane. In January 1998, HMRI announced its intention to withdraw
Seldane from the market due to the availability of the Allegra product line.
Under Sepracor's license to HMRI, Sepracor
-2-
5
will be entitled to royalties upon the expected expiration in 2001 of the HMRI
composition-of-matter patent covering fexofenadine. However, in July 1997, the
U.S. Patent and Trademark Office ("PTO") declared an interference between
Sepracor and HMRI regarding a patent application and an issued U.S. patent of
Sepracor for the use of fexofenadine for the treatment of allergic rhinitis, and
a certain patent application of HMRI, which may result in the Company not
receiving royalties from HMRI on sales of Allegra. See "Factors Affecting Future
Operating Results."
Levalbuterol (R-albuterol), a single-isomer form of Ventolin(R) and
Proventil(R). Albuterol is marketed by GlaxoWellcome plc ("Glaxo-Wellcome"),
Schering Corporation and others. In July 1997, two years after initiating
clinical trials, Sepracor submitted a new drug application ("NDA") to the FDA
for the nebulized form of levalbuterol. The FDA formally accepted the Company's
NDA filing in early September 1997. Subject to FDA approval, the Company plans
to introduce levalbuterol in late 1998.
In addition to formulating a nebulizer solution, Sepracor is developing
levalbuterol for use in several delivery systems, including syrup, tablet, a
dry-powder inhaler and metered-dose inhalers using both chlorofluorocarbon and
hydrofluoroalkane based propellants. Sepracor has two issued U.S. patents for
the use of levalbuterol for the treatment of asthma that expire in 2011 and
2013, respectively.
(R,R)-formoterol, a single-isomer form of Foradil(R) and Atock(R).
Foradil is marketed in Canada and Europe by Novartis and Atock is marketed in
Japan by Yamanouchi Pharmaceuticals. Sepracor is developing (R,R)-formoterol as
a bronchodilator intended to offer benefits over existing drugs, including rapid
onset and long duration of action. If successfully developed, (R,R)-formoterol
would compete against Foradil and Atock, and against GlaxoWellcome's
Serevent(R). Sepracor's Phase I and Phase II clinical trials indicate that
(R,R)-formoterol has the potential to be a once-a-day long acting
bronchodilator. Sepracor has a U.S. patent application pending for the use of
(R,R)-formoterol.
UROLOGY/GASTROENTEROLOGY
(S)-oxybutynin, a single-isomer form of Ditropan(R). Ditropan, marketed
by HMRI for the treatment of urinary incontinence, is the leading pharmaceutical
treatment for urinary incontinence in adults. Urinary incontinence affects
approximately 10 million women and 3 million men in the U.S. Current treatment
for urinary incontinence consists primarily of diapers, pads, disposable briefs,
shields, guards, mechanical devices, and surgical intervention. Pharmaceutical
products capture only about 5% of this market. Sepracor believes that drug
therapy represents such a small segment of the incontinence treatment market
largely because pharmaceutical treatments, including racemic oxybutynin, can
cause undesirable anticholinergic side effects, such
-3-
6
as dry mouth, nausea, restlessness, and heart palpitations. The Company's
clinical trials to date have demonstrated the potential for a significant
reduction of such anticholinergic side-effects. Sepracor's (S)-oxybutynin is
currently in Phase II clinical trials which are expected to be completed in
1998. Sepracor has an issued U.S. patent for (S)-oxybutynin for the method of
treating urinary incontinence that expires in 2015 and several U.S. patent
applications pending covering pharmaceutical formulations of (S)-oxybutynin.
(S)-doxazosin, a single-isomer form of Cardura(R). Cardura, marketed by
Pfizer Inc. ("Pfizer"), is used primarily to treat benign prostatic hyperplasia,
or enlargement of the prostate, a significantly undertreated condition that is
estimated to affect a majority of males over the age of 55. A side effect of
doxazosin is orthostatic hypotension, the lowering of blood pressure that can
cause severe dizziness or fainting. As a result of this effect, initial doses of
the drug are generally administered in a doctor's office over several visits.
Sepracor's preclinical studies indicate that S-doxazosin exhibits potential for
a significant reduction in orthostatic hypotension and is more potent than the
parent drug. Sepracor is preparing an investigational new drug application
("IND") in order to commence Phase I human clinical trials. Sepracor has an
issued U.S. patent for the use of (S)-doxazosin to treat benign prostatic
hyperplasia that expires in 2013.
Norcisapride, a metabolite of Propulsid(R). Propulsid, marketed by
Johnson & Johnson for treatment of gastroesophageal reflux disease, carries a
"black box" label warning of the potential for fatal cardiac toxicity. In
preclinical studies, norcisapride has been found by Sepracor to have the
potential to be a potent anti-emetic without the risk of cardiac toxicity. The
Company has a patent application pending with respect to norcisapride.
(S)-lansoprazole, a single-isomer form of Prevacid(R). Prevacid,
marketed in the U.S. by TAP Pharmaceuticals, is a protein pump inhibitor drug
used to treat diseases associated with excess gastric acid secretions. Based on
preclinical studies, Sepracor believes that (S)-lansoprazole may offer more
consistent dosing and efficacy, as compared to Prevacid. The Company has a
patent application pending with respect to (S)-lansoprazole.
PSYCHIATRY/NEUROLOGY
(R)-fluoxetine, a single-isomer form of Prozac(R). Prozac is marketed by
Eli Lilly and Company ("Eli Lilly"). Prozac cannot be easily co-administered
with, or switched to, other psychoactive medications due to the slow elimination
from the body (approximately 30 days) of both Prozac and an active metabolite of
Prozac, and the adverse drug-drug interaction profile. Sepracor believes that
the (R)-isomer alone is equally potent as an antidepressant, more rapidly
cleared, and is metabolized to an inactive isomer, resulting in faster
elimination from the body, similar to Paxil(R) and Zoloft(R), two
-4-
7
competitors that have comparable therapeutic benefit with this more rapid
metabolism. This benefit may also increase the suitability of Prozac for
treatment of the elderly, as well as other patient groups that have difficulty
metabolizing certain drugs. Sepracor has an issued U.S. patent for
(R)-fluoxetine for the treatment of depression that expires in 2015.
(S)-fluoxetine, the other single-isomer form of Prozac. Sepracor is also
developing the (S)-isomer of fluoxetine, currently in Phase II clinical trials
as a treatment to prevent migraine. Migraine affects approximately 23 million
people in the U.S. Sumatriptan, marketed as Imitrex(R) by GlaxoWellcome, is
approved for acute but not prophylactic treatment of migraine and is the leading
antimigraine drug on the market. In Phase II trials, Sepracor demonstrated a
statistically significant decrease in the frequency of migraine attacks for
patients receiving (S)-fluoxetine. Sepracor has an issued U.S. patent for
(S)-fluoxetine for the prevention of migraine that expires in 2013.
(S)-zopiclone, a single-isomer form of Imovane(R). Imovane, marketed by
Rhone-Poulenc Rorer Inc. ("Rhone-Poulenc"), is a non-benzodiazepine,
short-acting hypnotic/sedative approved for marketing in Europe for the
treatment of sleep disorders. The Company's preclinical studies to date have
demonstrated that (S)-zopiclone has the potential for a significant reduction
in anticholinergic side effects, in particular dry mouth, when compared to
Imovane. The Company has a patent application pending with respect to
(S)-zopiclone.
(R)-bupropion, a single-isomer form of Zyban(R). Zyban, marketed by
GlaxoWellcome for smoking cessation, is the only FDA approved product for
smoking cessation that is non-addictive. However, Zyban has been shown to induce
seizures in certain patients, including those with no prior history of seizure
disorder. The Company has initiated an exploratory program to determine whether
(R)-bupropion has the potential for an improved side-effect profile, including
less incidence of seizures, dry mouth, shaking and insomnia. The Company has a
patent application pending with respect to (R)-bupropion.
(S)-sibutramine, a single-isomer form of Meridia(R). Meridia is marketed
by Knoll Pharmaceutical Co., a division of BASF AG, for the treatment of
obesity. The Company has initiated an exploratory program to determine whether
(S)-sibutramine may have reduced anticholinergic side effects, in particular
reduced dry mouth and constipation, as compared to Meridia. The Company has a
patent application pending with respect to (S)-sibutramine.
-5-
8
OTHER INDICATIONS
The Company is also developing the following compounds, which are in
clinical or preclinical trials: (2R,4S)-itraconazole, marketed in racemic form
by Johnson & Johnson as Sporanox(R), as an antifungal agent; and (R)ondansetron,
marketed in racemic form by GlaxoWellcome as Zofran(R), for the treatment of
emesis.
DRUG DISCOVERY
Sepracor has undertaken a long-term new drug discovery program directed
at discovering novel molecules and mechanisms for treatment of infectious
disease, inflammation and pain. In connection with this program, Sepracor, using
its combinatorial chemistry expertise, has independently developed an extensive
library of new compounds which are screened against biological receptors both by
Sepracor and by its biotechnology partners.
SUBSIDIARIES
In 1994, Sepracor established and independently financed two
subsidiaries, BioSepra Inc. ("BioSepra") and HemaSure Inc. ("HemaSure"), through
initial public offerings of their common stock. The establishment of these and
other subsidiaries has allowed Sepracor to concentrate on its core
pharmaceutical business while allowing its subsidiaries to focus on the
development and commercialization of the Company's bioprocessing technologies.
BIOSEPRA
BioSepra, a 64% subsidiary of the Company, develops, manufactures and
sells chromatographic media and systems for use by pharmaceutical companies in
the purification and production of biopharmaceuticals. BioSepra's products
enable pharmaceutical companies to reduce the time and cost required to develop
and manufacture biopharmaceuticals. BioSepra's media products are currently used
by pharmaceutical companies in the production of several commercial
biopharmaceuticals, including interferons, insulin, human growth hormone,
special enzymes and vaccines.
Overview. Purification is a critical process in almost every stage in
the development and commercialization of a biopharmaceutical, from research
through production for clinical trials to commercial production. It is estimated
that biopharmaceutical purification accounts for about one-half of overall
commercial production costs.
Chromatography is the principal method used for biopharmaceutical
purification. In chromatographic processes, the solution containing both the
desired
-6-
9
product and unwanted contaminants and impurities is flowed through columns that
are packed with chromatographic particles ("media"). As the solution flows
through the columns, the target biomolecules are absorbed by the media. The
productivity of a chromatographic media depends on the protein binding capacity
of the media, the speed at which biomolecules are able to reach the binding
sites and the ability of the media to achieve the desired product purity
(resolution).
Products. BioSepra has developed chromatographic media products to
enable biopharmaceutical companies to increase the productivity of their
purification processes. The media products are based on both its recently
developed HyperD(TM) media and established technologies.
HyperD Media. In March 1993, BioSepra introduced its advanced
HyperDiffusion(TM) Chromatography media, called HyperD media, which combines the
high protein binding capacity of soft gels with the higher flow advantages of
rigid porous materials. The soft gel provides a high number of protein binding
sites, while the rigid porous materials (or shell) enables the media to resist
compression even as solution is flowing at high speeds. The media is therefore
able to achieve rapid flow rates while maintaining a high level of protein
binding capacity. BioSepra believes that HyperD media can, in many applications,
significantly increase productivity. BioSepra believes that the unique structure
of BioSepra's HyperD chromatography media can enable companies to produce
monoclonal antibody-based drugs faster and at higher purity and yield than they
could using other products currently on the market. HyperD media is currently
being used by several major pharmaceutical companies in production of
biopharmaceuticals.
In 1997, BioSepra further developed its market position with respect to
antibody purification by gaining access to several families of ligands. BioSepra
entered into a long-term supply agreement for recombinant protein-A, a key
ligand for antibody purification. BioSepra also obtained a worldwide exclusive
license for chromotography to a family of peptide mimetics of protein-A and
licensed hydrophobic charge induction ("HCI") technology for the purification of
antibodies. HCI purification does not require large amounts of salt, which is
used in older hyrodphillic products and has been traditionally associated with
high cost, disposal issues and additional purification steps.
In March 1995, BioSepra entered into a strategic marketing alliance with
Beckman Instruments, Inc. ("Beckman") appointing Beckman as its exclusive
distributor worldwide (except in Japan) of certain HyperD media in several sizes
of prepacked columns for use in the research and method development markets. In
1996, BioSepra extended the agreement to include Japan and the non-exclusive
distribution of additional media for use in the research and method development
market.
-7-
10
Established Media Products. BioSepra offers a line of established
chromatographic media products, most of which were introduced in the 1980s.
These products, which were developed for use primarily in the blood
fractionation industry still account for a significant but declining percentage
of BioSepra's sales. BioSepra plans to continue to sell these media products for
use in existing commercial scale processes that use these products, as well as
new applications that do not require the high bioprocessing performance of
HyperD.
BioSepra's established media products offer different capabilities for
purifying specific target molecules based on molecular charge, molecular size,
degree of hydrophobicity and binding affinity.
Other Products. BioSepra sells several chemical products used in
biopharmaceutical research. BioSepra offers its proprietary UpScale(TM) Process
columns designed for larger scale applications with volume capacities ranging
from one to 130 liters of media.
In addition, BioSepra is developing new purification devices for use by
genomics and proteomics companies. These products under development may also be
used by large pharmaceutical companies in their drug discovery programs.
BioSepra recorded the first sale of a beta-stage version of this product under
development in the fourth quarter of 1997.
BioSepra expects that sales of its historical line of chromatography
bioprocessing products will not increase in 1998 and that the future success of
its business will depend on market acceptance of BioSepra's more recent
products, such as HyperD, in the faster growing markets of the biopharmaceutical
industry such as monoclonal antibodies. However, there can be no assurance that
BioSepra's more recent products will be developed successfully or achieve market
acceptance.
Recent Developments. In December 1997, BioSepra implemented a cost-reduction
program that involved the write down of intangible assets to their net
realizable value, the discontinuance of its instrument product line and a
reduction in the number of employees. The purpose of the program was to enable
BioSepra to focus on the process segments of the biopharmaceutical and genomics
market. As part of the cost-reduction program, BioSepra recorded restructuring
and impairment charges totaling $4,179,000 in the fourth quarter of 1997. There
can be no assurances that this cost-reduction program will not result in loss of
customers or temporary sales or production disruptions, any of which could have
a materially adverse effect on BioSepra's business, financial condition or
results of operations.
-8-
11
HEMASURE
HemaSure, a 37% owned affiliate of the Company, is applying its
proprietary filtration technology to develop products to increase the safety of
donated blood and to improve certain blood collection and transfusion
procedures.
SEPRACHEM
In March 1996, SepraChem Inc., a wholly owned subsidiary of Sepracor
("SepraChem"), and a supplier of chiral fine chemical intermediates that are
used by pharmaceutical companies in the production of single isomer drugs, and
Sterling Organics Limited, a United Kingdom manufacturer of fine chemicals, were
each contributed (the "Contributions") to ChiRex Inc., a Delaware corporation
("ChiRex"), formed for the purpose of effecting the Contributions. In
consideration for the Contributions, Sepracor received shares of ChiRex common
stock and the stockholders of Sterling Organics received shares of ChiRex common
stock and cash from the proceeds of a public offering of ChiRex common stock
which was completed concurrently with the Contributions. Sepracor owned
approximately 32% of ChiRex. In March 1997, Sepracor sold all of its shares of
ChiRex common stock in an underwritten public offering. Sepracor received net
proceeds in the offering of approximately $31,125,000 after payment of the
underwriting discounts and commissions but before payment of the other expenses
associated with the offering. As a result of this transaction, Sepracor
recognized a gain of $30,069,000 which was recorded as other income.
VERSICOR
Versicor Inc. ("Versicor") was formed as a majority-owned subsidiary of
the Company in May 1995 to develop novel drug candidates principally for the
treatment of infectious diseases. In December 1997, Versicor announced the
completion of a private equity financing for approximately $22,000,000.
Following this financing, Sepracor retains approximately a 22% equity ownership
in Versicor. Sepracor converted $9,530,000 of convertible subordinated notes of
Versicor into 12,166,667 shares of Versicor Series B Preferred Stock (1,095,000
shares on a common equivalent basis after giving effect to a 9-for-1 reverse
common stock split declared December 1997). Sepracor recognized a gain of
approximately $5,688,000 on the transaction, which was recorded as an increase
to additional paid-in capital.
-9-
12
RESEARCH AND DEVELOPMENT
SEPRACOR. The Company's total research and development expenses were
$21,707,000, $35,828,000 and $43,055,000 for 1995, 1996 and 1997, respectively.
Collaborative research and development revenues totaled $1,036,000, $25,000 and
$58,000 in 1995, 1996 and 1997, respectively.
BIOSEPRA. BioSepra's research and development group consists of 15
persons. BioSepra's research and development efforts are primarily dedicated to
the development of chromatographic products to speed up and optimize process
design and development and reduce production time and cost for biopharmaceutical
drug development and manufacture with a specific focus on monoclonal antibodies
and the genomics and gene therapy markets. During 1995, 1996 and 1997, BioSepra
spent $2,761,000, $2,399,000 and $1,859,000, respectively, on research and
development.
MARKETING AND SALES
SEPRACOR. The Company's marketing strategy includes arrangements with
corporate marketing partners, outlicensing product rights in exchange for
royalties and marketing through its direct sales force. The Company believes
that corporate partnering arrangements allow the Company to market its ICEs more
quickly and, simultaneously, utilize the partner's marketing expertise. The
Company currently has collaborative agreements with Schering-Plough, HMRI and
Janssen. In each of these collaborative agreements, the Company is dependent
upon the efforts of its collaboration partner and there is no assurance that
such efforts will be successful.
The Company intends to build a direct sales force consisting of
representatives and technical specialists. The sales representatives will
demonstrate the use of the Company's products while educating physicians as to
the clinical benefits of the ICEs. The technical specialists will act as a
resource to provide physicians with relevant information regarding the Company's
products.
Building a direct sales force will require substantial efforts and
significant management and financial resources. The Company's business and
future operating results will depend in significant part upon its ability to
attract and retain skilled sales and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. There can be no assurance
that the Company will be able to build such a marketing staff or sales force,
that establishing such a marketing staff or sales force will be cost-effective
or that the Company's sales and marketing efforts will be successful.
In 1997, sales to two BioSepra customers and HMRI consisted of 33%, 10%
and 12%, respectively, of the Company's total revenues.
BIOSEPRA. In 1997, BioSepra marketed its products to the
biopharmaceutical industrial market through direct sales efforts in the United
States and some parts of
-10-
13
Europe and through distributors in other countries. BioSepra markets and sells
its products through field sales representatives and distributors, supported by
application specialists, product managers, and technical support/application
development personnel in BioSepra's research and development department.
Pursuant to BioSepra's agreement with Beckman, Beckman distributes worldwide
certain HyperD media products.
MANUFACTURING
SEPRACOR. The Company conducts the formulation of its drug compounds
primarily at its laboratories in Marlborough, Massachusetts. The Company also
currently owns and operates a current Good Manufacturing Practices ("cGMP")
compliant 26,000 square foot fine chemical manufacturing facility in Windsor,
Nova Scotia, which the Company believes has sufficient capacity to support the
production of its drugs in quantities required for its clinical trials. As
Sepracor's drugs become approved for sale, the Company will need to either
manufacture such drugs itself or license the manufacturing and marketing rights
to third parties. While the Company believes that it has the capability to scale
up its manufacturing process to support the production in commercial quantities
of certain of the drugs which it intends to directly market and sell, the
production of a substantial portion of those drugs must be contracted out to
third party manufacturers. Prior to December 31, 2001, the Company is obligated
to purchase from ChiRex all of its commercial requirements (other than
commercial quantities of its drugs which Sepracor is capable of producing at its
Nova Scotia manufacturing plan) of those drugs which it intends to directly
market and sell, subject to certain pricing, supply and quality control
conditions.
BIOSEPRA. BioSepra's facilities are located in Marlborough,
Massachusetts and Villeneuve-la-Garenne, France. In Massachusetts, BioSepra
subleases approximately 13,000 square feet of space from Sepracor, and in
France, BioSepra subleases approximately 28,500 square feet of space in
Vilieneuve-la-Garenne. Of the total, approximately 20,440 square feet are used
for manufacturing operations. At its facility in France, BioSepra produces its
chromatographic media.
-11-
14
COMPETITION
SEPRACOR. Sepracor's principal competitors are generic drug companies
that seek to market the racemic mixture following expiration of the innovator's
composition-of-matter patent and also pharmaceutical companies which develop new
patented therapies to treat the disease indications that Sepracor is targeting.
The Company expects that these competitors will seek to compete against
Sepracor's differentiated products with lower pricing, which could adversely
affect the prices charged by Sepracor. In addition, any ICE developed by the
Company is likely to encounter competition from the original brand-name parent
drug, potentially in a generic form, following expiration of the innovator's
composition-of-matter patent. Many competitors and potential competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than Sepracor and its
subsidiaries.
In its ICE program, the Company expects to compete primarily by
obtaining use patents on the single-isomer or active-metabolite form of
existing, widely-sold racemic drugs and by establishing, through preclinical and
clinical tests, that such products in single-isomer or active-metabolite form
offer benefits over the racemic compounds, such as reduced side effects,
improved therapeutic efficacy, new indications or improved dosage forms. Any
such patents obtained by Sepracor should exclude others from marketing the
targeted single-isomer compound for the indications claimed in Sepracor's issued
use patents.
BIOSEPRA. BioSepra encounters intense competition in the sale of its
current products and expects to encounter intense competition in the sale of
its future products. BioSepra's principal competitors are Amersham-Pharmacia-
BioTech, Bio-Rad and PerSeptive Biosystems, Inc. ("PerSeptive"). These
competitors, as well as other companies selling or developing products for the
bioseparations market, have financial, marketing and other resources greater
than those of BioSepra. In addition, certain competitors have had long-term
relationships with many of BioSepra's existing and potential customers.
Sales of chromatographic media products typically involve long lead
times and customers generally evaluate several different media products before
committing to a volume purchase. Also, customers typically are reluctant to
change the media used in a production process previously approved by the FDA
because such a change would require extensive validation and in certain cases
would require additional FDA approval. For these reasons, BioSepra's future
success will depend in large part on its ability to sell its products to
customers at the early stages of their product development cycles. There can be
no assurance that BioSepra will be able to compete effectively against its
existing or future competitors or that developments by others will not render
BioSepra's products or technologies obsolete or noncompetitive.
-12-
15
GOVERNMENT REGULATION
SEPRACOR. The Company and its customers are required to obtain the
approval of the FDA and similar health authorities in foreign countries to test
clinically and sell commercially pharmaceuticals and biopharmaceuticals for
human use.
Human therapeutics are normally subject to rigorous preclinical and
clinical testing. The standard process required by the FDA before a drug may be
marketed in the U.S. includes (i) preclinical laboratory tests with toxicity
and, often, carcinogenicity testing, (ii) submission to the FDA of an
application for an IND, which must be approved before human clinical trials may
commence, (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug for its intended indication, (iv) submission
to the FDA of an NDA and (v) FDA approval of the NDA prior to any commercial
sale or shipment of the drug. In the past, the Company has attempted to shorten
the regulatory approval process of its ICEs by relying on preclinical and
clinical toxicology data already on file with the FDA with respect to the parent
drug.
Typically, clinical evaluation involves a three-phase process. In Phase
I, the initial introduction of the drug to humans, the drug is tested for safety
(adverse effects), dosage tolerance, absorption, distribution, metabolism and
excretion. Phase II involves studies in a limited patient population to (i)
determine the efficacy 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 evaluate further clinical efficacy and to test further for
safety within an expanded patient population at geographically dispersed
clinical study sites. The process of completing clinical testing, obtaining FDA
regulatory approval and commencing commercial marketing is likely to take a
number of years. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all, with respect to any of the Company's products subject to such testing.
Furthermore, there can be no assurance that the FDA will accept the Company's
evidence that a particular product meets the Company's claims of superiority.
FDA regulations pertain not only to healthcare products, but also to the
processes and production facilities used to produce such products. Although the
Company has designed the required portions of its U.S. facility to conform to
cGMP, the FDA will not review the facilities for compliance until the Company
produces a product for which FDA commercial approval has been sought.
Environmental legislation provides for restrictions and prohibitions on releases
or emissions of various substances produced in, and waste by-products from,
Sepracor's operations.
-13-
16
The FDA also imposes requirements relating to the marketing of drug
products after approval, including requirements relating to the promotion of
drug products to buyers and to the reporting to the FDA of adverse drug
experiences known to companies holding approved applications. Failure of the
Company to adhere to these requirements could lead to regulatory action by the
FDA. Information reported to the FDA in compliance with these requirements could
cause the FDA to withdraw drug approval or to require modification of labeling
(e.g., to add warnings or contraindications). The FDA has the statutory
authority to seek judicial remedies and sanctions and to take administrative
corrective action for violation of these and other FDA requirements and
standards.
BIOSEPRA. BioSepra's customers are required to obtain the approval of
the FDA and similar health authorities in foreign countries to test clinically
and sell commercially pharmaceuticals for human use. Although BioSepra's
products do not require FDA approval for sale, the FDA and comparable foreign
authorities typically review the manufacturing procedures and inspect the
facilities and equipment of BioSepra's customers for compliance with applicable
rules and regulations. BioSepra's customers will often review and inspect
BioSepra's manufacturing facilities prior to ordering products for use in an
FDA-approved production process. BioSepra believes that its production and
documentation procedures are consistent with cGMP. Also, BioSepra files with the
FDA Drug Master Files that facilitate the use by pharmaceutical companies of
BioSepra's media for both clinical trial production and commercial production.
Historically, in the production of a biopharmaceutical, any material
change by a manufacturer of process or equipment generally necessitates
additional FDA review and approval. Manufacturers were therefore typically
reluctant to change production methods for existing products. For this reason,
BioSepra has in the past encountered difficulties in selling its media products
to customers which have already applied for or obtained FDA licenses for
production processes that specify a different supplier's product.
While this difficulty remains an issue for various categories of
biopharmaceuticals, new guidelines issued in 1996 by the FDA give
biopharmaceutical companies greater flexibility to make changes in the
production processes for certain classes of drugs, including monoclonal
antibody-based drugs, and to continue optimization of their production processes
subsequent to drug approval. In the past, a drug manufacturing process was
"locked in" during clinical trials, prior to product approval. Companies were
reluctant to make any process changes because the FDA would have required new
clinical studies. Now, companies affected by these new guidelines need only
demonstrate a product's biological equivalence to adopt process changes without
new clinical trials.
PATENTS AND PROPRIETARY TECHNOLOGY
SEPRACOR. Sepracor (including its affiliates and subsidiaries) has filed
patent applications in the U.S. relating to chiral synthesis and separations,
membrane affinity
-14-
17
separations, methods of protein purification and single-isomer compounds As of
December 31, 1997, approximately 72 U.S. patents have been issued to the Company
and approximately 83 patent applications are pending in the PTO. Sepracor has
filed many patent applications in selected countries other than the U.S. In
addition, the Company has licensed from third parties certain rights under
various patents and patent applications. Certain of these patents and patent
applications are licensed to subsidiaries of the Company as described below.
To the extent that Sepracor invents or discovers a new or useful
improvement to an existing racemic mixture for a specific use, and files a U.S.
patent application for such use, a composition or method-of-use patent may be
issued. The Company has been issued U.S. patents on the use of single-isomer or
active metabolite form of drugs currently marketed as racemic mixtures. The
Company is currently pursuing a policy of aggressively seeking patent protection
for single-isomer forms of certain existing drugs now sold as racemic mixtures.
Many of the ICEs for which the Company has obtained method-of-use
patents or filed patent applications may be subject to composition-of-matter or
other patents held by third parties. For example, each of the following ICEs is
claimed by third party U.S. patents or patent applications as indicated:
(S)-doxazosin, third party patent claiming the drug substance doxazosin and
pharmaceutical formulations that expires in 2000; fexofenadine, third party
patent claiming the drug substance fexofenadine that expires in 1999 and a third
party patent claiming substantially pure fexofenadine expiring in 2013;
(R)-fluoxetine, third party patents claiming the drug substance fluoxetine and
methods of use that expire in 2001 and 2003, respectively; (S)-fluoxetine, third
party patents claiming the drug substance fluoxetine and methods of use that
expire in 2001 and 2003, respectively; (S)-lansoprazole, third party patents
claiming the drug substance lansoprazole, pharmaceutical formulations and
methods of use that expire in 2009, 2008 and 2005, respectively; norcisapride,
third party patent claiming the drug substance norcisapride that expires in
2009; (S)-sibutramine, third party patent claiming the drug substance
sibutramine and methods of treating depression that expires in 2002;
(S)-zopiclone, third party patent application claiming the drug substance
(S)-zopiclone as a hypnotic agent; (2R,4S)-itraconazole, third party patent
claiming the drug substance itraconazole expiring in 1998; (R)-ondansetron,
third party patent claiming the drug substance ondansetron and methods of use to
treat emesis expiring 2005 and 2006, respectively; and (--)-cetirizine, third
party patent claiming the drug substance cetirizine, expiring in 2007. The third
party patents claiming fexofenadine and sibutramine may be subject to patent
term extension and there are foreign equivalents to a number of the U.S. patents
identified above, the scope and expiration of which vary from country to
country. Even if a patent is issued to the Company for the use of a
single-isomer or active-metabolite form of a racemic mixture which is currently
claimed by one or more third party patents, products based on any such patent
issued to the Company may not be sold until the expiration of all such third
party patents (unless a license is obtained to such third party patents or such
third party patents expire or are determined to be invalid, unenforceable, or
not infringed by a court of proper jurisdiction). In addition, there may be
pending additional third party patent applications covering the Company's ICEs
which, if issued, may preclude the sale of an ICE.
BIOSEPRA. Sepracor has entered into a Technology Transfer and License
Agreement with BioSepra under which Sepracor has transferred to BioSepra rights
to the technology developed by Sepracor relating to the separation of biological
molecules (excluding the fields of chiral synthesis, chiral separations and the
development, use and sale of chiral drugs and chiral drug intermediates and also
excluding the field of HemaSure, as described below). BioSepra holds several
patents and pending patent applications, including a U.S. composition-of-matter
patent on HyperD media and comparable foreign patent applications. BioSepra's
additional patents relate primarily to the composition of its other media
products and certain biopharmaceutical production processes.
EMPLOYEES
At March 1, 1998, Sepracor and its wholly-owned subsidiaries employed
149 persons, of whom 80 were primarily engaged in research, development and
engineering activities, 18 in manufacturing, and the remainder in marketing,
sales, administration, finance and accounting; and BioSepra employed 55 persons.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Annual Report on Form 10-K,
including information with respect to the safety, efficacy and potential
benefits of the Company's ICEs under development and the scope of patent
protection with respect to these products and information with respect to the
other plans and strategy for the Company's business and the business of the
subsidiaries and certain affiliates of the Company, consists of forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements include the following:
-15-
18
Since substantially all of Sepracor's ICEs are at the early stages of
development, there can be no assurance that these drugs will have improved
characteristics that provide greater benefits or fewer side effects than the
corresponding parent drugs or that research efforts undertaken by Sepracor will
lead to the discovery of future drugs with such improved characteristics. All of
the drugs under development will require significant additional research,
development, preclinical and/or clinical testing, regulatory approval and an
additional commitment of resources prior to their successful development and
commercialization. Sepracor has limited experience in conducting human clinical
trials and in manufacturing pharmaceutical products and has no experience in
marketing such products.
Proprietary rights relating to the products of Sepracor will be
protected from unauthorized use by third parties only to the extent that they
are covered by valid and enforceable patents or are maintained in confidence as
trade secrets. Sepracor has filed patent applications covering compositions
containing, and methods of using, single isomer or active-metabolite forms of
various compounds for specific applications. The ability to commercialize
successfully any ICE will depend to a significant degree upon the ability to
obtain and maintain use patents of sufficient scope to prevent third parties
from developing similar or competitive products. Most of the ICEs for which
Sepracor has obtained use patents or filed applications therefor are claimed by
composition of matter or other patents or patent applications held by third
parties. In each such case, unless subject to an existing license agreement, the
ICE may not be commercialized until the expiration of corresponding third party
composition-of-matter or other patents. There can be no assurance that any
pending patent applications relating to the products of Sepracor will result in
patents being issued or that any such patents will afford protection against
competitors with similar technology. There may be pending or issued third-party
patents relating to the product of Sepracor and Sepracor may need to acquire
licenses to, or to contest the validity of, any such patents. It is likely that
significant funds would be required to defend any claim that Sepracor infringes
a third-party patent, and any such claim could adversely affect sales of the
challenged product of Sepracor until the claim is resolved. There can be no
assurance that any license required under any such patent would be made
available. Certain of the technology that may be used in the products of
Sepracor is not covered by any patent or patent application. In the absence of
patent protection, the business of Sepracor may be adversely affected by
competitors who independently develop substantially equivalent technology.
In July 1997, the PTO informed Sepracor that it had declared an
interference between Sepracor's previously issued use patent on fexofenadine to
treat allergic rhinitis and another similar patent application of Sepracor, and
the use patent application of HMRI on the anti-histaminic effects of
fexofenadine on hepatically impaired patients. The primary objective of a patent
interference, which can only be declared by the PTO, is to determine which party
was the first to invent any overlapping subject matter claimed by more than one
party. In the course of an
-16-
19
interference, the parties typically present evidence relating to their invention
of the overlapping subject matter. The PTO then reviews the evidence to
determine which party has the earliest legally sufficient date of invention,
and, therefore, is entitled to a patent claiming the overlapping subject matter.
If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993. Sepracor and HMRI have agreed to resolve
the interference by arbitration. Selection of the arbitrator and initiation of
the arbitration proceeding is expected to occur in the first half of 1998. While
it is possible that the arbitrator's decision may be rendered during 1998, there
can be no assurance that the arbitrator's decision will be rendered at that
time. Once rendered, the arbitrator's decision must be submitted to the PTO for
final approval. The interference is in its early stages and the Company is
unable to predict its outcome.
The marketing and sale of pharmaceutical products developed by Sepracor
or its development partners will require FDA approvals as well as similar
approvals in foreign countries. To obtain such approvals, the safety and
efficacy of such products must be demonstrated through clinical trials. There
can be no assurance that the results of such clinical trials will be consistent
with the results obtained in preclinical studies or that the results obtained in
later phases of clinical trials will be consistent with those obtained in
earlier phases. There also can be no assurance that any such products will be
shown to be safe and efficacious or that regulator approval for any such
products will be obtained on a timely basis, if at all. The clinical trial and
regulatory approval process can take a number of years and require the
expenditure of substantial resources. With respect to certain of the Company's
ICEs, the Company has been able to shorten the regulatory approval process of
its ICEs by relying on preclinical and clinical toxicology data already on file
with the FDA with respect to the parent drug. Although Sepracor has to date been
successful in employing this strategy in connection with the approval process of
certain of its proposed products, there can be no assurance that the FDA will
permit the Company to utilize this strategy in the future. Accordingly, the
Company may be required to expend significant resources to complete such
preclinical and clinical studies for its other ICEs, thereby significantly
delaying the regulatory approval process. The failure of the Company to obtain
regulatory approval on a timely basis and unanticipated significant expenditures
on preclinical and clinical studies could adversely affect the financial
condition of the Company. While the Company expects FDA approval of its NDA for
the nebulized form of levelbuterol in late 1998, there can be no assurance that
the FDA will approve such NDA by such date, if at all.
The Company currently has very limited sales and marketing experience.
If the Company is successful in developing and obtaining regulatory approval for
its
-17-
20
products under development, it expects to license certain products to large
pharmaceutical companies and market and sell certain other products through its
direct specialty sales forces or through other arrangements, including
co-promotion arrangements. In anticipation of expected FDA approval of the
nebulized form of levalbuterol later this year, the Company is beginning to
establish a direct sales force to market the inhalation solution of
levalbuterol. Further, as the Company begins to enter into co-promotion
arrangements or market and sell additional products directly, the Company will
need to significantly expand its sales force. The ability of the Company to
realize significant revenues from its direct marketing and sales activities is
dependent on its ability to attract and retain qualified sales personnel in the
pharmaceutical industry. There can be no assurance, however, that the Company
will be able to attract and retain such qualified sales personnel, that it will
successfully expand its marketing and direct sales force in the future on a
timely basis, that the cost of establishing such marketing or sales force will
not exceed any product revenues, that its sales and marketing efforts will be
successful, or that the need to comply with FDA limits on drug product
marketing, including limits on claims of comparative safety or efficacy, will
not inhibit the effectiveness of such marketing. In addition, the Company will
need to enter into co-promotion arrangements with third parties where its own
direct sales force is neither well situated nor large enough to achieve maximum
penetration in the market. There can be no assurance that the Company will be
successful in entering into any such arrangements or that the terms of any such
arrangements will be favorable to the Company.
Sepracor's ability to commercialize certain drugs that it develops is
likely to depend in significant part on its ability to enter into collaborative
agreements with pharmaceutical companies to fund all or part of the costs to
complete the development of such drugs and to manufacture and/or market such
drugs. To date, the Company has entered into three such collaborative
agreements. The Company has licensed its U.S. patent rights to Allegra
(fexofenadine) to HMRI and is entitled to receive royalties on all U.S. sales of
Allegra when the patent on the parent drug expires. The Company, however, is
currently party to an interference involving Allegra which, if decided adversely
to the Company, could result in the loss of all or substantially all of the
royalties to which the Company is entitled under the license agreement on future
sales of Allegra. See "Legal Proccedings." The Company has also licensed its
worldwide patent rights in DCL to Schering-Plough, pursuant to which the
Company is entitled to receive royalties from Schering-Plough upon the initial
sale of the product. The Company has entered into an agreement with Janssen
with respect to the joint development and co-promotion of norastemizole. In each
of these collaborative arrangements and, to the extent the Company enters into
additional collaborative arrangements, the Company is dependent upon the efforts
of the collaboration partners and there can be no assurance that such efforts
will be successful. If any collaborators were to breach or terminate their
agreements with the Company or fail to perform their obligations thereunder in
a timely manner, the development and
-18-
21
commercialization of the products could be delayed or terminated. Any such delay
or termination could have a material, adverse effect on the Company's financial
condition and results of operation. Sepracor's failure or inability to perform
certain of its obligations under a collaborative agreement could result in a
reduction or loss of the benefits to which Sepracor is otherwise entitled under
such agreement. There can be no assurance that Sepracor will be able to enter
into any such agreements for ICE's in the future or that such collaborative
agreements, if any, will be entered into on terms favorable to the Company.
The Company currently operates a cGMP compliant manufacturing plant
which the Company believes has sufficient capacity to support the production of
its drugs in quantities required for its clinical trials. While the Company
believes it has the capability to scale up its manufacturing processes and
manufacture sufficient quantities of certain of the products which may be
approved for sale, without additional expansion, the Company will not have the
capability to manufacture in sufficient quantities all of the products which may
be approved for sale. Accordingly, the Company may be required to expend
additional resources to expand its current facility, construct an additional
facility or contract the production of these drugs to third party manufacturers.
There can be no assurance that the Company will have the resources to expand its
existing or develop additional facilities or contract with manufacturers to
produce its products in commercial quantities or that any contract with third
party manufacturers will be on favorable terms to the Company. There can be no
assurance that the Company will succeed in scaling up its manufacturing
processes or maintaining cGMP compliance. Failure in either respect can lead to
refusal by the FDA to approve marketing applications. Failure to maintain cGMP
compliance may also be the basis for action by the FDA to withdraw approvals
that have been granted and for other regulatory action.
The testing, marketing and sale of human health care products entails an
inherent risk of product liability and there can be no assurance that product
liability claims will not be asserted against Sepracor. Sepracor and its
subsidiaries maintain limited product liability insurance coverage for both the
clinical trials and commercialization of its products. There can be no assurance
that Sepracor will be able to obtain further product liability insurance on
acceptable terms, if at all, or that any current insurance subsequently obtained
will provide adequate coverage against all potential claims.
The Company will require substantial additional funds for its research
and product development programs, operating expenses, the pursuit of regulatory
approvals and expansion of its production, sales and marketing capabilities.
Adequate funds for these purposes, whether through equity or debt financing,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed on terms acceptable to the Company.
Insufficient funds could require the Company to delay, scale back or eliminate
certain of its
-19-
22
research and product development programs or to license to third parties to
commercialize products or technologies that the Company would otherwise develop
or commercialize itself. While the Company believes that its available cash
balances will be sufficient to meet its capital requirements into 2000, the
Company may need to raise additional funds to support its long term product
development and commercialization programs. There can be no assurance that such
capital will be available on favorable terms, if at all. The Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of product testing, relationships with
customers, changes in focus and direction of the Company's research and
development programs, competitive and technological advances, patent
developments, the FDA regulatory process, the capital requirements of BioSepra
and Sepracor Canada Limited, and other factors.
The Company is evaluating the potential impact of the year 2000 on the
processing of data-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculation or system failures. Based on preliminary information, costs of
addressing potential programs are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in the future periods. However, if the Company, its customers or
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant year 2000 issues in a
timely manner.
Other factors that may affect the Company's future operating results
include the Company's fluctuations in quarterly operating results, its ability
to meet its debt service requirements and to compete successfully in the market.
Factors that may affect the future operating results of Sepracor include
the ability of BioSepra to obtain additional financing, the dependence on
BioSepra sales of HyperD media, which was introduced in 1993, and BioSepra's
ability to sell its products to customers at the early stage of their product
development cycles.
Factors that may affect the future operating results of Sepracor include
the ability of HemaSure to develop commercially viable products and HemaSure's
limited number of customers.
Because of the foregoing factors, past financial results should not be
relied upon as an indication of future performance. The Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful
-20-
23
and it expects that its results of operations may fluctuate from period to
period in the future.
ITEM 2. PROPERTIES.
Sepracor's facilities, including those used by BioSepra, are located in
Marlborough, Massachusetts, Windsor, Nova Scotia and Villeneuve-la-Garenne,
France. In Massachusetts, the Company leases a total of 101,292 square feet of
space in two buildings. Approximately 5,000 square feet is devoted to
manufacturing operations and the balance to research and development and
administration. Two leases currently in effect extend to June 2007 for 32,477
square feet and June 2007 for 68,815 square feet. In France, BioSepra leases
approximately 28,500 square feet of space under a contract that can be
terminated by either party upon 18 months' notice. In Nova Scotia, Sepracor's
primary operating location is a 26,000-square-foot fine chemical manufacturing
facility located on a five-acre site in Windsor, Nova Scotia. The Company has an
option to purchase additional abutting land. The facility was acquired by the
Company in March 1994. Production at the Nova Scotia facility began in February
1995. To date, only pilot-scale quantities are manufactured at the facility. See
"Business -- Manufacturing" for information concerning facilities of BioSepra.
ITEM 3. LEGAL PROCEEDINGS.
In July 1997, the PTO informed Sepracor that it had declared an
interference between Sepracor's previously issued method-of-use patent on
fexofenadine to treat allergic rhinitis and another similar patent application
of Sepracor, and HMRI's method-of-use patent application on the anti-histaminic
effects of fexofenadine on hepatically impaired patents. The primary objective
of a patent interference, which can only be declared by the PTO, is to determine
the first to invent any overlapping subject matter claimed by more than one
party. In the course of an interference, the parties typically present evidence
relating to their inventive activities as to the overlapping subject matter. The
PTO then reviews the evidence to determine which party has the earliest legally
sufficient inventive date, and, therefore, is entitled to a patent claiming the
overlapping subject matter.
If Sepracor prevails in the interference, Sepracor will retain all of
its claims in its issued patent. If, however, Sepracor loses the interference,
HMRI will be issued a U.S. patent containing its claims involved in the
interference and may not be obligated to pay Sepracor milestone or royalty
payments pursuant to the terms of the license agreement whereby Sepracor
licensed its U.S. patent rights covering fexofenadine to HMRI in 1993.
In December 1997, the Company and its subsidiary, BioSepra, settled
their long standing patent lawsuit with PerSeptive, a competitor of the Company.
Under the
-21-
24
terms of the settlement, PerSeptive received an unspecified amount and the
Company obtained a limited, non-exclusive license under PerSeptive's Perfusion
Chromatography(R) patents to make, use and sell its HyperD(R) product line free
of claims of infringements by PerSeptive.
HemaSure is a defendant in two lawsuits brought by Pall Corporation
("Pall"). In complaints filed in February 1996 and November 1996, Pall alleged
that HemaSure's manufacture, use and/or sale of the LeukoNet product infringes
upon three patents held by Pall. On October 14, 1996 in connection with the
first action concerning U.S. Patent No. 5,431,321 (the "321 patent") HemaSure
filed for summary judgment of noninfringement. Pall filed a cross motion for
summary judgment of infringement at the same time. In October 1997 the U.S.
District Court for the Eastern District of New York granted in part Pall's
summary judgment motion relating to the 321 patent. The court has not yet ruled
on the validity of Pall's 321 patent claims, which HemaSure has asserted are
invalid and unenforceable. The court will need to review and determine the
validity of this patent prior to any further action. No date has been set for
these proceedings.
With respect to the second action concerning U.S. Patent Nos. 4,340,479
(the "479 patent") and 4,952,572 (the "572 patent"), HemaSure has answered the
complaint stating that it does not infringe any claim of the asserted patents.
Further, HemaSure has counterclaimed for declaratory judgment of invalidity,
noninfringement and unenforceability of the '572 patent, and a declaratory
judgment of noninfringement of the '479 patent, as a result of a license.
HemaSure believes, based on advice of its patent counsel, that a
properly informed court should conclude that the manufacture, use and/or sale by
HemaSure or its customers of the present LeukoNet product does not infringe any
valid enforceable claim of the three asserted Pall patents. However, there can
be o assurance that HemaSure will prevail in the pending litigations, and an
adverse outcome in a patent infringement action would have a material adverse
effect on HemaSure's future business and operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1997.
-22-
25
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
current executive officers of the Company.
Name Age Position
- ---- --- ---------
Timothy J. Barberich 50 President, Chief Executive Officer and Director
David S. Barlow 41 Executive Vice President; President,
Pharmaceuticals
David P. Southwell 37 Executive Vice President; Chief Financial Officer
and Secretary
James R. Hauske, Ph.D. 44 Senior Vice President, Discovery
Paul D. Rubin, M.D. 44 Senior Vice President, Drug Development
Robert F. Scumaci 38 Senior Vice President, Finance and
Administration and Treasurer
Douglas Reedich, Ph.D. 40 Chief Patent Counsel
Mr. Barberich, a founder of the Company, has been a director of the
Company and its President and Chief Executive Officer since the Company's
inception. Prior to founding the Company, Mr. Barberich served in a number of
executive and managerial capacities at Millipore Corporation, which he joined in
1973. Most recently, prior to founding Sepracor, Mr. Barberich served as Vice
President and General Manager of Millipore's Medical Products Division and as
General Manager of Millipore's Laboratory Products Division. Mr. Barberich is
Chairman of the Board of Directors of BioSepra and is a director of HemaSure and
Versicor.
Mr. Barlow, has served as Executive Vice President and President,
Pharmaceuticals since October 1995. From July 1993 to October 1995, Mr. Barlow
held the position of Senior Vice President and General Manager of the
Pharmaceutical Division of Sepracor. From 1991 to 1993, he was President of the
Business Group, a management consulting firm. Previously, he was Vice President,
Worldwide Marketing and Business Development of Armour Pharmaceutical Company, a
subsidiary of Rhone-Poulenc, from 1988 to 1991. Prior to that time, he was
associated with Pfizer and Ares-Serono, Inc. in various business planning and
marketing positions. Mr. Barlow is a director of HemaSure.
Mr. Southwell, has served as Executive Vice President, Chief Financial
Officer of the Company since October 1995 and served as Senior Vice President
and Chief Financial Officer of the Company from July 1994 to October 1995. From
August 1988
-23-
26
until July 1994, Mr. Southwell was associated with Lehman Brothers Inc., a
securities firm, in various positions with the investment banking division, most
recently in the position of Vice President. Mr. Southwell is a director of
BioSepra.
Dr. Hauske has served as Senior Vice President, Discovery of the Company
since October 1995. Prior to joining the Company from June 1994 to October 1995
Dr. Hauske was employed by Arris Pharmaceuticals, a pharmaceutical company, as
Director of Combinatorial Chemistry and Receptor Chemistry. Before joining Arris
Pharmaceuticals, Dr. Hauske worked for Pfizer Central Research in Groton,
Connecticut. While, at Pfizer, Dr. Hauske was a member of the project management
team that discovered Pfizer's azamacrolide antibacterial Zithromax(R).
Dr. Rubin has served as Senior Vice President, Drug Development of the
Company since April 1996. He was formerly Vice President and Worldwide Director
of Clinical Pharmacology for Glaxo-Wellcome, a pharmaceutical company, from 1993
until 1996 and Vice President, Immunology and Metabolic Disease for Abbott
Laboratories, a pharmaceutical company, from 1987 until 1993. Dr. Rubin was
responsible for early clinical development of Glaxo-Wellcome's entire portfolio.
While at Abbott Laboratories Dr. Rubin was responsible for the development of
the 5-lipoxygenase inhibitor, zileuton. Dr. Rubin is a director of Endorex Corp.
Mr. Scumaci has served as Senior Vice President, Finance and
Administration and Treasurer of the Company since March 1996. He was Vice
President and Controller of the Company from March 1995 until March 1996. From
1987 to 1994, Mr. Scumaci was employed by Ares-Serono Group, a multinational
pharmaceutical company, most recently as Vice President, Finance and
Administration of North American Operations. Previously, he was associated with
Revlon and Coopers & Lybrand in various finance and accounting capacities.
Dr. Reedich has served as Chief Patent Counsel of the Company since June
1995. From October 1987 to June 1995, he was employed by 3M Company ("3M"), most
recently as patent counsel for 3M's Pharmaceuticals Division. Prior to joining
3M, Dr. Reedich was employed as a chemist by Eli Lilly.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference from the Company's 1997 Annual Report to
Stockholders (the "1997 Annual Report") under the headings "Supplemental
Stockholder Information -- Price Range of Common Stock" and "Supplemental
Stockholder Information -- Dividend Policy."
-24-
27
The Company did not issue or sell any equity securities during the
quarter ended December 31, 1997 that were not registered under the Securities
Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from the 1997 Annual Report under the heading
"Sepracor Inc. Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from the 1997 Annual Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements filed as part of this Annual Report on Form
10-K are incorporated by reference from the 1997 Annual Report under the
headings "Consolidated Financial Statements and Notes Thereto" and are listed
under Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial disclosure
matters.
PART III
ITEMS 10-13.
The information required for Part III in this Annual Report on Form 10-K
is incorporated by reference from the Company's definitive proxy statement for
the Company's 1998 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management", "Proposal 1 -- Election of
Directors", "Board and Committee Meetings", "Compensation for Directors",
"Compensation of Executive Officers", "Certain Relationships and Related
Transactions", "Employment
-25-
28
Agreements" and "Section 16(a) Beneficial Ownership Reporting Compliance."
Information regarding executive officers of the Company is also furnished in
Part I of this Annual Report on Form 10-K under the heading "Executive Officers
of the Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are included or incorporated by reference
from the 1997 Annual Report.
1. The following financial statements (and related notes) of the Company
are incorporated by reference from the 1997 Annual Report:
Page*
Report of Independent Accountants 25*
Consolidated Balance Sheets at December 31, 1997 and 1996 26*
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 27*
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 28*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 29*
Notes to the Consolidated Financial Statements 30*
-----------
* Refers to page number of the 1997 Annual Report. The financial
statements (and related notes) are incorporated by reference from the
1997 Annual Report.
2. The schedule listed below and the Report of Independent Accountants on
financial statement schedule are filed as part of this Annual Report on
Form 10-K:
Report of Independent Accountants on Financial
Statement Schedule S-1
Report of Independent Accountants on Financial
Statement Schedule S-2
Schedule II -- Valuation and Qualifying Accounts S-3
-26-
29
All other schedules are omitted as the information required is
inapplicable or the information is presented in the consolidated
financial statements or the related notes.
3. The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits filed as a part of this Annual Report on Form 10-K.
(b) The following current report on Form 8-K was filed by the Company
during the last quarter of the year ended December 31, 1997.
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 15, 1997, as amended by Current Report on Form
8-K filed with the Securities and Exchange Commission December 18, 1997,
relating to the signing of a licensing agreement with Schering-Plough
Corporation.
The following trademarks are mentioned in this Annual Report on Form
10-K:
Sepracor and ICE are trademarks of Sepracor. BioSepra, HyperD,
HyperDiffusion and UpScale Process are trademarks of BioSepra. HemaSure and
LeukoNet are trademarks of HemaSure. This Annual Report on Form 10-K also
contains trademarks of other companies.
-27-
30
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.
SEPRACOR INC.
By: /s/Timothy J. Barberich
-------------------------------------
Timothy J. Barberich
President and Chief Executive Officer
Date: March 30, 1998
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/Timothy J. Barberich President, Chief Executive Officer March 30, 1998
- --------------------------
Timothy J. Barberich and Director (Principal Executive
Officer)
/s/David P. Southwell Executive Vice President and March 30, 1998
- --------------------------
David P. Southwell Chief Financial Officer
(Principal Financial Officer)
/s/Robert F. Scumaci Senior Vice President, Finance March 30, 1998
- ---------------------------
Robert F. Scumaci and Administration
(Principal Accounting Officer)
/s/James G. Andress Director March 30, 1998
- --------------------------
James G. Andress
/s/Digby W. Barrios Director March 30, 1998
- --------------------------
Digby W. Barrios
31
/s/Robert J. Cresci Director March 30, 1998
- --------------------------
Robert J. Cresci
/s/Robert F. Johnston Director March 30, 1998
- --------------------------
Robert F. Johnston
/s/Keith Mansford Director March 30, 1998
- --------------------------
Keith Mansford
/s/James F. Mrazek Director March 30, 1998
- --------------------------
James F. Mrazek
/s/Alan A. Steigrod Director March 30, 1998
- --------------------------
Alan A. Steigrod
32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Sepracor Inc.
Our report on the consolidated financial statements of Sepracor Inc. has been
incorporated by reference in this Form 10-K from page 25 of the 1997 Annual
Report to Stockholders of Sepracor Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in item 14(a)2 of this Form 10-K.
In our opinion, based on our audit and the 1997 report of the other auditors,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information to be included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998, except as to the
information in Note W for which the
date is March 26, 1998
S-1
33
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders
of BioSepra Inc. and subsidiaries:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of BioSepra Inc. and subsidiaries and have
issued our report thereon dated January 27, 1998. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14(a)2 herein is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 27, 1998 (except
for the matter discussed
in Note Q as to which
the date is March 26, 1998)
S-2
34
SEPRACOR INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ---------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Balance at Additions
beginning Charged to Charged to Balance at
Description of period and expenses other accounts(1) Deductions(2) end of period
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
Accounts Receivable Reserves $233,010 $150,000 $ -- $(14,000) $369,010
Year ended December 31, 1996
Accounts Receivable Reserves 132,334 172,000 -- (71,324) 233,010
Year ended December 31, 1995
Accounts Receivable Reserves $ 84,759 $285,575 $(214,000) $(24,000) $132,334
(1) These amounts relate to changes in the translation rate of BioSepra's
international subsidiary, and the write-off of the reserve from the sale
of Biopass S.A.
(2) Collections and bad debt write-offs. Also includes $70,324 as a result of
Sepracor merging its wholly-owned subsidiary, SepraChem Inc., into ChiRex,
Inc. in 1996.
S-3
35
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
3.1(7) -- Restated Certificate of Incorporation of the
Registrant, as amended.
3.2(1) -- Amended and Restated By-Laws of the Registrant.
4.1(1) -- Specimen Certificate for shares of Common Stock, $.10
par value, of the Registrant.
4.2(2) -- Form of 7% Convertible Subordinated Debenture
due 2002.
4.3 -- Form of 6 1/4% Convertible Subordinated
Debenture due 2005.
4.4 -- Global 6 1/4% Convertible Subordinated Debenture
payable to Cede & Co. due 2005.
10.1(1) -- Second Amended and Restated Registration Rights
Agreement dated as of June 28, 1991, by and among the
Registrant and the persons listed on Schedule I thereto.
(*)10.2(8) -- The Registrant's 1991 Restated Stock Option Plan,
as amended and restated.
(*)10.3(8) -- The Registrant's 1991 Director Stock Option Plan,
as amended and restated.
10.4(2) -- Lease as to Marlboro Industrial Park, dated December
12, 1995, between Valerie A. Colbert, Trustee of Second
Marlboro Development Trust under Declaration of Trust
dated September 15, 1972, and the Registrant (the
"Marlboro Lease").
(*)10.5(8) -- The Registrant's 1996 Employee Stock Purchase
Plan, as amended and restated.
10.6(3)+ -- License Agreement dated June 1, 1993, between the
Registrant and Marion Merrill Dow ("MMD").
36
Exhibit No. Description Page
- ----------- ----------- ----
10.7(3) -- Stock Purchase Agreement dated June 1, 1993,
between the Registrant and MMD.
10.8(4) -- Technology Transfer and License Agreement dated as of
January 1, 1994, between the Registrant and BioSepra
Inc.
10.9(4) -- Technology Transfer and License Agreement dated as of
January 1, 1994, between the Registrant and HemaSure
Inc.
10.10(2) -- Technology Transfer and License Agreement, effective
January 1, 1995, between the Registrant and SepraChem
Inc.
10.11(5) -- Series A Convertible Preferred Stock Purchase
Agreement, dated September 30, 1994, by and among the
Registrant and OFD Partners, L.P.
(*)10.12(6) -- Letter Agreement, dated September 30, 1993,
between the Company and David S. Barlow.
(*)10.13(6) -- Letter Agreement, dated June 10, 1994, between
the Registrant and David Southwell.
(*)10.14(8) -- Letter Agreement, dated February 23, 1996,
between the Registrant and Paul D. Rubin.
(*)10.15(8) -- Letter Agreement, dated February 23, 1995,
between the Registrant and Robert F. Scumaci.
(*)10.16(8) -- Consulting Agreement between the Registrant and
Mr. Steigrod, dated September 1, 1996.
(*)10.17 -- Consulting Agreement Amendment, dated as
of January 1, 1997, between the Registrant and
Alan A. Steigrod.
37
Exhibit No. Description Page
- ----------- ----------- ----
10.18 -- Promissory Note from David Barlow to the Registrant,
dated July 1, 1997 to December 31, 1997, and Letter
Extension from the Registrant dated December 18, 1997.
10.19(8) -- Promissory Note from Paul D. Rubin to the Registrant,
dated May 23, 1997.
10.20 -- Promissory Note from Paul D. Rubin to the Registrant,
dated January 22, 1998.
10.21(6) -- Series B Preferred Stock Purchase Agreement dated
March 14, 1995, between the Registrant and Beckman
Instruments, Inc.
10.22 -- First Amendment to Marlboro Lease, dated February 1,
1997, and Second Amendment to Marlboro Lease, dated July
1, 1997.
10.23(6) -- Intellectual Property Security Agreement by and
between Fleet Bank of Massachusetts, N.A. and
the Registrant, dated December 28, 1994.
10.24(8) -- Amended and Restated Revolving Credit and Security
Agreement among Fleet National Bank, the Registrant and
Sepracor Securities Corporation, dated December 31,
1996.
10.25(8) -- Confirmation of and Amendment to Intellectual
Property Security Agreement between Fleet
National Bank and the Registrant, dated February 1997.
10.26(8) -- Deposit Pledge Agreement, dated December 31, 1996,
between the Registrant and Fleet National Bank.
10.27(8) -- Amended and Restated Promissory Note, dated
December 31, 1996, between the Registrant,
Sepracor Securities Corporation and Fleet
National Bank.
38
Exhibit No. Description Page
- ----------- ----------- ----
10.28(8) -- Guaranty Agreement, dated December 31, 1996,
between the Registrant and Fleet National Bank
for BioSepra Inc.
10.29(2) -- Fiscal Agency Agreement, dated as of November
1, 1995, between the Registrant and Chemical Bank, as
Fiscal Agent.
10.30+ -- License Agreement, dated January 30, 1998, by and
between the Registrant and Janssen Pharmaceutica N.V.
10.31+ -- Agreement, dated as of December 5, 1997, by and
between the Registrant and Schering-Plough Ltd.
10.32 -- Put Agreement, dated as of December 30, 1997, between
the Registrant and Fleet National Bank.
10.33 -- Purchase Agreement, dated February 5, 1998,
between the Registrant, Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc., Smith Barney
Inc. and Vector Securities International, Inc.
10.34 -- Indenture, dated as of February 10, 1998, between the
Registrant and Chase Manhattan Bank, as trustee,
relating to the 6 1/4% Convertible Subordinated
Debentures due 2005.
10.35 -- Registration Rights Agreement, dated as of
February 5, 1998, by and among the Registrant,
Morgan Stanley & Co. Incorporated, Lehman
Brothers Inc., Smith Barney Inc. and Vector
Securities International, Inc.
(*)10.36 -- The Registrant's 1997 Stock Option Plan.
(*)10.37 -- Consulting Agreement between the Registrant and
Digby W. Barrios, dated October 1, 1995.
39
Exhibit No. Description Page
- ----------- ----------- ----
13 -- 1997 Annual Report to Stockholders (which shall be
deemed filed only with respect to those portions
specifically incorporated by reference herein).
21 -- Subsidiaries of the Company.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Arthur Andersen LLP.
27 -- Financial Data Schedule.
99 -- Report of Arthur Andersen LLP.
- ----------
(*) Management contract or compensatory plan or arrangement filed as an
exhibit to this Form pursuant to Item 14(c) of Form 10-K.
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 33-41653).
(2) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993.
(4) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(5) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
(6) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
(7) Incorporated by reference from the Registrant's Registration Statement
on Form S-8, filed on June 5, 1996, relating to the 1991 Director Stock
Option Plan.
(8) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
+ Confidential treatment as to certain portions.