-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ng1i6pEFXGCmcOGInokiJ+iy+5oyjuamhzVK531+KQw4V13LmydsmMn2MYYTZyu0 D12yolXBmR032ee5T2vZew== 0000912057-97-028031.txt : 19970815 0000912057-97-028031.hdr.sgml : 19970815 ACCESSION NUMBER: 0000912057-97-028031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORTECH INC CENTRAL INDEX KEY: 0000728478 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 840894091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20726 FILM NUMBER: 97663062 BUSINESS ADDRESS: STREET 1: 6850 NORTH BROADWAY STREET 2: SUITE G CITY: DENVER STATE: CO ZIP: 80221 BUSINESS PHONE: 3036501200 10-Q 1 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO ______________________. COMMISSION FILE NUMBER 0-20726 CORTECH, INC. (Exact name of registrant as specified in its charter) DELAWARE 84-0894091 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 6850 N. BROADWAY, SUITE G DENVER, COLORADO 80221 (Address of principal executive offices) (Zip Code) (303) 650-1200 (Registrant's telephone number, including area code) ------------------ 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK $0.002 PAR VALUE 18,523,918 ----------------------------- ------------------------------ (Class) (Outstanding at July 31, 1997) =============================================================================== CORTECH, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements and Notes Balance Sheets -- June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . 3 Statements of Operations -- for the three and six months ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . 4 Statements of Cash Flows -- for the six months ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . 5 Notes to Financial Statements . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 12 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 12 Item 3. Default upon Senior Securities. . . . . . . . . . . . . . 12 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 12 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 12 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 12 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2 PART I ITEM 1. FINANCIAL STATEMENTS AND NOTES. CORTECH, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ CURRENT ASSETS Cash and cash equivalents. . . . . . . . . . . $ 3,858 $ 7,792 Short-term investments (Note 2). . . . . . . . 14,296 13,186 Prepaid expenses and other . . . . . . . . . . 227 845 -------- --------- Total current assets . . . . . . . . . . 18,381 21,823 -------- --------- PROPERTY AND EQUIPMENT, at cost Laboratory and pilot production equipment. . . 7,093 7,101 Leasehold improvements . . . . . . . . . . . . 8,026 8,026 Office furniture and equipment . . . . . . . . 2,510 2,483 -------- --------- 17,629 17,610 Less -- Accumulated depreciation and amortization . . . . . . . . . . . . . . . . (14,828) (13,950) -------- --------- 2,801 3,660 -------- --------- $ 21,182 $ 25,483 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable . . . . . . . . . . . . . . . $ 429 $ 680 Accrued vacation and other compensation (Note 4). . . . . . . . . . . . . . . . . . . 522 185 Unearned income. . . . . . . . . . . . . . . . 615 1,323 Advances from corporate partners . . . . . . . 200 964 Other. . . . . . . . . . . . . . . . . . . . . 128 206 -------- --------- Total current liabilities . . . . . . . . 1,894 3,358 -------- --------- STOCKHOLDERS' EQUITY Preferred stock, $.002 par value, 2,000,000 shares authorized, none issued . . . -- -- Common stock, $.002 par value, 50,000,000 shares authorized 18,523,918 and 18,518,079 shares issued and outstanding, respectively. . 37 37 Warrants . . . . . . . . . . . . . . . . . . . 2,330 2,330 Additional paid-in capital . . . . . . . . . . 97,657 97,659 Deferred compensation. . . . . . . . . . . . . (10) (40) Accumulated deficit. . . . . . . . . . . . . . (80,726) (77,861) -------- --------- Total stockholders' equity 19,288 22,125 -------- --------- $ 21,182 $ 25,483 ======== =========
The accompanying notes to financial statements are an integral part of these statements. 3 CORTECH, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------- ---------------------------- JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 ------------- ------------- ------------- ------------- REVENUES Sponsored research and development (Note 3) Corporate partners. . . . . . . . . . . $ 863 $ 688 $ 2,743 $ 3,925 Related parties . . . . . . . . . . . . -- 337 -- 674 Interest income . . . . . . . . . . . . . 194 308 508 611 ----------- ----------- ----------- ----------- 1,057 1,333 3,251 5,210 ----------- ----------- ----------- ----------- EXPENSES Research and development. . . . . . . . 1,705 2,584 4,039 6,014 General and administrative. . . . . . . 655 859 1,412 1,867 Restructuring charge. . . . . . . . . . 665 -- 665 -- ----------- ----------- ----------- ----------- 3,025 3,443 6,116 7,881 ----------- ----------- ----------- ----------- NET LOSS. . . . . . . . . . . . . . . . $ (1,968) $ (2,110) $ (2,865) $ (2,671) =========== =========== =========== =========== Net loss per share. . . . . . . . . . . $ (0.11) $ (0.12) $ (0.15) $ (0.15) =========== =========== =========== =========== Weighted average common shares outstanding . . . . . . . . . . . . . . 18,521,031 18,142,120 18,519,563 18,044,937 =========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 4 CORTECH, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 ------------- ------------- CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,865) $ (2,671) Adjustments to reconcile net loss to net cash used in operations -- Depreciation and amortization . . . . . . . . . . . . . . . . 878 1,127 Research and compensation expense related to grant of options, including amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . 22 75 Decrease in prepaid expenses and other . . . . . . . . . . . . 618 100 (Decrease) increase in accounts payable. . . . . . . . . . . . (251) 301 (Decrease) in unearned income. . . . . . . . . . . . . . . . . (708) -- (Decrease) increase in advances from corporate partners. . . . (764) 1,138 Increase in accrued compensation, payroll taxes and other. . . 261 54 -------- -------- Net cash (used in) provided by operating activities. . . . (2,809) 124 -------- -------- CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES Purchases of property and equipment. . . . . . . . . . . . . . (40) (361) Sales of property and equipment. . . . . . . . . . . . . . . . 21 -- Purchases of short-term investments. . . . . . . . . . . . . . (14,460) (13,431) Sales of short-term investments. . . . . . . . . . . . . . . . 13,350 17,250 -------- -------- Net cash (used in) provided by investing activities. . . . (1,129) 3,458 -------- -------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Proceeds from issuance of common stock . . . . . . . . . . . . 4 29 Proceeds from exercise of options. . . . . . . . . . . . . . . -- 633 -------- -------- Net cash provided by financing activities. . . . . . . . . 4 662 -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . (3,934) 4,244 CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . 7,792 6,194 -------- -------- CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . $ 3,858 $ 10,438 ======== ========
The accompanying notes to financial statements are an integral part of these statements. 5 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (1) SIGNIFICANT ACCOUNTING POLICIES The balance sheet at June 30, 1997, the related statements of operations and statements of cash flows for the three and six month periods ended June 30, 1997 and 1996 are unaudited, but in management's opinion include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements. Interim results are not necessarily indicative of results for a full year. The accompanying financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 1996. (2) SHORT-TERM INVESTMENTS Under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's short-term investments, which consisted entirely of government securities, were classified as available-for-sale. These securities mature on various dates through December 1997. As of June 30, 1997, these securities had an amortized cost of $11.9 million, which approximated market value. (3) RESEARCH AND DEVELOPMENT AGREEMENTS During the first quarter of 1997, Cortech received $1.5 million from Ono Pharmaceutical Co., Ltd. ("Ono") for work to be performed during the second and third quarters of 1997 under a contract signed in March of 1995 and amended in April 1997 to develop an oral elastase inhibitor. Of this amount, $615,000 has been recorded as unearned income and will be recognized as revenue in the third quarter. Under the terms of the amended agreement, Ono will assume all responsibilities for research activities during the final six-month period of the agreement, September 15, 1997 through March 14, 1998. As a result of this reallocation of responsibilities, Ono is no longer required to pay the Company $1.5 million in research funding to offset certain costs that the Company would otherwise have incurred under the agreement. Cortech expects no further payments from Ono under the agreement. In November 1995, Cortech entered into a worldwide product development and license agreement with SmithKline Beecham ("SB") for the development of Bradycor-TM-. In March 1997, SB and the Company agreed to terminate their collaboration when a Phase II trial of Bradycor in patients with traumatic brain injury failed to demonstrate a significant effect of the compound on intracranial pressure, the primary endpoint. SB made a one-time payment to Cortech of $1.0 million for an exclusive license to Bradycor in 1995 and paid $4.0 million in milestone payments during 1996. 6 (4) COMMITMENTS In April 1997, the Company announced a significant corporate-wide downsizing, which reduced the Company's full time staff from 75 to 35 at the end of the second quarter of 1997. This downsizing followed the Company's announcement that in response to SmithKline Beecham's termination of the Bradycor license agreement it was planning an aggressive restructuring. The Company recorded a charge of $665,000 in May 1997 for costs related to the downsizing. At June 30, 1997 $300,000 of the restructuring charge remained in Accrued Compensation and will be paid out over the remainder of 1997. (5) SUBSEQUENT EVENT In August of 1997, the Company announced that it intends to undertake a further substantial reduction in staff around the end of the third quarter, following the contractually scheduled end of the Company's operational responsibilities in the oral elastase research program funded by Ono. The Company expects to incur a restructuring charge in connection with the reduction in staff. Once this restructuring is fully implemented, the Company will no longer have the scientific staff required to conduct research and development activities internally. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE FOLLOWING DISCUSSION CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE CAPTION "ADDITIONAL RISKS" AND IN THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K. GENERAL Cortech, Inc. (the "Company") is a biopharmaceutical company whose focus has been the discovery and development of novel therapeutics for the treatment of inflammatory disorders. The Company has directed its research and development efforts principally toward protease inhibitors and bradykinin antagonists. In August 1997, the Company announced that it intends to undertake a substantial reduction in staff around the end of the third quarter, following the contractually scheduled end of the Company's operational responsibilities in the oral elastase research program funded by Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan. As a result of this staff reduction, the Company will no longer have the scientific staff required to conduct further research or development activities on site. Once this restructuring is fully implemented, around year end, the remaining core staff is expected to be engaged primarily in seeking to realize appropriate value out of Cortech's tangible and intangible assets, including, potentially, directing activities of third party collaborators. The intangible assets consist primarily of a portfolio of bradykinin antagonists and protese inhibitors. One of the Company's research programs has been the discovery and development of inhibitors of human neutrophil elastase ("HNE"), a potent serine protease. Initially, parenteral inhibitors were developed. Later, the elastase program evolved into work on inhibitors for oral administration and subsequently to the establishment of a collaboration with Ono to support this work. In November 1996, the Company announced that, based on progress to date, it was increasing staffing on the oral elastase project and that Ono was accelerating funding. As a result, the Company received $4.3 million in 1996 and $1.5 million in the first quarter of 1997. Under the terms of an amendment signed in April 1997, Ono will assume all responsibilities for research activities during the final six month period of the agreement, September 14, 1997 through March 14, 1998. As a result of this reallocation of responsibilities, Ono is no longer required to pay the Company $1.5 million in research funding to offset certain costs that the Company would otherwise have incurred under the agreement. For most of the third quarter, the Company's research efforts will remain focused primarily in the area of protease inhibition thereby fulfilling its responsibilities under the Ono agreement. In related research, the Company has also demonstrated that its proprietary technology has the potential to be applied to the discovery of a broader range of therapeutically interesting protease inhibitors. 8 RESULTS OF OPERATIONS REVENUES Revenues from research and development decreased from $1.0 million in the second quarter of 1996 to $863,000 in the second quarter of 1997 and decreased from $4.6 million to $2.7 million in the six month periods ending June 30, 1996 and 1997, respectively. The decrease in revenues resulted primarily from the terminations of the Company's agreements with SmithKline Beecham ("SB") and Hoechst Marion Roussel, Inc. ("HMRI"). The Company expects no further payments from Ono, due to the April 1997 amendment of the agreement, nor from SB or HMRI due to the cancellation of the agreements with these collaborators. During the first quarter of 1997, Cortech received $1.5 million from Ono for work to be performed during the second and third quarters of 1997 under a contract signed in March of 1995 and amended in April 1997 to develop an oral elastase inhibitor. Of this amount, $615,000 has been recorded as unearned income and will be recognized as revenue in the third quarter. Under the terms of the amended agreement, Ono will assume all responsibilities for research activities during the final six month period of the agreement, September 15, 1997 through March 14, 1998. As a result of this reallocation of responsibilities, Ono is no longer required to pay the Company $1.5 million in research funding to offset certain costs that the Company would otherwise have incurred under the agreement. RESEARCH AND DEVELOPMENT EXPENSES Expenses for research and development decreased from $2.6 million in the second quarter of 1996 to $1.7 million in the second quarter of 1997 and decreased from $6.0 million in the six months ended June 30, 1996 to $4.0 million in the six months ended June 30, 1997. This decrease is due primarily to the elimination of clinical, regulatory and manufacturing operations formerly conducted by the Company in support of Bradycor. In April 1997, the Company announced a significant corporate-wide downsizing, which reduced the Company's full time staff from 75 to 35 at the end of the second quarter of 1997. This downsizing followed the Company's announcement that in response to SB's termination of the Bradycor license agreement it was planning an aggressive restructuring. The Company recorded a charge of $665,000 in May 1997 for costs related to the downsizing. In August 1997, the Company announced a substantial reduction in staff to occur around the end of the third quarter. The Company expects to incur an additional restructuring charge when the structure of the continuing organization is finalized. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased from $859,000 in the second quarter of 1996 to $665,000 in the second quarter of 1997 and decreased from $1.9 million in the six months ended June 30, 1996 to $1.4 million in the six months ended June 30, 1997. This decline resulted from decreases in staffing and general business activity. The Company expects its general and administrative expenses to continue to decrease. 9 NET LOSS The net loss for the second quarter ended June 30, 1997 decreased to $2.0 million from $2.1 million for the second quarter ended June 30, 1996 and increased from $2.7 million in the six months ended June 30, 1996 to $2.9 in the six months ended June 30, 1997. The decrease for the quarter was due principally to the decreased expenses offset in part by the decreased revenues as described above, while the increase for the first half was primarily due to the decreased revenues described above. Cortech expects to continue to report substantial losses in the future. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company had cash, cash equivalents and short-term investments totaling $18.2 million, compared to $21.0 million at December 31, 1996. The Company's net cash used in operating activities totaled $2.4 million and $2.8 million for the three and six months ended June 30, 1997. Operating activities used $522,000 in the first quarter of 1996 and provided $124,000 in the first six months of 1996. The Company's expenditures, net of depreciation and non-cash charges, decreased from $2.7 million in the second quarter of 1996 to $2.6 million in the second quarter of 1997 and decreased from $6.7 million in the six months ended June 30, 1996 to $5.2 million in the first half of 1997. This decrease reflects the overall reduction in research and development activities and the initial effects of a restructuring announced in April 1997 and implemented in May of 1997. From its inception through June 30, 1997, the Company raised cash totaling $97.1 million from the sale of equity securities, including $33.6 million in net proceeds from its November 1992 initial public offering and $37.7 million in net proceeds from its November 1993 follow-on public offering. During the first quarter of 1997, Cortech received $1.5 million from Ono for work to be performed during the second and third quarters of 1997 under a three year contract signed in March of 1995 to develop an oral elastase inhibitor. Of this amount, $615,000 has been recorded as unearned income and will be recognized as revenue in the third quarter. No additional payments are expected. The Company has experienced net losses and negative cash flows from operations each year since inception and has incurred an accumulated deficit of $80.7 million through June 30, 1997. The Company expects to incur additional losses as a result of its continued research activities in the third quarter of 1997 and as a result of charges related to its intended restructuring. The Company also expects to continue to report losses after the intended restructuring is complete and all transition costs are recorded, but that the size of the losses is expected to be smaller than those previously recorded. ADDITIONAL RISKS Management is focused primarily on exploration of strategic alternatives by which to realize appropriate value for the Company's stockholders out of Cortech's tangible and intangible assets, but there can be no assurance that strategic opportunities will be found on acceptable terms or at all. Certain of the available strategic opportunities would, if undertaken without the support of a commercial partner, lead to substantial costs for work conducted under the Company's direction by outside collaborators. The Company's projects are in early stages of research and development and face a high degree of technological, regulatory and competitive risk. The regulatory approval process for any new drug is arduous, and successful completion of any trial or any phase of development does not provide assurance 10 that future phases will also be successfully completed or that marketing approval will ultimately be obtained. Development of Bradycor was suspended in March 1997 when the Company and SB agreed to terminate their collaboration in support of that program. Clinical development of CE-1037, the Company's parenteral HNE inhibitor in Phase II clinical trials for acute respiratory distress syndrome has been suspended pending further investigation of preclinical findings. There can be no assurance that any of the Company's projects will lead to products that can be commercialized or that they will attract and maintain the support of a collaborative partner. In addition, the Company's stock price, like that of many publicly traded biotechnology companies, has in the past been highly volatile and may in the future, experience significant volatility. 11 PART II ITEM 1. LEGAL PROCEEDINGS. The Company is not party to any material legal proceedings. ITEM 2. CHANGES IN SECURITIES. Not applicable. ITEM 3. DEFAULT UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Company held an Annual Meeting of Stockholders on May 28, 1997. The stockholders elected the Board's nominee as a Class III director by the votes indicated: NOMINEE VOTES IN FAVOR VOTES WITHHELD ------- -------------- -------------- Donald Kennedy, PhD. 14,965,492 165,592 The selection of Arthur Andersen LLP as the company's independent auditors for the year ending December 31, 1997 was ratified with 15,064,503 votes in favor, 36,244 against, and 30,337 abstentions. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits ITEM DESCRIPTION ---- ----------- 10.57 Second Amendment, dated April 23, 1997, to the Research, Development and License Agreement between Ono and the Company.* 27.1 Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed by Cortech, Inc., during the quarter ended June 30, 1997. * Confidential treatment requested. 12 SIGNATURE 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 ____ day of August, 1997. CORTECH, INC. (Registrant) Date: AUGUST , 1997 By: /s/ JOSEPH L. TURNER ------------------------- -------------------------------------------- Joseph L. Turner VICE PRESIDENT OF FINANCE AND ADMINISTRATION AND PRINCIPAL ACCOUNTING OFFICER 13 EX-10.57 2 EXHIBIT 10.57 CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SECOND AMENDMENT This constitutes the Second Amendment to the Research, Development and License Agreement (the "Agreement") entered into between Ono Pharmaceutical Co., Ltd., ("Ono") and Cortech, Inc., ("Cortech") as of March 8, 1995. The provisions of this Second Amendment shall become effective upon its completed execution. Whereas, Ono and Cortech wish to modify certain provisions of the Agreement, including the First Amendment, in order to facilitate their collaboration and better serve the accomplishment of their mutual objectives, Now, Therefore, in consideration of the foregoing, Ono and Cortech agree that the Agreement is hereby modified by incorporation of the following provided additions, changes and deletions: 1. The First Amendment is entirely superseded and replaced by this Second Amendment, and, accordingly, subsequent to such time as this Second Amendment becomes effective as provided herein, the First Amendment shall have no further operation or effect. 2. The definition of "BACK-UP COMPOUND" as previously operative under the Agreement is understood and agreed to be removed from the Agreement, along with all instances of that term's employment in connection with the Agreement as formerly provided under the First Amendment. 3. The definition of "CORTECH KNOW-HOW" as previously operative under the Agreement is superseded and replaced by the following new definition: "CORTECH KNOW-HOW" shall mean any information or data not otherwise generally known which are necessary for Ono to manufacture, use, develop, sell or seek approval to market any Licensed Compound, including but not limited to Developed Compound, as an ingredient of Products, in which Cortech has an ownership or licensable interest, all as is presently in the possession of Cortech and which may come into Cortech's possession prior to any completion, termination or other cessation of the Project. 4. The definition of "CORTECH PATENT RIGHTS" as previously operative under the Agreement is superseded and replaced by the following new definition: "CORTECH PATENT RIGHTS" shall mean (i) all U.S. and foreign patents and patent applications which contain claims covering or directed to any Licensed Compound, including but not limited to Developed Compound, which are owned by Cortech as sole or joint owner or under which Cortech has licensable rights as of the Effective Date, or as of the completion, termination or other cessation of the Project, as the case may be, and (ii) any division, continuation or continuation-in-part of any such patents and patent 1 applications, including any reissue, reexamination or extension of the patent, any extended or restored term, and any confirmation patent, registration patent or addition. 5. The definition of "DEVELOPED COMPOUND" as previously operative under the Agreement is superseded and replaced by the following new definition: "DEVELOPED COMPOUND" shall mean (i) the orally active NEI, developed in accordance with and within the specified scope of the Project, to be accepted for further development by Ono from among Licensed Compounds at the conclusion of the Project, or, in the alternative, (ii) a Licensed Compound that Ono has formally elected, as herein provided, to designate as Developed Compound in substitution for a previously designated Developed Compound. 6. "LICENSED COMPOUND" shall mean any particular orally active NEI, discovered in accordance with and within the specified scope of the Project, that (i) substantially satisfies the criteria developed by the Evaluation Committee to identify appropriate candidates for selection as a Developed Compound, and (ii) Ono formally elects to designate as such by notice to Cortech at any time during the Project or within ninety (90) days following conclusion of the Project. 7. The definition of "PRODUCT" as previously operative under the Agreement is superseded and replaced by the following new definition: "PRODUCT" shall mean any pharmaceutical preparation in a finished packaged dosage form suitable for oral administration to patients that contains any Licensed Compound as the sole active ingredient or that contains an approved-as- safe mixture of any Licensed Compound along with one or more other therapeutically active ingredients first approved as safe and effective for use in single formulation. 8. Article 3.2 of the Agreement, under the heading "Cortech's Reporting Responsibility", is hereby modified in its entirety as follows: During the first two years of the Project, Cortech shall provide Ono with (i) a quarterly progress report of the Project within thirty (30) days after the end of each quarter during the term of the Project, beginning with the completion of the first quarter after the Project Commencement Date and (ii) an annual report of the Project, which may also serve in lieu of a separate quarterly report hereunder with respect to the last quarter its period includes, within thirty (30) days after each anniversary of the Project Commencement Date during the term of the Project. During the third year of the Project, Cortech shall provide Ono with (i) a research report of the Project within thirty (30) days after termination of Cortech's research responsibilities as delineated in Exhibit A and (ii) an overall final research report within thirty (30) days after termination of the Project. Such reports shall include information detailing basic progress of the Project in the context of the prepared Project Goals set forth in Exhibit A, and shall include disclosure of the chemical structures of compounds newly synthesized by Cortech pursuant to the Project to the extent Cortech has completed IN VITRO 2 and IN VIVO testing of such new compounds at the time of a report's preparation. Such overall final research report shall include information detailing, if any, additional research work performed by Cortech with regard to orally active NEIs beyond the period of its research responsibilities during the term of the Project. Ono shall provide Cortech with an overall final research report within thirty (30) days after termination of the Project. This report shall include information detailing basic progress of the Project in the context of the prepared Project Goals set forth in Exhibit A and will include disclosure of the chemical structures of compounds newly synthesized by Ono reflecting modifications made by Ono based on or relating to Cortech Know-how or Cortech Patent Rights. During the first two years of the Project, Cortech shall also submit to Ono an annual statement of account within thirty (30) days after the end of each calendar year. During the third year of the Project, Cortech shall submit to Ono a statement of account within thirty (30) days after the end of Cortech's research responsibilities as outlined in Exhibit A. All reports by Cortech to Ono and Ono to Cortech, as well as oral and written disclosures by Cortech in connection with the subject matter of such reports, shall be subject to the provisions of Article 6. 9. Article 4.1 of the Agreement, under the heading "License", is hereby modified to provide in its entirety as follows: (a) Subject without qualification to the limited term provided in Article 4.1(c) as applicable with respect to all Licensed Compounds other than Developed Compound, Cortech grants to Ono an exclusive, royalty-free, nontransferable license within the Territory, with the right to grant sublicenses, under Cortech Know-how and Cortech Patent Rights to make, have made, use and sell any Licensed Compound as an ingredient of Products to be developed by Ono in the Territory. The term of such license is subject to termination as provided in this Agreement; provided, however, that, unless and except as earlier terminated by application of the provisions of this Agreement, with respect to Developed Compound as finally identified at the conclusion of the Alternative Selection Period hereinafter defined such license shall become a perpetual, exclusive, and fully paid-up license after expiration of all issued and pending Cortech Patent Rights (i.e., after expiration of all patents within Cortech Patent Rights that have issued). It is understood and agreed that, while Ono shall possess certain rights permitting the substitution of a Licensed Compound as Developed Compound in place of a previously designated Developed Compound pursuant to Article 4.1(b), in no event shall more than one compound be simultaneously designated as a Developed Compound. (b) Upon the condition that Ono first designates a Developed Compound from among Licensed Compounds by its acceptance of such compound for further development beyond the Project, for a period of three years following expiration of the three year term of the Project (the "Alternative Selection Period"), Ono shall have the right upon its sole election to substitute any other Licensed Compound as Developed Compound hereunder in the place of the previously designated Developed Compound. No payment beyond the funding provided under this Agreement shall be required of Ono in order to effect such election. During the Alternative Selection Period, Cortech shall not grant to any third party in the Territory any rights or license to develop or commercialize as pharmaceutical products any NEI that is discovered in accordance with and within the scope of the Project. 3 (c) The term of the license granted hereinabove as applicable to Licensed Compound(s), other than the finally designated Developed Compound, shall terminate in all respects at the conclusion of the Alternative Selection Period, subsequent to which time only Developed Compound as such is designated at the conclusion of the Alternative Selection Period shall continue as subject to the license granted by provision of this Article 4, unless and except as such may otherwise be terminated. 10. Article 4.3 of the Agreement, under the heading "Ono's Preclinical Data", is hereby modified to provide in its entirety as follows: Ono shall, upon Cortech's request, make available to Cortech preclinical data and other information that Ono develops or shall come to possess in relation to any Licensed Compound, including but not limited to Developed Compound, and/or Product(s), and Cortech shall have the right to use such preclinical data and other information in connection with the development, registration and commercialization of Product(s) outside the Territory. In the event that Cortech and/or a Western Partner uses any preclinical data generated by Ono pursuant to the Project, if and to the extent that such data contributes to the development and/or registration of any Product in Europe and/or North America by serving substantially in place of comparable data (and thereby avoiding most of the expense that would otherwise necessarily have been incurred had Cortech or its Western Partner generated such data) which Cortech or its Western Partner would otherwise have been required to generate for the same purpose; THEN Cortech will, at it sole option, either (a) promptly following such use pay Ono [---*---] of the documented reasonable and customary expenses incurred by Ono in generating the data used in the manner described above, or (b) subject to the following stated limitations, pay to Ono [---*---] of amounts as and when received by Cortech from the Western Partner in the form of license fees, milestone payments and/or royalties in relation to Product rights in Europe and/or North America; PROVIDED HOWEVER, that (i) Ono shall in no event be entitled to receive any portion of amounts paid to Cortech by its Western Partner in consideration of, or reimbursement for, expenses incurred, or to be incurred, by or on behalf of Cortech, and (ii) the aggregate total of payments to Ono pursuant to this Article IV shall not exceed the lesser of (i) [---*---] or (ii) [---*---] the documented reasonable and customary expenses incurred by Ono in generating the data used as described hereinabove. 11. Article 5.1 of the Agreement, under the heading "Ownership", is hereby modified in its entirety to provide as follows: (a) Cortech shall own the entire right, title and interest in all inventions, discoveries, improvements and other technology, whether or not patentable, made or conceived during the three year term of the Project by or for Cortech, Ono or both (i) * CONIDENTIAL TREATMENT REQUESTED 4 within the scope of the Project or as a result of the Project, or (ii) based on information disclosed in confidence to Ono by Cortech in connection with this Agreement, and such inventions, discoveries, improvements and other technology shall be considered a part of the Cortech Patent Rights or Cortech Know-how, as the case may be. Ono shall promptly disclose to Cortech the making, conception or reduction to practice of any invention, discovery, improvement or other technology made or conceived by or for Ono that is subject to the provision of this Article 5.1(a), and all such inventions, discoveries, improvements and other technologies shall be assigned to Cortech as reasonably requested to effectuate the purpose of this article. For the purpose of applying this Article 5.1(a), it is understood that inventions, discoveries, improvements or other technology made or conceived by or for Ono outside the scope of and not resulting from the Project shall not be deemed to have been based on information disclosed to Ono in confidence by Cortech in connection with this Agreement if Ono can prove by contemporaneous, written records that such invention, discovery, improvement or other technology was so made or conceived based solely on information already known to Ono prior to the receipt by Ono of such information from Cortech. In the event Cortech discloses information to Ono in confidence which Ono already possesses other than through disclosure from Cortech, Ono will promptly notify Cortech of such prior possession and, upon request, provide its documented verification thereof. (b) Subject to the provision of Article 5.1(a), Ono shall own the entire right, title and interest in all discoveries, improvements and other technology, whether or not patentable, made or conceived solely by or for Ono based on its own patent rights, know-how or other confidential information. (c) Ono shall promptly disclose to Cortech any improvement or modification which Ono may make to any Licensed Compound(s), including Developed Compound, or to any other compound that incorporates or is based on structures or other information disclosed by Cortech to Ono in connection with this Agreement. In the event Ono, independently of Cortech and subsequent to the term of the Project, first makes such improvement or modification, ownership of any proprietary interest therein shall be jointly held by Ono and Cortech, and Ono shall have exclusive rights to make, use and sell such improved or modified compound (the "Improved Compound") in the Territory, and Cortech and/or its Western Partner shall have exclusive rights to make, use and sell the Improved Compound outside the Territory. Cortech shall reasonably compensate Ono for Cortech's sale of product(s) containing Improved Compound which is covered by a patent claiming Ono's improvement or modification, other than such claim as shall be included within Cortech Patent Rights, provided, however, that it is understood and agreed between the parties that such compensation shall not become due with respect to any improvement or modification conceived during the term of the Project, and, provided further, that rights to any such improvement or modification conceived during the term of the Project shall be deemed to have arisen within the scope of the Project and, therefore, be subject to the provision of Article 5.1(a). Any compensation to which Ono makes a proper claim under this provision shall be determined on the basis of good faith negotiations taking into account the nature and expense of Ono's contribution to the improvement or modification. (d) Neither party shall be obligated to engage in any joint improvement 5 or inventive or discovery activity with the other, or devote any resources that may otherwise lead to joint inventions, discoveries, improvements or other technology. 12. Article 5.2 of the Agreement, under the heading "Patent Prosecution", is hereby modified to provide in its entirety as follows: (a) As long as it remains commercially justifiable, Cortech shall prepare, file, prosecute and maintain in the Territory those Cortech Patent Rights subject to the license granted to Ono under Article 4.1 above. If Cortech determines that it is no longer commercially justifiable to so prepare, file, prosecute or maintain any particular Cortech Patent Rights, Cortech shall consult with Ono regarding same. Ono shall be copied on relevant correspondence between Cortech and its patent attorneys with respect to preparation, prosecution and maintenance of such patent applications filed in the Territory, and in return, Ono shall provide to Cortech relevant data concerning preclinical and clinical development of Products in accordance with Article 3.4 above and advice with respect to filing, prosecution and maintenance of patent applications in the Territory as reasonably requested by Cortech to assist in successful prosecution and maintenance of Cortech Patent Rights. As long as Ono retains exclusive and royalty-free rights to the license granted in Article 4.1 in the Territory, Ono shall reimburse Cortech for all reasonable expenses incurred by Cortech in association with the patents and patent applications of the Cortech Patent Rights which specifically cover the Licensed Compounds. Such reimbursement by Ono shall be made upon receipt from Cortech, after Ono's selection of the Developed Compound at the conclusion of the Project, of an itemized invoice specifying all expenses incurred for preparing, filing and prosecuting patent applications as well as maintaining issued patents for Licensed Compounds, including, but not limited to, Developed Compound. (b) Except in circumstances where a valid assignment of this Agreement has been effected subject to its Article 12, in the event of Cortech's bankruptcy, liquidation or dissolution, other than such as may occur in connection with a merger or consolidation with another company also as provided in Article 12 of the Agreement, Ono shall have the right within the Territory to undertake the filing of patent applications and to maintain the patent rights for any invention, discovery or improvement made by Ono in relation to the Licensed Compounds, including but not limited to Developed Compound. (c) For so long as Ono retains in good standing an exclusive and royalty-free license in the Territory with respect to Licensed Compound(s) as provided under Article 4.1 of the Agreement, Ono may register, as appropriate with the Japanese Patent Office under Article 77 of the Patent Law of Japan, the Senyou Jissiken specifying such license under the Cortech Patent Rights, as it is provided in Article 4.1, including the right to sublicense as therein granted, and Cortech or its successor shall upon request sign legal documents reasonably and appropriately required for such purposes. It is understood and agreed that registration as provided above shall be maintained and be applicable only as to the final Developed Compound after expiration of the Alternative Selection Period, and that the registration permitted hereunder will in no respect operate to expand Ono's rights under the Agreement or to effect Cortech's rights or duties under the Agreement or otherwise in any manner that might be detrimental to Cortech or its interests. 6 13. Article 5.3(d) of the Agreement, under the heading "Infringement by a Third Party", is hereby modified to provide in its entirety as follows: If Cortech declines to bring suit, Ono may file an infringement action in its name or on behalf of Cortech where necessary, at its own expense, and Cortech shall give all reasonable assistance to Ono with respect to patent and legal questions. In such case, Ono shall be the sole recipient of the proceeds of any recovery, provided that Ono shall indemnify Cortech against any documented expenses or liabilities, incurred by Cortech, relating to the relevant proceedings, excluding however any and all expenses or liabilities relating to the defense by Cortech of any claim that may be brought against Cortech in connection with such proceedings, but not excluding expenses and liabilities associated with patent invalidity, infringement or enforceability claims relating to any Licensed Compound, including but not limited to Developed Compound, in the Territory. 14. Article 6.1 of the Agreement, under the heading "Confidential Information", is hereby modified to provide in its entirety as follows: Subject to the exceptions provided in 6.2 below, (a) all Cortech Know-how, all information that is proprietary to Cortech pursuant to Article 5.1, all Cortech patent applications not otherwise publicly disclosed by Cortech, all reports and related disclosures pursuant to Article 3.2, and all other information which is identified as being confidential which is received by Ono from Cortech, and (b) information which is also identified as confidential and which is received by Cortech from Ono during the term of this Agreement, shall, for a period of ten (10) years after termination of this Agreement, be maintained in confidence by the recipient and shall not be (i) used by the recipient except as expressly permitted by the terms of this Agreement or the parties' further written agreement, or (ii) disclosed to any other person, firm, or agency, governmental or private, without the prior written consent of the other party. In the case of information subject to this Article 6 that is or becomes proprietary to Cortech by the provision of Article 5.1, Ono shall be deemed to be the recipient with respect to such information as confidential information for purposes of determining the application of the terms of this Article 6. 15. Article 7.2(b) of the Agreement, appearing under the heading "Research and Milestone Payments", is hereby modified to provide in its entirety as follows: Unless earlier terminated as provided herein, Ono shall make the following additional, nonrefundable payments to Cortech in support of the research to be conducted by or on behalf of Cortech under this Agreement: Date of Payment Payment --------------- ------- (i) first anniversary of the Effective Date $1,375,000 ("Second Year Commencement") (ii) date six months after Second Year $1,375,000 Commencement 7 (iii) or before October 17, 1996 $1,500,000 (iv) second anniversary of the Effective Date $1,475,000 ("Third Year Commencement"). 16. Article 7.3 of the Agreement, under the heading "Developed Compound Identification Payment", is hereby deleted in its entirety. 17. Notwithstanding anything provided in the Agreement to the contrary, Cortech shall have no responsibilities to perform research or development activities related to or in connection with the Project subsequent to September 14, 1997. 18. Exhibit A of the Agreement pertaining to Cortech's Responsibilities, under the heading "Year Three", is hereby modified in its entirety as follows: (a) Continue additional work in the areas of discovery chemistry, biochemistry and plasma level evaluation until September 14, 1997 to identify a compound or series of compounds appropriate for more formal evaluation and development. (b) Cooperate reasonably and in good faith, at Ono's expense, to support patent prosecution with respect to Licensed Compound(s), and candidates for selection as Licensed Compounds, in the Territory. 19. Exhibit A of the Agreement, under the heading "Ono Responsibilities", is hereby modified in its entirety as follows: (a) Screen selected compounds with regard to IN VIVO biological activity to identify a compound or series of compounds appropriate for more formal evaluation and development (b) Evaluate the identified compound or series of compounds with regard to IN VIVO efficacy, pharmacology, pharmacokinetics, absorption, distribution, metabolism, and excretion (ADME), and conduct preliminary formulation and toxicology studies. (c) Develop pilot- and commercial-scale chemistry for GLP, toxicology, and other requirements. 20. It is understood and agreed between the parties that while Section 19 above describes the responsibilities of Ono as contemplated at the time of this Second Amendment's execution, nevertheless Ono shall be permitted the use of its reasonable and good faith judgment in determining the work it shall carry out pursuant to achievement of the Project's objectives subsequent to the date upon which the Second Amendment shall become effective, it being understood that the continued progress of research must inform decisions regarding such work, and that departures from plan may become warranted. In any case, Ono will proceed diligently with work in connection with the Project, and will use its reasonable best efforts to achieve the objectives of the Project. Ono will consult with 8 Cortech regarding any departures from work under the Project as planned. 21. Exhibit A of the Agreement within the section headed "Staffing", is hereby modified in its entirety as follows: [ ---*--- ] Headcount Ph.D. R.A. Ph.D. R.A. Ph.D. R.A. Synthetic Chemistry [ ---*--- ] Biochemistry [ ---*--- ] Pharmacology [ ---*--- ] Modeling [ ---*--- ] Project Management [ ---*--- ] Analytical Chemistry [ ---*--- ] BioPharmaceutics [ ---*--- ] ----------------------------------------------------- [ ---*--- ] 22. SECOND AMENDMENT. The Agreement and this Second Amendment, set forth the entire agreement between the parties. This Second Amendment shall upon taking effect be incorporated into and made a part of the Agreement, superseding and replacing in its entirety the First Amendment. All other terms and conditions of the Agreement shall continue in full force and effect, except, in the event any conflict arises between this Second Amendment and the Agreement, this Second Amendment shall take precedence. 23. COUNTERPARTS. This Second Amendment may be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. * CONFIDENTIAL TREATMENT REQUESTED 9 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their duly authorized officers in duplicate originals, one original to be retained by each party hereto. CORTECH, INC. ONO PHARMACEUTICAL CO., LTD. By /s/ Kenneth Lynn By /s/ Kimiichiro Matsumoto ------------------------------------- --------------------------------- Mr. Kenneth R. Lynn, Mr. Kimiichiro Matsumoto, President and Chief Executive Officer Managing Director, Research and Development Headquarters Date April 22, 1997 Date April 23, 1997 10 EX-27.1 3 EXHIBIT 27.1 -- FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 3,858 14,296 0 0 0 18,381 17,629 (14,828) 21,182 1,894 0 0 0 37 19,251 21,182 0 3,251 0 6,116 0 0 0 (2,865) 0 0 0 0 0 (2,865) (0.15) 0
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