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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(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( ) OF THE SECURITIES EXCHANGE ACT OF
1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27628
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SUPERGEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1841574
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
TWO ANNABEL LANE, SUITE 220, SAN RAMON, CA 94583
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 327-0200
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
COMMON STOCK PURCHASE WARRANTS
(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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing sale price of the Common Stock as reported on
the Nasdaq Stock Market on March 6, 1998) was approximately $182,585,000. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. The number of outstanding shares of the Registrant's Common
Stock as of the close of business on March 6, 1998 was 20,261,463.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III incorporate information by reference
from the definitive proxy statement for the Registrant's Annual Meeting of
Stockholders to be held on May 7, 1998.
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PART I
ITEM 1. BUSINESS.
THIS "ITEM--1 BUSINESS" AND OTHER PARTS OF THIS REPORT CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. THESE FORWARD-LOOKING STATEMENTS REPRESENT THE COMPANY'S
EXPECTATIONS OR BELIEFS CONCERNING FUTURE EVENTS AND INCLUDE STATEMENTS, AMONG
OTHERS, REGARDING THE TIMING AND PROGRESS OF THE DEVELOPMENT OF THE COMPANY'S
PROPOSED PRODUCTS, FILING FOR AND RECEIVING REGULATORY APPROVALS, ACQUIRING
ADDITIONAL PRODUCTS AND TECHNOLOGIES, SOURCING OF BULK GENERICS AND THE
MANUFACTURING OF FINISHED PRODUCTS, ANTICIPATING THE MARKET OPPORTUNITIES FOR
ITS EXTRA AND PROPRIETARY PRODUCTS, MARKETING CURRENT AND PROPOSED PRODUCTS TO
HOSPITAL BUYING GROUPS AND OTHERS, DEVELOPING DISTRIBUTOR RELATIONSHIPS, FORMING
STRATEGIC MARKETING RELATIONSHIPS, INCURRING OPERATING LOSSES AND REQUIRING
ADDITIONAL CAPITAL, REDUCING COSTS PER UNIT AND INCURRING CAPITAL EXPENDITURES.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FAILURE TO RECEIVE APPROPRIATE
REGULATORY APPROVALS OF MARKETING OR MANUFACTURING ACTIVITIES ON A TIMELY BASIS,
LACK OF MARKET ACCEPTANCE OF AND DEMAND FOR THE COMPANY'S PRODUCTS, INTENSE
PRICE OR PRODUCT COMPETITION, LACK OF AVAILABLE SUPPLY OF BULK GENERICS, FAILURE
TO SELL EXISTING INVENTORIES AT PRICES SUFFICIENT TO COVER RELATED COSTS,
FAILURE TO OBTAIN ADDITIONAL FINANCING AND OTHER FACTORS SET FORTH UNDER
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--FACTORS AFFECTING FUTURE OPERATING RESULTS" AND ELSEWHERE IN THIS
REPORT.
OVERVIEW
SuperGen, Inc. (the "Company" or "SuperGen") is an emerging pharmaceutical
company dedicated to the acquisition, rapid development and commercialization of
products for the treatment of life-threatening diseases, particularly cancer.
The Company's primary oncology programs target leukemias and lymphomas, solid
tumors and the development of the Company's proprietary Extra technology (its
enhanced line of already established anticancer drugs). SuperGen also seeks to
expand its portfolio of anticancer drugs through the acquisition of products and
product candidates that complement its portfolio and provide the Company with
market opportunities. The Company also has non-oncology programs in the large
market areas of anemias and other blood cell disorders, obesity/diabetes and
certain autoimmune diseases. The Company intends to seek partnership
opportunities in these areas. A key element of the Company's strategy is to
identify, acquire and develop pharmaceutical products in the later stages of
development. The Company believes this strategy will shorten the research and
development cycle and thereby minimize the time, expense and technical risk
associated with drug development.
Beginning in late 1996 and throughout 1997, the Company actively marketed
several pharmaceutical products. A substantial portion of 1997 sales related to
Nipent-Registered Trademark- (pentostatin for injection), the Company's
proprietary drug, which was acquired in 1996 along with all North American
rights and is indicated for the treatment of Hairy Cell Leukemia. In December
1997, the Company received governmental approval to sell Nipent-Registered
Trademark- manufactured under its own Supplemental New Drug Application. The
remainder of sales related to several generic products purchased in 1997 and
1996. Sales of those generic products are not expected to be significant in 1998
and beyond.
In September 1997, the Company acquired exclusive worldwide rights to a
patented anticancer compound (RFS 2000), which is currently in Phase II human
trials for pancreatic cancer, the fifth leading cause of cancer death. It has
also shown activity against an array of solid tumors in animal and initial human
studies with a favorable side effect profile. At the end of 1997, SuperGen filed
for governmental approval for its first Extra product, Mito Extra. It intends to
file for approval for several other of its Extra and generic anticancer products
over the next several years. The Company has also continued to develop a
proprietary blood cell disorder product for the treatment of aplastic anemia
(and other anemias associated with chemotherapy, radiotherapy, and renal
failure). SuperGen's proprietary obesity/diabetes pill, which has shown promise
in early preclinical and human studies, is currently in Phase II clinical trials
for a
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genetic disorder leading to chronic obesity and is expanding into multi-center
Phase I/II trials for Type II diabetes. To date, the Company has received Orphan
Drug Designations for its aplastic anemia agent and obesity pill in the
treatment of a genetic disorder leading to chronic obesity. The Company has also
received a grant from the U.S. government for aplastic anemia clinical trials.
The Company was founded in March 1991. Its corporate headquarters are
located at Two Annabel Lane, Suite 220, San Ramon, CA 94583.
THE DRUG DEVELOPMENT AND APPROVAL PROCESS
NEW DRUG DEVELOPMENT AND APPROVAL PROCESS. SuperGen's fundamental strategy
is to identify, acquire and develop pharmaceutical products in the later stages
of development to shorten the research and development cycle and thereby
minimize the time, expense and technical risk associated with drug development.
The U.S. system of new drug approvals is the most rigorous in the world. It
costs an average of $500 million and takes an average of 12 years from discovery
of a compound to bring a single new pharmaceutical to market. Only approximately
one in 1,000 compounds that enter the preclinical testing stage eventually makes
it to human testing, and only one-fifth of those are ultimately approved for
commercialization. Yet, in recent years, societal and governmental pressures
have created the expectation that drug discovery and development costs can be
reduced without sacrificing safety, efficacy and innovation. The need to
significantly improve or provide alternative strategies for successful
pharmaceutical discovery, research and development remains a major health care
industry challenge.
The following chart(1) illustrates the typical stages of the new drug
development and approval process:
[GRAPH]
DRUG DISCOVERY. In the initial stages of drug discovery before a compound
reaches the laboratory, typically tens of thousands of potential compounds are
randomly screened for activity against an assay assumed to be predictive for
particular disease targets. This drug discovery process can take several years.
Once a "screening lead" or starting point for drug development is found,
isolation and structural determination is initiated. Numerous chemical
modifications are made to the screening lead (called "rational synthesis") in an
attempt to improve the drug properties of the lead. After a compound emerges
from the above process it is subjected to further preliminary studies on the
mechanism of action, further in vitro screening against particular disease
targets and finally, some IN VIVO animal screening (called "pharmacology"). If
the compound passes these barriers, preliminary exploratory animal toxicology is
performed to begin to analyze the toxic effects of the compound, and if the
results are positive, the compound emerges from the basic research mode and
moves into the preclinical phase.
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(1) Source: "The Drug Development and Approval Process" by Dale E. Wierenga,
Ph.D. and John Beary, III, M.D., NEW MEDICINES IN DEVELOPMENT FOR CANCER,
1995.
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PRECLINICAL TESTING. During the preclinical testing stage, laboratory and
animal studies are conducted to show biological activity of the compound against
the targeted disease, and the compound is evaluated for safety. These tests
typically take approximately three and one-half years to complete.
INVESTIGATIONAL NEW DRUG APPLICATION (IND). During the preclinical testing,
an IND is filed with the FDA to begin human testing of the drug. The IND becomes
effective if the FDA does not reject it within 30 days. The IND must indicate
the results of previous experiments, how, where and by whom the new studies will
be conducted, the chemical structure of the compound, the method by which it is
believed to work in the human body, any toxic effects of the compound found in
the animal studies and how the compound is manufactured. In addition, the IND
must be reviewed and approved by an Institutional Review Board comprised of
physicians at the hospital or clinic where the proposed studies will be
conducted. Progress reports on detailing the results of the clinical trials must
be submitted at least annually to the FDA.
Some limited human clinical testing may be done under a Physician's IND in
support of an IND application and prior to receiving an IND. A Physician's IND
is an IND application that allows a single individual to conduct a clinical
trial under less rigorous standards with a shorter FDA review process. A
Physician's IND does not replace the more formal IND process, but can provide a
preliminary indication as to whether further clinical trials are warranted, and
can, on occasion, facilitate the more formal IND process (sometimes referred to
as the "Company-sponsored INDs").
PHASE I CLINICAL TRIALS. After an IND becomes effective, Phase I human
clinical trials can begin. These tests, involving usually between 20 and 80
healthy volunteers, typically take approximately one year to complete. The tests
study a drug's safety profile, including the safe dosage range. The Phase I
clinical studies also determine how a drug is absorbed, distributed, metabolized
and excreted by the body, and the duration of its action. Phase I trials are
normally not conducted for anticancer product candidates.
PHASE II CLINICAL TRIALS. In Phase II clinical trials, controlled studies
of approximately 100 to 300 volunteer patients with the targeted disease assess
the drug's effectiveness. These tests are designed primarily to evaluate the
effectiveness of the drug on the volunteer patients as well as to determine if
there are any side effects on these patients. These studies generally take
approximately two years, and may be conducted concurrently with Phase I clinical
trials. In addition, Phase I/II clinical trials may be conducted to evaluate not
only the efficacy of the drug on the patient population, but also the safety of
the drug on the patient population.
PHASE III CLINICAL TRIALS. This phase typically lasts about three years and
usually involves 1,000 to 3,000 patients. During the Phase III clinical trials,
physicians monitor the patients to determine efficacy and to observe and report
any reactions that may result from long-term use of the drug.
NEW DRUG APPLICATION (NDA). After the completion of all three clinical
trial phases, the Company analyzes the data and, if the data indicates that the
drug is safe and effective, files an NDA with the FDA. The NDA must contain all
of the information on the drug that the company has gathered to date, including
the data from the clinical trials. NDAs are often over 100,000 pages in length.
The average NDA review time for new pharmaceuticals approved in 1997 was 17
months.
APPROVAL. If the FDA approves the NDA, the drug becomes available for
physicians to prescribe. The Company must continue to submit periodic reports to
the FDA, including descriptions of any adverse reactions reported. For certain
medicines, the FDA may request additional studies (Phase IV) to evaluate
long-term effects.
PHASE IV CLINICAL TRIALS AND POST MARKETING STUDIES. In addition to studies
requested by the FDA after approval, these trials and studies are conducted to
explore new indications. Such trials and studies and the publication of the
resulting data are designed primarily to broaden the application and use of the
drug and its acceptance in the medical community.
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ORPHAN DRUG DESIGNATION. The Orphan Drug Act provides incentives to
manufacturers to develop and market drugs for rare diseases and conditions
affecting fewer than 200,000 persons in the United States. The first developer
to receive FDA marketing approval for an orphan drug is entitled to a seven-year
exclusive marketing period in the United States for that product. However, a
drug that is considered by the FDA to be clinically superior to or different
from another approved orphan drug, even though for the same indication, is not
barred from sale in the United States during the seven year exclusive marketing
period.
EXTRA AND GENERIC DRUG DEVELOPMENT.
EXTRA DRUGS. The Company believes that development of enhanced formulations
of anticancer drugs (e.g. where the formulation is improved from a powder to a
liquid form or more soluble form) using the Company's patented technology will
be significantly abbreviated from that of a new drug.
GENERIC DRUGS. The development of a generic drug is also significantly
abbreviated from that of a new drug and the approval process may begin once all
applicable patents for a particular drug expire. For each generic drug, the
Company must obtain FDA approval for the active ingredient of the generic drug
(the "bulk source") and the final formulation ("Marketing Approval"). The entire
approval process takes approximately 36 months.
STRATEGY
SuperGen's objective is to become a leading supplier of oncology therapies
as well as pharmaceuticals for other serious diseases, such as blood cell
disorders, obesity and diabetes. The Company focuses its product development
efforts where the Company believes there are significant market opportunities,
as well as in smaller niche markets where the Company believes there is limited
competition, such as in certain anticancer drug markets. The Company seeks to
develop a diversified offering within its focused oncology market, including
Extra and proprietary drugs, and seeks to implement a staged strategy for
bringing other oncology products to market, such as immunotherapies and
vaccines, photodynamic therapy, new biotechnology-based drugs, diagnostic agents
and prophylaxis. The Company believes that the commercialization of its acquired
anticancer products, such as Nipent-Registered Trademark-, is assisting the
Company in developing its reputation and presence in the market while it
continues to develop its Extra and other proprietary products, which have a
longer development cycle but may offer the Company a more significant market
opportunity. Generic drugs will only be pursued if they offer access to large
markets or can serve as an initial step in the application of the Company's
Extra technology.
A key element of the Company's strategy is to identify, acquire and develop
pharmaceutical products in the later stages of development to shorten the
research and development cycle and thereby minimize the time, expense and
technical risk associated with drug development. The Company believes that this
approach differs from that adopted by most pharmaceutical and biomedical
companies. Instead of engaging in pure discovery research to obtain lead
compounds, the Company licenses or acquires the rights to compounds typically at
the late preclinical or early stage of clinical development that have shown
efficacy in humans or in an animal model relevant to a particular clinical
disease. The Company then seeks to enhance and complete the product development
and bring the product to market. In its Extra and generic drug development
program, the Company targets and develops products, usually off-patent, that
have already been commercialized by others but nevertheless offer the Company
attractive market opportunities. The Company also seeks to acquire rights from
third parties to products which have already been fully developed, FDA approved
and marketed by such third parties but which the Company believes have strong
market positions or potential. The Company has targeted Orphan Drug indications
for initial development in its oncology, anemia and obesity platforms. In the
areas of anemia and obesity, the Company will explore partnership opportunities
when it feels it has built enough value into the programs to maximize the return
on its expenditures. The Company believes that its approach minimizes the
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significant financial investment required by pure discovery research and reduces
the risk of failure in developing a commercially viable product.
The Company has a highly experienced management team and maintains an
operation focused primarily on product development and clinical registration. In
late 1997, the Company established the SuperGen Pharmaceutical Research
Institute near its corporate headquarters, where it expects to conduct much of
the management of the preclinical, product development and regulatory functions.
The Company currently outsources its manufacturing to avoid the high fixed costs
of plant and a large manufacturing staff, while maintaining its own proprietary
manufacturing process. The Company has established a skilled sales and marketing
organization, which is being expanded as products are brought to market. The
Company contracts its inventory control function to an established third party
who handles warehousing, shipping, invoicing and product delivery. The Company
believes that this operating strategy enables it to keep its costs relatively
low while maintaining high technical and operational standards.
PRODUCTS AND PRODUCTS IN DEVELOPMENT
The Company's current products and its products in development include its
proprietary oncology drugs, Extra and generic oncology drugs, and proprietary
compounds for blood cell disorders, obesity/ diabetes and certain autoimmune
diseases. Each of such products and potential products is described below. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Factors Affecting Future Operating Results."
6
SUPERGEN PRODUCTS AND PRODUCTS IN DEVELOPMENT
ONCOLOGY PRODUCTS AND PRODUCTS IN DEVELOPMENT
DRUG INDICATIONS/POTENTIAL INDICATIONS STATUS
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PROPRIETARY COMPOUNDS
Nipent-Registered Hairy Cell Leukemia Currently marketed in the United States
Trademark-
Nipent-Registered Cutaneous T-cell lymphoma, chronic Clinical studies underway to enable
Trademark- lymphocytic leukemia, non-Hodgkin's filing of NDA supplements
lymphoma, prolymphocytic leukemia
RFS 2000 Pancreatic cancer and other solid tumors Sourcing obtained; Phase II studies in
progress
EXTRA TECHNOLOGY
Mito Extra Gastric, pancreatic, breast, lung and Bulk source approved; NDA filed in 1997;
colorectal cancer Awaiting FDA response
Nipent-Registered Hairy Cell Leukemia, cutaneous Approved source owned; Formulation
Trademark- Extra T-cell leukemia, chronic lymphocytic development in progress; Preclinical
leukemia, non-Hodgkin's lymphoma, testing initiated in 1997
prolymphocytic leukemia
Paxo Extra (paclitaxel) Various solid tumors Bulk source located but not approved;
Preliminary formulation under evaluation
Etoposide Extra Refractory testicular tumors, small cell Approved bulk source and generic NDA
lung cancer obtained; Formulation in progress;
Preclinical testing to be initiated upon
completion of formulation
Dauno Extra Leukemia Bulk source approved; Formulation
development completed; Preclinical
testing in progress
Cisplatin Extra Testicular tumors, ovarian tumors, Bulk source identified; Formulation
advanced bladder cancer development in progress; Preclinical
testing to be initiated upon completion
of formulation development
GENERIC DRUGS
Mitomycin Gastric, pancreatic, breast, lung and Bulk source approved; Awaiting Marketing
colorectal cancer Approval from the FDA
Bleomycin Head and neck cancer, Hodgkin's disease, Bulk source identified; Evaluation
reticulum cell sarcoma, lymphosarcoma, on-going
testicular cancer
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DRUG INDICATIONS/POTENTIAL INDICATIONS STATUS
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Paclitaxel Various solid tumors Bulk source located but not approved;
(Taxol-Registered Formulation stability studies on selected
Trademark-) formulations in progress
Daunorubicin Leukemia Bulk source approved; Formulation
stability study in progress
NON-ONCOLOGY PROPRIETARY PRODUCTS IN DEVELOPMENT
DRUG POTENTIAL INDICATIONS STATUS
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RF 1010 Aplastic anemia and other blood cell Currently in Phase I/II studies; Received
disorders Orphan Drug Designation and grant
RF 1051 Prader-Willi Syndrome (chronic genetic Currently in Phase II studies with
obesity), General obesity patients
RF 1051 Type II Diabetes Protocol designed; centers being
identified and patients enrolled in
multi-center Phase I/II studies
Nipent-Registered Various autoimmune diseases, including Currently in early phases of initiating
Trademark- graft-versus-host disease and refractory clinical trials
rheumatoid arthritis
PROPRIETARY ONCOLOGY COMPOUNDS
NIPENT-REGISTERED TRADEMARK-. The Company has North American marketing
rights for its proprietary anticancer product, Nipent-Registered Trademark-
(pentostatin for injection), which in 1997 had U. S. sales of approximately
$1,475,000. Nipent-Registered Trademark-currently is indicated for the treatment
of Hairy Cell Leukemia. In 1997, U.S. sales of products used to treat this
disease were approximately $15 million.(1) SuperGen's sales of Nipent-Registered
Trademark- in 1997 and 1996 were constrained by the limited finished goods
inventory obtained when the Company acquired North American rights to the drug,
along with bulk crude concentrate inventory, in 1996. In 1997 the Company
entered into a supply agreement pursuant to which an unrelated company will
purchase from the Company the total requirements for sales outside North America
for seven years. It is expected that shipments under the supply agreement will
commence in 1998.
In December 1997, the Company received approval from the FDA to sell its own
commercially manufactured Nipent-Registered Trademark-. The Company believes
this approval will enable it to produce sufficient product to both actively
promote sales of Nipent-Registered Trademark- as well as commence clinical
trials for other indications in both oncology and non-oncology fields. In
oncology, the Company will initially pursue treatments for lymphatic
malignancies and disorders, such as cutaneous T-cell lymphoma (CTCL), chronic
lymphocytic leukemia (CLL) (for which the Company has Orphan Drug Designation),
non-Hodgkin's lymphoma (NHL) and prolymphocytic leukemia (PLL). The U.S. market
for these diseases is estimated to be $65 million, $65 million, $80 million and
$10 million, respectively.
RFS 2000. In September 1997, the Company acquired the exclusive worldwide
rights to this patented anticancer compound. RFS 2000 is a topoisomerase I
inhibitor and patented analogue of camptothecin,
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(1) Unless otherwise indicated, product sales and market size information cited
in this Report consist of data provided by IMS.
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the active drug extracted from the CAMPTOTHECA ACUMINATA tree. The Company
believes that this is a platform drug for leadership in the treatment of a broad
array of solid tumors. The Company is seeking rapid development and approval of
the drug for pancreatic cancer, for which current treatment options are limited
and for which the Company has Orphan Drug Designation. Pancreatic cancer is the
fifth leading cause of cancer death, with both an incidence and death rate of
about 29,000 individuals per year, and the current U.S. market for products used
to treat the disease is estimated to be in excess of $100 million. Median
survival for patients with advanced disease is only a few months. Preliminary
results using RFS 2000 so far show a favorable comparison with historical data
in quality of life, survival data and tumor size, and the Company has commenced
Phase II trials and intends to rapidly begin conducting them on a multi-center
basis. RFS 2000 has also shown activity in more than 30 human and animal tumor
models in indications such as breast, lung, colorectal, ovarian and prostate,
all of which represent significant market opportunities. In studies to date,
none of the cardiac, pulmonary, hepatic or renal toxicities that limit the acute
and/or chronic dosages of most chemotherapeutics have been observed, and some
early studies suggest RFS 2000 could be used to treat cancer on a chronic rather
than acute basis. The side effects that have been observed to date are mild to
moderate hematological toxicities, low-grade cystitis, infrequent and mild hair
loss and gastrointestinal disorder. Finally, RFS 2000 is an oral drug where
patients can be dosed at home on a 5-days on and 2-days off basis.
EXTRA AND GENERIC ANTICANCER DRUGS.
EXTRA ANTICANCER DRUGS. The Company has developed applications for its
"Extra" complexation technology which it believes significantly improves the
safety profile and handling characteristics of certain anticancer drugs
currently on the market (the "Extra technology"). Many anticancer generic drugs
are available only in a powder form and have to be mixed and dissolved in the
correct liquid prior to administration. The Company's Extra technology is
designed to produce a ready-to-inject, stable solution. The ready-to-inject
stable solution not only increases the ease of administration and saves time by
eliminating the mixing procedure, but also increases the safety for the person
administering the dose by minimizing the risk of exposure to the drug. Moreover,
the Company believes that certain of its ready-to-inject stable solutions have a
significantly longer shelf-life at room-temperature than the mixed solution and
can potentially be administered from a multidose vial.
In addition, the Company believes that its Extra technology may increase the
safety of certain existing anticancer drugs by minimizing the problem of
ulceration associated with extravasation without altering potency or activity.
Extravasation is accidental leakage of the drug into a patient's muscle or skin
from a blood vessel. Many existing anticancer pharmaceuticals, including those
under development by the Company, are potent toxins and cause serious ulceration
if extravasated. The resulting damage can be extensive and can require plastic
surgery to repair. Furthermore, because of the decrease in the ulceration risk,
the Company believes that its Extra technology can be expanded to apply to many
cancer drugs which, due to their toxicity, currently cannot be administered
locally. Such applications include intravesical application in bladder cancer,
intraperitoneal application in ovarian and other cancers, intraprostate,
intracranial application for brain tumors, and intraarterial applications for
tumors accessible by the circulatory route. As a result, the Company believes
that its Extra products may have a significant competitive advantage over their
established counterparts currently on the market.
The Company has filed an application for worldwide patent protection for its
anticancer Extra technology and in February 1997 was issued its Extra patent in
the U.S. In addition, the Company has licensed the rights to the excipient used
for the Extra technology from certain third parties. At the time the Company
acquired the licenses to this excipient, the excipient was in its later stages
of development and had already undergone extensive animal toxicology and human
testing in areas other than anticancer drugs. Current product targets include
Mito Extra, Nipent-Registered Trademark- (pentostatin) Extra, Paxo Extra
(paclitaxel), Etoposide Extra, Dauno Extra (daunorubicin) and Cisplatin Extra.
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MITO EXTRA. The Company filed an NDA for Mito Extra in December 1997, which
was accepted by the FDA in early 1998. The Company believes it will receive a
response from the FDA before the end of 1998.
Mitomycin is currently available commercially in powder form and is
indicated for the treatment of gastric, pancreatic, breast, lung and colorectal
cancer. Estimated sales of mitomycin in the U.S. were $21 million in 1997 and
$29 million in 1996. The patent for mitomycin expired in 1987 and, as of
December 31, 1997, only two generic versions of mitomycin had been approved for
commercial sale in addition to the original version produced by Bristol-Myers
Squibb Company ("Bristol-Myers Squibb").
NIPENT EXTRA. Pentostatin (Nipent-Registered Trademark-) is indicated to
treat HCL and has a potential application to treat CLL and other lymphatic
malignancies. The Company believes that there is a potential for expanded
oncology markets and for non-oncology markets and intends to initiate
preclinical studies with Nipent Extra.
PAXO EXTRA. Paclitaxel (Taxol-Registered Trademark-) is indicated to treat
ovarian and other solid tumors and is being used experimentally to treat
numerous cancers. It is the fastest growing anticancer agent, with sales in the
U.S. of approximately $570 million in 1997 and $400 million in 1996. The current
paclitaxel formulation has numerous problems because the Cremophor-Registered
Trademark- EL solvent used for the injection concentrate causes hypersensitivity
reactions, leaching of plasticizer from PVC infusion bags, haziness of diluted
solutions and the need for in-line filters. The Company believes that its
potential Paxo Extra product would reduce these problems. In addition, enhanced
solubility in aqueous solutions could expand the market to direct application
and create new therapy markets. In 1997 the Company secured a source of bulk
paclitaxel, although the manufacturer has not yet received governmental
approval. The Company intends to file an NDA with the FDA relating to its
potential Paxo Extra. However, the timing of all paclitaxel filings will be
dependent on the resolution of issues pertaining to the use patent for the
underlying drug, Taxol-Registered Trademark-. The original period of exclusivity
for Taxol-Registered Trademark- expired in December 1997. Although other
companies may challenge the additional use patent protection, there can be no
assurance that they will prevail. Failure to resolve this issue may
significantly limit, and perhaps prevent, the Company's ability to compete in
this marketplace.
ETOPOSIDE EXTRA. Etoposide has a wide application against refractory
testicular tumors and small cell lung cancer. Sales of etoposide in the U.S.
were estimated to be $25 million in 1997 and $50 million in 1996. There are
currently six generic versions of etoposide that have been approved for
commercial sale, in addition to the original version produced by Bristol-Myers
Squibb. Generic formulations of etoposide have limited stability and limited
solubility. Etoposide Extra formulations would decrease such limitations.
Formulation and preclinical evaluation are currently in progress, and it is
anticipated that an NDA will be filed for this formulation.
DAUNO EXTRA. Daunorubicin is indicated to treat acute leukemia. Sales of
daunorubicin in the U.S. were estimated to be approximately $10 million in both
1997 and 1996. Daunorubicin is currently sold in powder form only. The Company
believes that daunorubicin represents a niche market with limited competition
from large pharmaceutical companies due to its relatively small market size.
However, the Company believes the use of daunorubicin may increase substantially
in the future, as recent experimental studies suggest that daunorubicin may be
used in an increasing number of combination drug protocols treating a number of
cancers. The Company has commenced preclinical testing for its potential Dauno
Extra product and expects to file an NDA with the FDA.
CISPLATIN EXTRA. Cisplatin is indicated for the treatment of metastatic
testicular tumors, metastatic ovarian tumors and advanced bladder cancer. Sales
of cisplatin in the U.S. were estimated to be approximately $106 million in 1997
and $120 million in 1996. Bristol-Myers Squibbs' patent for cisplatin expired in
December 1996, but it has been granted an additional patent. The Company intends
to file an NDA with the FDA relating to its potential Cisplatin Extra. The
timing of all cisplatin filings will be
10
dependent on the resolution of issues pertaining to the patent. Failure to
resolve this issue may significantly limit, and perhaps prevent, the Company's
ability to compete in this marketplace.
OTHER EXTRA PRODUCTS. The Company currently intends to develop other Extra
products to complement its anticancer product portfolio. The Company continues
to research other applications to use its Extra technology to enhance existing
anticancer drugs.
GENERIC ANTICANCER DRUGS. The Company's strategy is to enter the
pharmaceutical marketplace as rapidly as possible to establish a reputation and
presence in the oncology field, gain manufacturing and regulatory experience,
hire a sales force and thereby move quickly towards becoming a fully operational
company while it continues to develop its Extra and proprietary products.
Initially, the Company felt that the quickest way to achieve the goal of early
commercialization was to develop or acquire generic products. However, with the
Company's acquisition of Nipent-Registered Trademark- and other proprietary
compounds and the severe decreases in total sales that have occurred with
certain generic products, the benefits of developing generic products have been
substantially reduced. The Company believes that the total estimated U.S. sales
for mitomycin, bleomycin, etoposide, cisplatin and certain other proposed
generic products have decreased over the last few years due to increased
competition and that sales for these generics (as well as other of its
originally proposed generic products) may continue to decrease as a result of
competitive factors, including reductions in the per unit sales price, the
introduction of additional generics as well as other cancer drugs, new
formulations for these drugs and the use of different therapies.
Therefore, the Company currently intends to limit its development of generic
products to those that it feels either require minimal effort to submit an NDA
and obtain marketing clearance or that offer significant market opportunities.
The Company's generic drugs currently under development are as follows:
MITOMYCIN. Mitomycin, with estimated sales in the U.S. of approximately $21
million in 1997 and $29 million in 1996, has primary indications in gastric and
pancreatic carcinoma and medically accepted indications in breast, lung and
colorectal cancer. The patent for mitomycin expired in 1987, and as of December
31, 1997, only two generic versions of mitomycin had been approved for
commercial sale in addition to the original version produced by Bristol-Myers
Squibb. The Company expects to receive Marketing Approval on its generic version
of mitomycin in 1998.
BLEOMYCIN. Bleomycin is indicated for the treatment of head and neck
cancer, Hodgkin's disease, reticulum cell sarcoma, lymphosarcoma and testicular
cancer. Sales of bleomycin in the U.S. were estimated to be approximately $30
million in 1997 and $41 million in 1996. The patent for bleomycin expired in
1989. Only one generic version of bleomycin has been approved for commercial
sale to date. The Company has a generic version of bleomycin currently under
development and expects to file an ANDA.
PACLITAXEL (TAXOL-REGISTERED TRADEMARK-). Paclitaxel (Taxol-Registered
Trademark-), which is indicated for the treatment of a variety of solid tumors,
is currently the most successful anticancer drug, with sales in the U.S. of
approximately $570 million in 1997 and $400 million in 1996. The Company expects
to file for Marketing Approval for its generic version of paclitaxel
(Taxol-Registered Trademark-). However, the timing of all paclitaxel filings
will be dependent on the resolution of issues pertaining to the use patent for
the drug. The original period of exclusivity for paclitaxel (Taxol-Registered
Trademark-) expired in December 1997. Although other companies may challenge the
additional use patent protection, there can be no assurance that they will
prevail. Failure to resolve this issue may significantly limit, and perhaps
prevent, the Company's ability to compete in this marketplace.
DAUNORUBICIN. Daunorubicin is indicated to treat acute leukemia. Sales in
the U.S. were estimated to be approximately $10 million in both 1997 and 1996.
The Company has a generic version of daunorubicin under development and expects
to file for Marketing Approval.
11
OTHER ANTICANCER PRODUCTS
The Company believes that the acquisition of inventory, know-how and/or
other rights to anticancer products which have already been commercialized
offers the Company market opportunities while assisting it to develop its
reputation and presence in the market.
NON-ONCOLOGY PROPRIETARY PRODUCTS
ANEMIAS
RF 1010. The Company is developing a series of proprietary products to
treat various forms of anemia and neutropenia, which are the destruction of red
and white blood cells, respectively. These weaken the immune system, leaving
patients susceptible to infection that could result in serious illness or death.
The blood cell disorders targeted by the Company frequently result from a severe
insult (such as pesticide or radiation poisoning); from treatment with existing
anticancer therapies, including chemotherapy and radiation; and from renal
failure. The Company believes that its products under development may have
improved therapeutic benefits relative to existing drugs available commercially,
and may be used in conjunction with existing drugs or, in certain cases, may
replace existing drugs.
The Company acquired the rights to the compounds (together with eight
associated patents) relating to its blood cell disorder agents in 1992 from a
privately-held company after the compounds had undergone extensive preclinical
laboratory and animal tests and a successful efficacy trial unrelated to blood
cell disorders under a Physician's IND. The Company then refocused development
of the compounds on the treatment of blood cell disorders, continued extensive
testing of the compounds, and obtained Company-sponsored INDs for aplastic
anemia, chronic renal dysfunction, as well as for chemotherapy and
radioprotection. The Company is conducting Phase I/II clinical trials for each
of these potential indications, and received an Orphan Drug Designation from the
FDA in November 1995 for its aplastic anemia agent, RF1010, which it considers
its lead product in this area.
OBESITY AND DIABETES
RF 1051. Obesity is a disorder with significant mortality and morbidity due
to heart, joint or respiratory problems. The U.S. Department of Health and Human
Services has estimated that 36 million U.S. adults are defined as obese and that
effective prevention of obesity could save up to $50 billion annually. The
Company is developing a proprietary product in pill form for the treatment of
obesity. Most obesity drugs depend on suppressing appetite or on stimulating
increased metabolic activity by amphetamine-like activity, and some users regain
weight and develop severe complications. The Company believes that its product
may cause the body to store less fat or use more fat to produce energy in the
presence of the product.
In studies with genetically obese mice, diabetic mice, and a group of 17
obese humans, subjects that were given the Company's obesity pill lost more
weight than the related control groups that received a placebo. The human group
maintained such weight loss over an extended period (ten weeks) and experienced
no adverse side effects. Phase I/II clinical studies continue for related
genetic diseases in which the major cause of morbidity and mortality is massive
obesity. The Company has received Orphan Drug Designation for RF 1051 in the
treatment of Prader-Willi Syndrome, a type of genetic obesity. Initial studies
also indicate that there is an inverse correlation between the body mass index
of a person and the amount of RF 1051 that is present.
While the results of the Company's clinical studies were consistent with its
expectations, the Company believes that the highly publicized problems with
other obesity drugs during 1997 have significantly raised the regulatory hurdles
for drugs targeting general obesity. As RF 1051 appears to work in diabetic
mouse models as well as obese mouse models, and a direct correlation has been
shown between RF 1051
12
administration and reduced blood sugar levels, SuperGen is expanding into
multi-center Phase I/II trials in Type II diabetes, which the Company believes
has a more easily defined clinical endpoint for studies.
AUTOIMMUNE DISEASES
NIPENT-REGISTERED TRADEMARK-. The non-oncology targets are various
autoimmune diseases, including graft-versus-host disease and refractory
rheumatoid arthritis. The U.S. markets for graft-versus-host disease and
refractory rheumatoid arthritis are estimated at $500 million and $1 billion,
respectively. The Company currently is in the early phases of initiating
clinical trials in each of these indications.
CLINICAL DEVELOPMENT AND REGISTRATIONS
The Company believes that in-house management of clinical development and
registrations is central to the Company's strategy for the accelerated,
cost-effective commercialization of drugs. The Company has assembled a team
comprised of seasoned professionals with significant industry experience to
coordinate and manage clinical development and registrations of all Company
products.
MANUFACTURING
The Company currently outsources its manufacturing for Nipent-Registered
Trademark-, RFS 2000, RF 1010, and RF 1051, as well as the bulk generics used in
the Extra and generic compounds, under agreements with U.S. and foreign
suppliers and expects to continue to outsource manufacturing. In December 1997,
the Company received approval from the FDA to commercially manufacture
Nipent-Registered Trademark- at its designated vendor's manufacturing site
utilizing the Company's proprietary manufacturing process. The Company believes
it owns sufficient bulk inventory for the manufacture of Nipent-Registered
Trademark- to meet its clinical and commercial needs for the foreseeable future.
Before production of other proprietary compounds or bulk generics can
commence, the manufacturer must be deemed acceptable by the FDA under the
current Good Manufacturing Practices standards. Once a proprietary compound or
bulk generic is manufactured in an FDA approved facility, it is sent to one or
more domestic manufacturers that process it into the finished proprietary,
Extra, or generic formulations of the Company's compounds. The Company's
finished proprietary, Extra and generic products will then be shipped to an
outside vendor for distribution to the Company's customers upon FDA marketing
approval. The Company has also entered into agreements with a domestic entity
for the future production of certain of its bulk generics as well as the initial
production of its finished cytotoxic agents required for its Extra compounds.
The Company has licensed from this manufacturer, on an exclusive basis,
proprietary fermentation technology for anticancer agents and has filed an
application with the FDA for the production of bulk Mitomycin using this
technology. In the future, the Company may adapt its proprietary fermentation
technology to produce its other bulk generics. The Company believes its current
suppliers will be able to manufacture its proprietary compounds and bulk
generics in sufficient quantities and on a timely basis, while maintaining
product quality and acceptable manufacturing costs.
The Company believes that its strategy of outsourcing manufacturing is
cost-effective since it avoids the high fixed costs of plant, equipment and
large manufacturing staff, and thereby enables the Company to conserve its
resources. The Company seeks to maintain quality control over manufacturing
through ongoing inspections, rigorous review, control over documented operating
procedures, and thorough analytical testing by outside laboratories.
The Company intends to continue evaluating its manufacturing requirements
and may in the long-term establish or acquire its own manufacturing facilities
to manufacture its products for commercial distribution to improve control and
flexibility of product supply and cost. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results."
13
MARKETING AND SALES
The Company markets Nipent-Registered Trademark- to hospitals (major cancer
centers), private practice oncology clinics, oncology distributors and drug
wholesalers. Oncologists/hematologists, oncology nurses and oncology pharmacists
are included in each of these classes of customers. The Company markets to
approximately 1,700 hospitals, the large majority of which are members of
hospital buying groups. The Company has also focused on obtaining winning bids
from these groups for generic products since they control a significant majority
of the hospital business in the oncology and blood disorder pharmaceutical
market. Since acceptance from each buying group can be time consuming, there may
be significant delays before the Company can win bids and generate sales
revenue. However, the Company has taken significant steps toward such
acceptance. The Company has been given approved vendor status with a large
number of these buying groups including Premier Purchasing Partners, University
HealthSystem Consortium, Kaiser, and the Department of Veteran Affairs. In
addition, the Company has gained recognition as an approved vendor in each state
which requires registration or licensing prior to bidding for those customers.
The Company will continue to target these large buying groups and, as it attains
market share, bid with other buying groups while seeking to minimize any price
erosion that may occur.
Due to the large number of private practice physicians (approximately 5,000
oncologists/hematologists) in the United States, the Company intends to develop
relationships with the oncology distributors. The four major oncology
distributors in the United States are Oncology Therapeutic Network, Florida
Infusions, National Specialty Services, and Priority Healthcare Distribution.
These distributors control approximately 60% of the private practice oncology
clinics which represent approximately 30% of the oncology-related pharmaceutical
market. The Company has taken significant steps in building a relationship with
each of these distributors. Each of the distributors is currently purchasing
Nipent-Registered Trademark-. Approximately 35% of Nipent-Registered Trademark-
sales are to oncology distributors. The Company's sales force will also continue
to target the key private practice oncology clinics within their assigned
territories.
The Company also sells to large drug wholesalers. Four customers (two
distributors and two wholesalers) each account for ten percent or more of the
Company's revenues. In 1997 and 1996, total sales to this group were 50% and
73%, respectively.
The Company's sales group is divided into three regions, each headed by a
manager who supervises local sales representatives, all of whom have extensive
industry experience. The Company plans to continue to increase its sales force
upon receipt of additional Marketing Approvals for proprietary, Extra and
generic products. The Company's sales and marketing group conducts direct sales,
sponsors speakers' programs, works with distributors, performs market research
analysis, develops marketing strategies, creates and implements educational and
promotional programs, establishes pricing and product advertising and maintains
compliance with hospital and other buying groups. The Company contracts
warehousing, shipping, invoicing and a portion of its customer service
responsibilities with an established outside vendor. Customers are permitted to
return product to the Company, either for a refund or in exchange for
replacement product. The Company believes it has provided an adequate reserve
for such returns.
The Company may enter into strategic marketing or sales arrangements with
third parties, particularly with respect to its non-oncology product candidates.
No such strategic arrangements exist as of the date of this Report.
PATENTS AND LICENSES
The Company actively pursues a policy of seeking patent protection for its
proprietary products and technologies whether developed in-house or from outside
acquisition. The Company has acquired licenses to or assignments of numerous
U.S. Patents covering the Company's principal proprietary drugs and in February
1997 was issued its Extra patent relating to its Extra products. The Company
entered into patent royalty agreements with each of Progenics, Inc., The Jackson
Laboratory and The Stehlin Foundation for
14
Cancer Research under which each of Progenics, Inc., The Jackson Laboratory and
The Stehlin Foundation for Cancer Research assigned to the Company an exclusive
license for certain patents and patent applications (which may be important to
the Company's blood cell disorder and obesity/diabetes product development
programs) under the condition that SuperGen pay certain fees and royalties and
take reasonable steps to achieve certain milestones such as to file an IND, to
file a NDA if commercially reasonable and to use diligent efforts to commence a
marketing program after marketing approval. In December 1997, the Company
entered into an agreement to acquire the Progenics Inc. patent royalty agreement
and related intellectual property, and all future payments and obligations of
the Company under that agreement will cease. SuperGen further has a worldwide
license agreement with Janssen Biotech, N.V. ("Janssen") related to certain
patent rights and know-how regarding hydroxypropyl-beta-cyclodextrin
("HPBCD")(which is important to the Company's Extra development program) which
gives the Company an exclusive license worldwide (outside the United States) in
return for the payment of certain royalties, down payments and milestone
payments. In addition, the Company has a patent license agreement with Cyclex,
Inc. ("Cyclex") to license a certain patent (which is important to the Company's
Extra development program) and to make and sell certain licensed products for
cytotoxic anticancer formulations containing HPBCD in the United States in
return for payments of certain royalties to Cyclex. The Company also has a
license agreement with Pharmos Corporation ("Pharmos") to license certain
licensed products under a licensed patent right (which is important to the
Company's Extra development program) in return for which the Company will pay
certain royalties and payments after the filing of an NDA by the Company.
In addition to pursuing patent protection in appropriate cases, the Company
relies on trade secret protection for its unpatented proprietary technology. The
Company also pursues a policy of having its employees and consultants execute
proprietary information agreements upon commencement of employment or consulting
relationships with the Company, which agreements provide that all confidential
information developed or made known to the individual during the course of the
relationship shall be kept confidential except in specified circumstances. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results."
COMPETITION
There are many companies, both public and private, including well-known
pharmaceutical companies, that are engaged in the development and sale of
pharmaceutical products for certain of the applications being pursued by the
Company. SuperGen's competitors and probable competitors include Ortho Biotech,
Amgen Inc. ("Amgen"), Gensia, Inc. ("Gensia"), Bristol-Myers Squibb and Immunex
Corp. ("Immunex"), among others. Most of these companies have substantially
greater financial, research and development, manufacturing and marketing
experience and resources than the Company does and represent substantial
long-term competition for the Company. Such companies may succeed in developing
pharmaceutical products that are more effective or less costly than any that may
be developed or marketed by the Company.
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on proprietary technology. If the Company is able to establish and
maintain a significant proprietary position with respect to its proprietary
products, competition will likely depend primarily on the effectiveness of the
product and the number, gravity and severity of its unwanted side effects as
compared to alternative products. Competition with respect to generic products
is based primarily on price and, to a lesser extent, on name recognition and the
reputation of the manufacturer in its target markets. Moreover, the number of
competitors offering a particular generic product could dramatically affect
price and gross margin for that product or an Extra product based on such
generic product. The Company may be at a disadvantage in competing with more
established companies on the basis of price or market reputation. In addition,
increased competition in a particular generic market would likely lead to
significant price erosion for the Company's generic products
15
and Extra products based on such generic products, which would have a negative
effect on the Company's sales and potential gross profit margins. For example,
the Company believes that the total estimated U.S. sales for mitomycin,
bleomycin, etoposide and cisplatin, as well as other of the Company's proposed
generic products and generic products upon which the Company proposes to base
its Extra products, have decreased in recent years due to increased competition
and that sales and unit prices of these generics may continue to decrease as a
result of competitive factors, including the introduction of additional generics
and other cancer drugs, the desire of some companies to increase their market
share, new formulations for those drugs and the use of different therapies.
The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its proprietary position may give it a competitive
advantage with respect to its proposed nongeneric drugs, new developments are
expected to continue and there can be no assurance that discoveries by others
will not render the Company's current and potential products noncompetitive. The
Company's competitive position also depends on its ability to attract and retain
qualified scientific and other personnel, develop effective proprietary
products, implement development and marketing plans, obtain patent protection
and secure adequate capital resources. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Factors Affecting Future
Operating Results."
EMPLOYEES
As of March 6, 1998, the Company had 46 full-time employees. The Company
uses consultants and temporary employees to complement its staffing. There can
be no assurance that the Company will be able to continue to attract and retain
qualified personnel in sufficient numbers to meet its needs. The Company's
employees are not subject to any collective bargaining agreements, and the
Company regards its relations with employees to be good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results."
16
EXECUTIVE OFFICERS OF THE REGISTRANT
The officers of the Company and their ages are as follows:
NAME AGE POSITION
- --------------------------- ----------- ----------------------------------------------------------
Joseph Rubinfeld........... 65 Chief Executive Officer, President and Director
Frank Brenner.............. 50 Vice President of Sales
Christine A. Carey......... 39 Vice President of Marketing and Business Development
Frederick L. Grab.......... 56 Vice President of Pharmaceutical Operations
R. David Lauper............ 53 Vice President of Professional Services
Luigi Lenaz................ 57 Senior Vice President of Clinical Research and Medical
Affairs
Henry C. Settle, Jr........ 49 Chief Financial Officer
Rajesh C. Shrotriya........ 53 Executive Vice President and Chief Scientific Officer
Simeon M. Wrenn............ 53 Vice President of Biotechnology
JOSEPH RUBINFELD, PH.D. co-founded the Company in 1991. He has served as
Chief Executive Officer, President, and a director of the Company since its
inception and was Chief Scientific Officer from inception until September 1997.
Dr. Rubinfeld was one of the four initial founders of Amgen in 1980 and served
as Vice President and Chief of Operations until 1983. From 1987 to 1990, he was
a Senior Director at Cetus Corporation. From 1968 to 1980, Dr. Rubinfeld was
employed at Bristol-Myers Company International Division ("Bristol-Myers") in a
variety of positions, most recently as Vice President and Director of Research
and Development. While at Bristol-Myers, Dr. Rubinfeld was instrumental in
licensing the original anticancer line of products for Bristol-Myers, including
Mitomycin and Bleomycin. Prior to that time, Dr. Rubinfeld was a research
scientist with several pharmaceutical and consumer product companies including
Schering-Plough Corporation and Colgate-Palmolive Co. He received his B.S. in
chemistry from C.C.N.Y., and his M.A. and Ph.D. in chemistry from Columbia
University. Dr. Rubinfeld has numerous patents and/or publications on a wide
range of inventions and developments including the 10-second developer for
Polaroid film, manufacture of cephalosporins and the first commercial synthetic
biodegradable detergent. In 1984 Dr. Rubinfeld received the Common Wealth Award
for Invention.
FRANK BRENNER joined the Company as Vice President of Sales and Marketing in
January 1994. Prior to joining the Company, he was an independent management
consultant for various biotechnology and pharmaceutical companies from September
1991 to January 1994. From December 1987 to September 1991, Mr. Brenner was
Senior Director of National Sales for Cetus Corporation and was a Regional Sales
Manager from October 1986 to December 1987. Prior to that time, he served in a
variety of positions at Lederle International, including as Senior Product
Manager. Mr. Brenner received his B.S. from California State University at
Dominguez Hills.
CHRISTINE A. CAREY, PHARM.D., J.D. has served as Vice President of Marketing
and Business Development since November 1996 and as Senior Director, Marketing
and Business Development from January 1995 to October 1996. Dr. Carey was a
consultant to the Company in the areas of marketing, FDA regulatory affairs,
licensing and business development from March 1993 to December 1994. Prior to
joining SuperGen, she worked in the specialized cytokine development unit of
Sandoz Pharmaceutical Corporation from 1992 to 1993. From 1990 to 1991, she was
Manager, Business Development, at Cetus Corporation. From 1986 to 1989, she
served as Pharmaceutical Sales Representative for Schering Corporation. Dr.
Carey received her B.S. from the University of Pittsburgh, her J.D. from Golden
Gate University School of Law and her Pharm.D. from the State University of New
York in Buffalo.
17
FREDERICK L. GRAB, PH.D. joined the Company as Vice President of
Pharmaceutical Operations in July 1996. From April 1989 to July 1996, Dr. Grab
was Director, Regulatory Affairs, Generic Drugs for Pharmacia Inc., a developer
and manufacturer of pharmaceuticals. From 1982 to 1988, Dr. Grab served as
Manager, Pharmaceutical Product Development at Pharmacia Inc. Dr. Grab received
his B.S. in Pharmacy from Columbia University, College of Pharmacy and his Ph.D.
in pharmaceutical chemistry from the University of California, San Francisco
Medical Center.
R. DAVID LAUPER, PHARM. D. has served as Vice President of Professional
Services since December 1996 and as Vice President of Oncology Product
Development from August 1995 to November 1996. Dr. Lauper joined SuperGen from
Chiron Corp. where he served as Director of Professional Services, Chiron
Therapeutics from 1994 to 1995. Prior to that time, from 1986 to 1993, Dr.
Lauper served in the same capacity at Cetus Corporation. From 1980 to 1986, Dr.
Lauper was with Bristol-Myers Squibb as Assistant Director of Medical
Information Oncology. He received his Pharm.D. in pharmacy from the University
of California School of Pharmacy.
LUIGI LENAZ, M.D. has served as Senior Vice President of Clinical Research
and Medical Affairs since October 1997. Prior to joining SuperGen, he was Senior
Medical Director, Oncology Franchise Management for Bristol-Myers Squibb from
1990 to 1997 and was Director, Scientific Affairs, Anti-Cancer for Bristol-Myers
Squibb from 1978 to 1990. Dr. Lenaz was a Post Doctoral Fellow at both the
Memorial Sloan-Kettering Cancer Center in New York and at the National Cancer
Institute in Milan, Italy. He received his medical training at the University of
Bologna Medical School in Bologna, Italy.
HENRY C. SETTLE, JR. has served as the Chief Financial Officer since May
1996. He has notified the Company that he will resign as Chief Financial Officer
in March 1998 for personal reasons. Prior to joining the Company, Mr. Settle was
a consultant from February 1996 to May 1996 and was a partner at Ernst & Young
LLP from October 1986 to June 1995. He received his B.A. in economics from the
University of California, Santa Barbara and his M.B.A. from the University of
California, Los Angeles. He is a CPA.
RAJESH C. SHROTRIYA, M.D. has served as Executive Vice President and Chief
Scientific Officer of the Company since October 1997 and as Senior Vice
President and Special Assistant to the President from January 1997 to September
1997. Prior to joining the Company, Dr. Shrotriya was Vice President and Chief
Medical Officer of MGI Pharma, Inc., an oncology company, from August 1994 to
October 1996. Previously he spent 18 years at Bristol-Myers Squibb in a variety
of positions most recently as Executive Director, Worldwide CNS Clinical
Research. Dr. Shrotriya received his medical training in India at Grant Medical
College in Bombay, Delhi University and the Armed Forces Medical College in
Poona.
SIMEON M. WRENN, PH.D. joined SuperGen in January 1996 as Vice President of
Biotechnology. From September 1995 to January 1996 he was a consultant to The
Purdue Frederick Company, a privately held manufacturer and distributor of drug
products. From 1983 to 1995, Dr. Wrenn served in several senior research and
product development positions at Lederle Laboratories. He also was a founding
scientist of Centocor, Inc. Dr. Wrenn has been an Assistant Professor of
Medicine at Baylor College and the University of Pennsylvania and an Associate
Professor of Medicine at Johns Hopkins University. He received his Ph.D. from
Emory University in Atlanta, Georgia and completed his Postdoctoral Fellowship
at Harvard Medical School and Massachusetts General Hospital in Boston,
Massachusetts.
ITEM 2. PROPERTIES.
The Company's principal administrative facility is currently located in
leased general office space in San Ramon, California, under a lease which
expires on February 1, 2002. The Company also leases office space used in its
sales and marketing efforts in Parsippany, New Jersey, under a lease which
expires on September 1, 2001. In April 1997, the Company purchased an unimproved
industrial building in Pleasanton, California, and relocated the office and
laboratory operations previously in Des Plaines, Illinois, to the Pleasanton
location upon substantial completion of the improvements in December 1997. The
Company believes the above properties are suitable for its operations. Although
the San Ramon office facility is
18
nearing full utilization, the Parsippany and Pleasanton facilities have excess
capacity, therefore the Company believes that the above facilities will be
adequate to meet its current and reasonably anticipated needs for the next year.
ITEM 3. LEGAL PROCEEDINGS
There are currently no pending or threatened material legal actions against
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during the
fiscal quarter ended December 31, 1997.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MARKET FOR COMMON STOCK
The Company's Common Stock trades on the Nasdaq Stock Market under the
symbol "SUPG." The Company's Common Stock Purchase Warrants trades on the Nasdaq
Stock Market under the symbol "SUPGW." The following table sets forth the high
and low closing sales prices for the Common Stock from March 13, 1996, the date
of the Company's initial public offering, through the end of each quarterly
period thereafter in 1996 and 1997 as reported on the Nasdaq Stock Market:
HIGH LOW
--------- ---------
1996
From March 13, 1996 through March 31, 1996................................. $ 5.25 $ 4.25
Quarter ended June 30, 1996................................................ $ 16.13 $ 4.44
Quarter ended September 30, 1996........................................... $ 14.50 $ 9.25
Quarter ended December 31, 1996............................................ $ 15.56 $ 11.63
1997
Quarter ended March 31, 1997............................................... $ 14.25 $ 9.62
Quarter ended June 30, 1997................................................ $ 15.00 $ 10.88
Quarter ended September 30, 1997........................................... $ 19.00 $ 12.88
Quarter ended December 31, 1997............................................ $ 18.75 $ 14.00
HOLDERS OF RECORD
As of March 6, 1998, there were approximately 331 holders of record of the
Common Stock and approximately 5,200 beneficial stockholders.
DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
expect to pay any dividends in the foreseeable future. The Company intends to
retain future earnings, if any, for use in its business.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1997, the Company issued the following
securities:
(a) On June 17, 1997, the Company finalized an agreement with Tako Ventures,
LLC, an investment entity controlled by Lawrence J. Ellison, Founder and
Chairman of Oracle Corporation, for a private placement in the Company's
common stock. Under this agreement, the investment entity paid the
Company $15.3 million, which was placed in a restricted account until the
Company issued 1,700,000 shares of common stock on July 25, 1997, at
which time the restriction was removed. The investment entity was also
issued an option to purchase up to 850,000 shares of common stock at
$9.00 per share and warrrants to acquire up to 1,275,000 shares of common
stock at $13.50 per share until June 2007. On November 18, 1997, the
entity exercised its option and purchased 850,000 shares of common stock
for a total of $7,650,000.
(b) On August 29, 1997, the Company closed a private placement of common
shares for a total of $9,778,000 to certain accredited investors. The
Company issued a total of 888,907 shares for this placement in September
1997 and October 1997.
20
(c) On September 4, 1997, the Company acquired exclusive worldwide rights to
a patented anticancer compound from the Stehlin Foundation for Cancer
Research. The Company paid consideration of $2,500,000 by issuing 183,458
shares of its common stock, which shares were valued at $1,875,000 for
accounting purposes.
All issuances of shares described above were in reliance on Section 4(2) of
the Securities Act of 1933, as amended.
There was no public solicitation in connection with the issuance of any of
the above securities nor were there any other offerees. The Company relied on
representations from the recipients of the securities that they purchased the
securities for investment for their own account and not with a view to, or for
resale in connection with, any distribution thereof and that they were aware of
the Company's business affairs and financial condition and had sufficient
information to reach an informed and knowledgeable decision regarding the
acquisition of the securities.
USE OF PROCEEDS
On March 13, 1996, the Company commenced its initial public offering (the
"IPO") of 4,025,000 units (a unit consisted of one share of Common Stock $.001
par value per share, and a warrant to purchase one share of Common Stock at
$9.00), including the underwriters' over-allotment option consisting of 525,000
units at a public offering price of $6.00 per unit pursuant to a registration
statement on Form S-B (file no. 333-476 LA) filed with the Securities and
Exchange Commission. Of the units registered, 4,024,302 were sold. Paulson
Investment Company was the managing underwriter of the IPO. Aggregate gross
proceeds to the Company from the IPO (prior to deduction of underwriting
discounts and commissions and expenses of the offering and any exercises of the
warrants) were $24,146,000. All of the shares registered for the exercise of the
warrants have not yet been sold. There were no selling stockholders in the IPO.
The Company paid underwriting discounts, commissions and expenses of
$1,992,000 and other expenses of approximately $623,000 in connection with the
IPO. The total expenses paid by the Company in the IPO were $2,615,000, and the
net proceeds to the Company from the IPO through December 31, 1997, including
the subsequent exercise of warrants to purchase common stock, were $23,424,000.
From March 13, 1996, the effective date of the Registration Statement, to
December 31, 1997 (the Company's fiscal year end), the approximate amount of net
proceeds used were:
Construction of plant, building and facilities................. $1,246,000
Purchase and installation of machinery and equipment........... 295,000
Purchase of real estate........................................ 744,000
Working capital used in operations............................. 16,056,000
Repurchase of common stock..................................... 3,557,000
Purchase of equity investment.................................. 500,000
Acquisition of developed technology............................ 220,000
None of such payments consisted of direct or indirect payments to directors,
officers, 10% stockholders or affiliates of the Company, with the exception of
the payment to repurchase common stock, which was made to a stockholder that,
immediately prior to the repurchase, owned more than 10% of the then outstanding
common stock of the Company; $279,000 which was paid to a director under a
consulting agreement and is included in working capital used in operations; and
compensation to directors and officers as compensation for services provided to
the Company.
21
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth below is not necessarily indicative of results of
future operations and should be read in conjunction with the financial
statements and notes thereto appearing in Item 14 of Part IV of this Report.
(Amounts in thousands, except per share data)
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1995 1994
------------ ------------ ------------ ----------- -----------
Total revenues............................... $ 1,802 $ 264 $ 13 $ 169 $ --
Net loss..................................... (15,996) (8,758) (2,729) (3,639) (7,463)
Total assets................................. 31,011 17,936 2,162 2,440 2,110
Net loss per common share.................... (0.85) (0.55) (0.22) (0.31) (0.89)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING
STATEMENTS REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS CONCERNING FUTURE
EVENTS AND INCLUDE STATEMENTS, AMONG OTHERS, REGARDING THE TIMING AND PROGRESS
OF THE DEVELOPMENT OF THE COMPANY'S PROPOSED PRODUCTS, FILING FOR AND RECEIVING
REGULATORY APPROVALS, ACQUIRING ADDITIONAL PRODUCTS AND TECHNOLOGIES, SOURCING
OF BULK GENERICS AND THE MANUFACTURING OF FINISHED PRODUCTS, MARKETING CURRENT
PRODUCTS, INCURRING OPERATING LOSSES AND REQUIRING ADDITIONAL CAPITAL, REDUCING
COSTS PER UNIT, AND INCURRING CAPITAL EXPENDITURES. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
THE FAILURE TO RECEIVE APPROPRIATE REGULATORY APPROVALS OF MARKETING OR
MANUFACTURING ACTIVITIES ON A TIMELY BASIS, LACK OF MARKET ACCEPTANCE OF AND
DEMAND FOR THE COMPANY'S PRODUCTS, INTENSE PRICE OR PRODUCT COMPETITION, LACK OF
AVAILABLE SUPPLY OF BULK GENERICS, FAILURE TO SELL EXISTING INVENTORIES AT
PRICES SUFFICIENT TO COVER RELATED COSTS, FAILURE TO OBTAIN ADDITIONAL FINANCING
AND OTHER FACTORS SET FORTH IN "--FACTORS AFFECTING FUTURE OPERATING RESULTS"
AND ELSEWHERE IN THIS REPORT.
OVERVIEW
The Company commenced operations in 1991 and is engaged in the acquisition,
development and commercialization of pharmaceutical products intended to treat
life-threatening diseases, particularly cancer, blood cell (hematological)
disorders and other serious conditions such as obesity and diabetes. The Company
operates in one industry segment--the pharmaceutical industry. The estimated
total U.S. anticancer market increased from $3.2 billion in 1996 to $3.6 billion
in 1997, which amounts exclude ancillary products such as anti-emetics and blood
disorder products.
The Company was in the development stage through the third quarter of 1997.
Sales to date have been limited and there can be no assurance that substantial
additional revenues from product sales will be achieved. The Company has
incurred losses since its inception and expects to continue to incur significant
operating losses.
The Company historically had a fiscal year ending March 31. Effective
January 1996, the Company changed its fiscal year to end on December 31 of each
year by reporting a nine-month fiscal period commencing April 1, 1995 and ending
December 31, 1995. The Company's historical operations and the financial
information included in this Report are not necessarily indicative of its future
operating results, financial condition, or cash flows.
22
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Total revenues were $1.8 million compared to $264,000 in 1996. Product
revenues in 1997 and 1996 consisted primarily of sales of Nipent-Registered
Trademark- acquired from a third party in September 1996 and were limited to
inventory then acquired. The increase in revenues in 1997 was primarily due to
the increased volume resulting from a full year's sales of Nipent-Registered
Trademark- compared to only the fourth quarter's sales in 1996. Late in 1997,
the Company received approval from the FDA to manufacture Nipent-Registered
Trademark- at its own contract manufacturing facility and, at December 31, 1997,
the Company's inventory consisted principally of its own manufactured and
in-process Nipent-Registered Trademark- inventory. Therefore, sales of
Nipent-Registered Trademark- in 1998 and future periods will consist of product
manufactured by the Company and are not expected to be constrained by limited
inventory quantities. The remainder of 1997 and 1996 sales related to the
generic etoposide inventory acquired in January 1997 and other generic products
purchased in 1996. Sales of these generic products are not expected to be
significant in 1998 and beyond. In 1997, the Company entered into a supply
agreement pursuant to which an unrelated company will purchase from the Company,
at an agreed-upon unit price, the total requirements for Nipent-Registered
Trademark- sales outside North America for seven years. These shipments are
expected to commence in 1998.
Cost of sales was $1.5 million in 1997 and $283,000 in 1996, primarily
reflecting the cost assigned to Nipent-Registered Trademark- acquired in 1996.
The gross margins related to Nipent-Registered Trademark- sales in 1998 and
beyond are expected to be significantly higher than those in historical periods
due to the Company's anticipated costs of manufacturing Nipent-Registered
Trademark- being less than the costs assigned to the acquired inventory.
Research and development expenses were $8.6 million in 1997 compared to $6.2
million in 1996. The increase in 1997 resulted from costs associated with a
higher number of research and development personnel and projects undertaken, as
well as increased legal and facilities costs and the cost of bulk drugs used for
product research. These increases in operating expenses were partially offset by
an decrease in contract research and development costs stemming from a reduced
level of clinical trial activity in 1997 compared to 1996. The Company expects
its research and development expense to increase in 1998 and beyond primarily as
a result of increased clinical trial and research project activities.
Sales and marketing expenses were $2.0 million in 1997 compared to $982,000
in 1996. The Company commenced product sales in the fourth quarter of 1996 and
began to build its sales staff shortly before then. The increase in expense in
1997 was primarily due to the effects of a full year's payroll and related costs
associated with increased levels of staffing and increased costs of promotional
materials, sales-related services and sales and marketing facilities to support
increased sales. The Company expects its sales and marketing expense to increase
in 1998 and beyond primarily as a result of projected increases in sales staff
and media advertising.
General and administrative expenses were $2.9 million in 1997 compared to
$1.9 million in 1996. The increased expense in 1997 was largely due to the
greater administrative support needed for the increased activities in both
research and development and sales and marketing. Payroll costs were higher in
1997 due to increased headcount in the areas of administration, finance and
investor relations. Costs for service providers were higher in 1997 primarily
due to increased investor relations activity following the Company's initial
public offering in March 1996. Legal costs were also higher in 1997 due
primarily to legal and other costs associated with the Company's first annual
report and proxy statement. The Company expects its general and administrative
expense to increase in 1998 and beyond primarily as a result of projected
increases in staffing to support increased research and sales activities.
The Company incurred charges for the acquisition of in-process research and
development of $3,506,000 in 1997 compared to $442,000 in 1996. These charges
reflect the Company's on-going effort to
23
expand its portfolio of products through the acquisition of products and product
candidates. The charges in 1997 reflected:
- $831,000 related to the acquisition of the generic anticancer drug
etoposide,
- A non-cash charge of $1,875,000 for the acquisition of RFS 2000, an
anticancer product candidate, acquired from the Stehlin Foundation for
Cancer Research,
- A non-cash charge of $750,000 for the acquisition of a patent royalty
agreement and other intellectual property related to the Company's
obesity/diabetes product candidate,
- $50,000 of additional expenses related to the above acquisition.
The charge for acquisition of in-process research and development in 1996
was related to the acquisition of Nipent-Registered Trademark- in the third
quarter.
Interest income was $782,000 for 1997 compared to $749,000 in 1996. These
amounts reflected similar interest rates and average cash balances in 1997 and
1996. See "Liquidity and Capital Resources."
YEAR ENDED DECEMBER 31, 1996
Management believes that the comparison between the year ended December 31,
1996 and the nine month period ended December 31, 1995 is not meaningful because
of the difference in the length of the reported periods. Therefore, the
discussion and analysis of the results of operations below describes the amounts
and nature of the operations in each of those periods.
Net sales of approximately $226,000 and related cost of sales resulted from
the introduction of the Company's first four products in the fourth quarter and
were principally due to sales of finished vials of Nipent-Registered Trademark-
acquired from a third party. Grant revenues of $38,000 related to a U.S.
Government grant for the study of one of the Company's proprietary compounds in
the treatment of aplastic anemia.
Research and development expense of $6.2 million was due to activities
following the Company's initial public offering in March 1996, primarily in
pursuing Marketing Approval for Mitomycin; development of the Extra product
line, and clinical and preclinical studies for propriety compounds such as the
obesity pill and aplastic anemia agent. Approximately 19% of such costs related
to salaries, 36% to amounts paid to outside contractors and 7% to the purchase
of in-process technology.
Sales and marketing expense resulted primarily from establishing a core
sales force to coincide with the product introduction in the fourth quarter of
1996 as discussed above. Of the total expense of $982,000, approximately 36% was
due to salaries; 22% to outside services for marketing surveys, trade shows, and
demographic studies; and 13% to related publications and promotional materials.
General and administrative expense totaled approximately $1.9 million and
was comprised of costs to support the Company's expansion in research and
development, sales and marketing and other operational areas; activities
associated with the increased administrative requirements of a public company
and related personnel costs. Of the total general and administrative cost,
approximately 19% was due to salaries; 27% was related to consulting and other
outside services, primarily business development activities; 16% was for legal,
audit and accounting services; and 11% was for insurance.
Interest income of approximately $750,000 resulted from investing available
cash balances in a money market fund subsequent to receiving the net proceeds of
$21.5 million from the Company's initial public offering in March 1996.
NINE MONTHS ENDED DECEMBER 31, 1995
The Company had no sales revenues for this period. Other revenues were
immaterial.
24
Research and development expenses of $2.2 million were due primarily to the
Company's expansion of its clinical trials and regulatory operations in
Illinois. Sales and marketing expenses were $161,000 and consisted primarily of
payroll costs for a small core marketing staff. General and administration
expenses were approximately $482,000 and were incurred in support of research
and development and sales and marketing activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $23.3 million at December 31,
1997 and $13.9 million at December 31, 1996. The net cash increase of $9.4
million in 1997 was principally due to private placements in the Company's
Common Stock offset by the effect of the net loss, repurchases of the Company's
Common Stock, capital expenditures and acquisitions of investments.
Operating activities consumed $14.0 million of cash in 1997 principally
reflecting the net loss of $16.0 million offset by $2.6 million of non-cash
charges for the acquisition of in-process research and development. Investing
activities used $3.4 million of cash in 1997 due principally to capital
expenditures on new production and laboratory facilities as well as the
acquisition of equity investments. Capital expenditures in 1998 are expected to
be less than in 1997, as the Company has acquired the manufacturing equipment
related to its Nipent-Registered Trademark- production and completed the build
out of its Pleasanton, California, office and laboratory facilities.
Net cash provided by financing activities increased to $26.7 million in 1997
primarily reflecting net proceeds from the July 1997 private placement of
unregistered Common Stock of $15.0 million, the August 1997 private placement of
unregistered Common Stock of $9.8 million and the November 1997 exercise of an
option to acquire unregistered Common Stock of $7.6 million. These cash inflows
were partially offset by the repurchase of shares of Common Stock from Israel
Chemicals, Ltd. totaling $7.9 million in August 1997.
At December 31, 1996, the Company's cash and cash equivalents were $13.9
million compared to $1.8 million at December 31, 1995. The increase of $12.1
million during the year was primarily due to the net proceeds from sales of the
Company's Common Stock and Warrants of $21.5 million offset by the use of $9.4
million for operations for the year.
Net cash used in the Company's operations increased from $2.5 million for
the nine months ended December 31, 1995, to $9.4 million for the year ended
December 31, 1996. This cash was used primarily to fund increasing levels of
research and development of clinical and preclinical trials, the initial
marketing and inventory purchases of the Company's first four commercial
products and increased general and administrative expenses to support these
increased operations. Capital expenditures of $377,000 in 1996 were
substantially in support of increased marketing and administrative activities,
since much of the research and development activities were performed by outside
contractors. The increase in inventories was financed principally by cash.
Net cash provided by financing activities increased from $2.3 million for
the nine months ended December 31, 1995, to $22.0 million for the year December
31, 1996, which was primarily due to the sale of 4,024,302 shares of Common
Stock and Warrants to purchase an additional 4,024,302 shares of Common Stock at
an exercise price of $9.00 per share for total net proceeds of $21.5 million in
the Company's initial public offering.
The Company believes that its cash and cash equivalents on hand at December
31, 1997, are sufficient to meet its requirements through at least the next
eighteen months, based on the Company's current operating plan. The Company
anticipates that its operating losses will continue for at least the next year
since it plans to expend substantial resources in funding clinical trials in
support of regulatory submissions and to continue to expand research,
development, marketing and sales activities. Also, the Company is continuing to
actively consider the acquisition of products and product candidates which would
require
25
significant additional financial commitments. If the Company experiences
unanticipated cash requirements, the Company could require additional capital to
fund operations, continue research and development programs and preclinical and
clinical testing of its potential proprietary, Extra, and generic products and
commercialize and market any products that may be developed. The Company may
seek such additional funding through public or private financings or
collaborative or other arrangements with third parties. At December 31, 1997,
the Company had no material commitment for capital expenditures. The Company has
no credit facility or other committed sources of capital. There can be no
assurance that additional funds will be available on acceptable terms, if at
all. If funds are raised by issuing additional equity securities or should the
outstanding warrants be exercised, then results per share could be adversely
affected, and such effects could be material. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Operating Results."
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define a year. A computer program thus written
may incorrectly recognize 21st century dates as occurring in the 20th century.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company expects to convert to new accounting software in 1998 and that
software will properly utilize dates beyond December 31, 1999. The Company has
determined that no other software programs currently in use by the Company will
require significant modification or replacement to properly utilize dates beyond
December 31, 1999.
The Company has initiated formal communications with its significant
contract manufacturers and contract research organizations to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issues. Based upon those communications, the
Company believes that all significant computer software programs utilized by
third parties upon which the Company relies are either Year 2000 compliant or
will be converted to Year 2000 compliance prior to December 31, 1999.
The Company has concluded that the cost of addressing and mitigating its
Year 2000 issue is immaterial. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be
converted, or that a failure to convert by another company would not have a
material adverse effect on the Company.
FACTORS AFFECTING FUTURE OPERATING RESULTS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING
STATEMENTS REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS CONCERNING FUTURE
EVENTS AND INCLUDE STATEMENTS, AMONG OTHERS, REGARDING THE TIMING AND PROGRESS
OF THE DEVELOPMENT OF THE COMPANY'S PROPOSED PRODUCTS, RECEIVING REGULATORY
APPROVALS, ACQUIRING ADDITIONAL PRODUCTS AND TECHNOLOGIES, SOURCING OF BULK
GENERICS AND THE MANUFACTURING OF FINISHED PRODUCTS, INCURRING OPERATING LOSSES
AND REQUIRING ADDITIONAL CAPITAL, AND INCURRING CAPITAL EXPENDITURES. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE FAILURE TO RECEIVE APPROPRIATE REGULATORY
APPROVALS OF MARKETING OR MANUFACTURING ACTIVITIES ON A TIMELY BASIS, LACK OF
MARKET ACCEPTANCE OF AND DEMAND FOR THE COMPANY'S PRODUCTS, INTENSE PRICE OR
PRODUCT COMPETITION, LACK OF AVAILABLE SUPPLY OF BULK GENERICS, FAILURE TO SELL
EXISTING INVENTORIES AT PRICES SUFFICIENT TO COVER RELATED COSTS, FAILURE TO
OBTAIN ADDITIONAL FINANCING AND OTHER FACTORS SET FORTH BELOW AND ELSEWHERE IN
THIS REPORT.
HISTORY OF OPERATING LOSSES; FUTURE PROFITABILITY UNCERTAIN. Since its
inception in 1991 through December 31, 1997, the Company incurred losses of
approximately $40.3 million (including non-cash
26
charges of approximately $7.5 million for the acquisition of in-process research
and development), substantially all of which consisted of research and
development and general and administrative expenses. The Company expects to
continue to incur substantial operating losses. Although the Company has
received marketing approval to sell Nipent-Registered Trademark- manufactured at
its designated vendor's manufacturing site, the Company's ability to achieve a
profitable level of operations in the future will depend in large part on its
completing product development and obtaining regulatory approval of its other
proprietary (including Extra) products, and bringing several of these products
to market. The likelihood of the long-term success of the Company must be
considered in light of the expenses, difficulties and delays frequently
encountered in the development and commercialization of new pharmaceutical
products, competition, as well as the burdensome regulatory environment in which
the Company operates. There can be no assurance that the Company will ever
achieve significant revenues or profitable operations.
EARLY STAGE OF DEVELOPMENT OF PROPRIETARY PRODUCTS; UNCERTAINTY OF FINAL
PRODUCT DEVELOPMENT. While the Company's proposed proprietary products are in
the development rather than the research stage, significant development remains
prior to the time any of these proposed products may be brought to market. The
Company believes that although results obtained to date in its preclinical and
pilot clinical studies support further development of its potential proprietary
products, such results are not necessarily indicative of results of further
testing, including controlled human clinical testing. All of the potential
proprietary products currently under development by the Company will require
extensive clinical testing prior to submission of any regulatory application for
commercial use. Such proposed proprietary products as well as the Company's
proposed Extra and generic products are subject to the risks of failure inherent
in the development of pharmaceutical products, including the possibilities that
some of the Company's potential products will be found to be unsafe or
ineffective or otherwise fail to receive necessary regulatory clearances; that
the products, if safe and effective, will be difficult to manufacture on a large
scale or uneconomical to market; that the proprietary rights of third parties
will preclude the Company from marketing such products; or that third parties
will market superior or equivalent products. As a result, there can be no
assurance that any of the Company's products currently under development will be
successfully developed, receive required governmental regulatory approvals,
become commercially viable or achieve market acceptance. Generic products and
Extra products based on generic products are also subject to the additional
risks related to their dependence on the expiration or anticipated expiration of
the patents for the underlying drug. For instance, although the original period
of exclusivity for Taxol-Registered Trademark- expired in December 1997 and the
patent for cisplatin expired in December 1996, there remain issues relating to
additional patents outstanding. There can be no assurance that the issues
relating to these patents will be resolved favorably or in a timely manner or
that such patent or other intellectual property issues will not affect other
Extra and generic products or potential products of the Company. Unfavorable
resolution or significant delays in the resolution of such issues is expected to
significantly limit, and perhaps prevent, the Company's ability to compete in
these marketplaces and could have a material adverse effect on the Company's
business, results of operations and cash flows. In addition, because of the lack
of proprietary protection of generic products, in the event generic products are
brought to market, such products will face intense competition and the potential
for significant price and gross profit margin erosion. See "-- Competition."
EXTRA AND GENERIC PHARMACEUTICAL PRODUCT DEVELOPMENT. One of the factors
the Company believes will contribute to its success is the commercialization of
its potential Extra and generic products. However, there can be no assurance
that government approvals will be obtained or, if obtained, that the Company
will successfully commercialize its generic or Extra products. While the Company
has obtained bulk source approvals from the FDA for certain of its Extra and
generic products, it has yet to receive marketing approval for any of its
internally developed products, and there can be no assurance that any such
marketing approval will be obtained. As a result, there can be no assurance that
any of the Company's potential Extra or generic products will ever be brought to
market. In the event any of the Company's Extra or generic products are brought
to market, such products will face intense competition and the potential for
significant price and gross profit margin erosion.
27
A significant number of Extra products currently in development by the
Company consist of, or are based upon, generic products for which patent
protection has expired or is expected to expire. Both the price at which the
Company can expect to sell such products and the volume of any such sales are
expected to depend to a significant degree on the number of competitors at any
time. There can be no assurance that the prices or volumes achieved by the
Company for any such products will meet the Company's expectations that formed
the basis for its decision to proceed with development or will justify
production of such products.
ADDITIONAL FINANCING REQUIREMENTS. The Company's need for additional
funding is expected to be substantial and will be determined by the progress and
cost of the development and commercialization of its products and other
activities. Based on the Company's current operating plan, additional funds will
be needed after approximately eighteen months. Moreover, if the Company
experiences unanticipated cash requirements during the interim period, the
Company could require additional funds much sooner. The source, availability and
terms of such funding have not been determined. Although funds may be received
from the sale of equity securities or the exercise of outstanding warrants and
options to acquire common stock of the Company, there is no assurance any such
funding will occur, or if it occurs, will be on terms favorable to the Company.
Failure to obtain adequate financing in a timely manner would have a material
adverse effect on the Company's business, results of operations and cash flows.
If funds are raised by issuing additional equity securities or should the
outstanding warrants be exercised, results per share could be adversely effected
and such effects could be material.
NEED TO COMPLY WITH GOVERNMENTAL REGULATION AND TO OBTAIN PRODUCT
APPROVALS. The research, testing, manufacture, labeling, distribution,
marketing and advertising of products such as the Company's existing and
proposed products and its ongoing research and development activities are
subject to extensive regulation by governmental regulatory authorities in the
U.S. and other countries. The FDA and comparable agencies in foreign countries
impose substantial requirements on the introduction of new pharmaceutical
products through lengthy and detailed clinical testing procedures, sampling
activities and other costly and time consuming compliance procedures. The
Company's proprietary nongeneric drugs and the Company's Extra drugs may require
substantial clinical trials and FDA review as new drugs. The Company's generic
drugs require approval of the bulk source of the drug and FDA approval of the
final formulation. The Company cannot predict with certainty if or when it might
submit its products currently under development for regulatory review. Once the
Company submits its potential products for review, there can be no assurance
that FDA or other regulatory approvals for any pharmaceutical products developed
by the Company will be granted on a timely basis or at all. For example, the
Company had initially believed that the approval process for its Extra products
would be abbreviated. However, the FDA reviewed Mito Extra as a new drug. A
delay in obtaining or failure to obtain such approvals would have a material
adverse effect on the Company's business, results of operations and cash flows.
Failure to comply with regulatory requirements could subject the Company to
regulatory or judicial enforcement actions, including, but not limited to,
product recalls or seizures, injunctions, civil penalties, criminal prosecution,
refusals to approve new products and withdrawal of existing approvals, as well
as potentially enhanced product liability exposure. Sales of the Company's
products outside the U.S. will be subject to regulatory requirements governing
clinical trials and marketing approval. These requirements vary widely from
country to country and could delay introduction of the Company's products in
those countries.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company actively pursues a policy
of seeking patent protection for its proprietary products and technologies. The
Company has licenses to or assignments of numerous issued U.S. patents. However,
there can be no assurance that the Company's patent position will provide it
with significant protection against competitors. Litigation could be necessary
to protect the Company's patent position, and there can be no assurance that the
Company will have the required resources to pursue such litigation or otherwise
to protect its patent rights. In addition to pursuing patent protection in
appropriate cases, the Company also relies on trade secret protection for its
unpatented proprietary technology. However, trade secrets are difficult to
protect. There can be no assurance that
28
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets, that such trade secrets will not be disclosed or that the Company can
effectively protect its rights to unpatented trade secrets.
The Company's rights to its potential proprietary products are dependent
upon compliance with certain licenses and agreements which require, among other
things, certain royalty and other payments, the Company reasonably exploiting
the underlying technology of the applicable patents, as well as compliance with
certain regulatory filings. Failure to comply with such licenses and agreements
could result in loss of the Company's underlying rights to one or more of these
potential products, which would have a material adverse effect on the Company's
business, results of operations and cash flows.
There can be no assurance that claims against the Company will not be raised
in the future based on patents held by others or that, if raised, such claims
will not be successful. Such other persons could bring legal actions against the
Company claiming damages and seeking to enjoin clinical testing, manufacturing
and marketing of the affected product. If any actions are successful, in
addition to any potential liability for damages, the Company could be required
to obtain a license in order to continue to manufacture or market the affected
product. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms, if at all. There has been, and the Company
believes that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If the Company becomes involved in any litigation, it could consume a
substantial portion of the Company's resources regardless of the outcome of such
litigation.
COMPETITION. There are many companies, both public and private, including
well-known pharmaceutical companies, that are engaged in the development and
sale of products for certain of the applications being pursued by the Company.
The Company's competitors and probable competitors include Ortho Biotech, Amgen,
Gensia, Bristol-Myers Squibb and Immunex, among others. Most of these companies
have substantially greater financial, research and development, manufacturing
and marketing experience and resources than the Company does and represent
substantial long-term competition for the Company. Such companies may succeed in
developing pharmaceutical products that are more effective or less costly than
any that may be developed or marketed by the Company.
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on proprietary technology. If the Company is able to establish and
maintain a significant proprietary position with respect to its proprietary
products, competition will likely depend primarily on the effectiveness of the
product and the number, gravity and severity of its unwanted side effects as
compared to alternative products. Competition with respect to generic products
is based primarily on price and, to a lesser extent, on name recognition and the
reputation of the manufacturer in its target markets. Moreover, the number of
competitors offering a particular generic product could dramatically affect
price and gross margin for that product, or an Extra product based on such
generic product. The Company may be at a disadvantage in competing with more
established companies on the basis of price or market reputation. In addition,
increased competition in a particular generic market would likely lead to
significant price erosion for the Company's generic products and Extra products
based on such generic products, which would have a negative effect on the
Company's sales and potential gross profit margins. For example, the Company
believes that the total estimated U.S. sales for mitomycin, bleomycin, etoposide
and cisplatin, as well as other of the Company's proposed generic products and
generic products upon which the Company proposes to base its Extra products,
have decreased in recent years due to increased competition and that sales and
unit prices of these generics may continue to decrease as a result of
competitive factors, including the introduction of additional generics as well
as other cancer drugs, the desire of some companies to increase their market
share, new formulations for these drugs and the use of different therapies.
29
The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its proprietary position may give it a competitive
advantage with respect to its proposed non-generic drugs, new developments are
expected to continue and there can be no assurance that discoveries by others
will not render the Company's current and potential products noncompetitive. The
Company's competitive position also depends on its ability to attract and retain
qualified scientific and other personnel, develop effective proprietary
products, implement development and marketing plans, obtain patent protection
and secure adequate capital resources.
MANUFACTURING LIMITATIONS. The Company currently relies on foreign
manufacturers for the production of certain of its bulk Extra and generic
formulations and on domestic manufacturers to supply sufficient quantities of
compounds to conduct clinical trials on its proposed proprietary products. If
the Company is unable to contract for or obtain a sufficient supply of its
potential pharmaceutical products on acceptable terms, or such supplies are
delayed or contaminated, there could be significant reductions in sales, delays
in bringing the Company's proposed proprietary, Extra and generic products to
market, as well as delays in the Company's preclinical and human clinical
testing schedule, and delays in submission of products for regulatory approval
and initiation of new development programs, any of which could have a material
adverse effect on the Company's business, results of operations and cash flows.
The Company currently relies on two vendors for Nipent-Registered Trademark-
related manufacturing activities. One vendor purifies pentostatin from the crude
concentrate and a separate vendor manufactures the Nipent-Registered Trademark-
finished dosage. The facilities used by the vendors have passed a plant
inspection required by the FDA prior to market clearance of all pharmaceutical
products. This inspection is conducted by the FDA to ensure compliance with
current Good Manufacturing Practices ("cGMP") regulations enforced by the FDA.
In the event that the facilities fail to maintain their cGMP status, or there is
an interruption at either of these facilities due to the occurrence of a fire,
natural disaster, equipment failure or other condition, there can be no
assurance that the Company will be able to locate other facilities which are FDA
approved for Nipent-Registered Trademark- related manufacturing activities in a
timely manner or on terms commercially acceptable to the Company. In addition,
the Company stores the majority of its crude concentrate at a single storage
location and expects to continue to do so. Improper storage, fire, natural
disaster, theft or other conditions at this location which lead to the loss or
destruction of crude concentrate could have a material adverse effect on the
Company's business, results of operations and cash flows. The Company is
currently negotiating a long-term agreement with the vendor which purifies its
current supply of crude concentrate to continue its purification services.
However, there can be no assurance that the Company will be able to finalize
such an agreement. In the event that the Company is not able to so, the
Company's supply of Nipent-Registered Trademark- would be interrupted while it
seeks to locate another facility and to have such a facility FDA approved. Such
a delay could have a material adverse effect on the Company's business, results
of operations and cash flows. In the event that the FDA clears any of the
Company's other potential products for sale, the Company will encounter similar
issues with respect to such products. The Company must establish and maintain
relationships with manufacturers to produce and package its finished
pharmaceutical products. In addition, the facilities used by these contract
manufacturers must be cleared by the FDA. If the Company is unable to obtain or
retain third-party manufacturing on commercially acceptable terms or obtain
necessary FDA clearances to manufacture the products currently being developed,
it may not be able to commercialize pharmaceutical products as planned. The
Company's dependence upon third parties for the manufacture of pharmaceutical
products may materially adversely affect the Company's profit margins and its
ability to develop and deliver pharmaceutical products on a timely and
competitive basis.
The Company does not currently intend to manufacture any pharmaceutical
products itself, although it may choose to do so in the future. Should the
Company determine to manufacture products itself, the Company would be subject
to the regulatory requirements described above, would be subject to similar
risks regarding delays or difficulties encountered in manufacturing any such
pharmaceutical products and would require substantial additional capital. In
addition, there can be no assurance that the Company would be able to
manufacture any such products successfully and in a cost-effective manner.
30
LIMITED EXPERIENCE. The Company has only limited experience in procuring
products in commercial quantities, selling pharmaceutical products and
negotiating, setting up or maintaining strategic relationships and conducting
clinical trials and other late stage phases of the regulatory approval process.
There can be no assurance that the Company will successfully engage in any of
these activities. In addition, with respect to certain of the Company's proposed
products, such as the Company's obesity/diabetes pill and aplastic anemia
compounds, the Company may seek to enter into joint venture, sublicense or other
marketing arrangements with another party that has an established marketing
capability. There can be no assurance that the Company will be able to enter
into any such marketing arrangements with third parties, or that such marketing
arrangements would be successful. In addition, the Company has no current joint
venture, strategic partnering or other similar agreements with more established
pharmaceutical companies, and there can be no assurance that the Company could
negotiate any such arrangements, on an acceptable basis or at all, if it chose
to do so. Accordingly, the viability of the Company's proposed products has not
been independently evaluated by any independent pharmaceutical company.
DEPENDENCE ON KEY PERSONNEL. The Company's success is dependent on certain
key management and scientific personnel, including Dr. Joseph Rubinfeld, the
loss of whose services could significantly delay the achievement of the
Company's planned development objectives. The Company currently maintains a key
man life insurance policy in the amount of $2.6 million on Dr. Rubinfeld. The
loss of key personnel, or the inability to attract and retain the additional,
highly skilled personnel required for the expansion of the Company's activities,
could have a material adverse effect on the Company's business, results of
operations and cash flows.
HEALTH CARE REFORM AND POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
RELATED MATTERS. The levels of revenues and profitability of pharmaceutical
companies may be affected by the continuing efforts of governmental and
third-party payors to contain or reduce the costs of health care through various
means. The Company cannot predict the effect health care reforms may have on its
business, and there can be no assurance that any such reforms will not have a
material adverse effect on the Company. In addition, in both the U.S. and
elsewhere, sales of prescription pharmaceuticals are dependent in part on the
availability of reimbursement to the consumer from third-party payors, such as
government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that the Company's current and proposed products will be considered
cost effective and that reimbursement to the consumer will be available or will
be sufficient to allow the Company to sell its products on a competitive basis.
RISK OF PRODUCT LIABILITY. Clinical trials or marketing of any of the
Company's current and potential pharmaceutical products may expose the Company
to liability claims from the use of such pharmaceutical products. The Company
currently carries product liability insurance; however, there can be no
assurance that the Company will be able to maintain insurance on acceptable
terms for its clinical and commercial activities or that such insurance would be
sufficient to cover any potential product liability claim or recall. Failure to
have sufficient coverage could have a material adverse effect on the Company's
business and results of operations.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company is subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous materials and certain waste
products. The Company currently maintains a supply of several hazardous
materials at the Company's facilities. While the Company currently outsources
its research and development programs involving the controlled use of
biohazardous materials, if in the future the Company conducts such programs
itself, there can be no assurance that the Company would not be required to
incur significant cost to comply with environmental laws and regulations. In the
event of an accident, the Company could be held liable for any damages that
result, and such liability could exceed the resources of the Company.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS. Certain provisions of
the Company's Certificate of Incorporation and Bylaws could discourage potential
acquisition proposals, could delay or prevent a
31
change in control of the Company and could make removal of management more
difficult. Such provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers that are priced above the
then-current market value of the Common Stock. The provisions may also inhibit
increases in the market price of the Comon Stock and Warrants that could result
from takeover attempts. For example, the Board of Directors of the Company,
without further stockholder approval, may issue up to 2,000,000 shares of
Preferred Stock, in one or more series, with such terms as the Board of
Directors may determine, including rights such as voting, dividend and
conversion rights which could adversely affect the voting power and other rights
of the holders of Common Stock. Preferred Stock thus may be issued quickly with
terms calculated to delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the issuance of Preferred
Stock may have the effect of decreasing the market price of the Common Stock.
The Company's Certificate of Incorporation and Bylaws also provide that
Stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. In addition, Section 203
of the Delaware General Corporation Law, which could have the effect of
delaying, deferring or preventing a change of control, applies. In general, the
statute prohibits a publicly-held Delaware corporation from engaging in a
business combination with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
CONTROL BY EXISTING STOCKHOLDERS. The Company's officers and directors
beneficially own approximately 38% of the Company's outstanding shares of Common
Stock. Beneficial ownership includes shares of Common Stock subject to options
exercisable within 60 days of March 6, 1998. Accordingly, these stockholders, if
they were to act as a group, may be able to elect all of the Company's
directors, and otherwise control matters requiring approval by the stockholders
of the Company, including approval of significant corporate transactions. Such
concentration of ownership and the lack of cumulative voting may also have the
effect of delaying or preventing a change in control of the Company.
POSSIBLE VOLATILITY OF COMMON STOCK PRICE. The trading prices of the
Company's Common Stock and Warrants are subject to significant fluctuations in
response to such factors as, among others, variations in the Company's
anticipated or actual results of operations, announcements of new products or
technological innovations by the Company or its competitors and changes in
earnings estimates by analysts. Moreover, the stock market has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market prices for emerging growth companies and which have often
been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock and Warrants. In the past, following periods of volatility in the
market price of a company's common stock, securities class action litigations
have occurred against the issuing company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business and results of operations. Any adverse determination in such
litigation could also subject the Company to significant liabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All information required by this item is included on pages F-1 to F-17 in
Item 14 of Part IV of this Report and is incorporated into this item by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the Directors of the Company is incorporated by
reference to the section entitled "Election of Directors" appearing in the
Registrant's proxy statement for the annual meeting of stockholders to be filed
with the Commission within 120 days after the end of the Company's fiscal year
ended December 31, 1997. Certain information with respect to persons who are or
may be deemed to be executive officers of the Registrant is set forth under the
caption "Executive Officers of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Commission within 120 days after the end of the Company's fiscal year
ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption "Voting Securities of Principal Stockholders and Management" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be filed
with the Commission within 120 days after the end of the Company's fiscal year
ended December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Certain Transactions" in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial statements of the
Company and the Report of Ernst & Young LLP, Independent Auditors, are
included in Part IV of this Report on the pages indicated:
PAGE
-----
Report of Ernst & Young LLP, Independent Auditors............................ F-1
Consolidated Balance Sheets.................................................. F-2
Consolidated Statements of Operations........................................ F-3
Consolidated Statement of Stockholders' Equity............................... F-4
Consolidated Statements of Cash Flows........................................ F-5
Notes to Consolidated Financial Statements................................... F-6
2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
the notes thereto.
33
3. EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------- ---------------------------------------------------------------------------------------
(f)3.17 Certificate of Incorporation of the Registrant.
3.2 Bylaws, as amended, of the Registrant.
4.1 Specimen Common Stock Certificate.
(a)4.2 Form of Representative's Warrant.
(a)4.3 Form of Warrant Agreement (including form of Common Stock Purchase Warrant).
(l)10.1 Form of Indemnification Agreement between the Registrant and each of its directors and
officers.
(i)10.2 1993 Stock Option Plan, as amended and restated and forms of stock option agreements
thereunder.
(i)10.3 1996 Directors' Stock Option Plan, as amended effective February 3, 1997, and form of
stock option agreement thereunder.
(c)10.4 Employees and Consultants Stock Option Agreement/Plan.
(b)(m)10.5 Patent Royalty Agreement dated June 30, 1992 between the Registrant and Progenics, Inc.
(b)(m)10.6 Patent License and Royalty Agreement dated August 30, 1993 between the Registrant and
The Jackson Laboratory.
(b)(m)10.7 Worldwide License Agreement dated March 1, 1994 between the Registrant and Janssen
Biotech, N.V.
(b)(m)10.8 Patent License Agreement dated March 1, 1994 between the Registrant and Cyclex Inc.
(b)(m)10.9 Patent License and Royalty Agreement dated November 15, 1993 between the Registrant and
The Long Island Jewish Medical Center.
(b)(m)10.10 License Agreement dated February 1, 1995 between the Registrant and Pharmos
Corporation.
(b)10.11 Research and License Agreement dated August 1, 1993 between the Registrant and Amur
Research Corp.
(i)10.12 Common Stock Sale/Repurchase Agreement dated August 6, 1997 between Israel Chemicals,
Ltd. ("ICL") and the Registrant.
10.13 First Amendment to Common Stock Sale/Repurchase Agreement between ICL and the
Registrant dated November 12, 1997.
10.14 Amended and Restated Employment, Confidential Information and Invention Assignment
Agreement dated January 1, 1998 between the Registrant and Joseph Rubinfeld.
(b)10.15 Form of Consulting Agreement between the Registrant and J. Gregory Swendsen and David
M. Fineman.
(b)10.16 Consulting Agreement between the Registrant and Vida International Pharmaceutical
Consultants.
(d)10.17 Purchase and Sale Agreement dated as of September 30, 1996 between the Registrant and
Warner-Lambert Company, a Delaware corporation.
34
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------- ---------------------------------------------------------------------------------------
(e)(m)10.18 Asset Purchase Agreement dated January 15, 1997 between the Registrant and Immunex
Corporation, a Washington corporation.
(e)10.19 Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate
(Non-Residential) dated December 11, 1996 between the Registrant and The Ashwill
Trust, established November 8, 1989.
(e)10.20 Bishop Ranch Business Park Building Lease dated October 14, 1996 between the Registrant
and Annabel Investment Company, a California partnership.
(g)(m)10.21 License Agreement between Inflazyme Pharmaceuticals Ltd. and the Registrant dated April
11, 1997.
(g)(m)10.22 Nonexclusive Supply Agreement between the Registrant and Yunnan Hande Technological
Development Co. Ltd. dated May 7, 1997.
(g)10.23 Assignment and Assumption Agreement between the Registrant and R&S, LLC, dated April
17, 1997.
(h)10.24 Convertible Secured Note, Option and Warrant Purchase Agreement dated June 17, 1997
among the Registrant, Tako Ventures, LLC and, solely as to Sections 5.3 and 5.5
thereof, Lawrence J. Ellison.
(j)10.25 Form of Common Stock Purchase Agreement among the purchasers and the Registrant dated
August 29, 1997.
(j)(m)10.26 License Agreement between Stehlin Foundation for Cancer Research and the Registrant
dated September 3, 1997.
(j)10.27 Letter Agreement dated August 13, 1997 between the Registrant and South Bay
Construction, Inc.
(k)(m)10.28 Supply Agreement dated October 20, 1997 between the Registrant and Warner-Lambert
Company.
(l)10.29 Standard Industrial/Commercial Multi-Tenant Lease dated October 13, 1997 between R&S,
LLC and Quark Biotech, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
- ------------------------
(a) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-476-LA) filed with the Securities and Exchange
Commission January 18, 1996.
(b) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed with the
Securities and Exchange Commission February 26, 1996.
(c) Incorporated by reference from the Registrant's Report on Form S-8 filed
with the Securities and Exchange Commission on July 1, 1996.
(d) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 15, 1996.
(e) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
(f) Incorporated by reference from the Registrant's Proxy Statement filed with
the Securities and Exchange Commission on April 25, 1997.
35
(g) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on May 15, 1997.
(h) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on July 2, 1997.
(i) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on August 13, 1997.
(j) Incorporated by reference from Amendment No. 2 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission October 6, 1997.
(k) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 31, 1997.
(l) Incorporated by reference from Amendment No. 3 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission November 5, 1997.
(m) Confidential treatment has been previously granted for certain portions of
these exhibits.
(b) REPORTS ON FORM 8-K.
(1) Form 8-K dated September 3, 1997, filed November 3, 1997,
regarding the License Agreement with the Stehlin Foundation for Cancer
Research.
(2) Form 8-K dated October 20, 1997, filed on October 31, 1997,
regarding the Warner-Lambert Company Supply Agreement.
(3) Form 8-K dated November 3, 1997, filed on November 17, 1997,
regarding the Registrant's reincorporation in Delaware.
(4) Form 8-K dated November 18, 1997, filed December 3, 1997
regarding Tako Ventures, LLC's exercise of its option to acquire 850,000
shares of Company Common Stock.
(c) EXHIBITS. See Item 14(a) above.
(d) FINANCIAL STATEMENT SCHEDULES. See Item 14(a) above.
36
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
SuperGen, Inc.
We have audited the accompanying consolidated balance sheets of SuperGen,
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years then ended and
the nine months ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SuperGen, Inc.
at December 31, 1997 and 1996 and the consolidated results of its operations and
its cash flows for the years then ended and the nine months ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 13, 1998
F-1
SUPERGEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
----------------------
1997 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 23,326 $ 13,915
Accounts receivable..................................................................... 303 183
Inventories............................................................................. 1,428 1,574
Due from related parties................................................................ 570 --
Prepaid expenses and other current assets............................................... 493 540
---------- ----------
Total current assets.................................................................. 26,120 16,212
Property, plant and equipment, net........................................................ 2,906 411
Developed technology at cost, net of amortization of $131 in 1997 and $3 in 1996.......... 1,289 1,267
Marketable securities..................................................................... 74 --
Investment in preferred stock of related party............................................ 500 --
Due from related party.................................................................... 80 --
Other assets.............................................................................. 42 46
---------- ----------
Total assets.......................................................................... $ 31,011 $ 17,936
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................................ $ 1,162 $ 837
Allowance for product returns........................................................... 239 62
Clinical trials accrual................................................................. 81 206
Accrued compensation and related expenses............................................... 212 290
Due to related parties.................................................................. -- 334
Amount due under asset purchase agreements.............................................. 750 500
---------- ----------
Total current liabilities............................................................. 2,444 2,229
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized; none outstanding......... -- --
Common stock, $.001 par value; 40,000,000 shares authorized; 20,177,696 and 16,930,292
shares issued and outstanding at December 31, 1997 and December 31, 1996,
respectively.......................................................................... 68,976 40,027
Unrealized loss on investment........................................................... (93) --
Accumulated deficit..................................................................... (40,316) (24,320)
---------- ----------
Total stockholders' equity............................................................ 28,567 15,707
---------- ----------
Total liabilities and stockholders' equity............................................ $ 31,011 $ 17,936
---------- ----------
---------- ----------
See accompanying notes
F-2
SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED
DECEMBER 31, NINE MONTHS ENDED
--------------------- DECEMBER 31,
1997 1996 1995
---------- --------- ------------------
Net sales............................................................... $ 1,748 $ 226 $ --
Grant revenues.......................................................... 54 38 --
Contract revenues from related party.................................... -- -- 13
---------- --------- -------
Total revenues...................................................... 1,802 264 13
Operating expenses:
Cost of sales......................................................... 1,539 283 --
Research and development.............................................. 8,583 6,152 2,174
Sales and marketing................................................... 2,018 982 161
General and administrative............................................ 2,934 1,912 482
Acquisition of in-process research and development.................... 3,506 442 --
---------- --------- -------
Total operating expenses............................................ 18,580 9,771 2,817
---------- --------- -------
Loss from operations.................................................... (16,778) (9,507) (2,804)
Interest income......................................................... 782 749 75
---------- --------- -------
Net loss................................................................ $ (15,996) $ (8,758) $ (2,729)
---------- --------- -------
---------- --------- -------
Basic loss per share.................................................... $ (0.85) $ (0.55) $ (0.22)
---------- --------- -------
---------- --------- -------
Weighted average shares used
in basic loss per share calculation................................... 18,765 15,961 12,629
---------- --------- -------
---------- --------- -------
See accompanying notes
F-3
SUPERGEN, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK UNREALIZED TOTAL
-------------------- LOSS ON ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT INVESTMENT DEFICIT EQUITY
--------- --------- ------------- ------------ ------------
Balances at April 1, 1995............................. 12,075 $ 14,866 $ -- $ (12,833) $ 2,033
Issuance of common stock to Israel Chemicals,
Ltd............................................... 500 1,500 -- -- 1,500
Issuance of common stock and warrants, net of
offering costs of $42............................. 177 847 -- -- 847
Net loss............................................ -- -- -- (2,729) (2,729)
--------- --------- --- ------------ ------------
Balances at December 31, 1995......................... 12,752 17,213 -- (15,562) 1,651
Issuance of common stock and warrants............... 27 134 -- -- 134
Issuance of common stock and warrants in connection
with the initial public offering, net of offering
costs of $2,615................................... 4,024 21,531 -- -- 21,531
Issuance of common stock upon exercise of warrants
and stock options................................. 55 326 -- -- 326
Issuance of common stock for acquisition of
developed technology.............................. 72 700 -- -- 700
Compensation expense from grant of options to
vendors and acceleration of option vesting........ -- 123 -- -- 123
Net loss............................................ -- -- -- (8,758) (8,758)
--------- --------- --- ------------ ------------
Balances at December 31, 1996......................... 16,930 40,027 -- (24,320) 15,707
Issuance of common stock and warrants in connection
with the Tako Ventures, LLC private placement, net
of offering costs of $268......................... 2,550 22,682 -- -- 22,682
Repurchase of common stock from Israel Chemicals,
Ltd. including transaction costs of $26........... (740) (7,892) -- -- (7,892)
Issuance of common stock in connection with a
private placement, net of offering costs of $4.... 889 9,774 -- -- 9,774
Issuance of common stock for acquisition of
in-process research and development............... 183 1,875 -- -- 1,875
Issuance of common stock upon exercise of warrants
and stock options................................. 366 2,179 -- -- 2,179
Compensation expense from grants of options to
vendors and acceleration of option vesting........ -- 331 -- -- 331
Unrealized loss on investment....................... -- -- (93) -- (93)
Net loss............................................ -- -- -- (15,996) (15,996)
--------- --------- --- ------------ ------------
Balances at December 31, 1997......................... 20,178 $ 68,976 $ (93) $ (40,316) $ 28,567
--------- --------- --- ------------ ------------
--------- --------- --- ------------ ------------
See accompanying notes
F-4
SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED
DECEMBER 31, NINE MONTHS ENDED
--------------------- DECEMBER 31,
1997 1996 1995
---------- --------- ------------------
OPERATING ACTIVITIES:
Net loss............................................................. $ (15,996) $ (8,758) $ (2,729)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation....................................................... 286 116 42
Amortization....................................................... 184 3 --
Non-cash charges related to acquisition of in-process research and
development...................................................... 2,625 -- --
Stock options granted to vendors and acceleration of option
vesting.......................................................... 331 123 --
Changes in operating assets and liabilities:
Accounts receivable.............................................. (120) (183) --
Inventories...................................................... 146 (1,574) --
Due from related parties......................................... (650) -- --
Prepaid expenses and other current assets........................ 47 (406) 77
Other assets..................................................... 4 16 (35)
Accounts payable, accrued liabilities and accrued compensation... (34) 822 (102)
Allowance for product returns.................................... 177 62 --
Clinical trials accrual.......................................... (125) 206 --
Due to related parties........................................... (334) 128 206
Amount due under asset purchase agreements....................... (500) -- --
---------- --------- -------
Net cash used in operating activities.................................. (13,959) (9,443) (2,541)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................ (2,556) (377) (5)
Acquisition of developed technology.................................. (150) (70) --
Purchase of equity securities........................................ (667) -- --
---------- --------- -------
Net cash used in investing activities.................................. (3,373) (447) (5)
FINANCING ACTIVITIES:
Issuance of common stock and warrants................................ 34,635 21,990 2,347
Repurchase of common stock........................................... (7,892) -- --
---------- --------- -------
Net cash provided by financing activities.............................. 26,743 21,990 2,347
---------- --------- -------
Net increase (decrease) in cash and cash equivalents................... 9,411 12,100 (199)
Cash and cash equivalents at beginning of period....................... 13,915 1,815 2,014
---------- --------- -------
Cash and cash equivalents at end of period............................. $ 23,326 $ 13,915 $ 1,815
---------- --------- -------
---------- --------- -------
See accompanying notes
F-5
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SuperGen, Inc. (the "Company"), which was incorporated in California in
March 1991 and changed its state of incorporation to Delaware in 1997, is a
pharmaceutical company that is dedicated to the acquisition, development and
commercialization of products to treat life-threatening diseases, particularly
cancer and blood cell (hematological) disorders and other serious conditions
such as obesity and diabetes. The Company was in the development stage through
September 30, 1997, and its activities during that time consisted primarily of
raising capital, recruiting personnel and performing research and development.
The Company began marketing acquired anticancer products in the United States
during the fourth quarter of 1996 and is developing its portfolio of anticancer
drugs, many of which are proprietary. The Company is also developing a group of
proprietary blood cell disorder products for the treatment of anemia associated
with renal failure, chemotherapy, radiotherapy, and aplastic anemia. The
Company's proprietary obesity pill, which is being developed for chronic genetic
obesity and general obesity, is in Phase II clinical studies, and Phase I/II
trials are commencing for Type II diabetes. The Company operates in one industry
segment--the pharmaceutical industry.
By resolution of the Company's Board of Directors, effective January 17,
1996, the Company's fiscal year end was changed from March 31 to December 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of a wholly-owned
Israeli subsidiary, Rubicon Pharmaceuticals, Ltd., ("Rubicon") formed in June
1996. Results of the subsidiary's operations were immaterial and, as of June 30,
1997, Rubicon ceased active operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Net sales relate principally to one pharmaceutical product and are
recognized upon shipment to customers, with allowances provided for estimated
returns and exchanges. The Company established a reserve for product returns in
1996. In 1996 and 1997 additions to the reserve of $62,000 and $180,000,
respectively, were charged to sales. In 1997, $3,000 of the reserve was applied
to products returned by customers. Product sales are made principally to
clinics, drug distributors and wholesalers, hospitals and hospital buying groups
in the United States. The Company does not require collateral from its
customers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank demand deposits, certificates of
deposit and, as of December 31, 1996, an interest in a money market fund which
invests primarily in U.S. government obligations and commercial paper. These
instruments are highly liquid and are subject to insignificant risk.
F-6
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUITY INVESTMENTS
The Company has classified an investment in marketable securities as
"available for sale." Such investment, costing $167,000, is recorded at fair
value of $74,000 at December 31, 1997, with unrealized holding gains and losses
reported as a separate component of stockholders' equity.
Equity investments in securities without readily determinable fair value are
either expensed upon acquisition or carried at cost, depending upon management's
estimate of the near term viability of the investee and underlying net assets.
INVENTORIES
Inventories are stated at the lower of cost (using first-in, first-out
method) or market value. Inventories were as follows at December 31 (in
thousands):
1997 1996
--------- ---------
Raw materials.............................................................. $ 235 $ 254
Work in process............................................................ 720 --
Finished goods............................................................. 473 1,320
--------- ---------
$ 1,428 $ 1,574
--------- ---------
--------- ---------
The Company's primary pharmaceutical bulk materials must be purified at a
United States Food and Drug Administration (FDA) approved facility that meets
stringent Good Manufacturing Practices standards. The Company currently engages
a single vendor to perform this manufacturing process using Company-owned
equipment located at the vendor's site and also has contracted with a separate
vendor to manufacture the Nipent-Registered Trademark- finished dosage at its
approved facility. Although there are a limited number of vendors who may be
qualified to perform these services, management believes that other vendors
could be engaged to provide similar services on comparable terms. In addition,
the Company stores the majority of its bulk raw materials at a single storage
location. The time required to locate and qualify other vendors or replace lost
bulk inventory, however, could cause a delay in manufacturing that could
potentially be financially and operationally disruptive to the Company.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of building,
equipment and furniture and fixtures is provided on a straight-line basis over
the estimated useful lives of the respective assets, which range from three to
thirty one years. Manufacturing equipment is amortized to cost of sales on a
units-manufactured basis expected to approximate six years. Leasehold
improvements are amortized over the shorter of the life of the lease or their
estimated useful lives using the straight-line method.
F-7
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment consist of the following at December 31 (in
thousands):
1997 1996
--------- ---------
Land and building........................................................... $ 1,666 $ --
Equipment................................................................... 707 187
Furniture and fixtures...................................................... 930 468
--------- ---------
Total property and equipment................................................ 3,303 655
Less: accumulated depreciation and amortization............................. (397) (244)
--------- ---------
Property, plant and equipment, net.......................................... $ 2,906 $ 411
--------- ---------
--------- ---------
DEVELOPED TECHNOLOGY
Developed technology is being amortized to cost of sales on a
units-manufactured basis over a period expected to approximate six years.
Recoverability of developed technology is periodically assessed based upon
expected future cash flows of the related product.
SEGMENT INFORMATION
The Company's major customers include four buying groups. The percentage of
sales of each of these major customers to total consolidated sales for 1997 and
1996 were:
YEARS ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
Customer A.................................................................. 16.4% 8.3%
Customer B.................................................................. 12.4 16.7
Customer C.................................................................. 11.2 11.7
Customer D.................................................................. 10.0 36.3
All others.................................................................. 50.0 27.0
--------- ---------
Total....................................................................... 100.0% 100.0%
--------- ---------
--------- ---------
F-8
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC LOSS PER SHARE
The following table sets forth the computation of basic loss per share (in
thousands, except for per share amounts):
YEARS ENDED DECEMBER NINE MONTHS
31, ENDED
--------------------- DECEMBER 31,
1997 1996 1995
---------- --------- ------------
Numerator for basic loss per share--loss available for common stockholders... $ (15,996) $ (8,758) $ (2,729)
Denominator for basic loss per share--weighted average shares outstanding.... 18,765 15,961 12,629
---------- --------- ------------
---------- --------- ------------
Basic loss per share......................................................... $ (0.85) $ (0.55) $ (0.22)
---------- --------- ------------
---------- --------- ------------
As the Company has reported operating losses each period since its
inception, the effect of assuming the exercise of options and warrants would be
anti-dilutive and, therefore, diluted loss per share is not presented.
STOCK-BASED COMPENSATION
As permitted by Financial Accounting Standards Board Statement No. 123
"Accounting for Stock-Based Compensation," the Company accounts for stock
options under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, the Company does not
record compensation expense for stock option grants to employees and outside
directors when the exercise price equals or exceeds the market price of the
Company's common stock on the date of grant.
RECLASSIFICATIONS
Certain prior year amounts, as well as amounts reported in Forms 10-Q filed
in 1997, have been reclassified to conform to the current year's presentation.
2. RELATED PARTY TRANSACTIONS
The Company has entered into consulting agreements with two stockholders,
both of whom are directors of the Company. In August 1997, the Company advanced
$240,000 to one director/stockholder as payment for services under his agreement
for the ensuing two years. Of total payments of $423,000 made to him in 1997,
$223,000 has been included in general and administrative expenses and $200,000
is included in "Due from related parties" at December 31, 1997. Payments under
these agreements totaled $127,000 for the year ended December 31, 1996, and
$91,000 for the nine months ended December 31, 1995, and are included in general
and administrative expenses.
Three directors/stockholders and one director are directors of a
privately-held company conducting research and development work partially funded
by SuperGen. SuperGen has provided research funding of $325,000 for the year
ended December 31, 1997, $248,000 for the year ended December 31, 1996, and
$182,000 for the nine months ended December 31, 1995. In addition, SuperGen
holds an 8% ownership interest in this company at December 31, 1997, which is
carried at no value.
F-9
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1997, the Company owned 10% of another privately-held
company performing research and development work for SuperGen as well as selling
SuperGen certain research supplies. Research payments to this company totaled
$464,000 for the year ended December 31, 1997, $287,000 for the year ended
December 31, 1996, and $131,000 for the nine months ended December 31, 1995. An
amount due of $175,000 at December 31, 1996, is included in "Due to related
parties" in the accompanying balance sheets. The Company's investment in this
company is carried at no value.
Five directors/stockholders are directors and stockholders of a
privately-held development stage biotechnology company, headquartered in Israel.
In June 1997, the Company made an equity investment of $500,000 in this
company's preferred stock, which represents less than 1% of the outstanding
shares and is carried at cost. Effective November 1997, the Company leased
approximately one-third of the laboratory square footage at the SuperGen
Pharmaceutical Research Institute to this company for $3,000 per month for three
years, plus its pro-rata share of specified common expenses. The Company also
completed certain building and laboratory improvements and purchased furniture
on behalf of this company for a total of approximately $750,000, which is to be
reimbursed. As of December 31, 1997, $450,000 was unpaid and is included in "Due
from related parties." An amount due this company of $156,500 at December 31,
1996, is included in "Due to related parties" in the accompanying balance
sheets.
In November 1996, the Company paid $250,000 for approximately 4% of the
ownership interest in a privately held development stage biopharmaceutical
company. At that time, two directors/stockholders were directors of this
company. The Company's investment in this company is carried at no value.
In connection with the resignation of one of its officers and founders, the
Company recorded $187,500 in general and administrative expenses in the
accompanying statement of operations for the nine months ended December 31,
1995, of which $131,250 was paid in 1996.
3. STOCKHOLDERS' EQUITY
COMMON STOCK
In March 1996, the Company completed an initial public offering and issued
3,500,000 shares of common stock, raising net proceeds of approximately $18.6
million. Additional net proceeds of approximately $2.9 million were received in
April 1996 from the issuance of 524,302 shares in connection with the exercise
of the underwriter's overallotment option.
In June 1997, the Company finalized an agreement with Tako Ventures, LLC, an
investment entity controlled by Lawrence J. Ellison, Founder and Chairman of
Oracle Corporation, for a private placement of the Company's common stock. Under
this agreement, the investment entity purchased 1,700,000 unregistered shares of
common stock in July 1997 for $15.3 million and was issued an option, which it
exercised in November 1997, to purchase an additional 850,000 shares of common
stock at $9.00 per share. In connection with the purchases of stock under this
agreement, the investment entity received warrants to acquire up to an
additional 1,275,000 shares of common stock at $13.50 per share. Such warrants
will expire in June 2007.
In August 1997, the Company executed a definitive agreement with Israel
Chemicals Ltd. ("ICL"), its largest stockholder at that time, and repurchased
740,000 of the 2,571,000 shares of common stock then held by ICL for $10.63 per
share, or a total of $7.9 million, plus transaction costs. Under the terms of
the
F-10
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
agreement, ICL relinquished all of its international marketing rights to
SuperGen products and released SuperGen from all residual obligations remaining
from ICL's strategic investment in the Company.
In August 1997, the Company closed a private placement of unregistered
common shares for approximately $9.8 million. The Company issued a total of
888,907 shares for this placement in September 1997 and October 1997.
In September 1997, the Company issued 183,458 unregistered shares of its
common stock to acquire exclusive worldwide rights to a patented anticancer
compound (see Note 5).
In September 1996, the Company issued 71,813 unregistered shares of its
common stock in partial consideration of its acquisition of
Nipent-Registered Trademark- (see Note 5).
WARRANTS
At December 31, 1997, warrants to purchase the following shares of the
Company's common stock were outstanding:
EXERCISE
NUMBER OF SHARES PRICE ISSUE DATE EXPIRATION DATE
- ----------------- ------------- ------------- -----------------
164,736 $ 5.00 1995 2000
3,853,877 9.00 1996 2001
330,000 7.20 1996 2001
1,275,000 13.50 1997 2007
In addition, upon exercise, the holders of the warrants to purchase 330,000
shares will receive an additional warrant to acquire 330,000 shares at $9.00 per
share, which warrant will expire in 2001. The $5.00 and $9.00 warrants are
redeemable by the Company for $0.25 each upon thirty days written notice, if the
closing bid price exceeds $10.00 and $18.00, respectively, for specified periods
of time. Of the $13.50 warrants, 775,000 may be redeemed for $0.25 upon thirty
days written notice if the market price of the common stock exceeds $27.00 for a
specified period of time.
4. STOCK OPTION PLANS
There are 3,800,000 shares of common stock authorized for issuance upon the
grant of incentive stock options or nonstatutory stock options to employees,
directors, and consultants under the Company's stock option plans. The number of
shares to be purchased, their price, and the terms of payment are determined by
the Company's Board of Directors, provided that the exercise price for incentive
stock options cannot be less than the fair market value on the date of grant.
The Board of Directors has approved an increase in the number of shares
authorized for issuance upon the grant of stock options of 750,000 shares, which
are included in the total of 3,800,000 above. This increase in the number of
shares authorized for issuance under the 1993 Stock Option Plan is subject to
stockholder approval. The options granted generally expire ten years after the
date of grant and become exercisable at such times and under such conditions as
determined by the Board of Directors (generally over a four or five year
period).
F-11
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option activity and related information
follows:
OPTIONS OUTSTANDING
------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED AVERAGE
NUMBER OF EXERCISE OPTIONS FAIR VALUE AT
SHARES PRICE EXERCISABLE GRANT DATE
---------- ----------- ---------- -----------------
Balance at April 1, 1995...................................... 426,000 $ 1.53
Granted at fair value......................................... 375,000 4.19 2.55
Forfeited..................................................... (8,550) 3.00
----------
Balance at December 31, 1995.................................. 792,450 2.80 347,949
Granted at fair value......................................... 1,058,000 7.21 4.45
Granted at greater than fair value............................ 120,000 2.80 2.80
Exercised..................................................... (8,450) 1.30
Forfeited..................................................... (56,000) 5.17
----------
Balance at December 31, 1996.................................. 1,906,000 5.46 882,062
Granted at fair value......................................... 949,000 14.65 7.53
Exercised..................................................... (161,250) 3.38
Forfeited..................................................... (51,686) 11.50
----------
Balance at December 31, 1997.................................. 2,642,064 8.77 1,384,425
----------
----------
Information concerning the options outstanding at December 31, 1997 is as
follows:
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE NUMBER PRICE LIFE EXERCISABLE PRICE
- ------------------------------------------------------ ---------- ----------- ------------- ---------- -----------
$0.135 to $3.00....................................... 451,583 $ 1.80 6.33 353,944 $ 1.54
3.01 to 6.00........................................ 991,481 5.50 7.62 635,127 5.54
6.01 to 11.00....................................... 100,000 10.17 8.64 59,167 10.41
11.01 to 15.00....................................... 559,500 13.20 8.78 214,729 12.77
15.01 to 17.50....................................... 539,500 15.76 9.90 121,458 15.47
---------- ----------
$0.135 to $17.50...................................... 2,642,064 8.77 8.15 1,384,425 6.72
---------- ----------
---------- ----------
Pro forma information regarding net loss and net loss per share is required
by FASB Statement 123 and has been determined as if the Company had accounted
for its employee stock options under the fair
F-12
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTION PLANS (CONTINUED)
value method of that Statement. The fair value for these options was estimated
at the date of grant using the Black-Scholes option valuation model with the
following assumptions:
YEARS ENDED DECEMBER
31,
-------------------- NINE MONTHS ENDED
1997 1996 DECEMBER 31, 1995
--------- --------- -------------------
Risk-free interest rate....................................................... 6.34 6.02 6.07
Dividend yield................................................................ -- -- --
Expected volatility........................................................... 0.6 0.7 0.7
Expected life (in years)...................................................... 4.4 4.6 5.2
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting requirements and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different than those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
YEARS ENDED DECEMBER
31,
---------------------- NINE MONTHS ENDED
1997 1996 DECEMBER 31, 1995
---------- ---------- -----------------
Pro forma net loss (in thousands)...................................... $ (18,332) $ (10,293) $ (3,013)
Pro forma loss per share............................................... (0.98) (0.64) (0.24)
As the Company adopted Statement No. 123 in 1996, it has only reflected the
pro forma effect on net loss for options granted after March 31, 1995.
Accordingly, the pro forma disclosures that result from applying Statement No.
123 are not indicative of future pro forma amounts because the Statement has not
been applied to all outstanding, non vested awards.
5. ACQUISITION OF TECHNOLOGY AND RELATED ASSETS
In September 1996, the Company purchased from Warner-Lambert Company
("Warner-Lambert") the exclusive rights to the anticancer drug Pentostatin (the
"Drug"--trade name Nipent-Registered Trademark-) for the United States, Canada
and Mexico. The Company also acquired certain assets pertaining to the Drug,
including all of Warner-Lambert's crude concentrate form of the Drug and certain
of its finished goods inventory; the trademarks, patents and data relating to
the manufacture of the Drug; the U.S. New Drug Application relating to the Drug
(including two Orphan Drug Designations); the Canadian New Drug Submission; and
certain clinical studies. In September 1996, the Company paid consideration of
$2,073,000 in cash and $1,000,000 in unregistered restricted shares of common
stock of the Company (which constituted 71,813 shares of such stock, and which
was valued at $700,000 for accounting purposes). Furthermore, the Company paid
Warner-Lambert an additional $500,000 in cash in December 1997 upon the FDA's
F-13
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION OF TECHNOLOGY AND RELATED ASSETS (CONTINUED)
approval of the Company's supplemental NDA (permitting the Company to sell the
Drug purified from the crude concentrate at the Company's designated
manufacturing facilities). Of the total consideration of $3,273,000, $1,561,000
was allocated to inventory, including $250,000 to raw materials inventory,
$1,270,000 to developed technology, which is being amortized to manufacturing
costs of the Drug, and $442,000 as a charge for the acquisition of in-process
research and development.
In January 1997, the Company purchased from Immunex Corporation ("Immunex")
the rights to Immunex's version of the generic anticancer drug etoposide. The
acquisition included the Abbreviated New Drug Application, Immunex's inventory
of the product, records relating to the production of etoposide, and data,
information and know-how relating to the manufacture, testing, storage and
regulatory status of etoposide. The Company paid approximately $1,315,000 in
cash of which $334,000 was allocated to inventory and $150,000 was allocated to
developed technology. The remainder of the purchase price was recorded as charge
for the acquisition of in-process research and development.
In May 1997, the Company entered into a supply agreement for an ongoing
source of bulk paclitaxel, an anticancer drug currently sold by Bristol-Myers
Squibb Company under the tradename Taxol-Registered Trademark-. Under this
agreement, the Company will provide funding up to $1,000,000 to the supplier
during its GMP development process and FDA inspection period. Of this amount,
$400,000 was paid and expensed to research and development in 1997 and the
remainder will be due upon the supplier's achievement of specified milestones.
Subsequent to FDA approval of both the supplier's production facility and of the
Company's Abbreviated New Drug Application for its bulk paclitaxel product, the
supplier will provide the Company with bulk paclitaxel. The Company has
established a $1,000,000 letter of credit on behalf of the supplier, which,
along with milestone payments, is to be applied to purchase specific quantities
of bulk paclitaxel.
In September 1997, the Company acquired exclusive worldwide rights to a
patented anticancer compound ("the Compound") from the Stehlin Foundation for
Cancer Research ("Stehlin"). The Company paid consideration of $2,500,000 in
shares of its common stock (which constituted 183,458 shares of such stock, was
valued at $1,875,000 for accounting purposes and was recorded as a charge for
the acquisition of in-process research and development). The Company also agreed
to make monthly cash payments to Stehlin of $100,000 until the date of FDA
marketing approval of the Compound or for four years, whichever comes first. In
1997, the Company paid a total of $600,000 to Stehlin, of which $400,000 was
charged to research and development and $200,000 is included in prepaid expenses
at December 31, 1997. The Company's agreement with Stehlin also calls for
additional payments in Company common stock upon the achievement of specified
milestones and royalties on any product sales.
In December 1997, the Company entered into an agreement to acquire certain
intellectual property rights related to a compound in development in exchange
for $1,000,000 in shares of unregistered common stock of the Company (which was
valued at $750,000 for accounting purposes) and $50,000 in cash, all of which
has been recorded as in-process research and development.
F-14
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under noncancelable operating leases, each
of which may be renewed for one period of five years. Future minimum rentals
under all noncancelable operating leases with terms greater than one year are as
follows (in thousands):
YEAR ENDING DECEMBER
31,
--------------------
1998................ $ 248
1999................ 248
2000................ 237
2001................ 220
2002................ 7
-----
$ 960
-----
-----
Rent expense was $155,000, $335,000, and $83,000 for the year ended December
31, 1997, the year ended December 31, 1996, and the nine months ended December
31, 1995, respectively.
The Company maintains an employment contract with one key employee requiring
payments of $350,000 in 1998.
The Company also has entered into technology license agreements allowing the
Company access to certain technologies. These agreements generally require
royalty payments based upon the sale of approved products incorporating the
technology under license. No sales of such products have occurred as of December
31, 1997.
The Company has also entered into manufacturing and service agreements for
certain manufacturing services, the supply of research materials and the
performance of specified research studies. These agreements require payments
based upon the performance of the manufacturing entity, delivery of the research
materials or the completion of the studies.
7. INCOME TAXES
The significant components of the Company's deferred tax assets at December
31 are as follows (in thousands):
1997 1996
---------- ---------
Net operating loss carryforwards............................................................ $ 10,700 $ 5,875
Purchased in-process technology............................................................. 2,000 425
Research and development credit carryforwards............................................... 700 425
Capitalized research and development........................................................ 600 450
Other....................................................................................... 100 175
---------- ---------
Total deferred tax assets................................................................... 14,100 7,350
Valuation allowance......................................................................... (14,100) (7,350)
---------- ---------
Net deferred tax assets..................................................................... $ -- $ --
---------- ---------
---------- ---------
F-15
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The valuation allowance increased by $3,520,000 during the year ended
December 31, 1996 and by $1,072,000 during the nine months ended December 31,
1995.
As of December 31, 1997 the Company has net operating loss carryforwards for
federal income tax purposes of approximately $29,500,000 expiring in the years
2008 through 2012, and net operating losses for state income tax purposes of
approximately $13,000,000 expiring principally in the years 1998 through 2002.
At December 31, 1997, the Company had research and development credit
carryforwards for federal income tax purposes of approximately $500,000 which
expire in the years 2009 through 2012.
Because of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's tax net operating loss carryforwards and tax
credit carryforwards may be subject to an annual limitation in future periods.
As a result of the annual limitation, a portion of these carryforwards may
expire before ultimately becoming available to reduce future income tax
liabilities.
8. EMPLOYEE BENEFIT PLAN
In December 1996, the Company adopted a 401(k) Profit Sharing Plan (the
"401(k) Plan") for all eligible employees with over six months of service. The
Company may be obligated to make contributions to the plan to comply with
statutory requirements. Voluntary employee contributions to the 401(k) Plan may
be matched 50% by the Company, up to 3% of each participant's annual
compensation. The Company's expense under the 401(k) Plan was approximately
$97,000 in 1997 and $24,000 in 1996.
9. UNAUDITED STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE NINE
MONTHS ENDED DECEMBER 31, 1994
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
DECEMBER 31, 1994
------------------
(UNAUDITED)
Contract revenues from related parties........................................................ $ 95
Operating expenses:
Research and development.................................................................... 2,017
Sales and marketing......................................................................... 144
General and administrative.................................................................. 511
-------
Total operating expenses.................................................................. 2,672
-------
Loss from operations.......................................................................... (2,577)
Interest income............................................................................... 76
-------
Net loss...................................................................................... $ (2,501)
-------
-------
Basic loss per share.......................................................................... $ (.21)
-------
-------
Weighted average shares used in basic loss per share calculation.............................. 11,797
-------
-------
F-16
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. UNAUDITED STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE NINE
MONTHS ENDED DECEMBER 31, 1994 (CONTINUED)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
DECEMBER 31, 1994
------------------
(UNAUDITED)
Operating activities
Net loss.................................................................................... $ (2,501)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................................. 33
Changes in operating assets and liabilities:
Prepaid expenses and other current assets............................................... (248)
Other assets............................................................................ (30)
Accounts payable and accrued liabilities................................................ (7)
-------
Net cash used in operating activities......................................................... (2,753)
Investing activities
Purchase of property and equipment.......................................................... (77)
Financing activities
Issuance of common stock.................................................................... 3,990
-------
Net increase in cash.......................................................................... 1,160
Cash at beginning of period................................................................... 1,893
-------
Cash at end of period......................................................................... $ 3,053
-------
-------
F-17
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, on this 13th day of
March, 1998.
SUPERGEN, INC.
By: /s/ JOSEPH RUBINFELD
-----------------------------------------
Joseph Rubinfeld
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints, jointly and severally, Joseph Rubinfeld
and Henry C. Settle, Jr., his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K 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
- ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ JOSEPH RUBINFELD President and Director
- ------------------------------ (Principal Executive March 16, 1998
(Joseph Rubinfeld) Officer)
/s/ HENRY C. SETTLE, JR. Chief Financial Officer
- ------------------------------ (Principal Financial and March 17, 1998
(Henry C. Settle, Jr.) Accounting Officer)
/s/ DAVID M. FINEMAN
- ------------------------------ Director March 17, 1998
(David M. Fineman)
/s/ J. GREGORY SWENDSEN
- ------------------------------ Director March 17, 1998
(J. Gregory Swendsen)
/s/ DENIS BURGER
- ------------------------------ Director March 17, 1998
(Denis Burger)
/s/ JULIUS A. VIDA
- ------------------------------ Director March 17, 1998
(Julius A. Vida)
S-1
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DANIEL ZURR
- ------------------------------ Director March 18, 1998
(Daniel Zurr)
- ------------------------------ Director March ___, 1998
(Lawrence J. Ellison)
S-2
SUPERGEN, INC.
INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- --------------- -------------------------------------------------------------------------------- -----------------
(f)3.17 Certificate of Incorporation of the Registrant.
3.2 Bylaws, as amended, of the Registrant.
4.1 Specimen Common Stock Certificate.
(a)4.2 Form of Representative's Warrant.
(a)4.3 Form of Warrant Agreement (including form of Common Stock Purchase Warrant).
(l)10.1 Form of Indemnification Agreement between the Registrant and each of its
directors and officers.
(i)10.2 1993 Stock Option Plan, as amended and restated and forms of stock option
agreements thereunder.
(i)10.3 1996 Directors' Stock Option Plan, as amended effective February 3, 1997, and
form of stock option agreement thereunder.
(c)10.4 Employees and Consultants Stock Option Agreement/Plan.
(b)(m)10.5 Patent Royalty Agreement dated June 30, 1992 between the Registrant and
Progenics, Inc.
(b)(m)10.6 Patent License and Royalty Agreement dated August 30, 1993 between the
Registrant and The Jackson Laboratory.
(b)(m)10.7 Worldwide License Agreement dated March 1, 1994 between the Registrant and
Janssen Biotech, N.V.
(b)(m)10.8 Patent License Agreement dated March 1, 1994 between the Registrant and Cyclex
Inc.
(b)(m)10.9 Patent License and Royalty Agreement dated November 15, 1993 between the
Registrant and The Long Island Jewish Medical Center.
(b)(m)10.10 License Agreement dated February 1, 1995 between the Registrant and Pharmos
Corporation.
(b)10.11 Research and License Agreement dated August 1, 1993 between the Registrant and
Amur Research Corp.
(i)10.12 Common Stock Sale/Repurchase Agreement dated August 6, 1997 between Israel
Chemicals, Ltd. ("ICL") and the Registrant.
10.13 First Amendment to Common Stock Sale/Repurchase Agreement between ICL and the
Registrant dated November 12, 1997.
10.14 Amended and Restated Employment, Confidential Information and Invention
Assignment Agreement dated January 1, 1998 between the Registrant and Joseph
Rubinfeld.
(b)10.15 Form of Consulting Agreement between the Registrant and J. Gregory Swendsen and
David M. Fineman.
(b)10.16 Consulting Agreement between the Registrant and Vida International
Pharmaceutical Consultants.
(d)10.17 Purchase and Sale Agreement dated as of September 30, 1996 between the
Registrant and Warner-Lambert Company, a Delaware corporation.
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- --------------- -------------------------------------------------------------------------------- -----------------
(e)(m)10.18 Asset Purchase Agreement dated January 15, 1997 between the Registrant and
Immunex Corporation, a Washington corporation.
(e)10.19 Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate
(Non-Residential) dated December 11, 1996 between the Registrant and The
Ashwill Trust, established November 8, 1989.
(e)10.20 Bishop Ranch Business Park Building Lease dated October 14, 1996 between the
Registrant and Annabel Investment Company, a California partnership.
(g)(m)10.21 License Agreement between Inflazyme Pharmaceuticals Ltd. and the Registrant
dated April 11, 1997.
(g)(m)10.22 Nonexclusive Supply Agreement between the Registrant and Yunnan Hande
Technological Development Co. Ltd. dated May 7, 1997.
(g)10.23 Assignment and Assumption Agreement between the Registrant and R&S, LLC, dated
April 17, 1997.
(h)10.24 Convertible Secured Note, Option and Warrant Purchase Agreement dated June 17,
1997 among the Registrant, Tako Ventures, LLC and, solely as to Sections 5.3
and 5.5 thereof, Lawrence J. Ellison.
(j)10.25 Form of Common Stock Purchase Agreement among the purchasers and the Registrant
dated August 29, 1997.
(j)(m)10.26 License Agreement between Stehlin Foundation for Cancer Research and the
Registrant dated September 3, 1997.
(j)10.27 Letter Agreement dated August 13, 1997 between the Registrant and South Bay
Construction, Inc.
(k)(m)10.28 Supply Agreement dated October 20, 1997 between the Registrant and
Warner-Lambert Company.
(l)10.29 Standard Industrial/Commercial Multi-Tenant Lease dated October 13, 1997 between
R&S, LLC and Quark Biotech, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
- ------------------------
(a) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-476-LA) filed with the Securities and Exchange
Commission January 18, 1996.
(b) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed with the
Securities and Exchange Commission February 26, 1996.
(c) Incorporated by reference from the Registrant's Report on Form S-8 filed
with the Securities and Exchange Commission on July 1, 1996.
(d) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 15, 1996.
(e) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
(f) Incorporated by reference from the Registrant's Proxy Statement filed with
the Securities and Exchange Commission on April 25, 1997.
(g) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on May 15, 1997.
(h) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on July 2, 1997.
(i) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on August 13, 1997.
(j) Incorporated by reference from Amendment No. 2 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission October 6, 1997.
(k) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 31, 1997.
(l) Incorporated by reference from Amendment No. 3 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission November 5, 1997.
(m) Confidential treatment has been previously granted for certain portions of
these exhibits.