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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21185
AAIPHARMA INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2687849
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2320 SCIENTIFIC PARK DRIVE, WILMINGTON, NC 28405
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (910) 254-7000
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
(Title of class)
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K of any
amendment to this Form 10-K. [ ]
The number of shares outstanding of the Registrant's common stock, as of March
28, 2001 was 17,655,001 shares. The aggregate market value for the voting stock
held by non-affiliates of the Registrant on March 28, 2001 was approximately
$57,070,770.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2000 Annual Report to Shareholders are incorporated
by reference in Parts I, II and IV hereof. Portions of the Registrant's 2000
Proxy Statement dated approximately April 6, 2001 are incorporated by reference
in Part III hereof.
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PART I
ITEM 1. BUSINESS.
The terms "Company", "Registrant" or "aaiPharma" in this Form 10-K include
aaiPharma Inc., its corporate predecessors and its subsidiaries, except where
the context may indicate otherwise. The Company was incorporated in 1986,
although its corporate predecessor was founded in 1979.
aaiPharma is a specialty pharmaceutical company with comprehensive drug
development capabilities in the United States, Europe and Asia. The Company
operates in three business segments which include a fee-for-service
pharmaceutical services business, a drug product sales business, and a
pharmaceutical product development business.
The year 2000 was both an evolutionary and transitional year for aaiPharma.
During 2000, aaiPharma continued to build on its 21-year old base as one of the
leading drug development contract-services companies in the world. The Company
also continued its long-standing research and development efforts to develop and
enhance drug products and drug delivery systems for licensing to pharmaceutical
company partners, in exchange for royalties and milestone payments.
Near the end of 2000, in order to ensure clarity of operations and managerial
focus, aaiPharma established separate business units to carry out these two
traditional businesses of the Company - AAI International, with responsibility
to provide pharmaceutical development services to the Company's customers, and
aaiResearch, with responsibility to carry out the Company's research and
development activities and product life cycle management activities.
At the same time, aaiPharma created a new business unit, NeoSan Pharmaceuticals
("NeoSan"), to acquire mature products being divested by major pharmaceutical
companies which are late in their product life cycle or which are too small to
be of continued interest to the major pharmaceutical companies. Once such
products are acquired, NeoSan will engage in direct sales of the Company's own
branded drug products. NeoSan will also seek to apply the product life cycle
management methods developed by the Company's other business units to rejuvenate
and improve the products and expand their product franchises and sales. NeoSan's
products are intended to focus on niche product areas where the Company has
extensive experience, e.g. oncology, cardiology, pain management, and CNS
(central nervous system).
AAI INTERNATIONAL - AAIPHARMA'S FEE-FOR-SERVICE BUSINESS.
aaiPharma's AAI International business unit offers a wide range of
pharmaceutical product development services to its customers on a worldwide
basis from modern facilities in the United States, Europe and Asia. These
services include comprehensive pharmaceutical formulation, testing and
manufacturing, and the ability to take newly formulated products into and
through the human clinical studies needed for regulatory marketing approval.
Such services are supplied on a fee-for-service basis.
AAI International represents a continuity of the services that aaiPharma has
been providing to its customers for the past 21 years. AAI International
provides these services, both individually and on an integrated fashion, to (i)
pharmaceutical partners to help them develop, test, and improve their drug
products, (ii) NeoSan to improve NeoSan's proprietary drug products, once such
products have been acquired, and (iii)
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aaiResearch to assist it in its drug development and product life cycle
management activities. This business unit provides a strong base of resources,
expertise and ideas that allows aaiPharma to develop and improve drug products
and carry out product life cycle management activities successfully for its
customers and itself.
Since its formation in 1979, aaiPharma has contributed to the submission,
approval or continued marketing of a significant number of client products
worldwide, encompassing a wide range of therapeutic categories and technologies.
The Company believes that its ability to offer an extensive portfolio of high
quality drug development and support services enables it to effectively compete
as pharmaceutical and biotechnology companies look for a mixture of standalone
and integrated drug development solutions that offer cost-effective results on
an accelerated basis.
Analytical Services
AAI International provides a wide variety of analytical services, as well as
services pertaining to method development and validation, drug product and
active pharmaceutical ingredient testing and characterization, microbiological
support, stability storage and studies, and technical support and problem
solving with respect to pharmaceuticals.
Analytical Services. In support of the drug development and compliance programs
of its customers, AAI International offers laboratory services to characterize
and measure drug components and impurities. The Company has more than two
decades' of experience in providing analytical testing services dedicated
exclusively to the drug industry and has developed the scientific expertise,
state-of-the-art equipment, and broad range of scientific methods to accurately
and quickly analyze almost any compound or product.
Method Development and Validation. AAI International develops and validates
methods used in a broad range of laboratory testing necessary to determine
physical or chemical characteristics of compounds. Analytical methods are
developed to demonstrate potency, purity, stability, or physical attributes.
These methods are validated to ensure the data generated by these methods are
accurate, precise, reproducible and reliable, and are used throughout the drug
development process and in product support testing.
Product Characterization. AAI International has the expertise and instruments
required to identify and characterize a broad range of chemical entities.
Characterization analysis identifies the chemical composition, structure, and
physical properties of a compound, and characterization data forms a significant
portion of an application to seek regulatory approval to sell a new or modified
drug. AAI International uses numerous techniques to characterize a compound,
including spectroscopy, chromatographic analyses and other physical chemistry
techniques. Additionally, it uses such information for control testing to be
performed throughout development and marketing to confirm consistent drug
composition. Once appropriate test methods are developed and validated, and
appropriate reference standards are characterized and certified, AAI
International can assist clients by routinely testing compounds for clinical and
commercial use.
Raw Materials and Product Release Testing. AAI International offers testing
required by the U.S. Food and Drug Administration (FDA) and other regulatory
agencies to confirm that raw materials used in production of finished drug
products, and the resulting finished products themselves, are consistent with
established specifications. Due to the incorporation of "just-in-time" inventory
control systems in client production
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schedules, release testing for both raw materials and the finished products
often cannot be scheduled by clients in advance, yet must be performed
immediately. AAI International believes that its internal scheduling systems,
analytical laboratory expertise and systems for prompt testing provide it with a
competitive advantage in providing both raw material and batch release testing.
AAI International believes that this service enhances its clients' confidence in
adopting cost-saving "just-in-time" inventory control systems.
Microbiological Testing. Microbiological testing is an essential indicator to
ensure that a drug product, whether raw material or finished product, does not
contain harmful micro-organisms. AAI International has significant experience
conducting various microbial tests to identify and quantify micro-organisms that
may be present, including limulus amebocyte lysate testing, which measures toxic
byproducts of micro-organisms, and particulate matter testing, which determines
the presence of foreign matter in injectable drug products. AAI International
also performs sterility testing to identify the genus and species of any
micro-organisms that are present. In addition, it performs tests to determine
the effectiveness of antibiotics against micro-organisms and the minimum levels
of preservatives necessary in product formulations. AAI International also
assists clients with environmental monitoring, including water and air systems
testing, using an automated biochemical system to identify micro-organisms that
are present and determine whether such systems are within applicable microbial
limits. It also assists clients in validating their environmental control
systems to ensure compliance with the FDA's Good Manufacturing Practices ("GMP")
regulations.
Stability Studies. AAI International provides stability testing and secure
storage facilities necessary to establish and confirm product purity, potency
and other shelf-life characteristics. Stability testing is required at all
phases of product development, from dosage form development through commercial
production, to confirm the shelf life of each manufactured batch. AAI
International maintains state-of-the-art climate-controlled facilities in the
United States and Germany to determine the impact of a range of storage
conditions on product integrity. FDA regulations and the regulations of European
regulatory authorities require that samples of clinical and commercial products
placed in stability chambers be analyzed in a timely fashion after scheduled
"pull points" occur, based on the date of manufacture.
Biopharmaceutical Services
AAI International integrates a Phase I clinical study capability with strong
bioanalytical and biotechnology expertise to provide biopharmaceutical services
to its customers.
Phase I Clinical Services. AAI International has a 48-bed Phase I clinical trial
facility located in Research Triangle Park, North Carolina. In such Phase I
clinical trials, drugs are administered to human volunteers pursuant to
protocols approved by independent review boards and blood samples are taken at
the times prescribed in the study protocols for subsequent bioanalytical testing
of the plasma samples.
Bioanalytical Testing. AAI International offers bioanalytical testing services
to support clinical trials for its clients' pharmaceutical product development
needs, analyzing plasma samples to characterize the metabolized forms of the
drug and determine the rate of absorption. Bioanalytical studies of new drugs
often present challenging and complex issues, with products being metabolized
into multiple active and inactive forms, each of which must be measured. AAI
International works with its clients to develop and validate analytical methods
to permit detection and measurement of the various components to trace levels.
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The acquisitions of L.A.B. in 1996 and KCAS in 1998, discussed below,
significantly enhanced the bioanalytical capabilities of AAI International.
Biotechnology Analysis and Synthesis. Although the types of analytical
investigations of biotechnology products are similar to those required for more
traditional pharmaceutical products, the complex molecular structure of many
biotechnology products require different technology and expertise. AAI
International provides a broad array of biotechnology services, including both
analytical and biological testing and method development and validation. AAI
International's breadth of services allows it to rapidly deduce and characterize
the complex structure of the biotechnology product and measure the molecule or
its metabolites in human blood plasma to support clinical trial evaluation. It
has expertise in a broad spectrum of biochemical and immunochemical methods for
characterization and analysis of biotechnology drugs. These methods include
amino acid sequencing, amino acid analysis, peptide mapping, carbohydrate and
lipid analysis and electrophoresis. AAI International also has expertise in
developing chromatographic methods that precisely evaluate the purity and
stability of biotechnology products. This service breadth and diversity of
analytical skills and technologies enable AAI International to assist its
clients from early product development through the investigational new drug
application and product license application stages and commercial production.
Pharmaceutical Services
AAI International provides a variety of pharmaceutical services to its
customers, including drug formulation development, manufacturing, and
distribution of clinical trial supplies.
Formulation Development Services. AAI International provides integrated
formulation development services for its customers' pharmaceutical products,
enabling it to take a compound and develop a safe and stable product with
desired characteristics. aaiPharma believes that AAI International's formulation
expertise and extensive analytical capabilities enable it to provide an
efficient, seamless development program, with a dedicated project team tracking
the product through all stages of formulation development. AAI International
provides such formulation development services during each phase of the drug
development process, from new compounds and modifications of existing products
to generic versions of branded products, although work on generic versions is
being phased out as contracted projects are completed. AAI International's
formulation development projects may support a small segment of critical
development activities or may last for several years, going from early
formulation development to optimized and validated production-scale, packaged
product.
AAI International's formulation development expertise spans a broad spectrum of
therapeutic areas. It works with clients, and its own product development
personnel in the course of proprietary work, to develop products with desired
characteristics, including dosage form, strength, release rate, absorption
properties, stability and appearance. AAI International has developed
significant product and process capabilities that enable it to efficiently solve
the complex problems that arise in developing formulations with targeted
characteristics and has developed a range of proprietary product technologies
that allow it to efficiently achieve desired results in product design and
development.
In providing formulation services, AAI International works closely with clients
to design and conduct feasibility studies to chart the potential of formulating
a drug using a combination of active drug ingredients and inert materials called
excipients. Using experimental designs, initial prototype formulations are
prepared
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to identify potential problems in stability, bioavailability and manufacturing.
Generally, formulation development is an iterative process, with numerous
initial formulations being modified as problems are encountered.
aaiPharma believes that AAI International's experience and expertise in
formulation development, as well as certain proprietary technologies, permit it
to design efficient protocols for identifying and optimizing formulation
prototypes with the greatest potential. Upon selection of the final product
prototypes, AAI International develops protocols to scale the product batch size
from development stage (e.g., hundreds or thousands of units) to clinical scale
(e.g., thousands or millions of units). During the clinical phase, AAI
International refines the formulation in response to clinical, bioanalytical and
stability data. The manufacturing scale-up process involves identifying and
resolving manufacturing problems to facilitate an efficient transfer to the
full-scale production equipment of AAI International's clients. Throughout the
development process, AAI International develops and validates the analytical
methods necessary to test the product to establish and confirm product
specifications.
In addition to new drug development, AAI International's formulations team
provides product modification and line extension services to clients through
product life cycle management contracts entered into by aaiPharma, generally for
marketed products facing patent expiration and marketed products which can
benefit from formulation improvements in the marketplace. Modifications of
existing products offer clients an opportunity to improve product
characteristics, increasing product market viability. Improved product
characteristics include enhancement of stability, absorption profiles (e.g.,
quick, controlled or sustained release), taste, and appearance. Product line
extensions may include new dosage forms, such as solids, liquids and chewables,
as well as new dosage strengths. Product modifications and line extensions offer
clients the opportunity to target new patient sub-populations and improve
patient compliance. AAI International also has in the past offered formulation
services to clients seeking to develop generic products, although such services
are being phased out as current contracted projects are completed or terminated.
Manufacturing of Pharmaceuticals. AAI International currently manufactures
certain high-potency and high-toxicity drug products in a Level 4 manufacturing
facility in Wilmington, North Carolina. AAI International also manufactures
inventories of certain drugs developed by the Company on behalf of clients for
commercial sale while client production facilities are being built and
validated. The Company's manufacturing facilities and equipment are qualified
and validated to operate under GMP regulations.
Organic Synthesis. AAI International develops synthesis methods for producing
experimental quantities of new compounds needed for analytical characterization,
toxicological studies, formulation development, and clinical trials. Through
organic synthesis techniques, the Company can produce reference standards of the
active compound, specific impurities, degradation by-products, bioassay
reference standards, or molecular analogs to permit sufficient quantities of
such compounds to be separately characterized and studied.
Distribution of Clinical Trial Supplies. AAI International provides clinical
trials materials for Phase I through IV drug-product clinical trials. It has
expertise in manufacturing tablets, capsules, sachets, liquids and suspensions,
creams, gels, lotions and ointments. aaiPharma believes that outsourcing of
clinical supply manufacturing is particularly attractive to pharmaceutical
companies that maintain large, commercial-quantity, batch facilities, where
clinical supply manufacturing would divert resources from revenue-producing
manufacturing. Similarly, pharmaceutical companies often seek to outsource
commercial manufacturing of small quantity products. AAI International has a
dedicated 20,000 square foot facility in
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Wilmington, North Carolina and another facility in Paris, France to distribute
and track clinical trial materials used in clinical studies. In addition, AAI
International provides its clients with assistance in scaling up production of
clinical supply quantities to commercial quantity manufacturing.
Phase I to IV Clinical Services
With the acquisition of L.A.B. and the merger with MTRA, discussed below, the
Company expanded its Phase I clinical trial capabilities and added the ability
to conduct and monitor Phase II to IV clinical studies and multi-center trials
focused in niche therapeutic areas, including hepatic disease, chemotherapeutics
and hormone replacement therapy. AAI International's Neu-Ulm, Germany operations
include a 76-bed facility for conducting certain Phase I and II clinical trial
studies, as well as bioequivalency studies.
AAI International can provide a full range of Phase I-IV clinical services to
customers in the pharmaceutical, biotechnology and medical device industries for
assistance in the drug development and regulatory approval process in North
America. The clinical services include clinical trial management and monitoring,
data management and statistics.
Regulatory and Other Consulting Services
AAI International provides consulting services with respect to regulatory
affairs, quality compliance, and physical and process validations. It assists in
the preparation of regulatory submissions, audits a client's vendors and client
operations, conducts seminars, provides training courses, and advises clients on
applicable regulatory requirements. AAI International also assists clients in
designing development programs for new or existing drugs intended to be marketed
in the United States and Europe.
At a client's request, AAI International will either review client-prepared
submissions or draft sections and assemble regulatory packages and attend FDA
meetings with clients. AAI International assists clients in preparation for FDA
inspections and in correcting any deficiencies noted in FDA inspections. In
preparation for an FDA inspection, AAI International's regulatory affairs
specialists conduct mock inspections to anticipate FDA observations and advise
clients of appropriate remedial actions.
AAI International also audits manufacturers of active and excipient ingredients
used in the drug product, as well as packaging components, on behalf of clients
to ensure that the manufacturers' facilities are in compliance with GMP
regulations. Such audits generally include review of the vendor's drug master
files, analysis of written standard operating procedures ("SOP's"), review of
production records, and observation of operations to ensure that written SOP's
are being followed. Audit reports include recommendations to address any
deficiencies.
AAI International also advises clients on validation issues concerning their
systems and processes and audits client facilities to assist them in validating
their processes and their cleaning, water and air handling systems.
AAI International leverages its in-house laboratory training programs by
providing training to clients' employees. In addition, it organizes and conducts
seminars worldwide on a number of topical industry issues.
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AAIRESEARCH - AAIPHARMA'S PRODUCT DEVELOPMENT BUSINESS.
aaiResearch will seek to utilize its extensive research and development
capabilities, and the sophisticated service capabilities of the AAI
International business unit, as a well-established foundation for the continued
growth of its product development program for new and improved drugs and drug
delivery technologies.
The objective of the product development business is the growth and utilization
of a portfolio of proprietary technologies and patent and intellectual property
rights to bring products to market that are safer, more effective, innovative,
and more cost-efficient for the patient and health care community. Moreover,
growth in the product development business will generate more business, skills
and relationships in AAI International's fee-for-service business. Success in
both business units will permit aaiPharma to continue to establish itself as a
specialty pharmaceutical company.
aaiPharma has historically dedicated a portion of its technical resources and
operating capacity to internal drug and technology development with the
objective of licensing marketing rights to third parties. This strategy
continues to be pursued today. It also provides product development services for
clients' new and existing products that generate royalties, milestone payments
and upfront fees for the Company and is planned for use with NeoSan's products
as well.
aaiResearch's internal product and technology development program has resulted
in multiple product applications filed with the FDA and European regulatory
agencies. Many of these products have been licensed or sold. Others are still in
development. The internal development program has also resulted in patents
covering drug technology and numerous pending patent applications. During 2000,
aaiPharma filed 14 new patent applications with the U.S. Patent and Trademark
Office and with international patent authorities.
Over the last five years, the Company has significantly increased its investment
in its internal product development program. The Company anticipates that
internal product development revenues, including royalties and milestone license
payments, will represent a growing proportion of its revenue over time. However,
there can be no assurance that internal development projects will yield products
that will be approved by the appropriate regulatory authorities or will be
attractive to potential clients.
In addition, from time to time, the Company has entered into contracts with
pharmaceutical partners, only to have certain of those partners terminate the
relevant development program and/or breach their obligations to carry through
with their contracts and obligations to pay royalties to the Company. The
Company has brought a lawsuit against Teva Pharmaceuticals USA Inc. in state
court in North Carolina with respect to certain of such contracts, seeking to
enforce its contractual rights thereunder. Therefore, there can be no assurance
that partners to contracts with aaiPharma will not breach those contracts and/or
terminate projects. Although there is a risk that any particular development
project may not produce revenues, aaiPharma believes that the profit margins
from successful drug and technology development projects could potentially
exceed the margins for standard fee-for-service engagements. aaiPharma has in
the past pursued, and aaiResearch is now pursuing, multiple drug and technology
development projects in order to manage risk in each particular effort.
In 1994, as part of its internal development program, aaiPharma organized
Endeavor Pharmaceuticals, Inc. ("Endeavor") with certain financial investors and
an affiliate of Schering AG to continue the development
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of certain generic hormone products then under development by aaiPharma.
aaiPharma assigned its rights to such products to Endeavor in return for
approximately 47% of Endeavor's equity during a private placement of Endeavor
stock, and aaiPharma entered into a contract with Endeavor to continue product
development and clinical supply manufacture. In 1999, aaiPharma purchased
certain product rights and validated manufacturing equipment from Endeavor as
consideration for reducing the Endeavor outstanding receivable and
work-in-progress balances. In November 2000, Endeavor raised $46 million through
the issuance of Series E preferred stock to certain of its existing investors
and a consortium of investment funds. Following the completion of this round of
funding, aaiPharma continues to own approximately 14% of the fully-diluted
common equity of Endeavor. The Company believes that such services were and are
provided to Endeavor at terms that are no less favorable than terms that would
be obtained from an unrelated third party.
In 1995, aaiPharma entered into an agreement with Aesgen, Inc. ("Aesgen"), a
company organized by aaiPharma with an affiliate of Mayo Clinic, MOVA
Pharmaceutical Corporation, and certain financial investors, to develop certain
pharmaceutical products. Six products developed by aaiPharma for Aesgen have
been approved by the FDA. In 1996, aaiPharma sold to Aesgen marketing rights to
a product being developed by aaiPharma. Under the agreement, Aesgen will pay
license fees and additional royalties upon marketing the product, although there
can be no assurance that the product will be approved by the FDA or marketed.
aaiPharma holds a $1.6 million non-voting, non-convertible preferred stock
investment in Aesgen.
In addition to its development work for Endeavor and Aesgen, aaiPharma has
continued its internal development of products to be licensed to third parties
that have marketing and distribution capabilities. aaiPharma has entered into
numerous licensing agreements for products that are currently in development.
The terms of the agreements vary as to amounts of milestone payments, as well as
methods and extent of revenue participation. While aaiPharma anticipates that
most of its product licensing agreements will provide that prospective clients
will ultimately sponsor the approved product, in certain instances aaiPharma has
made submissions for internally developed products in its own name.
Continuing to leverage its development capabilities, aaiPharma has moved into
product line extension development and has also begun reviewing new compounds
that are chemically similar to currently marketed products with proven
therapeutic and safety profiles, and that offer improved characteristics over
the marketed product. Such improved characteristics would include enhanced or
new therapeutic indices, reduced side effects, improved bioavailability and
improved pharmacokinetics. Because considerable toxicity data already exists for
the marketed product, aaiPharma believes that product line extensions and
pro-drugs generally could be developed with less risk of failure and in a
shorter time frame than new chemical entity development. aaiPharma believes that
virtual and limited-resource drug companies provide opportunities to enter into
collaborative ventures to identify and develop these types of compounds.
As an adjunct to the internal development program, aaiPharma has sought to
protect certain intellectual property it has developed relative to the drug
development process. aaiPharma has established a patent committee that meets
periodically to review employee-generated submissions of possible patentable
subject matter. The patent committee reviews the novelty and usefulness of the
submission and, with input from the marketing department as to commercial
viability, determines to either pursue a patent application or designate the
submission as a trade secret.
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aaiPharma's internal development program has yielded multiple issued patents and
has several pending applications. For example, aaiPharma's patented Pro-Sorb(R)
formulation technology has been shown to facilitate the oral absorption of a
number of non-steroidal anti-inflammatory drugs or NSAIDs, such as diclofenac,
to reduce gastric irritation and speed the onset of therapeutic activity. In
addition, aaiPharma has patented a novel oral delivery system for certain
biotechnology compounds that may currently be administered only by injection.
aaiPharma is seeking licensing partners for its other recently-developed
technologies.
NEOSAN PHARMACEUTICALS - AAIPHARMA'S PRODUCT SALES BUSINESS.
A new business unit of aaiPharma formed near the end of 2000, NeoSan is actively
in the process of identifying and bidding to acquire mature pharmaceutical
products in selected therapeutic areas. These products are typically being
divested by the Company's customers. NeoSan is seeking products which it can
improve by applying the extensive research, development, pharmaceutical
services, and product life cycle management capabilities of NeoSan's sister
business units within aaiPharma. NeoSan intends to directly market these
acquired and/or improved products under the NeoSan Pharmaceuticals brand, either
directly or through contract sales forces.
NeoSan has a major opportunity in offering product life cycle management
services to the Company's customers, as well as applying the same approaches to
its own proprietary products acquired or developed by NeoSan.
Product life cycle management (PLCM) offers product modification and line
extension opportunities to clients, generally for marketed products facing
patent expiration and marketed products which can commercially benefit from
formulation improvements. Modifications of existing products offer clients an
opportunity to improve product characteristics, increasing product market
viability. Improved product characteristics include enhancement of stability,
absorption profiles (e.g., quick or sustained release), taste, and appearance.
Product line extensions may include new dosage forms, such as solids, liquids
and chewables, as well as new dosage strengths. Product modifications and line
extensions offer clients the opportunity to target new patient subpopulations
and improve patient compliance.
PLCM activities also can lead to new inventions and discoveries in the course of
the research and development work, providing new opportunities for long-term
patent protection for the modified products and potential long-term value for
NeoSan and its licensees.
aaiPharma's intention is for NeoSan to become a major portion of the Company's
overall business as promptly as NeoSan is able to find, bid for, and acquire
niche pharmaceutical products that meet its targeted requirements, and to
improve such products through product life cycle management approaches.
HISTORICAL ACQUISITIONS AND TRANSACTIONS.
In December 1996, aaiPharma acquired L.A.B. Gesellschaft fur pharmakologische
Untersuchungen mbH & Co KG. ("L.A.B."). L.A.B. was a European contract research
and development organization headquartered in Neu-Ulm, Germany with principal
operating units in Neu-Ulm and Munich, Germany; Paris, France, and Arnhem,
Netherlands as well as a sales office in London, England. The former L.A.B.
operations are now included in AAI International. These European operations
focus on both clinical and non-clinical
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pharmaceutical product development and provide services that include drug
formulation development; chemical analysis; Phase I clinical trial studies;
bioanalytical testing; and European regulatory consulting. These European
operations also provide Phase II-IV multi-center clinical trial studies focused
in niche therapeutic areas including hepatic disease, chemotherapeutics, and
hormone replacement therapy.
In September 1998, aaiPharma acquired Kansas City Analytical Services, Inc.
("KCAS"), a bioanalytical services company located in the Kansas City, Kansas
area. The former KCAS operations offer bioanalytical testing of products to
large and small pharmaceutical development companies. The addition of KCAS in
1998 significantly increased aaiPharma's bioanalytical testing capacity.
In March 1999, a subsidiary of aaiPharma merged with Medical & Technical
Research Associates, Inc., ("MTRA"), a clinical research organization
incorporated under the laws of Massachusetts and located in Natick,
Massachusetts. MTRA, part of the AAI International business unit, offers
clinical Phase II - IV studies predominately in the U.S. market to large and
small pharmaceutical companies. The merger with MTRA in 1999 significantly
increased aaiPharma's ability to provide clinical testing to U.S. customers and
enable it to compete for global clinical trial engagements.
The MTRA merger was accounted for as a pooling-of-interests, and accordingly,
all prior period consolidated financial statements have been restated to include
the results of operations, financial position, and cash flows of MTRA as though
MTRA had always been a part of aaiPharma. Results for the years ended December
31, 2000, 1999 and 1998 represent the combined results of aaiPharma and MTRA.
As part of the Company's establishment of AAI International as a separate
business unit, the Company is in the process of changing MTRA's name to AAI
International and merging KCAS into AAI International.
INFORMATION TECHNOLOGY
aaiPharma has made significant investments in information technology. The
Company's customized data management system connects analytical instruments with
multiple software architectures permitting automated data capture. aaiPharma
believes that information technology will enable it to expedite the development
process by designing innovative services for individual client needs, providing
project execution, monitoring and control capabilities that exceed a client's
internal capabilities, streamlining and enhancing data presentation to the FDA
and enhancing its own internal operational productivity while maintaining its
quality.
In 2000, aaiPharma continued its implementation of an enterprise wide financial
and operational integrated management information system, including significant
systems licensed from SAP. Certain financial components became operational at
year-end 1998, other operational management systems followed later in 1999 and
2000. The new system will eventually be implemented in all subsidiaries and
allows for expansion in a consistent and controlled manner.
CLIENTS
The Company has provided services to most of the major pharmaceutical companies
in the world. aaiPharma believes that concentration of business among certain
large clients is not uncommon in its industry. It has experienced such
concentration in the past and may experience such concentration in the
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future. Although aaiPharma strives to reduce its reliance on a limited number of
major clients, there can be no assurance that the Company's business will not be
dependent upon certain major clients, the loss of which could have a material
adverse effect on the Company. In addition, due to the project nature of
aaiPharma's business, there can be no assurance that significant clients in any
one period will continue to be significant clients in other periods. In 2000,
one customer accounted for approximately 15% of the Company's revenue. No single
customer accounted for more then 10% of the Company's revenue in 1999 or 1998.
MARKETING AND BUSINESS DEVELOPMENT
Since its inception, the Company has taken a customer-focused approach in
marketing its services, often placing the Company's technical personnel with its
clients' development teams to participate in planning meetings for the
development of a product. The Company assigns sales and technical personnel as
contacts for its larger clients, understanding that technical personnel may be
better able to identify the full scope of the client's needs and suggest
innovative approaches before the client formally develops the parameters of an
anticipated project. Generally, the Company also hosts multiple technical
seminars each year for the pharmaceutical and biotechnology industries,
addressing a variety of formulation development issues, stability testing and
other topics.
CONTRACTUAL ARRANGEMENTS
The Company's third-party product development contracts typically provide for
upfront fees, milestone payments and royalties. The commercialization of the
product is the responsibility of the marketing partner. AAI International's
fee-for-service contracts are typically evidenced by signed service estimates
establishing an estimated fee for identified services. During the Company's
performance of a project, clients often adjust the scope of services to be
provided by the Company in light of interim project results, at which time the
amount of fees is adjusted accordingly. Generally, AAI International's
fee-for-service contracts are terminable by the client upon notice of 30 days or
less, although certain major formulation development and manufacturing
agreements are not unilaterally terminable by the client. Although the contracts
typically permit payment of certain fees for winding down a project, the loss of
a large contract or the loss of multiple contracts could adversely affect the
Company's future revenue and profitability. Contracts may be terminated for a
variety of reasons, including the client's decision to forego a particular
study, the failure of product prototypes to satisfy safety requirements, and
unexpected or undesired results of product testing.
BACKLOG
Backlog consists of anticipated net revenues from signed service estimates and
other fee-for-service contracts that have not been completed and provide for a
readily ascertainable price. Once contracted work begins, net revenues are
recognized as the service is performed. In certain cases, the Company begins
work for a client before a contract is signed. Accordingly, backlog does not
include anticipated net revenues for which the Company has begun work but for
which the Company does not have a signed service estimate, or for any
variable-priced contracts. In addition, during the course of a project, the
client may substantially adjust the requested scope of services and
corresponding adjustments are made to the price of services under the contract.
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aaiPharma believes that its backlog as of any date is not a meaningful predictor
of future results because the backlog can be affected by a number of factors,
including variable size and duration of contracts and adjustments in the scope
of a contracted project as interim results become available. Additionally,
contracts generally are subject to termination by clients upon 30 days notice or
less. Moreover, the scope of a contract can change over the course of a project.
At December 31, 2000 and 1999, backlog was approximately $91.4 and $75.2
million, respectively. Of the 2000 amount, approximately $29.6 million is not
expected to be filled within year 2001.
COMPETITION
The Company competes primarily with in-house research, development, quality
control and other support service departments of pharmaceutical and
biotechnology companies, as well as university research laboratories. In
addition, the Company believes that although there are numerous competitors in
its industry, there are few competitors that offer the depth or breadth of
scientific capabilities that it provides. Certain of the Company's competitors
may have significantly greater resources than the Company. Competitive
conditions for service areas vary.
Competitive factors include reliability, turn-around time, reputation for
innovative and quality science, capacity to perform numerous required services,
financial viability, and price. The Company believes that it competes favorably
in these areas.
GOVERNMENT REGULATION
The services performed by the Company are subject to various regulatory
requirements designed to ensure the quality and integrity of pharmaceutical
products, primarily under the Federal Food, Drug, and Cosmetic Act and
associated GMP regulations which are administered by the FDA in accordance with
current industry standards. Services being performed outside the United States
or for products intended to be substituted to non-U.S. jurisdictions may be
subject to additional regulatory requirements and government agencies applicable
to that jurisdiction.
U.S. regulations apply to all phases of drug manufacture, testing, and record
keeping, including personnel, facilities, equipment, control of materials,
processes, laboratories, packaging, labeling, and distribution. Noncompliance
with such regulations by the Company in a project could result in
disqualification of data collected by the Company for such project. Material
violation of regulatory requirements could result in additional regulatory
sanctions. In severe cases, violations could result in a mandated closing of the
Company's facilities which would materially and adversely affect the Company's
business.
To help assure compliance with applicable regulations, the Company has
established quality assurance controls at its facilities that monitor ongoing
compliance by auditing test data and regularly inspecting facilities, procedures
and other regulatory compliance parameters. In addition, FDA regulations and
guidelines, as well as applicable international standards, serve as a basis for
the Company's standard operating procedures.
Certain of the Company's development and testing activities are subject to the
Controlled Substances Act, administered by the Drug Enforcement Administration
(the "DEA"), which strictly regulates all narcotic and habit-forming substances.
The Company maintains separate, restricted-access facilities and heightened
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control procedures for projects involving such substances due to the level of
security and other controls required by the DEA.
The Company's activities involve the controlled use of hazardous materials and
chemicals. The Company is subject to federal, state and local laws and
regulations governing the use, storage, handling and disposal of such materials
and certain waste products and is insured against losses arising out of the
normal course of business operations. Although aaiPharma believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local laws and regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result which could materially and adversely affect the
financial condition of the Company.
EMPLOYEES
At December 31, 2000, the Company had approximately 1,126 full-time equivalent
employees, of which 54 hold Ph.D. or M.D. degrees, or the foreign equivalent.
The Company believes that its relations with its employees are good. None of the
Company's employees in the U.S. are represented by a union. German and French
law provide certain representative rights to employees.
The Company's performance depends on its ability to attract and retain qualified
professional, scientific and technical staff. The level of competition among
employers for such skilled personnel is high. The Company believes that its
employee benefit plans enhance employee morale, professional commitment and work
productivity and provide an incentive for employees to remain with the Company.
While the Company has not experienced any significant problems in attracting or
retaining qualified staff, other than in its Research Triangle Park and Natick
locations where competition for trained personnel is particularly strong, there
can be no assurance that the Company will be able to avoid these problems in the
future.
All employees enter into confidentiality agreements protecting the Company's
proprietary information, as well as client-confidential material. New U.S.-based
employees are generally required to sign non-competition agreements, prohibiting
the employee from engaging in activities in competition with the Company for a
period of one year after termination of employment.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
The following information sets forth the name, age, principal occupation and
business experience for the executive officers of the Company.
Frederick D. Sancilio, Ph.D., 51, Chairman of the Board, President, Chief
Executive Officer and Director. Dr. Sancilio has served in his current capacity
for more than five years. Before founding the Company in 1979, Dr. Sancilio's
experience in the pharmaceutical industry included various positions with
Burroughs-Wellcome Co., Schering-Plough Corporation, and Hoffmann-LaRoche, Inc.
He has published more than 30 scientific articles discussing various aspects of
pharmaceutical chemistry and regularly makes scientific presentations at
pharmaceutical seminars and meetings worldwide.
Gregory S. Bentley, 51, Executive Vice President, General Counsel and Secretary.
Mr. Bentley has served as Executive Vice President, Secretary and General
Counsel of the Company since June 1999. Prior to
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joining the Company, Mr. Bentley served from 1994 to 1999 as Vice President,
Regulatory and Quality for Siemens Medical Systems, Inc., a leading medical
device company and a subsidiary of Siemens Corporation. Prior to joining Siemens
Corporation as associate general counsel in 1986, Mr. Bentley practiced law with
Shearman & Sterling in New York.
William L. Ginna, Jr. 48, Executive Vice President and Chief Financial Officer.
Prior to joining the Company in February 2000, Mr. Ginna served as Vice
President and Chief Financial Officer for London International Group, a medical
and consumer products distributor. Mr. Ginna, a Certified Public Accountant,
also spent ten years with Athlone Industries, Inc., a New York Stock Exchange
manufacturer of specialty steels and consumer products, where he most recently
was Vice President and Controller.
David Johnston, Ph.D., 50, Executive Vice President and Chief Operating Officer,
Non-clinical Operations, of aaiPharma; President of AAI International. Prior to
joining the Company in January 2000 as Executive Vice President, Non-clinical
Operations, Dr. Johnston served as President of Oread Laboratories and Executive
Vice President of Drug Development of Oread, Inc. a contract research
organization located in Lawrence, Kansas. Prior to joining Oread, Dr. Johnston
served as Vice President of Pharmaceutical Product Development of Sanofi, a
pharmaceutical company, directing more than 50 scientists in the area of drug
development.
Philip S. Tabbiner, D.B.A., 45, Executive Vice President of aaiPharma;
President, NeoSan Pharmaceuticals. Prior to joining the Company in 2000, Dr.
Tabbiner held various positions in the pharmaceutical industry over a twenty
year career. Dr. Tabbiner has held executive level positions with The DuPont
Merck Pharmaceutical Company, Chiron Diagnostics and Bayer Corporation.
George E. Van Lear, Ph.D., 60, Executive Vice President of aaiPharma; President,
aaiResearch. Dr. Van Lear has over 30 years of experience in the pharmaceutical
industry. Dr. Van Lear previously worked for the Company in the 1980's, and most
recently served as President of Senetek PLC, a biotech company.
William H. Underwood, 53, Executive Vice President and Director. Mr. Underwood
has served in his current position since 1992 and has been a Director since
1996. He also served as Chief Operating Officer from 1995 to May 1997. He has
held various positions in the pharmaceutical and cosmetic industries, prior to
joining the Company in 1986, with Mary Kay Cosmetics, Inc. and
Burroughs-Wellcome Co.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in Wilmington, North
Carolina, in a 73,000-square foot leased facility. The Company's primary U.S.
facilities are located in Wilmington, North Carolina; Research Triangle Park,
North Carolina; North Brunswick, New Jersey; Natick, Massachusetts; and Shawnee,
Kansas; constituting approximately 405,000 square feet of total operational and
administrative space. The Company's primary European facilities are located in
Neu-Ulm, Germany and include approximately 112,000 square feet of operational
and administrative space. The German facility is leased under renewable leases
expiring in 2008. The Company maintains other operating locations at leased
facilities in San Bruno, California; Toronto, Canada; Munich, Germany; Paris,
France; and Arnhem, Netherlands. The Company maintains sales offices in Los
Angeles and San Jose, California; Brussels, Belgium; Canterbury and Kent,
England; Budapest, Hungary; Rome, Italy; Tokyo, Japan; Warsaw, Poland; and
Basel, Switzerland. The Company also has joint operations with Shanghai Second
Medical University
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located in Shanghai, China and Tonji University in Wuhan, China. The Company
believes that its facilities are adequate for the Company's operations and that
suitable additional space will be available when needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company may be party to lawsuits and administrative proceedings incidental
to the normal course of its business which are not considered material.
Management does not believe that any liabilities related to such lawsuits or
proceedings will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
In July 1999, aaiPharma filed a demand for arbitration against a former client
seeking approximately $700,000 for manufacturing services rendered. The former
client counterclaimed for $5 million alleging various misrepresentations by the
Company. In December 1999, the former client filed suit in North Carolina State
Court contesting the arbitration and seeking several million dollars in alleged
damages. The Company countersued the former client for approximately $3.6
million, including interest, for various services rendered in addition to the
amounts owed for manufacturing services. On August 31, 2000, the Company and the
former client entered into a settlement agreement to dispose of certain related
arbitration and litigation actions (the "Settlement Agreement"). Under the terms
of the Settlement Agreement, the Company received common stock issued by the
former client and each party released the other from any liability with respect
to the alleged claims.
In September 2000, aaiPharma filed a lawsuit against a contract partner in state
court in North Carolina seeking unspecified damages for breach of a product
development and sales contract under which aaiPharma was developing a product
for subsequent commercial sale by such contract partner. The contract partner
has counterclaimed, alleging breach of contract and other claims against the
Company. The litigation is in the discovery stage at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000, the Company held a special meeting whereby
the stockholders approved an amendment to the Company's Certificate of
Incorporation to change the name of the Company to aaiPharma Inc. The results of
the voting were:
For Against Abstentions
--- ------- -----------
15,537,786 23,735 2,480
No other matters were voted on at the meeting.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The price range of the Company's common stock, which is traded on the NASDAQ
market under the symbol "AAII," is listed below by quarter for the years ended
December 31, 2000 and 1999:
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Quarter
----------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
2000
High $11 1/2 $11 1/4 $ 9 5/8 $10 3/16
Low $ 7 7/8 $ 6 5/16 $ 7 5/8 $ 6 7/8
1999
High $26 9/16 $14 11/16 $12 $13 1/8
Low $11 $10 7/8 $ 4 7/8 $ 7 3/8
The Company estimates there were approximately 1,400 holders of record for its
common stock as of March 28, 2001. No cash dividends were declared during 2000
or 1999.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The information required by Item 6 is included in the section titled "Selected
Financial Data" of the Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is included in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Annual Report and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company, as a result of global operating activities, is exposed to risks
associated with changes in foreign exchange rates. As foreign exchange rates
change, the U. S. Dollar equivalent of revenues and expensed denominated in
foreign currencies change and can have an adverse impact on the Company's
operating results. To seek to minimize its risk from foreign exchange movement,
the Company may use local debt to fund its foreign operations. If foreign
exchange rates were to increase by 10%, operating results would have been lower
by $467,000 in 2000 due to the reduction in reported results from European
operations.
The Company is also exposed to fluctuations in interest rates on its variable
rate debt instruments and leases tied to LIBOR. If interest rates were to
increase by 1%, annual interest expense on variable rate debt and leases tied to
interest rates would increase by approximately $234,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included in the "Consolidated Statements
of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows,
Consolidated Statements of Stockholders' Equity and Notes to Consolidated
Financial Statements" of the Annual Report and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors of the Company and their business experience are set forth on
pages 2-3 of the Proxy Statement for Annual Meeting of Stockholders, dated
approximately April 6, 2001 (the "Proxy Statement") and are incorporated herein
by reference. The discussion of executive officers of the Company is included in
Part I under "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION.
A description of the compensation of the Company's executive officers is set
forth on pages 6 through 8 of the Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
A description of the security ownership of certain beneficial owners and
management is set forth on page 4 of the Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain relationships and related transactions with management are described on
pages 12-14 of the Proxy Statement and in Items 11 and 12, and are incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) - The response to this portion of Item 14 is submitted as a
separate section of this report and reference is hereby made to Item 8.
(b) During the fourth quarter of 2000, the Company filed the following Form
8-Ks:
- - dated November 9, 2000, to file a press release reporting the Company's
consolidated results of operations for the three and nine months ended
September 30, 2000
- - dated November 27, 2000, reporting the Company's filing with the Delaware
Secretary of State a Certificate of Amendment to its Certificate of
Incorporation changing the Company's name to aaiPharma Inc. pursuant to a
resolution passed by the Company's stockholders
(c) Exhibits - A list of the exhibits required to be filed as part of this
Report on Form 10-K is set forth in the "Exhibit Index", which immediately
precedes such exhibits, and is incorporated herein by reference.
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(d) FINANCIAL STATEMENT SCHEDULE
Schedules not included herein have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.
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SCHEDULE II
aaiPharma Inc.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts - Deductions - end of
Description of period expenses describe describe period
- ------------------- ---------- ---------- ---------- ------------ ----------
Allowance for
doubtful accounts
1998 1,297 325 48 (2) (450) (1) 1,220
1999 1,220 2,935 875 (3) (1,916) (1) 3,114
2000 3,114 1,713 -- (3,998) (4) 829
- -------------------------
(1) Represents amounts written off as uncollectible accounts receivable
(2) Represents allowance on accounts assumed in acquisition
(3) Represents restructuring reserve usage
(4) Approximately $2.9 million was written down under the terms of a settlement
agreement with a former client. The remainder was written off as
uncollectible accounts receivable.
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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.
/s/ FREDERICK D. SANCILIO Chairman of the Board, March 30, 2001
- -------------------------------- President and Chief Executive
Frederick D. Sancilio, Ph.D. Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, or in their behalf by their duly
appointed attorney-in-fact, on behalf of the Registrant in the capacities and on
the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ FREDERICK D. SANCILIO Chairman of the Board, March 30, 2001
- -------------------------------- President, Chief Executive
Frederick D. Sancilio, Ph.D. Officer and Director
(Principal Executive Officer)
/s/ WILLIAM L. GINNA, JR. Executive Vice President and March 30, 2001
- -------------------------------- Chief Financial Officer
William L. Ginna, Jr.
/s/ JOHN D. HOGAN Controller (Principal March 30, 2001
- -------------------------------- Accounting Officer)
John D. Hogan
/s/ WILLIAM H. UNDERWOOD Executive Vice President March 30, 2001
- -------------------------------- and Director
William H. Underwood
/s/ JOHN E. AVERY Director March 30, 2001
- --------------------------------
John E. Avery
/s/ JOSEPH H. GLEBERMAN Director March 30, 2001
- --------------------------------
Joseph H. Gleberman
/s/ JAMES G. MARTIN Director March 30, 2001
- --------------------------------
James G. Martin, Ph.D.
/s/ RICHARD G. MORRISON Director March 30, 2001
- --------------------------------
Richard G. Morrison Ph.D.
/s/ JOHN M. RYAN Director March 30, 2001
- --------------------------------
John M. Ryan
/s/ JAMES L. WATERS Director March 30, 2001
- --------------------------------
James L. Waters
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AAIPHARMA INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996)
3.2 Amendment to Certificate of Incorporation dated May 24, 2000
(incorporated by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000)
3.3 Amended By-laws of the Company (incorporated by reference to Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000)
4.1 Articles Fourth, Seventh, Eleventh and Twelfth of the form of Amended
and Restated Certificate of Incorporation of the Company (included in
Exhibit 3.1)
4.2 Article II of the form of Restated By-laws of the Company (included in
Exhibit 3.2)
4.3 Specimen Certificate for shares of Common Stock, $.001 par value, of
the Company (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5535))
10.1 Employment Agreement dated November 17, 1995 between the Company and
Frederick D. Sancilio (incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-5535))
10.2 Applied Analytical Industries, Inc. 1995 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5535))
10.3 Applied Analytical Industries, Inc. 1997 Stock Option Plan, as amended
on May 8, 1998, (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998)
10.4 Stockholder Agreement dated as of November 17, 1995 among the Company,
GS Capital Partners II, L.P., GS Capital Partners II Offshore, L.P.,
Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 1995, L.P.,
Bridge Street Fund 1995, L.P., Noro-Moseley Partners III, L.P.,
Wakefield Group Limited Partnership, James L. Waters, Frederick D.
Sancilio and the parties listed on Schedule 1 thereto (incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 333-5535))
10.5 Development Agreement dated as of April 25, 1994 between the Company
and Endeavor Pharmaceuticals Inc. (formerly, GenerEst, Inc.)
(incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5535))
10.6 Development Agreement dated as of April 4, 1995 between the Company and
Aesgen, Inc. (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (Registration No.
333-5535))
10.7 Underwriting Agreement dated September 19, 1996 between the Company and
Goldman Sachs & Co., Cowen & Company and Lehman Brothers, Inc., as
representatives of the underwriters listed on Schedule 1 thereto
(incorporated by reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996)
10.8 Partnership Agreement dated as of October 2, 1998 between the Company,
First Security Bank, N. A. and the Various Banks and Other Lending
Institutions Which are Parties Hereto from time to time, as the Holders
and as the Lenders and NationsBank, N. A. (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998)
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23
10.9 Security Agreement dated as of October 2, 1998 between First Security
Bank, N. A., and NationsBank, N. A. (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998)
10.10 Amendment No. 1 to the Employment Agreement dated November 17, 1995
between the Company and Frederick D. Sancilio (incorporated by
reference to Exhibit 10.14 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999)
10.11 Amendment and Forbearance Agreement dated August 26, 1999 between the
Company and the Bank of America, N.A. (incorporated by reference to
Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999)
10.12 Pledge Agreement dated August 26, 1999 between the Company and the Bank
of America, N.A. (incorporated by reference to Exhibit 10.16 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999)
10.13 Security Agreement dated August 26, 1999 between the Company and the
Bank of America, N.A. (incorporated by reference to Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)
10.14 Applied Analytical Industries, Inc. 1996 Stock Option Plan, as amended
on March 27, 2000 (incorporated by reference to exhibit to the
Company's Annual Report on Form 10-K filed for the year ended December
31, 1999)
10.15 Amended and Restated Loan Agreement dated as of November 30, 1999
between the Company, AAI Applied Analytical Industries Deutschland GmbH
& Co. KG, certain subsidiaries of the Company and Bank of America, N.A.
(incorporated by reference to exhibit to the Company's Annual Report on
Form 10-K filed for the year ended December 31, 1999)
10.16 First Amendment, dated May 31, 2000, to the Amended and Restated Loan
Agreement dated as of November 30, 1999 between the Company, AAI
Applied Analytical Industries Deutschland GmbH & Co. KG, certain
subsidiaries of the Company and Bank of America, N.A. (incorporated by
reference to Exhibit 10.16 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000)
10.17 Second Amendment, dated August 31, 2000, to the Amended and Restated
Loan Agreement dated as of November 30, 1999 between the Company, AAI
Applied Analytical Industries Deutschland GmbH & Co. KG, certain
subsidiaries of the Company and Bank of America, N.A.
10.18 Third Amendment, dated November 30, 2000, to the Amended and Restated
Loan Agreement dated as of November 30, 1999 between the Company, AAI
Applied Analytical Industries Deutschland GmbH & Co. KG, certain
subsidiaries of the Company and Bank of America, N.A.
13 Portions of the 2000 Annual Report to Shareholders
21 Subsidiaries of aaiPharma Inc. (incorporated by reference to Exhibit
21 to the Company's Annual Report on Form 10-K filed for the year
ended December 31, 1999)
23 Consent of Independent Auditors
99.1 Risk Factors (incorporated by reference to Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000)
23