-----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, TSXvoCnbW3We+SNpWEK8KvDk5D8g4ukWiGiPTDvpo/RJL/kxxDLSB8+WGqsbN09V W6cZoy0G1x99s/rPyIfl9A== 0000950130-96-001047.txt : 19960401 0000950130-96-001047.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950130-96-001047 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROBERTS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000853022 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 222429994 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10432 FILM NUMBER: 96541200 BUSINESS ADDRESS: STREET 1: MERIDIAN CENTRE II STREET 2: 4 INDUSTRIAL WAY W CITY: EATONTOWN STATE: NJ ZIP: 07724 BUSINESS PHONE: 9083891182 MAIL ADDRESS: STREET 1: MERIDIAN CTR II STREET 2: 4 INDUSTRIAL WAY WEST CITY: EATONTOWN STATE: NJ ZIP: 07724 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 1-10432 - ------------------------------ ROBERTS PHARMACEUTICAL CORPORATION ----------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2429994 ------------------------------------ ----------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Meridian Center II 4 Industrial Way West Eatontown, New Jersey 07724 ---------------------------------- ----------------------------- (Address of principal Zip Code executive offices) Registrant's telephone number, including area code: (908) 389-1182 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- ------------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share ______________________________________________________________________ (Title of class) ______________________________________________________________________ (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock, $.01 par value per share (the "Common Stock"), of the Registrant held by non-affiliates of the Registrant, as determined by reference to the last sale price of the Common Stock as reported on the Automated Quotation System of the National Association of Securities Dealers, Inc., National Market System ("NASDAQ National Market System"), as of March 22, 1996, was $238,183,538. As of March 22, 1996, the number of outstanding shares of Common Stock was 18,545,890. Documents incorporated by Part of Form 10-K into which reference into this report document is incorporated ------------------------------ ------------------------------ Proxy Statement for the Part III Annual Meeting of Shareholders to be held in May 1996. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Roberts Pharmaceutical Corporation (the "Company") is an international pharmaceutical company which licenses, acquires, develops and commercializes post-discovery drugs in selected therapeutic categories. The Company was incorporated under the laws of the State of New Jersey in 1982 and commenced operations in 1983. In 1988, its name was changed to Roberts Pharmaceutical Corporation from VRG International, Inc. The Company's executive offices are located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey 07724, and its telephone number is (908) 389-1182. As used herein, the term the "Company" refers to Roberts Pharmaceutical Corporation and its subsidiaries unless the context indicates otherwise. During the past year, the Company experienced a period of transition with respect to the development of its business. In order to achieve a more focused utilization of the Company's resources in its core business of licensing, acquiring, developing and selling prescription drugs, the Company has developed a plan to divest most of its nonprescription pharmaceutical products, certain of its nonperforming prescription pharmaceutical products, and certain of its nonpharmaceutical operations. See "Item 1(c) Description of Business" and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." During the past year, the Company completed certain acquisitions of prescription pharmaceutical products which affected the Company's decision to refocus on its core business activities and to discontinue certain business operations which the Company believes are unrelated to its objective of growing and developing an international pharmaceutical company. See "Item 1(c) Description of Business" and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS For the fiscal years ended December 31, 1993, 1994 and 1995, the Company engaged in business in two industry segments: Product Sales and Contract Clinical Research. In March 1996, the Company announced the adoption of a plan to discontinue and divest the businesses comprising the Contract Clinical Research Segment, and the Company expects the sale of these business operations to be completed before December 1996. In the foreseeable future, the Company anticipates engaging in business mainly in the Product Sales industry segment. See "Notes to Consolidated Financial Statements - Note 16." (c) DESCRIPTION OF BUSINESS The Company was founded to take advantage of the large and growing opportunity to license, acquire, develop and commercialize post-discovery drugs in selected therapeutic categories. The Company has organized its drug development, acquisition and marketing activities to focus on late-stage development drugs in Phase II or Phase III clinical trials and currently marketed prescription pharmaceutical products which (i) do not meet the strategic objectives or profit thresholds of larger pharmaceutical companies or (ii) are made available by government agencies and research institutions. The therapeutic categories targeted by the Company are Cardiovascular, Respiratory, Gynecology/Endocrinology, Urology, Oncology and Gastroenterology. -2- The Company currently markets approved pharmaceutical products in the United States, Canada, the United Kingdom, Ireland, the Benelux countries and several other European countries. The Company has operating subsidiaries in the United States, Canada and the United Kingdom. The Company has determined not to establish a separate operating subsidiary in France and will instead attempt to conduct its business in France through a licensing agreement with a company operating in France. The Company has a broad product portfolio with two New Drug Applications ("NDAs") pending with the U.S. Food and Drug Administration (the "FDA"). PROAMATINE(TM) has an NDA pending for orthostatic hypotension, a condition of low blood pressure. PROAMATINE is also in Phase II trials for stress urinary incontinence. AGRELIN(R) has an NDA pending for thrombocytosis, a condition of excessive platelet production. The Company has five additional late-stage development products. These products are MAXIVENT(R), in Phase III trials for asthma; SOMAGARD(R), in Phase III trials for central precocious puberty and prostate cancer, and in a Phase II stage of development for endometriosis; DIRAME(R) in Phase III trials for pain management; RADINYL, in Phase III trials as a radiosensitizer; and STANATE(TM), in Phase II/III trials for neonatal jaundice. The Company has obtained approval to sell PROAMATINE for the treatment of orthostatic hypotension in Ireland (under the name MIDON(R)) and in Canada (under the name AMATINE(R)), and has obtained approval to sell SOMAGARD for the treatment of central precocious puberty in the United Kingdom and for the treatment of prostate cancer in Ireland. During the initial stages of the growth and development of its business, the Company has marketed and sold certain over-the-counter nonprescription pharmaceuticals, particularly cough and cold and gastro-intestinal products. See "Nonprescription Pharmaceutical Products." The Company has also engaged in certain other diversified nonpharmaceutical business activities, such as providing home and outpatient medical care, marketing and selling medical products to industrial companies, and conducting clinical research for other pharmaceutical companies with respect to the safety and efficacy of their products. See "Homecare and Medical Products" and "Contract Clinical Research." While sales of nonprescription pharmaceutical products and the operations of the nonpharmaceutical businesses have played important roles in the initial stages of the growth and development of the Company, the Company has determined that a continuation of this diversity of operations is inconsistent with its objective of consolidating its resources in order to focus the Company's business operations on licensing, acquiring, developing, marketing and selling prescription pharmaceutical products. Accordingly, in August 1995, the Company announced its decision to divest and seek purchasers for certain non-core business activities, including certain nonprescription pharmaceuticals, certain nonperforming prescription pharmaceuticals, and its home care and medical products divisions ("Homecare"). See "Nonprescription Pharmaceutical Products," "Homecare and Medical Products" and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." Further, in March 1996, the Company announced its decision to discontinue and divest the Company's clinical research business operations, which are conducted through its subsidiary VRG International, Inc. ("VRG"), as a result of (i) the desire to focus the Company's resources on prescription pharmaceuticals, (ii) the substantial reduction of clinical research work under contract as a result of the completion of the clinical research studies under the agreements with Yamanouchi U.S.A. Inc., and (iii) the absence -3- of any other significant clinical research contracts, coupled with the fact that contract clinical research operations are now more highly dependent for customers on other pharmaceutical companies which the Company believes have been hesitant to contract with it since such firms view the Company as a rival and competitor. See "Contract Clinical Research" and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." BUSINESS SEGMENTS Over the past several years, the Company has operated in two business segments: Product Sales and Contract Clinical Research. However, in connection with the adoption by the Company of the plan to discontinue and divest the Contract Clinical Research segment, and the expected sale of such operations before December 1996, the Company anticipates, in the foreseeable future, that its business operations will focus almost entirely on Product Sales. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." A detailed description of each of the Product Sales and Contract Clinical Research business segments is set forth below. PRODUCT SALES SEGMENT PRESCRIPTION PHARMACEUTICAL PRODUCTS As the Company reaches a new phase in its development and growth as a pharmaceutical company, the Company plans to concentrate its business operations primarily on licensing, acquiring, developing, marketing and selling prescription pharmaceutical products. To enhance the Company's presence in its targeted therapeutic categories, the Company has acquired marketed prescription pharmaceutical products from various pharmaceutical companies. These product lines generate cash flow, which contributes partial financial support to the Company's drug development activities, and provide enhanced product sales opportunities for the Company's sales force. In addition, the sale of prescription pharmaceutical products has enabled the Company to establish marketing channels in its targeted therapeutic categories which the Company expects to use to market its late-stage development products after such products are approved for sale. Over the last five years, the Company has acquired the United States and/or foreign product rights for many prescription pharmaceutical products from various pharmaceutical manufacturers such as Pharmacia-Upjohn, Inc., Procter & Gamble Pharmaceuticals, Inc. ("Procter & Gamble"), Bristol-Myers Squibb Company ("Bristol-Myers Squibb"), Glaxo Canada, Inc. ("Glaxo Canada"), Du Pont Merck Pharmaceutical Company ("Du Pont Merck"), Merck and Co., Inc. ("Merck"), Wyeth/Ayerst, G.D. Searle & Co. ("G.D. Searle") and SmithKline Beecham plc ("SmithKline Beecham"). Certain of these products are: CHERACOL(R) (with codeine), a cough/cold product, FURACIN(R), for burn wounds and skin graft infections, FUROXONE(R), for diarrhea, DUVOID(R), for treatment of urinary retention, MEPTID(R), an analgesic, BARATOL(R), for use in treatment of hypertension and peripheral circulatory disorders, ISORDIL(R), an anti-anginal agent, COMHIST(R), for treatment of allergies, QUIBRON(R), a bronchodilator drug used for asthma, PRO-BANTHINE(R), an antispasmodic drug, NORETHIN(TM), an oral contraceptive agent, ETHMOZINE(R) and NORPACE(R), antiarrhythmic cardiovascular drugs, TRANDATE(R), an -4- anti-hypertensive agent, BETNOVATE(R), a dermatological product, SALUTENSIN(R), SALURON(R) and NITRODISC(TM), cardiovascular products, FLORINEF(R), for adrenocortical insufficiency, MUCOMYST(R), for abnormal mucous secretion, K- LYTE(R), for potassium depletion, ELTROXIN(TM), a thyroid drug used for treatment of hypothyroidism, MAXOLON(R), a gastro-intestinal agent used for treatment of nausea and vomiting associated with cancer chemotherapy, MINTEC(R), a gastro-intestinal drug used for symptomatic relief of irritable bowel and spastic colon syndromes in adults, and ESTRACE(R), a line of estrogen replacement therapy products used for symptomatic relief of menopausal symptoms and for the prevention of osteoporosis. In February 1995, the Company entered into an exclusive marketing, sales and distribution agreement with Merck whereby the Company was appointed the exclusive distributor in the United States of the product NOROXIN(R), an antibiotic used for the treatment of urinary tract infections. The agreement is for an initial term of five years and may be extended for an additional two year period upon agreement of the parties. In connection with this arrangement, the Company has agreed to increase its domestic professional sales force significantly. See "Marketing." The agreement requires that the Company purchase all its requirements of finished goods from Merck at agreed upon prices and requires the Company to guaranty certain minimum payments to Merck. These minimum payments decrease over the term of the agreement. In addition, the agreement requires the Company to make additional payments to Merck based upon sales levels achieved. The Company commenced the marketing, sale and physical distribution of NOROXIN under the Company's label and trade dress in April 1995. In March 1995, the Company agreed to pay $29.5 million to SmithKline Beecham to acquire the United States rights to TIGAN(R), a drug used to control nausea and vomiting, and the worldwide rights to EMINASE(R), a thrombolytic agent used in the treatment of acute myocardial infarction to dissolve blood clots obstructing coronary arteries. The purchase price is to be paid out over a five year period and includes inventories, trademarks, NDAs, product licenses, product know-how, customer lists and marketing materials. SmithKline Beecham has agreed to manufacture the products for the Company and to provide certain other services to the Company. From late 1994 until the date of acquisition of these products, the Company was the exclusive distributor of TIGAN and EMINASE pursuant to distribution agreements with SmithKline Beecham. NONPRESCRIPTION PHARMACEUTICAL PRODUCTS In order to facilitate the growth of the Company's business, the Company has always focused a part of its operations on the acquisition, marketing and sale of nonprescription pharmaceutical products. The Company also actively engaged in the development of product line extensions for certain of its nonprescription pharmaceuticals. For example, the Company extended its CHERACOL product line to include CHERACOL(R) Nasal Spray, CHERACOL(R) Throat Spray and CHERACOL(R) Throat Discs, and its PROCORT(TM) product line to include PROCORT 1% Maximum Strength and PROCORT 1% Spray. Some of the nonprescription pharmaceutical products acquired from various pharmaceutical companies and marketed by the Company are CHERACOL D(R) and CHERACOL PLUS(R), cough/cold products, HALTRAN(R), an analgesic, ENTROTABS(R) and ENTEROSAN(R), gastro- intestinal -5- products, COLACE(R) and PERI-COLACE(R), used in the treatment of gastro- intestinal disorders, SQUIBB(R) mineral oil, SQUIBB(R) Glycerin Suppositories and SQUIBB(R) Cod Liver Oil. In August 1995, the Company identified the nonprescription pharmaceuticals as a non-core business activity and made the decision to divest these products, except for COLACE and PERI-COLACE which are well known, high volume products that do not require significant promotional outlays to establish and maintain consumer brand recognition and the demand for which is not susceptible to uncontrollable seasonal factors. LATE-STAGE DEVELOPMENT PRODUCTS The Company has a portfolio of seven late-stage development products. Rights to these late-stage development products were acquired by the Company after substantial value had been added to the products through research activities conducted by others. The Company's objective is to continue the development of these late-stage products and bring them to market. Sales of products acquired from other pharmaceutical companies, and sales of the Company's prescription and nonprescription pharmaceutical products, have enabled the Company to develop a marketing and sales infrastructure to facilitate sales of these late-stage products, if approved. THERAPEUTIC CATEGORY - CARDIOVASCULAR PROAMATINE(TM). In 1985, the Company acquired from Hafslund Nycomed Pharma AG ("Hafslund Nycomed Pharma") exclusive marketing rights in the United States, Canada, the United Kingdom and Ireland to PROAMATINE (midodrine), formerly AMATINE(R), a drug used for the treatment of orthostatic hypotension and other blood pressure disorders. Orthostatic hypotension is a condition involving the sudden drop in blood pressure upon assuming an upright posture, resulting in dizziness, weakness or unconsciousness. Current therapies used to treat the condition are associated with significant adverse side effects such as potassium reduction, fluid retention and cardiac and central nervous system disorders. PROAMATINE has an NDA pending for orthostatic hypotension. In March 1996, the FDA requested additional information regarding the Company's NDA for PROAMATINE. The FDA noted that while PROAMATINE has a clear pressor effect in both the supine and standing positions, the Company must provide further data before the drug can be approved for the treatment of orthostatic hypotension. The Company is reviewing the details of the FDA's request for further data and how to satisfy the apparent deficiency. No FDA approved treatment for orthostatic hypotension is currently available. In 1990, the Company was granted approval by the Irish National Drugs Advisory Board to market PROAMATINE for use in the treatment of orthostatic hypotension in Ireland, where the drug is sold under the name MIDON. In 1991, the Company obtained regulatory approval in Canada for the sale of PROAMATINE for use in the treatment of orthostatic hypotension in Canada, where the drug is sold under the name AMATINE. AMATINE is sold in Canada by the Company's licensee, Knoll Pharma Inc. ("Knoll") -6- (formerly Boots Pharmaceuticals Ltd.). PROAMATINE is currently in Phase III clinical trials in the United Kingdom. The Company has commenced studies to evaluate the efficacy of PROAMATINE for use in the treatment of other forms of hypotension, including hemodialysis- induced hypotension and familial dysautonomia. If such studies are successful, the Company intends to apply for FDA and foreign regulatory approval of such uses. AGRELIN(R). In 1991, the Company obtained an exclusive worldwide license from Bristol-Myers Squibb to develop, market and sell AGRELIN (anagrelide), which is being developed as an oral treatment for thrombocytosis, a blood disorder characterized by high blood platelet counts and an abnormally high incidence of adverse blood clotting events including heart attack and stroke. There is evidence that some patients with increased platelet counts have thrombosis or hemorrhage which can be treated successfully by lowering the platelet count. AGRELIN is intended to inhibit excessive platelet production and reduce the morbidity and mortality of heart attack and stroke in thrombocytosis patients. Current therapies used to reduce excessive platelet production have distinct disadvantages, such as carcinogenesis, leukopenia and anemia. Based on the results of Phase III clinical trials, the Company believes that AGRELIN does not have the disadvantages associated with the other therapies because it only affects the production of platelets and has no effect on other blood cells. AGRELIN has an NDA pending for thrombocytosis. The Company has received notice from the FDA that the Company's NDA for AGRELIN was officially accepted for filing, effective January 29, 1996. According to regulations, unless extended for administrative reasons, the FDA now is obliged to complete the NDA review and determine the approvability of AGRELIN within 180 days. AGRELIN is currently in Phase III trials in Canada and Europe. AGRELIN has been accepted by the European Community regulatory authorities as a "List B" Product, which includes those products considered to be major therapeutic advances. The Company plans to combine its United States and European data for submission to the European Community regulatory authorities through the European Community concertation procedure ("CPMP"), commencing with the United Kingdom. If approved by the member states using the CPMP procedure, AGRELIN would receive simultaneous approval throughout the European Community. THERAPEUTIC CATEGORY - RESPIRATORY MAXIVENT(R). In 1984, the Company obtained an exclusive license from ABC Laboratories of Italy ("ABC") to develop and market MAXIVENT (doxofylline) in the United States, Canada and Japan and, in 1989, obtained a nonexclusive license to develop and market the drug in the United Kingdom and Ireland. MAXIVENT is an oral bronchodilator intended for use in the treatment of asthma. Common asthma is a condition involving the periodic constriction of the airways resulting in labored and often painful breathing. Treatment is generally provided by means of bronchodilator drugs which relieve the constriction of the airways and, in turn, the distress of an attack. The most commonly used oral bronchodilator is theophylline, a drug with good efficacy but which is capable of producing certain undesirable side effects such as -7- disturbances in heart rhythm, central nervous system irritability, convulsions, gastro-intestinal distress and excess urination. Phase II clinical studies and Phase III clinical trials indicate that MAXIVENT appears to be comparable in efficacy to theophylline; however, unlike theophylline, MAXIVENT does not appear to produce a high incidence of adverse side effects. The Company has completed Phase III trials and anticipates filing an NDA for MAXIVENT during 1996. MAXIVENT has been approved for commercial sale in Italy and is currently being sold in that country under the tradename "ANSIMAR" by the Company's unaffiliated licensor, ABC. THERAPEUTIC CATEGORY - GYNECOLOGY/ENDOCRINOLOGY SOMAGARD(R). In 1988, the Company acquired rights from the Salk Institute to manufacture and market SOMAGARD (deslorelin) in the United States and in certain foreign countries, including the United Kingdom and Canada. SOMAGARD is being developed for the treatment of central precocious puberty in children, an endocrine disorder that results in premature release of hormones, and endometriosis in women. Published reports of long-term studies conducted by the National Institutes of Health have indicated that the administration of SOMAGARD inhibits the release of hormones which cause the abnormal maturation process and causes a return to normal growth rates. The Company has completed Phase III trials and anticipates filing an NDA in 1996 for SOMAGARD for use in the treatment of central precocious puberty. The Company currently markets the product SUPPRELIN(R) (histrelin), an orphan drug, for central precocious puberty. See "Government Regulation." The Company believes that SOMAGARD will complement SUPPRELIN. A depot formulation of SOMAGARD is being developed which will require less frequent injections. The Company intends to market SOMAGARD, if approved by the FDA, to endocrinologists and managed healthcare organizations through the marketing channels that it has established for SUPPRELIN. SOMAGARD also is being developed as a treatment for endometriosis. A number of Phase II clinical trials for this indication have been conducted and the Company plans to commence Phase III clinical trials. Endometriosis is a gynecologic abnormality which may result in pain, infertility and sexual and bowel dysfunction. Published reports of studies conducted by the National Institutes of Health indicate that SOMAGARD relieves pain and restores normal sexual and bowel function in women with this condition. STANATE(TM). In 1994, the Company acquired the exclusive worldwide rights from The Rockefeller University to develop, manufacture, market and sell STANATE(TM) (SN-mesoporpyrin), which is being developed for the treatment of hyperbilirubinemia in neonates, a condition caused by an accumulation of excessive levels of bilirubin produced by the liver. Unless treated, hyperbilirubinemia can result in jaundice, brain damage and death. Bilirubin is excreted by the liver pursuant to a metabolic step requiring the presence of an enzyme which, studies have shown, is not fully functional in many early term and full term neonates. STANATE is intended to inhibit the accumulation of excessive levels of -8- bilirubin in neonates and to provide neonate enzyme systems with an opportunity to mature and take over the normal elimination of bilirubin. The most common treatment for hyperbilirubinemia in neonates involves phototherapy which requires exposure to a light source in order to stimulate the temporary excretion of bilirubin by the kidneys. Phototherapy is often not fully effective and requires many hours and sometimes several days of exposure to light with resulting maternal separation, extensive nursing supervision and related time-sensitive costs. In contrast, STANATE is administered by injection and clinical studies have shown that one dose is generally all that is necessary for treatment purposes. STANATE is currently in Phase II/III clinical trials. THERAPEUTIC CATEGORY - UROLOGY PROAMATINE. In addition to its use in the treatment of blood pressure disorders, PROAMATINE is currently sold in several countries by unaffiliated third parties to treat stress urinary incontinence, the involuntary loss of urine from the bladder. There is no approved therapy for stress urinary incontinence in the United States. PROAMATINE is an alpha agonist which increases the tension of the urinary sphincter, thereby preventing the involuntary loss of urine from the bladder. The Company is conducting a Phase II clinical program in the United States for the use of PROAMATINE in the treatment of stress urinary incontinence. THERAPEUTIC CATEGORY - ONCOLOGY RADINYL. In 1985, the Company obtained from the United States government rights to manufacture and sell the product RADINYL (etanidazole), a radiosensitizer being developed to enhance the anticancer effects of radiation therapy and a chemosensitizer being developed to increase the effectiveness of other anticancer drugs. For use in conjunction with radiotherapy, RADINYL is currently in Phase III clinical trials in patients with advanced head and neck cancer. The patients enrolled in these trials in the United States and Europe were randomized to receive either RADINYL in conjunction with radiotherapy or radiotherapy alone. There is a five-year review period for each patient following the course of radiotherapy. The review period for the U.S. trials will be complete in the Fall of 1996 and the review period for the European trials was completed at the end of 1995. Phase I and Phase II clinical studies are being conducted with RADINYL to determine its potential in increasing the effectiveness of other anticancer drugs in the treatment of brain, lung, prostate and bladder cancer and its potential for use with brachytherapy, a technique involving the direct implant of a radioactive source into or adjacent to large tumors. DIRAME(R). In 1992, the Company obtained exclusive worldwide rights from Bayer AG ("Bayer") to develop and market DIRAME (propiram), a potent, centrally acting analgesic with low addiction potential intended for use in the control of moderate to severe acute or chronic pain. See "Government Regulation." -9- DIRAME is in Phase III clinical trials which indicate that the compound appears to be safe and effective in patients with various kinds of acute and chronic pain. A joint venture from which Bayer obtained the rights to DIRAME had initially filed an NDA for DIRAME. Subsequent to such filing, the FDA required additional studies regarding the drug. The Company is now addressing the issues raised by the FDA and, in 1993, commenced long-term carcinogenicity studies on two species of laboratory animals and other clinical studies. In order to complete its NDA filing, the Company believes it must complete these studies and a Phase III clinical trial involving approximately 300 patients. SOMAGARD. In addition to the treatment of central precocious puberty and endometriosis, SOMAGARD has been studied as adjunctive treatment for prostate cancer. Other treatments for prostate cancer such as surgery and/or radiotherapy are often precluded because the cancer has spread to the bones. As a result, castration, hormonal therapy or chemotherapy are often the only available treatments. SOMAGARD is being evaluated by the Company as an alternative to these procedures. The Company has filed a Product License Application (NDA equivalent) for SOMAGARD for treatment of prostate cancer in the United Kingdom and has obtained approval from the Irish regulatory authorities to market the product for this indication. Use of SOMAGARD for the treatment of prostate cancer in the United States is in Phase III clinical trials. LICENSE AGREEMENTS The Company has obtained rights to the late-stage drugs currently being developed by it through license agreements with pharmaceutical companies, government agencies and research based institutions and has sublicensed certain of these rights to pharmaceutical companies through license and/or marketing agreements. A discussion of these agreements is provided below. PROAMATINE Agreements. In 1985, the Company entered into a license ---------------------- agreement with Hafslund Nycomed Pharma pursuant to which the Company obtained exclusive rights to develop and market the product PROAMATINE in the United States, Canada, the United Kingdom, Ireland and certain other countries. The agreement was amended in January 1994 to, among other things, provide for a reduction in the delivery price of midodrine to the Company in any territory covered by the agreement for a five year period commencing upon the Company's launch of the product in any such territory and the addition of minimum sales requirements which must be achieved by the Company in the territories covered by the agreement in order to maintain exclusivity. The Company's agreement with Hafslund Nycomed Pharma, as amended, obligates it to develop PROAMATINE and obtain governmental approval to market the product in the licensed territories. The Company is obliged to pay a royalty to Hafslund Nycomed Pharma on sales of PROAMATINE by the Company and its distributors and must purchase its requirements of PROAMATINE from Hafslund Nycomed Pharma. In 1991, the Company entered into a marketing agreement with Knoll which granted Knoll the exclusive right to market and sell PROAMATINE in Canada (under the name AMATINE) for use in the treatment of orthostatic hypotension. -10- AGRELIN License Agreement. In 1991, the Company entered into a license -------------------------- agreement with Bristol-Myers Squibb pursuant to which the Company obtained exclusive worldwide rights to develop and market AGRELIN. The Company is obliged to fund the continued development and registration of AGRELIN, make an additional payment upon FDA approval and pay royalties on sales of the drug. In 1994, the Company entered into a distribution agreement with Swedish Orphan AB ("Swedish Orphan") for the distribution and sale of AGRELIN in the Nordic countries of Norway, Sweden, Finland, Denmark and Iceland. AGRELIN is not yet approved in the Nordic countries and, as part of the distribution agreement, Swedish Orphan is responsible for obtaining regulatory approval. If regulatory approval is obtained, the Company will supply finished goods to Swedish Orphan which will provide physical distribution along with marketing and sales support. MAXIVENT Agreements. In 1984, the Company obtained an exclusive license -------------------- from ABC to develop and market MAXIVENT in the United States, Canada and Japan and, in 1989, obtained a nonexclusive license to develop and market the drug in the United Kingdom and Ireland. The exclusive license agreement requires the Company to develop the product and obtain the requisite FDA and other approvals. Each of the exclusive and nonexclusive license agreements requires the Company to purchase its requirements of the bulk drug substance from ABC. If the Company does not meet certain sales levels to be agreed upon, ABC may terminate the exclusive license agreement, appoint additional licensees in the United States, Canada and Japan or market the product directly or through third parties in the United Kingdom and Ireland. In 1993, the Company entered into an agreement with two Japanese pharmaceutical companies, Sawai Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co., Ltd., pursuant to which the Company granted such companies exclusive rights to co-develop doxofylline in Japan. The agreement was entered into after the two Japanese pharmaceutical companies exercised an option to acquire such rights previously granted to them by the Company. SOMAGARD License Agreement. In 1988, the Company and the Salk Institute --------------------------- entered into a license agreement pursuant to which the Company obtained certain rights to develop and market the product SOMAGARD in the United States and certain foreign markets, including the United Kingdom and Canada. Under the terms of the license agreement, the Company is required to pay royalties on sales of SOMAGARD in countries in which the Salk Institute has obtained patents. DIRAME License Agreement. In 1992, the Company entered into a license ------------------------- agreement with Bayer with respect to the product DIRAME. Pursuant to this agreement, the Company acquired exclusive worldwide rights from Bayer to develop, manufacture and market the product DIRAME. The Company paid an up- front royalty to Bayer for rights to develop and market DIRAME. The Company must also pay Bayer licensing fees and royalties on sales. RADINYL Agreements. In 1985, the United States government and the Company ------------------- entered into a license agreement pursuant to which the Company obtained certain rights to develop and market the product RADINYL. The license granted to the Company is -11- exclusive for seven years from the date of the first commercial sale of the product and nonexclusive thereafter. The agreement pursuant to which the license has been granted requires the Company to pay certain patent maintenance fees and royalties to the United States government. In 1985, the Company and Hafslund Nycomed Pharma formed a joint venture company known as Linz-Roberts, Inc. ("Linz-Roberts") to develop RADINYL. The Company and Hafslund Nycomed Pharma each own 50% of the common stock of Linz- Roberts. The Company contributed its license to RADINYL to Linz-Roberts and the Company has been granted an exclusive license by the joint venture to manufacture and distribute RADINYL dosage forms in the United States, Canada, the United Kingdom and Ireland. Hafslund Nycomed Pharma has been licensed on an exclusive basis to manufacture and distribute RADINYL dosage forms in Europe (except the United Kingdom and Ireland), the Middle East and Africa. Both parties have the right to grant sublicenses. Hafslund Nycomed Pharma has been designated the supplier of bulk RADINYL substance, and the joint venture has contracted to purchase its entire requirements of bulk RADINYL substance from Hafslund Nycomed Pharma, provided that Hafslund Nycomed Pharma can meet certain price requirements and supply all required quantities. Linz-Roberts has retained the right to distribute RADINYL in the territories not licensed to the Company or Hafslund Nycomed Pharma. STANATE License Agreement. In 1994, the Company and The Rockefeller -------------------------- University entered into a license agreement pursuant to which the Company acquired the exclusive worldwide rights to develop, manufacture, market and sell STANATE. The Company paid an up-front license fee to Rockefeller University for the rights to develop, manufacture, market and sell STANATE. The Company must also pay Rockefeller University annual licensing fees and royalties on sales. MARKETING The Company markets and sells its products primarily through its own sales force and through a network of brokers and distributors. During 1995, the Company's marketing and sales force increased by more than 50% in order to promote actively the Company's products, mainly in connection with the commencement of the sale of TIGAN, EMINASE and NOROXIN. Pursuant to the Company's exclusive marketing, sales and distribution agreement with Merck with respect to NOROXIN, the Company agreed to increase its domestic professional sales force significantly and to make a fixed number of medical presentations to medical specialists in order to promote NOROXIN actively. See "Prescription Pharmaceutical Products." The Company is currently positioning its sales operation to impact selected physician specialties and major buying and decision making entities, such as managed care organizations and large retail and mass merchandise operations. With the growing trend in the United States of providing health care through some form of managed care program, the Company has stepped up its selling efforts of prescription products to such managed healthcare organizations. In an effort to increase its sales to managed healthcare organizations, the Company has employed national account managers to focus efforts on this growing market. Various marketing, promotion, sales and training programs have been -12- initiated to improve the Company's penetration of the managed healthcare market and increase product sales to managed healthcare organizations. In October 1995, the Company hired a contract sales organization, Syncom Pharmaceuticals, Inc. ("Syncom"), to assist with a pediatric promotional program involving TIGAN, NUCOFED and FUROXONE, and a cardiovascular promotional program involving NITRODISC. Pursuant to the terms of the agreement between Syncom and the Company, Syncom will hire and train approximately seventy-five sales representatives who will call upon a select physician audience to promote TIGAN, NUCOFED, FUROXONE and NITRODISC. Syncom shall receive a fixed fee for each physician call made and a service fee for establishing a series of pediatric product line territories. Initially, Syncom shall promote the pediatric program for a period of ten (10) months, and the cardiovascular program for a period of twelve (12) months. The Company can extend the agreement for a period of four months. MANUFACTURING The Company engages contractors, primarily large pharmaceutical companies, to convert active ingredients into finished drug products. In most instances where the Company has acquired the rights to approved products from other pharmaceutical companies, the seller or licensor has agreed to manufacture the Company's requirements of the products for a specified period of time. The manufacturing activities conducted by third parties for the Company consist of the receipt and storage of materials, purification, production, packaging and labeling. The Company has established a manufacturing department which is responsible for (i) monitoring the manufacturing operations of its contractors, (ii) inventory control, and (iii) quality control. The Company's manufacturing department has established a quality control and quality assurance program, including a set of standard operating procedures, designed to assure that the Company's products are manufactured in accordance with good manufacturing practices standards ("GMP") and other applicable domestic and foreign regulations. HOMECARE AND MEDICAL PRODUCTS In 1994, the Company reorganized Homecare under the name "Pronetics Health Care Group." Through four subsidiary entities of the Company, located in South Carolina, North Carolina, New York and New Jersey, Homecare distributes high value prescription injectable and biotechnology pharmaceutical products for physician office use and provides medical and other health oriented therapies in home and outpatient settings. The products distributed by Homecare include specialty endocrinology, oncology and biotechnology products for nationwide distribution to physicians and a series of products for use in the treatment of AIDS patients, such as recombinant erythropoietin. Homecare operates a licensed, certified and isolated clean room laboratory at its South Carolina location where it prepares many of the drugs that it distributes. The home and outpatient therapeutic services offered by Homecare include enteral and parenteral nutritional support, IV antibiotic therapy, investigational drug therapies, chemotherapy, pain management, HIV/AIDS therapies, human growth hormone therapy and home infusion therapy. Through a division of the Company, Roberts Medical Products, Homecare markets medical products to industrial companies -13- through catalogs, advertising flyers, telemarketing, direct physician office visits and at local, regional and national medical conventions. In August 1995, the Company announced its decision to discontinue and divest certain non-core, nonpharmaceutical business activities, including the operations of Homecare, which are no longer compatible with the Company's objective of growing and developing a pharmaceutical company with a primary focus on the sale of prescription drugs. While Homecare's businesses had a role in the initial stages of the Company's growth and development, these businesses never represented a significant portion of the Company's consolidated revenue or earnings. The Company believes that by narrowing its business mix through divestment of these non-core businesses, the Company can realize certain significant benefits such as (i) a more efficient and focused deployment of the Company's resources towards the sale of prescription pharmaceuticals; (ii) the opportunity to allocate more of the Company's resources towards moving the Company's late-stage development drugs through the Company's research and development pipeline; and (iii) the ability to provide greater management control over the Company's core business operations. The Company is continuing the process of reviewing divestment opportunities for Homecare and is actively soliciting offers for the assets of these businesses. The Company already has sold many of the assets of the medical products division. The Company expects to complete the sale of the Homecare businesses in 1996. For financial reporting purposes, the operations of Homecare have been accounted for as discontinued operations and reported separately from the results of the Company's continuing business operations. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements - Note 16." PATENTS AND PROPRIETARY RIGHTS The Company considers the protection of discoveries in connection with its development activities important to its business. To date, the Company has acquired certain foreign patents acquired in connection with the acquisition of certain products and has filed applications for patents covering new processes for manufacturing anagrelide, the active ingredient in AGRELIN. Additionally, rights to patented technology have been licensed to the Company. The late-stage products being developed by the Company which are afforded patent protection are: AGRELIN - patents issued 1976, 1980 and 1982 and applications filed in 1996; MAXIVENT - patent issued 1980; SOMAGARD - patent issued 1980; DIRAME - patent issued 1978; RADINYL - patent issued 1983; and STANATE - patents issued 1987, 1988, 1992 and 1993. The SOMAGARD patent applies to the use of the product for the treatment of precocious puberty and prostate cancer in males. Certain of the Company's products may be afforded protection under laws which provide market exclusivity for orphan drugs and drugs which include a new active ingredient. See "Government Regulation." CONTRACT CLINICAL RESEARCH SEGMENT Since its inception, the Company, through its subsidiary VRG, has derived a portion of its revenues from contract clinical research. Under these arrangements, the Company is paid a fee to conduct clinical research for pharmaceutical companies that wish to test the safety and efficacy of their products. The Company has primarily conducted studies of -14- investigational new drugs for major multinational pharmaceutical company clients and to a lesser degree performed safety and efficacy tests on a variety of over- the-counter products. The Company has also provided clinical investigation services to pharmaceutical companies to assist them in reducing the time required to introduce new drugs to the market. The Company's integrated clinical research operations have been conducted through fifteen research-dedicated outpatient clinics located in 10 states; an in-house patient recruiting system; a custom designed multi-purpose computerized study tracking system; on-site study coordinators; qualified contract investigators; sophisticated data management and multi-level quality control. In 1992 and 1993, VRG entered into a series of agreements with Yamanouchi, U.K. Limited, a subsidiary of Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"), pursuant to which VRG conducted clinical trials on YM617. These agreements were subsequently assigned to Yamanouchi U.S.A. Inc. ("Yamanouchi U.S.A."), also a subsidiary of Yamanouchi. In 1995, Yamanouchi U.S.A. merged with and into Yamanouchi Group Holding Inc. ("Yamanouchi Group"), also a subsidiary of Yamanouchi, as part of a corporate restructuring, and all assets of Yamanouchi U.S.A.were transferred to the Yamanouchi Group. Yamanouchi Group is a major shareholder of the Company. As required by the terms of the agreements, as amended, VRG completed all work under the agreements by December 31, 1995 and Yamanouchi has paid to VRG the balance of the $30 million contract fee (approximately $28.2 million had been paid to VRG before 1995). The work performed under the Yamanouchi agreements decreased in 1995 and was not replaced by other contracts. This resulted in substantially lower revenue from contract clinical research operations during the fiscal year ended December 31, 1995. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." In 1995, VRG's operations produced a loss, net of tax benefit, of $3.5 million. Consistent with the Company's decision in 1995 to discontinue and divest certain of its non-core, nonpharmaceutical businesses, the Company announced, in March 1996, the adoption of a plan pursuant to which it will discontinue and seek to divest the business operations of VRG. Contract clinical research generally has proven to have lower profit margins than the sale of prescription pharmaceuticals, and the Company believes that, in the future, contract clinical research has lower growth prospects for it than the sale of prescription pharmaceuticals. If the Company continued the operations of VRG, the Company projects that, in the foreseeable future, the operation of its contract research business would continue to produce a net loss. The Company is also faced with the dilemma that contract clinical research operations are now more highly dependent for customers on other pharmaceutical companies which, as the Company continues to grow and develop as a pharmaceutical company with a focus on the sale of prescription drugs, have been hesitant to contract with the Company since such firms view the Company as a rival and competitor. The Company expects that the sale of its contract clinical research operations will be completed before the end of December 1996. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements - Note 16." -15- GENERAL COMPETITION Many companies, including large pharmaceutical, chemical and biotechnology firms with financial and marketing resources and research and development staffs and facilities substantially greater than those of the Company, are engaged in researching, developing, marketing and selling products intended to treat the same conditions and diseases as the products currently sold and under development by the Company. Further, other products now in use or under development by others may be intended to treat the same conditions as the Company's products. The pharmaceutical industry is characterized by rapid technological advances, and competitors may develop products more rapidly than the Company. In addition, competitors may be able to complete the regulatory approval process sooner than the Company, and therefore market their products earlier than the Company can market certain of its products. GOVERNMENT REGULATION The marketing of pharmaceutical products requires the approval of the FDA and comparable agencies in foreign countries. The FDA has established guidelines and safety standards which apply to the preclinical evaluation, clinical testing, manufacture and marketing of pharmaceutical products. The process of obtaining FDA approval for a new drug can take many years and often involves the expenditure of substantial resources. The steps required before such a product can be produced and marketed for human use include preclinical studies, the filing of an IND, human clinical trials and the approval of an NDA. Drug marketing exclusivity protection is granted through the Orphan Drug Act of 1983 (the "Orphan Drug Act") and the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the "Waxman Hatch Act"). The Orphan Drug Act entitles a company to market exclusivity in the United States for a period of seven years from the date of FDA approval for drugs which, among other criteria, are intended to treat a patient population of less than 200,000. Three of the Company's late-stage drugs, PROAMATINE for idiopathic orthostatic hypotension, SOMAGARD for central precocious puberty and AGRELIN for thrombocythemia, have been granted "orphan drug status" in the United States. Certain provisions of the Waxman-Hatch Act grant market exclusivity in the United States for a period of five years from the date of FDA approval for drugs containing a new active ingredient. Based upon its review of industry and government data, the Company believes that DIRAME may qualify for this protection. The manufacturing processes of the Company's contractors and licensees are subject to regulation, including the need to comply with GMP. The Company's business is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Drug Enforcement Act, the Resource Conservation and Recovery Act, the Pharmaceutical Marketing Act of 1988 and other present and potential future federal, state or local regulations. The Company's subsidiaries operating as part of Homecare are subject to federal laws and regulations which govern reimbursement procedures and practices under the -16- Medicare program and impose certain restrictions on both the manner in which the services are provided as well as on the manner in which certain administrative activities are handled. In addition, these subsidiaries are subject to federal environmental laws and regulations regarding the disposal of toxic and infectious waste. However, with the adoption of the plan to discontinue the operations of Homecare, the Company anticipates that these laws and regulations will not have a significant effect on its business operations in the future. The Company markets various products containing controlled substances that are subject to the Department of Justice, Drug Enforcement Administration regulations. Distribution of prescription drugs classified as controlled substances or, in some cases, other pharmaceutical products, is subject to licensing or regulation in certain states. Generally, the entity engaged in the actual distribution is subject to such regulation. In addition, state licensing is generally required in the state in which such entity's principal place of business is located. United States Federal and state governments continue to seek means to reduce costs of Medicare and Medicaid programs, including placement of restrictions on reimbursement for, or access to, certain drug products. Major changes were made in the Medicaid program under the Omnibus Budget Reconciliation Act of 1990 (the "Act"). As a result, the Company entered into a Medicaid Rebate Agreement ("Rebate Agreement") with the United States Government, under Section 4401 of the Act. Pursuant to the Rebate Agreement, in order for federal reimbursement to be available for prescription drugs under state Medicaid plans, the Company must pay certain statutorily prescribed rebates on Medicaid purchases. Effective July 1, 1991, the law also denies federal Medicaid reimbursement for drug products of the original NDA-holder if a less expensive generic version of such drug is available from another manufacturer, unless the prescriber indicates on the prescription that the branded product is medically necessary. In most other markets, governments exert controls over pharmaceutical prices either directly or by controlling admission to, or levels for, reimbursement by government health programs. The nature of such controls and their effect on the pharmaceutical industry vary greatly from country to country. EMPLOYEES As of March 22, 1996, the Company had 483 employees, including 4 officers, 40 persons engaged in research and development activities and 257 persons engaged in marketing and sales activities. In addition to its full-time staff, the Company engages medical doctors and other professional personnel on a consultancy basis and, from time to time, consultants and others on a per diem or hourly basis. The Company believes its relations with its employees are satisfactory. -17- FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Financial Information about Foreign and Domestic Operations is presented in Note 14 to the Company's financial statements. See "Notes to Consolidated Financial Statements -Note 14." ITEM 2. PROPERTIES The Company's worldwide headquarters is located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey. The building housing the Company's worldwide headquarters, which was purchased by the Company in 1992 and occupied in 1993, consists of an aggregate of 80,000 square feet. The Company owns an office and warehouse building consisting of 30,300 square feet, which is located across the street from the Company's worldwide headquarters. The Company uses this building for the warehousing of Company records, archives, certain offices and facilities. The Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., occupies 3,800 square feet of leased office space in the Surrey Research Park in Guildford, Surrey, England, 30 miles south of London. The monthly rental for these offices is approximately 6,500 British pounds. The Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., occupies 4,122 square feet of leased office space in Ontario, Canada. The lease provides for a monthly rental of $4,122, Canadian currency. The Company also leases office space in several other locations in the United States and certain foreign countries. ITEM 3. LEGAL PROCEEDINGS On April 10, 1995, a shareholders' class action suit was instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer by Grace Cowitt on behalf of all persons who purchased shares of the Company's Common stock between November 7, 1994 and March 22, 1995. On June 26, 1995, a similar shareholders' class action suit was instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers and a former officer by Dieter Zander on behalf of all persons who purchased shares of the Company's Common Stock between November 7, 1994 and May 31, 1995. Each complaint asserts claims against the Company and certain of its officers and a former officer for violations of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder with respect to press releases and filings with the Securities and Exchange Commission and certain public statements allegedly made by the Company and certain of its officers and a former officer relating to the Company's business. The plaintiffs seek to recover damages in an unspecified amount. The Company believes that it has complied with all of its obligations under the federal securities laws and considers the plaintiffs' allegations to be without merit. In October 1995, the suit filed by -18- Dieter Zander was voluntarily dismissed by the plaintiff. The Company is vigorously defending against the allegations in the remaining suit and discovery proceedings have commenced. The District Court has not yet certified the lawsuit as a class action. The Company is not able to predict the outcome of this proceeding at this time, and management is not able to determine the amount of the potential liability, if any. There are no additional material legal, governmental, administrative or other proceedings pending against the Company, any of its subsidiaries or any of their properties, or to which the Company or any such subsidiary is a party, and to the knowledge of management, no such material proceedings are threatened or contemplated. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter ended December 31, 1995, no matter was submitted to a vote of the Company's security holders through the solicitation of proxies or otherwise. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of March 22, 1996 are listed below and brief summaries of their business experience and certain other information with respect to each of them is set forth in the following table and in the information which follows the table. The executive officers of the Company are as follows:
NAME AGE POSITION - --------------------------- --- ----------------------------- ROBERT A. VUKOVICH, Ph.D. 52 President and Chief Executive Officer ROBERT W. LOY 58 Executive Vice President PETER M. ROGALIN 53 Vice President, Treasurer and Chief Financial Officer ANTHONY A. RASCIO, ESQ. 53 Vice President, Secretary and General Counsel
______________________ Robert A. Vukovich, Ph.D., has served as Chairman of the Board and President of the Company since its inception in 1983. From 1979 to 1983, he served as Director of the Division of Developmental Therapeutics for Revlon Health Care Group. From 1970 to 1974, Dr. Vukovich was employed in various capacities by the Squibb Institute and served as Director of Clinical Pharmacology for that organization from 1974 to 1979. Prior to 1970, Dr. Vukovich was a clinical research scientist for The Warner Lambert Research Institute. -19- Dr. Vukovich is a graduate of Jefferson Medical College, Philadelphia, Pennsylvania, with training in pharmacology and pathology. Robert W. Loy has served as Executive Vice President of Operations and New Business Development since March 4, 1996. Mr. Loy served as Chief Operating Officer of the Company from August 1992 to March 1996 and as Vice President of the Company from December 1992 to March 1996. Mr. Loy has served as a Director of the Company since October 1993. From 1963 to 1990, he held various positions at Squibb Corporation, including that of Vice President, Worldwide Operations for the Squibb Derm Division. From 1990 to 1992, Mr. Loy served as Vice President, International Sales and Marketing, with Hollister, Inc. Mr. Loy received his undergraduate degree from Old Dominion University and attended Villanova University Graduate School. Peter M. Rogalin has served as Vice President, Treasurer, Chief Financial Officer and a Director of the Company since February 5, 1996. From 1978 to 1992, Mr. Rogalin was employed in various executive capacities by Sterling Winthrop, Inc. (formerly Sterling Drug, Inc.), including Assistant Treasurer from 1987 through 1992. From 1993 through July 1994, Mr. Rogalin was a Principal in RK Associates, a consulting firm with specific expertise in financial and business operations and systems for small and medium sized companies. From July 1994 through January 1996, Mr. Rogalin served as Vice President -Finance and Chief Financial Officer of ImClone Systems, Inc., a biopharmaceutical company engaged in research and development of therapeutic products for the treatment of cancer and cancer related disorders. Mr. Rogalin, a Certified Public Accountant, received his undergraduate degree from St. Lawrence University and an M.B.A. from the Graduate School of Business, New York University. Anthony A. Rascio, Esq., has served as Vice President and General Counsel and a Director of the Company since June 1987. In addition, he served as Assistant Secretary of the Company from 1987 to 1992, at which time he assumed the position of Secretary of the Company. From January 1987 to June 1987, Mr. Rascio was Director, Legal Affairs for the Company. During 1986, Mr. Rascio was engaged in the private practice of law. From 1984 through 1985, Mr. Rascio was employed as Director, International Operations by Jeffrey Martin, Inc., a marketer of cosmetics and proprietary medicines. Mr. Rascio served as Legal Director, International Pharmaceutical Products Division for Schering-Plough Corporation from 1980 through 1984 and held various legal positions with that company from 1971 to 1980. Mr. Rascio received undergraduate and law degrees from Fordham University. -20- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market on the NASDAQ National Market System and was held by approximately 931 shareholders of record as of March 22, 1996. The following table sets forth, for the periods indicated, the high and low last sale prices for the Company's Common Stock, as reported on the NASDAQ National Market System.
High Low ------- ------- YEAR ENDED DECEMBER 31, 1994 First Quarter $40 $28 1/2 Second Quarter $33 1/2 $20 1/4 Third Quarter $35 $19 3/4 Fourth Quarter $33 1/2 $24 3/4 YEAR ENDED DECEMBER 31, 1995 First Quarter $46 1/2 $24 3/4 Second Quarter $28 $15 1/2 Third Quarter $26 1/2 $17 Fourth Quarter $23 3/4 $15 3/4
The Company has not paid any cash dividends on its Common Stock in the past, and it is unlikely that the Company will pay any dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data for the Company for each of the five fiscal years in the period ended December 31, 1995 are derived from financial statements that have been audited and reported upon by Coopers & Lybrand L.L.P., independent accountants for the Company. This data should be read in conjunction with "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's consolidated financial statements and related notes appearing elsewhere in this report. Further, in connection with the discontinuation of the operations of Homecare and VRG, the Company has restated the selected financial data to reflect income and loss from the Company's continuing operations and discontinued operations during these years. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements - Note 16." -21-
OPERATING STATEMENT DATA: Years Ended December 31, - ----------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 ------- -------- -------- -------- -------- (in thousands, except per share data) Total Revenue $12,792 $ 18,407 $ 57,561 $ 89,020 $113,427 Operating Income (loss) from Continuing Operations (4,938) (9,986) 7,850 25,802 6,873 Income (loss) from Continuing Operations before Extraordinary Item (5,144) (8,473) 6,415 20,618 2,703 Net Income (loss) from Continuing Operations (5,144) (8,473) 6,415 20,618 2,703 Net (Loss) Income from Discontinued Operations 18 (327) 813 (1,206) (27,045) Net (Loss) Income (5,126) (8,800) 7,228 19,412 (24,342) Earnings (loss) Per Share of Common Stock from Continuing Operations before Extraordinary Item (.58) (.61) .41 1.10 .15 Earnings (loss) Per Share of Common Stock from Continuing Operations (.58) (.61) .41 1.10 .15 (Loss) Earnings Per Share of Common Stock from Discontinued Operations --- (.03) .05 (.06) (1.45) (Loss) Earnings Per Share of Common Stock (.58) (.64) .46 1.04 (1.30) Average Number of Common Shares Outstanding 8,843 13,770 15,590 18,708 18,623
-22-
BALANCE SHEET DATA: As of December 31 - ----------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 ------- -------- -------- -------- -------- (in thousands) Total Assets $44,150 $185,424 $343,103 $336,192 $340,290 Long-Term Debt and Redeemable Preferred Stock 9,237 28,999 45,668 22,411 16,183 Shareholders' Equity 25,106 121,594 238,999 259,129 235,467
-23- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994 AND 1995 Corporate Revenues. For the year ended December 31, 1995, total ------------------- revenue increased $24.4 million from $89 million to $113.4 million. This increase was the result of a $26 million increase in product revenue offset by a $1.55 million decrease in other revenues. See "Product Sales" and "Other Revenues." Product Sales. For the year ended December 31, 1995, product sales -------------- increased $26 million from $87.4 million to $113.4 million primarily as a result of new product acquisitions in the U.S. and the United Kingdom in 1994 and 1995. Sales in the U.S. increased from $66.2 million to $90.2 million as a result of 1995 product acquisitions and licensing activities. TIGAN and EMINASE, acquired from SmithKline Beecham, and NOROXIN licensed from Merck in 1995, added $48 million. This increase was offset by a $24 million decline in the sales of all other prescription and nonprescription products. Sales of the Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., increased $2.4 million from $9.7 million to $12.1 million. This increase is primarily the result of the 1994 product acquisition of MAXOLON from SmithKline Beecham. Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., decreased slightly to $11.1 million from $11.4 million primarily as a result of a decline in demand for the Company's over-the-counter nonprescription pharmaceutical products. Other Revenues. Other revenues result from licensing activities --------------- undertaken by the Company and represent revenues from separate transactions in 1994 and 1995. For the year ended December 31, 1995, other revenues decreased $1.55 million from $1.6 million to $.05 million primarily as a result of a decline in licensing activities. Cost of Sales. For the year ended December 31, 1995, cost of sales -------------- amounted to 47% of product sales a 25 percentage point increase as compared to the prior year. As a result, gross profit as a percentage of sales decreased from 78% to 53%. This increase in cost of sales as a percentage of product sales and related decrease in gross profit percentage is primarily the result of the addition of NOROXIN to the Company's product mix as well as a decline in sales of higher margin products in the U.S. NOROXIN, which accounted for 31% of the Company's product sales in 1995, has a significantly lower gross profit margin than the other core pharmaceutical products sold by the Company. In the foreseeable future, the Company expects that NOROXIN will continue to provide a substantial part of the Company's product sales and, accordingly, the Company expects that cost of sales and gross profit as a percentage of sales will be similarly impacted. Research and Development. Research and development expenses decreased ------------------------- by $3.4 million to $6.1 million during the year ended December 31, 1995 as compared to the prior year. The decrease is due to a reduced level of expenditure required to support the Company's development programs for AGRELIN and PROAMANTINE. -24- Marketing and Administrative Expenses. For the year ended December -------------------------------------- 31, 1995, marketing and administrative expenses increased $13.3 million from $34.3 million to $47.6 million in larger part as a function of the significant increases in sales and development programs in connection with the acquisition and commencement of sales of TIGAN, EMINASE and NOROXIN during 1995. Marketing expenses increased $7.4 million as a result of increased promotional and sales activities for new products and the expansion and training of the Company's sales forces in the U.S., Canada and the United Kingdom. Included in administrative expenses is amortization of intangibles relating to product acquisitions. For the year ended December 31, 1995, this expense was $6.6 million, an increase of $.9 million from $5.7 million recorded in 1994. Interest Income and Expense. For the year ended December 31, 1995, ---------------------------- interest income decreased from $2.9 million to $2.1 million as a result of a decrease in invested marketable securities. Interest expense decreased from $3.9 million to $3.5 million primarily as a result of a decrease in long-term debt from 1994. Income Taxes. For the year ended December 31, 1995, income taxes on ------------- continuing operations decreased to $2.8 million from $4.1 million in 1994 primarily as a result of a decline in income. The Company's 1995 effective tax rate of 51% is higher than the normal statutory rate primarily as a result of the Company's inability to recognize the tax benefit of foreign net operating loss carry forwards. The Company's 1996 effective tax rate for continuing operations should approximate a normal statutory rate. Income from Continuing Operations. For the year ended December ---------------------------------- 31,1995, net income from continuing operations was $2.7 million, which represents a decrease of $17.9 million from those same business operations during 1994. Certain of the Company's business operations were not discontinued in 1995 and, accordingly, the Company's consolidated statements of operations for 1994 and 1993 have been restated to reflect income and loss from the Company's continuing operations and discontinued operations during those years. See "Notes to Consolidated Financial Statements - Note 16." The Company believes that the decline in net income from continuing operations from 1994 to 1995 is attributable to a number of factors, including (i) a decline in demand for certain of the Company's existing pharmaceutical products, particularly NORETHIN, NITRODISC, SALUTENSIN and the Company's over- the-counter nonprescription pharmaceutical products; (ii) an unanticipated delay in the closing of the Company's agreement with Merck to distribute NOROXIN and the diversion of the Company's sales force from the promotion of existing products to allow for sales training related to NOROXIN; (iii) revenues from the sale of TIGAN and EMINASE during the first quarter of 1995 prior to their acquisition by the Company, during which time the Company was distributing such products subject to distribution agreements with SmithKline Beecham, were not accounted for as revenues by the Company, but instead as a $5.4 million reduction in the purchase price paid by the Company for these products; (iv) the increase in cost of sales as a result of the higher costs related to the sale of NOROXIN and the growing importance of NOROXIN in the Company's product mix; and (v) the costs associated with increasing the Company's sales force by more than 50% in 1995 in order to promote TIGAN, EMINASE and NOROXIN and the fact that the sale of such products did not commence until the end of the first quarter of 1995. -25- Discontinued Operations. In connection with the Company's decision to ------------------------ divest certain non-core, nonpharmaceutical business operations, the Company announced, in August 1995, its plan to discontinue and divest Homecare. In March 1996, the Company announced its plan to discontinue and divest VRG, a contract research organization. The Company expects the sales of Homecare and VRG will be completed in 1996 and will result in a loss to the Company at closing. Accordingly, the Company has charged current operations with the estimated loss on discontinuing Homecare and VRG of $22.5 million. The Company has also reclassified its consolidated financial statements to report separately the net assets expected to be realized and operating results of its discontinued operations. See "Notes to Consolidated Financial Statements - Note 16." The Company's reported loss on discontinued operations represents the Company's best estimates of the amounts expected to be realized on the sale of its discontinued operations. The amounts the Company will realize could differ materially from those amounts assumed by the Company in estimating the loss on disposal reported in the Company's financial statements. YEARS ENDED DECEMBER 31, 1993 AND 1994 Product Sales. For the year ended December 31, 1994, product sales -------------- increased $31.8 million from $55.6 million to $87.4 million primarily as a result of product acquisitions in 1993. Sales in the U.S. increased from $40.4 million to $66.2 million. SALUTENSIN, COLACE, PERI-COLACE and other OTC products acquired from Bristol-Myers Squibb in 1993 added $21 million in the period. Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc., increased $3.5 million from $7.9 million to $11.4 million primarily as a result of product acquisitions in 1993 from Glaxo Canada and Bristol-Myers Squibb. Sales of the Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., amounted to $9.7 million in the current period, a $2.5 million increase from the comparable 1993 period. This increase is primarily the result of the 1994 product acquisition of MAXOLON from SmithKline Beecham. Other Revenues. Other revenues result from licensing activities --------------- undertaken by the Company and represent revenues from separate transactions in 1993 and 1994. In the year ended December 31, 1994, other revenues decreased $.3 million from $1.9 million to $1.6 million. Cost of Sales. For the year ended December 31, 1994, cost of sales -------------- amounted to 22% of product sales, a 6 percentage point decrease as compared to the prior year. The decrease in cost of sales as a percentage of sales is the result of the Company's product mix; that is, increased sales of prescription products as well as prescription product sales comprising a greater percentage of total product sales. As a result, gross profit as a percentage of sales increased from 72% to 78%. Research and Development. Research and development expenses increased ------------------------- by $1.2 million to $9.5 million during the year ended December 31, 1994 as compared to the prior year. The percentage is due to the Company's continued expansion of its late-stage development programs for AGRELIN, MAXIVENT, and DIRAME. Increased costs related primarily to these programs include payments to research scientists and clinical investigators, cost of drug supplies, increased research and development staff and expenses related to monitoring clinical research sites. -26- Marketing and Administrative Expenses. For the year ended December -------------------------------------- 31, 1994, marketing and administrative expenses increased $8.7 million from the $25.6 million incurred in the prior year period in large part as a function of the significant increases in sales and development programs. Marketing expenses increased $7.9 million as a result of increased promotional and sales activities for new products and the expansion and training of sales forces in the United States and Canada. Included in administration expenses is amortization of intangible assets related to product and company acquisitions. For the year ended December 31, 1994, this expense was $5.7 million, a $1.7 million increase over 1993. Interest Income and Expense. Interest income increased from $1.7 ---------------------------- million to $2.9 million as a result of the investment of the proceeds of the Company's October 1993 Common Stock offering. Interest expense increased $.7 million from $3.3 million primarily as a result of the amortization of discounts on non-interest bearing notes issued in connection with product acquisitions in 1993. Income Taxes. For the year ended December 31, 1994, income taxes ------------- increased to $4.1 million. The Company's 1994 effective tax rate of 17 percent is lower than the normal statutory rate primarily as a result of recognizing the tax benefit of federal, state and foreign net operating loss carryforwards and other credits. LIQUIDITY AND CAPITAL RESOURCES In the year ended December 31, 1995, operating cash inflows amounted to $22.8 million as a result of net loss offset by non-cash charges and increased by working capital requirements due to increased sales activity. As of December 31, 1995, the Company had cash, cash equivalents and marketable securities of $30 million. Cash outflows from operations amounted to $.7 million in 1994 and cash inflows from operations in 1993 amounted to $1.6 million, resulting primarily from the Company's development programs and working capital requirements for sales of acquired products. The Company's funding requirements will depend on a number of factors, including the Company's development programs, product acquisitions, the level of resources required for the expansion of marketing capabilities, increased investment in accounts receivable and inventory which may arise from increased sales levels, competitive and technological developments, the timing and cost of obtaining required regulatory approvals for new products, relationships with parties to collaborative agreements and the success of its acquisition activities. The Company will use its existing cash and securities balances and cash generated from operations to fund its operating activities and its near term and long-term debt obligations from previous product acquisitions. In consideration of certain information furnished by the Company to the seller of certain product rights to the Company, the seller agreed to defer to 1996, $8 million of the Company's long-term debt obligations which was due and payable in 1995. Based upon its present plans, the Company believes that it may require additional funding in fiscal 1996. If additional funds are required, the Company believes that it has various alternative funding sources including bank debt, private debt financing, public and private equity financing and the sale or licensing of product rights. -27- Cash equivalents and marketable securities currently consist of immediately available money market fund balances and investment grade securities. Capital Expenditures. Expenditures for fixed assets relate primarily --------------------- to the relocation and expansion of office facilities in the United States by means of a purchase of an office facility and a combination office and warehouse facility. In anticipation of future growth, the Company relocated its corporate headquarters and principal operating facilities into these expanded facilities in the third quarter of 1993. Capital expenditures are not expected to be significant in the near term. Foreign Currency Fluctuations. The Company has subsidiary operations ------------------------------ and performs certain development activities outside of the United States. As a result, the Company is subject to fluctuations in reported revenues and costs reported in United States dollars as a consequence of changing currency exchange rates, especially rates for the British pound. Concentration of Credit Risk. The Company markets prescription ----------------------------- pharmaceuticals primarily to wholesale drug distributors, retail pharmacies, managed healthcare organizations and physicians in the United States and abroad. The Company performs certain credit evaluation procedures and does not require collateral. The Company maintains reserves for estimated credit losses. Inflation. Although at reduced levels in recent years, inflation ---------- continues to apply upward pressure on the cost of goods and services used by the Company. However, the Company believes that the net effect of inflation on its operations has been minimal during the past three years. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data of the Company called for by this item are submitted as a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -28- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to directors of the Company required to be furnished pursuant to this item is incorporated herein by reference to the sections titled "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1996. Certain information relating to executive officers of the Company is set forth in Item 4A of Part I of this Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information pertaining to executive compensation is incorporated herein by reference to the section titled "Election of Directors - Executive Compensation" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information pertaining to security ownership of certain beneficial owners and management is incorporated herein by reference to the sections titled "Principal Shareholders" and "Security Ownership of Management" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to this item is incorporated herein by reference to the section titled "Agreements with Yamanouchi and Certain Other Transactions" from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in May 1996. -29- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. Reference is made to the Index of Financial Statements and Financial Statement Schedules hereinafter contained............................... F-1 3. EXHIBITS Reference is made to the Index of Exhibits hereinafter contained................................ E-1 (b) REPORTS ON FORM 8-K During the fourth quarter ended December 31, 1995, no reports on Form 8-K were filed by the Company with the Securities and Exchange Commission. -30- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROBERTS PHARMACEUTICAL CORPORATION ---------------------------------- (Registrant) Date: March 29, 1996 By:/s/ Robert A. Vukovich ---------------------------------------- ROBERT A. VUKOVICH, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date - ------------------------ ------------------------- -------------- /s/ Robert A. Vukovich President & Director March 29, 1996 - ------------------------ (Principal Executive ROBERT A. VUKOVICH Officer) /s/ Peter M. Rogalin Vice President, Treasurer March 29, 1996 - ------------------------ & Director (Principal PETER M. ROGALIN Financial and Accounting Officer) /s/ Robert W. Loy Director March 29, 1996 - ------------------------ ROBERT W. LOY /s/ Anthony A. Rascio Director March 29, 1996 - ------------------------ ANTHONY A. RASCIO /s/ Yale Brozen Director March 29, 1996 - ------------------------ YALE BROZEN /s/ Takao Miyamoto Director March 29, 1996 - ------------------------ TAKAO MIYAMOTO /s/ Akihiko Matsubara Director March 29, 1996 - ------------------------ AKIHIKO MATSUBARA /s/ W. Robert Fowler Director March 29, 1996 - ------------------------ W. ROBERT FOWLER /s/ Digby W. Barrios Director March 29, 1996 - ------------------------ DIGBY W. BARRIOS
-31- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ROBERTS PHARMACEUTICAL CORPORATION
Page ---- Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1995, 1994 and 1993 F-3 Consolidated Statements of Operations for the the years ended December 31, 1995, 1994 and 1993 F-4 Consolidated Statements of Cash Flows for the the years ended December 31, 1995, 1994 and 1993 F-5 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 F-7 Notes to Consolidated Financial Statements F-8 Schedules:* Schedule II, Valuation and Qualifying Accounts F-24
__________ * Schedule I under Article 12 of Regulation S-X has been omitted because of the absence of the conditions under which certain information is required and because certain information required is presented in the financial statements and the notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders of Roberts Pharmaceutical Corporation We have audited the accompanying consolidated balance sheets of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1995, 1994 and 1993, and the related consolidated statements of operations, cash flows, changes in shareholders' equity for each of the three years in the period ended December 31, 1995 and the financial statement schedules on pages F-24 to F-26 on this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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 Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1995, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Note 9 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes. /s/Coopers Lybrand, LLP Princeton, New Jersey March 20, 1996 F-2 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, December 31, December 31, ASSETS 1993 1994 1995 - ------ ------------ ------------ ------------ Current assets: Cash and cash equivalents $ 6,071 $ 9,819 $ 16,357 Marketable securities 85,565 26,663 13,649 Accounts receivable, net 16,774 28,882 26,318 Accounts receivable from shareholder 3,400 7,256 600 Inventory 12,926 19,797 20,785 Deferred tax assets --- --- 10,419 Net assets held for sale --- --- 4,300 Other current assets 3,110 3,784 1,342 -------- -------- -------- Total current assets 127,846 96,201 93,770 Fixed assets, net 16,272 16,800 15,681 Intangible assets 198,471 222,534 230,681 Other assets 514 657 158 -------- -------- -------- Total assets $343,103 $336,192 $340,290 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current installments of long-term debt $ 37,010 $ 34,277 $ 34,809 Accounts payable 10,850 6,735 14,737 Other current liabilities 9,799 12,922 32,236 -------- -------- -------- Total current liabilities 57,659 53,934 81,782 Long-term debt, excluding current installments 45,668 22,411 16,183 Deferred taxes payable --- --- 6,311 Other liabilities 777 718 547 Shareholders' equity: Class B preferred stock, $.10 par value, 10,000,000 shares authorized, none outstanding Common stock, $.01 par value, 50,000,000 shares authorized, 18,327,936, 18,420,200 and 18,536,590 outstanding 187 188 189 Additional paid-in capital 254,803 255,994 256,296 Cumulative translation adjustments (200) (674) (297) Retained earnings (deficit) (15,554) 3,858 (20,484) Treasury Stock, 387,594 shares of common stock, at cost (237) (237) (237) -------- -------- -------- Total shareholders' equity 238,999 259,129 235,467 -------- -------- -------- Total liabilities and shareholders' equity $343,103 $336,192 $340,290 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-3 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years Ended December 31, ----------------------------------------- 1993 1994 1995 ----------- ----------- ----------- Sales and revenue: Sales $ 55,612 $ 87,437 $ 113,380 Other revenue 1,949 1,583 47 ----------- ----------- ----------- Total sales and revenue 57,561 89,020 113,427 Operating costs and expenses: Cost of sales 15,737 19,418 52,870 Research & development 8,389 9,546 6,108 Marketing & administration 25,585 34,254 47,576 ----------- ----------- ----------- Total operating costs & expenses 49,711 63,218 106,554 ----------- ----------- ----------- Operating income 7,850 25,802 6,873 Other income (expense): Interest income 1,710 2,891 2,050 Interest expense (3,271) (3,960) (3,453) Other income (expense), net 126 --- 49 ----------- ----------- ----------- Total other income (expense) (1,435) (1,069) (1,354) ----------- ----------- ----------- Income from continuing operations before income taxes 6,415 24,733 5,519 Provision for income taxes --- (4,115) (2,816) ----------- ----------- ----------- Income from continuing operations 6,415 20,618 2,703 Discontinued operations: (Loss) from operations of discontinued divisions, net of tax benefits of $0, $238 and $2,474, respectively 813 (1,206) (4,547) Estimated (Loss) on disposal of divisions, net of tax benefits of $0, $0 and $2,555, respectively --- --- (22,498) ----------- ----------- ----------- (Loss) income from discontinued operations 813 (1,206) (27,045) ----------- ----------- ----------- Net (loss) income $ 7,228 $ 19,412 $ (24,342) =========== =========== =========== Per share of common stock, primary and fully diluted: Net income from continuing operations $.41 $1.10 $.15 Net (loss) from discontinued operations .05 (.06) (1.45) ----------- ----------- ----------- Net (loss) income $.46 $1.04 $(1.30) =========== =========== =========== Weighted average number of common shares outstanding, primary and fully diluted: $15,589,998 $18,708,000 $18,622,744 =========== =========== ===========
The accompanying notes are an integral part of these financial statements F-4 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, ------------------------------ 1993 1994 1995 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 7,228 $ 19,412 $(24,342) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 4,248 6,174 7,164 Provision for losses on receivables 344 622 130 Provision for product sales returns 2,161 4,253 7,669 Loss on discontinued operations -- -- 22,498 Foreign currency (losses) gains 106 115 (31) Change in accounts receivable, unbilled revenue and advance billings (12,284) (9,823) 1,187 Change in other assets 725 309 1,144 Change in inventory (8,637) (6,651) (1,819) Change in accounts payable and other liabilities 9,848 (3,158) 12,460 Impact of discontinued operations (2,094) (11,906) (3,298) -------- -------- -------- Total adjustments (5,583) (20,065) 47,104 -------- -------- -------- Net cash provided by (used in) operating activities 1,645 (653) 22,762 -------- -------- -------- Cash flows from investing activities: Investment in marketable securities (46,436) --- --- Redemption of marketable securities --- 58,902 13,013 Purchases of intangible assets (8,297) (14,272) (1,552) Purchases of fixed assets (6,400) (700) (226) Impact of discontinued operations (164) (1,406) (243) -------- -------- -------- Net cash (used in) provided by investing activities (61,297) 42,524 10,992 -------- -------- -------- Cash flows from financing activities: Payments on notes payable and long term debt (49,195) (38,729) (28,061) Net proceeds from issuance of common stock 110,377 656 803 Impact of discontinued operations (230) (16) (7) -------- -------- -------- Net cash (used in) provided by financing activities 60,952 (38,089) (27,265) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (2) (34) 49 -------- -------- -------- Change in cash and cash equivalents 1,298 3,748 6,538 Beginning cash and cash equivalents 4,773 6,071 9,819 -------- -------- -------- Ending cash and cash equivalents $ 6,071 $ 9,819 $ 16,357 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands)
Years ended December 31, ------------------------ 1993 1994 1995 ------ ------- ------- Supplemental cash flow information: Interest and dividends received $ 1,710 $2,891 $ 2,050 Interest paid 3,408 3,726 2,979 Income taxes paid 56 1,970 268 Non cash activities: Present value of notes issued in connection with product acquisitions $72,918 $7,727 $18,279
The accompanying notes are an integral part of these financial statements. F-6 ROBERTS PHARMACEUTICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands)
Common Stock Additional Retained Cumulative Trea- Total ----------------------- Paid-In Earnings Translation sury Shareholders' Shares Amount Capital (Deficit) Adjustment Stock Equity --------- --------- ---------- -------- ----------- ----- ------------ Balance, December 31, 1992 14,982,821 $150 $144,463 $(22,782) --- $(237) $121,594 Issuance of common stock 3,732,709 37 110,340 --- --- --- 110,377 Cumulative translation adjustment --- --- --- --- $(200) --- (200) Year ended December 31, 1993 net income --- --- --- 7,228 --- --- 7,228 ----------- ---- -------- -------- ----- ----- -------- Balance, December 31, 1993 18,715,530 $187 $254,803 $(15,554) $(200) $(237) $238,999 Issuance of common stock 92,264 1 1,191 --- --- --- 1,192 Cumulative translation adjustment --- --- --- --- (474) --- (474) Year ended December 31, 1994 net income --- --- --- 19,412 --- --- 19,412 ----------- ---- -------- -------- ----- ----- -------- Balance, December 31, 1994 18,807,794 $188 $255,994 $ 3,858 $(674) $(237) $259,129 Issuance of common stock 116,390 1 302 --- --- --- 303 Cumulative translation adjustment --- --- --- --- 377 --- 377 Year ended December 31 1995 net loss --- --- --- (24,342) --- --- (24,342) ----------- ---- -------- -------- ----- ----- -------- Balance, December 31, 1995 18,924,184 $189 $256,296 $(20,484) $(297) $(237) $235,467 ========== ==== ======== ========= ===== ====== =========
The accompanying notes are an integral part of these financial statnts. F-7 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Basis of Presentation --------------------- Roberts Pharmaceutical Corporation is an international pharmaceutical company which licenses, acquires, develops and commercializes post-discovery drugs in selected therapeutic categories. The Company currently markets approved pharmaceutical products in the United States, Canada, the United Kingdom and several other European countries. The consolidated financial statements include the accounts of Roberts Pharmaceutical Corporation and its majority-owned subsidiaries. All significant intercompany transactions are eliminated. All dollar amounts are presented in thousands, except for earnings per share. Revenue Recognition ------------------- Product sales, net of estimated future product returns, are recorded as products are shipped against customer orders. Licensing revenues are recorded as earned under the terms of each underlying agreement and are included in other revenue. Cash Equivalents and Marketable Securities ------------------------------------------ Cash equivalents include all money market investments with original maturities of three months or less. Marketable securities consist primarily of debt instruments with maturities of more than three months and are stated at amortized cost plus accrued interest, which approximates market. Inventories ----------- Inventories, consisting primarily of finished goods inventories, are stated at the lower of first-in, first-out cost or market. 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 reported amounts of assets and liabilities and disclosure of F-8 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for allowance for doubtful accounts, inventory obsolescence, future product returns, depreciation and amortization, employee benefit plans, taxes, discontinued operations and contingencies. Fixed Assets and Depreciation ----------------------------- Fixed assets are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets ranging from five to fifty years. Gains and losses on disposals are recognized in the year of the disposal. Expenditures for maintenance and repairs are expensed as incurred; significant renewals and betterments are capitalized. Intangible Assets ----------------- Intangible assets are stated at cost less accumulated amortization. Amortization is determined using the straight-line method over the estimated useful lives of the related assets which are estimated to range from ten to forty years. It is the Company's policy to periodically review and evaluate whether there has been a permanent impairment in the value of intangibles. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. Foreign Currency Translation ---------------------------- The functional currency of the Company's European subsidiary is the U.S. dollar. Accordingly, its accounts are remeasured in dollars and translation gains and losses are included in income currently. The functional currency of the Company's Canadian subsidiary is the Canadian dollar. Translation gains and losses of the Company's Canadian subsidiary are accumulated as a separate component of Shareholders' Equity. Included in the balance sheet at December 31, 1993, 1994 and 1995 is debt of $1,546, $4,673 and $1,849, respectively, denominated in British pounds. F-9 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration of Credit Risk ---------------------------- The Company markets prescription and nonprescription pharmaceuticals primarily to wholesale drug distributors, retail pharmacies and physicians in the United States and abroad. The Company performs certain credit evaluation procedures and does not require collateral. The Company maintains reserves for estimated credit losses; at December 31, 1993, 1994 and 1995, the reserve for uncollectible accounts amounted to $2,199, $2,195 and $1,754, respectively. At December 31, 1995, cash equivalents and marketable securities consisted of immediately available money market fund balances and investment grade debt and preferred stock securities with maturities of less than six months. Recently Issued Accounting Standards ------------------------------------ In March 1995, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The statement, which will be adopted in 1996, addresses the accounting for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used. It also addresses the accounting for long-lived assets and certain identifiable intangibles to be disposed of. It establishes guidance for recognizing and measuring impairment losses and requires that the carrying amount of impaired assets be reduced to fair value. The effects of adoption of this statement are not expected to be material. In 1996, the Company will adopt SFAS No. 123, "Accounting For Stock-Based Compensation." This standard establishes a fair value method for accounting for stock-based compensation plans either through recognition of the fair value of the stock grant as expense or disclosure of the expense amount. The Company intends to adopt this standard by disclosing the pro forma net income and earnings per share amounts assuming the fair value method was adopted January 1, 1995. The adoption of the this standard will not impact the Company's results of operations, financial position or cash flows. F-10 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. REVENUES AND EXPENSES --------------------- For the years ended December 31, 1993 and 1994, license revenues amounted to $1.8 million and $1.5 million, respectively. Development expenses of the Company's products, including those funded under license agreements, are included in research and development. 3. INVENTORY --------- Inventory consists of: December 31, ------------------------- 1993 1994 1995 ------- ------- ------- Raw materials $ 3,972 $ 3,269 $ 3,539 Finished goods 8,954 16,528 17,246 ------- ------- ------- $12,926 $19,797 $20,785 ======= ======= ======= 4. FIXED ASSETS, NET Fixed assets consist of: December 31, ------------------------- 1993 1994 1995 ------- ------- ------- Land and buildings $14,431 $15,140 $14,823 Office furniture and equipment 3,634 3,786 2,588 Leasehold improvements 139 139 109 ------- ------- ------- $18,204 $19,065 $17,520 Less: Accumulated depreciation and amortization 1,932 2,265 $ 1,839 ------- ------- ------- $16,272 $16,800 $15,681 ======= ======= ======= Land and buildings costs include interest of $423 for 1993. F-11 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INTANGIBLE ASSETS ----------------- Intangible assets consist of: December 31, ---------------------------- 1993 1994 1995 -------- -------- -------- Product rights acquired $190,496 $216,879 $245,287 Goodwill 14,834 18,815 3,812 -------- -------- -------- 205,330 235,694 249,099 Less: Accumulated amortization 6,859 13,160 18,418 -------- -------- -------- $198,471 $222,534 $230,681 ======== ======== ======== 6. OTHER CURRENT LIABILITIES ------------------------- Other current liabilities consist of: December 31, -------------------------- 1993 1994 1995 ------ ------- ------- Accrued estimated loss on discontinuation of VRG and Homecare --- --- $ 8,848 Accrued estimated future product returns $6,250 $ 7,672 15,444 Accrued estimated medicaid rebates 435 294 1,734 Income taxes payable 816 2,967 3,707 Other accrued liabilities 2,298 1,989 2,503 ------ ------- ------- $9,799 $12,922 $32,236 ====== ======= ======= Product return reserves of $990, $1,279 and $2,336 been netted against accounts receivable for 1993, 1994 and 1995, respectively. F-12 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT -------------- Long-term debt consists of: December 31, -------------------------- 1993 1994 1995 ------- ------- ------- Notes payable on product acquisitions at an imputed weighted average interest rate of 6.1%, 5.2% and 5.75% $82,465 $56,592 $50,846 Other notes payable 213 96 146 ------- ------- ------- 82,678 56,688 50,992 Less: Current installments 37,010 34,277 34,809 ------- ------- ------- $45,668 $22,411 $16,183 ======= ======= ======= Principal payments in each of the next five years on long-term debt outstanding at December 31, 1995 amount to: 1996...........................................$34,809 1997........................................... 5,544 1998........................................... 3,562 1999........................................... 3,775 2000........................................... 3,302 ------ $50,992 ======= Notes payable are collateralized by acquired product rights. In consideration of certain information being furnished by the Company to the seller of certain product rights to the Company, $8 million which was due in 1995 is now required to be paid in 1996 and the principal payments in 1995 and 1996 have been reduced and increased, respectively, by that amount. F-13 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. SHAREHOLDERS' EQUITY -------------------- The Company maintains stock option plans under which options to purchase shares of Common Stock are granted. Stock option information: Years Ended December 31, -------------------------------- 1993 1994 1995 --------- --------- ---------- Number of stock options: Outstanding at the end of the period 531,345 966,654 1,175,710 Exercise price range, $ 1.67 $ 1.67 $ 3.875 outstanding options to $36.50 to $25.00 to $25.00 Exercisable at the end of the period 202,690 363,654 596,110 Exercised during the period 57,979 72,511 135,493 Exercise price range, $ 1.67 $ 1.67 $ 1.67 exercised options to $21.63 to $25.00 to $25.00 9. INCOME TAXES ------------ The Company utilizes the asset and liability method for taxes, which requires that deferred income taxes be provided for the cumulative temporary differences between the financial and tax bases of the Company's assets and liabilities. The provision (benefit) for income taxes consists of: Years Ended December 31, ---------------------------- 1993 1994 1995 -------- -------- -------- Current Federal $ 235 $ 4,645 $3,641 State and foreign 358 82 57 ------- ------- ------ Total current $ 593 $ 4,727 $3,698 ======= ======= ====== Deferred Federal $(1,156) 462 (728) State and foreign 563 (1,312) (154) ------- ------- ------ Total deferred $ (593) $ (850) $ (882) ======= ======= ====== F-14 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A comparison of the provision for income taxes as reported, to a provision based on federal statutory rates and consolidated income before income taxes is as follows: Years Ended December 31, ------------------------------- 1993 1994 1995 ------------ -------- ------- Provision (benefit) at federal statutory rates $ 2,458 $ 8,152 $1,876 Non-deductible expense 321 599 404 State taxes net of federal effect 50 287 3 Research and development credits --- (744) --- Foreign net operating losses-valuation allowance --- --- 405 Other 56 (641) 128 Reduction in federal valuation allowance (2,885) (2,731) --- Reduction in state valuation allowance net of federal effect --- (1,045) --- ------- ------- ------- Provision (benefit) for income taxes $ -0- $ 3,877 $ 2,816 ======= ======= ======= F-15 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1994 and December 31, 1995 are presented below:
December 31, 1994 December 31, 1995 ------------------------- -------------------------- Federal Debits Credits Debits Credits - ------- ------ ------- ------ ------- Deferred interest expense $ 700 $ $ --- $ Inventory 506 767 Allowance for bad debts 612 572 Accrued liabilities 1,733 5,269 Depreciation 327 424 Foreign items 1,191 1,648 Amortizable intangibles 4,490 6,668 Loss on Discontinuance --- 3,112 Other --- 16 State taxes 1,098 867 1,075 742 ------ ------ ------- ------ Total 5,840 5,684 12,459 7,834 Valuation allowance - foreign --- --- (517) --- ------ ------ ------- ------ $5,840 $5,684 $11,942 $7,834 ====== ====== ======= ======
At December 31, 1995, the Company has foreign net operating loss carryforwards of approximately $4,850 and net operating loss carryforwards for state tax purposes of approximately $11,000 which expire at various dates through 2002. A full valuation allowance was provided for certain foreign net operating losses since, based upon 1995 operating losses, realization of this tax asset is uncertain. F-16 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. LEASES AND OTHER COMMITMENTS ---------------------------- The Company leases office space and certain office equipment under operating leases. Minimum rental payments in each of the next five fiscal years required under leases which have initial or remaining lease terms in excess of one year are as follows: December 31, 1995 ----------------- 1996 ...................... $1,723 1997 ...................... 1,346 1998 ...................... 913 1999 ...................... 575 2000 ...................... 383 Rent expense for the years ended December 31, 1993, 1994, and 1995 was $1,972, $2,184 and $1,321, respectively. In accordance with several product acquisitions and licensing agreements and subject to certain cancellation rights reserved by the Company, the Company may be required to purchase inventory or make minimum payments totalling $51.9 million through 2001 and make royalty payments totalling $2 million through 1998. 11. EMPLOYEE BENEFITS ----------------- The Company has employment agreements with certain of its employees which provide them with continued compensation for a period of three to five years in the event of their termination by the Company and provide them with additional payments on termination by the Company equal to three to five times a portion of their average bonus and incentive compensation from July 1, 1988 to their termination date. The Company maintains an employee savings plan available to all employees who meet certain age and service requirements and may make discretionary contributions to the plan based on employee compensation or employee contributions. In the years ended December 31, 1993, 1994 and 1995, the Company contributions amounted to $152, $220 and $231, respectively. In 1993, the Company adopted a money purchase pension plan available to all employees who meet certain age and service requirements. The Company may make discretionary contributions to the plan based on employee compensation, and the Company can choose to terminate that plan at any time. In F-17 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1993, 1994 and 1995, the Company recorded contributions amounting to $302, $0 and $217, respectively. 12. CONTINGENCY ----------- A shareholder class action suit has been instituted in the United States District Court for the District of New Jersey against the Company and certain of its officers for alleged violations of certain federal securities laws. The Company is not able to predict the outcome of this proceeding at this time, and management is not able to determine the amount of the potential liability, if any. The Company believes that it has complied with all of its obligations under the federal securities laws. The Company intends to defend vigorously against the plaintiff's allegations and considers such allegations to be without merit. 13. ACQUISITIONS ------------ In 1993, 1994 and 1995, the Company acquired inventory, trademarks and other rights to several products from various pharmaceutical companies. The aggregate price of these acquisitions was $79,939, $21,996 and $22,254, respectively, consisting of cash and notes payable. Goodwill and other intangibles related to acquisitions are being amortized on the straight-line basis over periods ranging from twenty-five to forty years. F-18 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. SEGMENT REPORTING ----------------- Selected financial information of the Company's geographic segments for the years ended December 31, 1993, 1994 and 1995 are as follows: Years Ended December 31, ------------------------------- Geographic segments 1993 1994 1995 --------- --------- --------- Revenues - nonaffiliates Domestic $ 40,406 $ 67,776 $ 90,177 Foreign 17,155 21,244 23,250 -------- -------- -------- $ 57,561 $ 89,020 $113,427 ======== ======== ======== Revenues - affiliates Domestic $ 911 $ 663 $ 483 ======== ======== ======== Operating income (loss) Domestic $ 6,944 $ 27,261 $ 10,795 Foreign 2,340 2,026 (1,424) Adjustments and eliminations (1,434) (3,485) (2,498) -------- -------- -------- $ 7,850 $ 25,802 $ 6,873 ======== ======== ======== Identifiable assets at end of period Domestic $312,097 $289,395 $294,247 Foreign 32,378 50,282 48,541 Adjustments and eliminations (1,372) (3,485) (2,498) -------- -------- -------- $343,103 $336,192 $340,290 ======== ======== ======== Intercompany revenues are based on market conditions at the time of sale. Foreign operations primarily include the results of operations in the United Kingdom, Canada and the Organization for Economic Cooperation and Development countries which include the Republic of Ireland, certain other Western European countries and Japan. F-19 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. RELATED PARTY TRANSACTIONS -------------------------- In 1992 and 1993, the Company entered into contracts with Yamanouchi U.K. Limited, a subsidiary of Yamanouchi Pharmaceutical Co., Ltd. of Japan, for clinical trials research. These contracts have subsequently been assigned to Yamanouchi U.S.A. Inc., a subsidiary of Yamanouchi. As of December 31, 1993, 1994 and 1995, Yamanouchi owned 27.5, 27.5, and 27.2 percent of the Company's outstanding Common Stock, respectively. At December 31, 1993, 1994 and 1995 accounts receivable and unbilled revenues from these contracts totalled $3.4 million, $7.3 million, and $.6 million, respectively. Related revenues in the years 1993, 1994 and 1995 amounted to $16.9 million, $10.2 million and $.5 million, respectively. With the Company's decision to dispose of the contract research division, these revenues have been reclassified and reported in results from discontinued operations. In March 1995, the Company resolved a contract interpretation issue with Yamanouchi concerning billings for costs incurred by the Company under the clinical research contracts. As a result, 1994 contract research revenue and operating income were reduced by approximately $2.4 million. Net income for 1994 was reduced by approximately $1.5 million. 16. DISCONTINUED OPERATIONS ----------------------- In August 1995, the Company decided to seek a buyer for the assets of its Pronetics (Homecare) subsidiaries which are located in New York, New Jersey, North Carolina, and South Carolina. The Company expects the sale of Homecare to be completed in 1996 and to result in a loss at closing. In March 1996, the Company announced its plan to discontinue and divest, VRG, a contract research organization. The Company expects the sale of VRG to be completed in 1996 and to result in a loss at closing. Accordingly, the Company has charged current operations with the estimated loss on discontinuing Homecare and VRG of $22.5 million, including a provision of $6.9 million for operating losses until disposal of which $1.3 million has been utilized in the Third and Fourth Quarters of 1995. Revenues from VRG and Homecare for the years ended December 31, 1993, 1994, and 1995 were $32.1 million, $23.2 million, and $12.5 million, respectively. At December 31, 1995, net assets expected to be realized, consisting primarily of inventory, receivables, plant and equipment, total $4.3 million. The Company has also reclassified its consolidated financial statements to report separately the net assets expected to be realized and operating results of discontinued operations. The Company's loss on discontinued operations includes management's best estimates of the amounts expected to be realized on the sale of Homecare and VRG. The amounts the Company will ultimately realize could differ materially in the F-20 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS near term from the amounts assumed in calculating the loss on disposal of Homecare and VRG. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. The fair value of marketable securities was estimated based on quotes obtained from brokers. The fair value of long-term debt is estimated based on the discounted future cash flows using currently available interest rates. December 31, 1995 --------------------------- Carrying Amount Fair Value --------------- ---------- Cash and cash equivalents $16,357 $16,357 Marketable securities 13,649 13,552 Long-term debt 50,846 49,400 The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions. Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments subject to this standard are required to be carried at fair value, unless they are held to maturity. There was no effect on the Company's income of adopting SFAS 115. The fair value of investment securities classified as available for sale, totaled $13,552 at December 31, 1995. These investment securities mature within one year. F-21 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 18. QUARTERLY RESULTS OF OPERATIONS ------------------------------- The following table presents summarized quarterly results for 1995 (in thousands, except per share data). (Unaudited) First Second Third Fourth -------- ------- -------- ------- Revenues(1) $16,174 $30,364 $34,321 $32,568 Gross Profit(1) 10,444 17,132 15,911 17,023 Net Earnings (1,194) (10,633)(2) 331 (12,846)(3) Net earnings per share $ (.06) $(.57) $.02 $(.69) _______________ (1) Revenues and gross profit have been adjusted to those previously reported on Form 10-Q to reflect the Company's decision to dispose of its Homecare and VRG divisions. (See Note 16) (2) Includes a $10.992 million charge for disposal of Homecare division. (3) Includes a $11.506 million charge for disposal of VRG division. F-22 ROBERTS PHARMACEUTICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) QUARTERLY RESULTS OF OPERATIONS ------------------------------- The following table presents summarized quarterly results for 1994 (in thousands, except per share data). (Unaudited) First Second Third Fourth ------- ------- ------- ---------- Revenues(1) $18,704 $20,729 $27,832 $21,755 Gross profit(1) 14,593 15,834 21,669 15,923 Net earnings 4,162 4,429 4,915(2) 5,906(3) Net earnings per share $.23 $.24 $.27 $.32 _______________ (1) Revenues and gross profit have been adjusted to those previously reported on Form 10-Q to reflect the Company's decision to dispose of its Homecare and VRG divisions. (See Note 16) (2) Includes a $2.7 million charge against revenues and a $1.0 million increase in general and administrative expenses resulting from an increase in estimated reserves for contracts with a related party. (See Note 15.) As a result, operating income and net income were reduced by approximately $3.7 million and $2.6 million, respectively. (3) Includes a reduction in estimated reserves for receivables and estimated liabilities. These adjustments increased operating income and net income by $2.7 million and $1.6 million, respectively. F-23 SCHEDULE II ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1995
Additions Balance ----------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period ------------ ------------------ -------------- ---------- ------- Allowance for uncollectibles $2,195 $ 130 --- $ (571) $ 1,754 Allowance for return goods $8,951 $7,669 $6,154(1) $(4,994) $17,780 Deferred tax valuation allowance $ -- $ 517 -- -- $ 517
(1) Allowance established in connection with product acquisitions. F-24 SCHEDULE II ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1994
Additions Balance ---------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period ------------ ------------------ -------------- ---------- ------- Allowance for uncollectibles $2,199 $ 622 $ 270 $ (896) $2,195 Allowance for return goods $7,240 $4,253 $4,485(1) $(7,027) $8,951
(1) Allowance established in connection with product acquisitions. F-25 ROBERTS PHARMACEUTICAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1993
Additions Balance --------------------------------- Balance Beginning of Charged to Charged to End of Period Costs and Expenses Other Accounts Deductions Period ------------ ------------------ -------------- ---------- ------- Allowance for uncollectibles $1,097 $ 344 758 --- $2,199 Allowance for return goods $ 382 $2,161 $7,212(1) $(2,515) $7,240
(1) Allowance established in connection with product acquisitions. F-26 Exhibit Index Exhibit No. - ----------- zz 2.2.03 Agreement and Plan of Merger, dated March 1992, among the Company, NCRC of New Jersey, Inc., a wholly owned subsidiary of the Company, and National Clinical Research Center, Inc. ("NCRC"). Upon the request of the Securities and Exchange Commission, the Company agrees to furnish a copy of schedules 3.A.1 through 3.A.30 to the Agreement and Plan of Merger described as follows: 3.A.1-Good Standing of NCRC; 3.A.2-List of NCRC Subsidiaries; 3.A.3-Authorized Capitalization of NCRC; 3.A.4-Financial Statements of NCRC; 3.A.5- Records and Books of Account of NCRC; 3.A.6-Organization Documents with respect to NCRC; 3.A.7-Liabilities of NCRC; 3.A.8-Tax Claims Against NCRC; 3.A.9-Liens and Encumbrances Against NCRC Assets; 3.A.10- List of NCRC Assets; 3.A.11- Intellectual Property Rights of NCRC; 3.A.12-List of NCRC Insurance Policies; 3.A.13-Contracts and Commitments Involving NCRC; 3.A.14-Customers and Suppliers of NCRC; 3.A.15-Legal Proceedings Involving NCRC; 3.A.17-NCRC Licenses; 3.A.21- Actions by NCRC not in the Ordinary Course; 3.A.23-List of Capital Projects and Expenditures by NCRC; 3.A.24- List of Employees of NCRC and Past and Future Compensation; 3.A.28- ERISA Plans of NCRC; 3.A.29-Environmental Claims Involving NCRC; 3.A.30-Aging Schedule of Accounts Receivable of NCRC. zz 2.2.04 Form of Escrow Agreement to be used in connection with the Agreement and Plan of Merger, dated March 1992, among the Company, NCRC of New Jersey, Inc., a wholly owned subsidiary of the Company, and NCRC. o 3.1 Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State of the State of New Jersey on February 1, 1988 and Certificates of Amendment thereto dated February 2, 1988 and October 31, 1989, respectively. y 3.2 By-laws of the Registrant, as amended. + 4.3 Form of Specimen Certificate, Roberts Pharmaceutical Corporation Common Stock. + 10.1 License Agreement (United States), dated November 6, 1989, between Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A. + 10.2 License Agreement (United Kingdom), dated November 6, 1989, between Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A. o 10.3 License Agreement, dated January 1, 1985, between the National Technical Information Service and Roberts. E-1 o 10.4 Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG (formerly CL Pharma AG) and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. aa 10.4.1 Amendment, dated January 19, 1994, to Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. o 10.16 Agreements and other documents of Roberts, Hafslund Nycomed AG and Linz-Roberts, Inc. including the following exhibits thereto: (a) Subscription and Shareholders Agreement, dated December 1, 1985, between Roberts, Hafslund Nycomed Pharma AG and Linz-Roberts, Inc., including the following exhibits thereto: (i) Certificate of Incorporation of Linz-Roberts, Inc. (ii) By-Laws of Linz-Roberts, Inc. (iii) License Agreement, dated January 1, 1985, between the National Technical Information Service and Roberts. (See Exhibit 10.3) (iv) Agreement of Assignment, dated December 1, 1985, between Roberts and Linz-Roberts, Inc. (v) Research and Development Agreement, dated as of December 1, 1985, between Vukovich Research Group, Inc. and Roberts (b) License and Distribution Agreement, dated December 1, 1985, between Roberts and Hafslund Nycomed Pharma AG. o 10.17 License Agreement, dated October 31, 1988, between the Salk Institute for Biological Studies and Roberts. (*) bb 10.21 Employment Agreement, dated as of December 20, 1994, between Roberts and Robert A. Vukovich. (*) bb 10.23 Employment Agreement, dated as of December 20, 1994, between Roberts and Robert W. Loy. (*) bb 10.24 Employment Agreement, dated as of December 20, 1994, between Roberts and Anthony A. Rascio. o 10.25 Lease Agreement between John Donato, Jr. d/b/a Mid Atlantic Industrial Co. and Vukovich Research Group, Inc. relating to Eatontown, New Jersey premises. E-2 o 10.26 Rental Deposit Deed, dated September 28, 1988, between the University of Surrey and Roberts relating to the leased office space in Guildford, England. o 10.27 Underlease, dated September 28, 1988, between the University of Surrey and Roberts relating to the leased office space in Guildford, England. xx 10.42 Distribution Agreement, dated February 15, 1991, between Roberts and Flint Laboratories (Canada) Ltd. ++ 10.43 Agreement for Products and Sale of Assets, dated March 6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. y 10.48 License Agreement, dated as of August 1, 1991, between Bristol-Myers Squibb Co. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. y 10.51 Agreements of Roberts Laboratories Inc., a wholly owned subsidiary at Roberts, Boehringer Ingelheim Limited, Windsor Healthcare Limited and Altam Pharmaceuticals Limited: (a) Agreement, dated December 5, 1991, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited and Windsor Healthcare Limited. (b) Supplemental Agreement, dated December 5, 1991, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Boehringer Ingelheim Limited and Windsor Healthcare Limited. y 10.52 Dopar Agreement for Purchase and Sale of Assets, dated December 6, 1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. k 10.53 Agreements of Roberts, Roberts Laboratories Inc. and Monmouth Pharmaceuticals Ltd., wholly owned subsidiaries of Roberts, American Home Products Corporation, John Wyeth & Brother Limited and Ayerst, McKenna & Harrison Inc. (a) Agreement, dated December 20, 1991, by and among Roberts, Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, American Home Products Corporation, John Wyeth & Brother Limited and Ayerst, McKenna & Harrison, Inc. (b) Manufacturing Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a wholly owned subsidiary of Roberts. E-3 (c) AHPC License Agreement, dated December 24, 1991, between American Home Products Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (d) The Ayerst License Agreement, dated December 24, 1991, between Ayerst, McKenna & Harrison Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (e) The Wyeth License Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (f) Distribution Agreement, dated December 24, 1991, between John Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a wholly owned subsidiary of Roberts. (g) Assignments, each dated December 24, 1991, between American Home Products Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (h) Assignment, dated December 24, 1991, between John Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. k 10.55 Stock Purchase Agreement, dated as of January 22, 1992, between Roberts and Yamanouchi Pharmaceutical Co., Ltd., including Shareholder Agreement dated as of January 22, 1992 between Dr. Robert A. Vukovich and Yamanouchi Pharmaceutical Co., Ltd. which comprises Annex A to such agreement. j 10.56 Distribution Agreement, dated March 31, 1992, between Research Industries Corporation and Roberts Pharmaceutical of Canada Inc., a wholly owned subsidiary of Roberts. j 10.57 License Agreement, dated April 2, 1992, between Bayer AG and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.58 License Agreement, dated April 10, 1992, between Ortho Pharmaceutical Corporation and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.59 Purchase Agreement, dated July 6, 1992, between Galen Limited and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. kk 10.60 Asset Purchase Agreement, dated September 29, 1992, between Smith- Kline Beecham Pharmaceuticals, an unincorporated division of Smith- Kline Beecham Corporation, and Roberts Laboratories Inc, a wholly owned subsidiary of Roberts. E-4 j 10.61 Agreement for Purchase and Sale of COMHIST Assets, dated November 24, 1992, between Procter & Gamble Pharmaceuticals, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Schedules 1.1(a) through 6.11 and Exhibits A through C to the Agreement for Purchase and Sale of COMHIST Assets as follows: 1.1(a) - Schedule of Trademarks; 1.1(b) - Schedule of Know-How; 1.1(d) -Tooling Schedule; 1.4 -Allocation of Purchase Price Schedule; 6.6(4) -Intellectual Property Claims Schedule; 6.10 - Schedule of Customers; 6.11 - Financial Information Schedule; A - Form of Trademark Assignment; B - Form of Bill of Sale; C -Contract Manufacturing Agreement. j 10.62 Agreements between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and Bristol-Myers Squibb Company: (a) QUIBRON Sale Agreement, dated as of December 15, 1992. (b) QUIBRON Supply Agreement, dated as of December 15, 1992. (c) Security Agreement, dated as of December 15, 1992. j 10.63 Purchase and Sale Agreement, dated December 21, 1992, between The Du Pont Merck Pharmaceutical Company and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. j 10.64 Asset Purchase Agreement, dated December 28, 1992, between G.D. Searle & Co. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A and B, Schedules 1.12 through 4.2(d), and various miscellaneous assignments of copyrights and trademarks to the Asset Purchase Agreement as follows: A - Security Agreement; B - Supply Agreement; 1.12 -Product Registrations, 2.3 - Purchase Price Allocations; 4.1(c) - Contracts Requiring Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) - Compliance; 4.1(h) - Material Contracts; 4.1(i) - Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial Information; 4.1(l) - Customer List; 4.1(m) -Material Adverse Changes; 4.2(d) - Buyer's Financial Statements; assignments of copyrights; assignments of trademarks. j 10.65 Asset Purchase Agreement, dated March 23, 1993, by and between Searle Canada, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of the Company. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibit A and Schedules 1.5(a) through 5.19 to the Asset Purchase Agreement as follows: A - Supply Agreement; 1.5(a) - Sales Retained by Seller; 1.5(b) - Pricing Prior to Closing; 1.10 -Product Registrations; 4.1(c) -Contracts Requiring Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) - Compliance; 4.1(h) - Material Contracts; 4.1(i) - Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial Information; 4.1(l) -Customer List; 4.1(m) - Material Adverse Changes; 5.19 -Packaging Charges. E-5 # 10.67 Copy of form of Option Agreement used in connection with options granted under the Roberts Pharmaceutical Corporation Restricted Stock Option Plan. # 10.68 Copy of form of Option Agreement used in connection with options granted under the Roberts Pharmaceutical Corporation Incentive Stock Option Plan. j 10.69 Rebate Agreement, dated November 11, 1992, between the Secretary of Health and Human Services and Roberts Laboratories, Inc., a wholly owned subsidiary of Roberts. (**)b10.70 Roberts Pharmaceutical Corporation Incentive Stock Option Plan. (**)b10.71 Roberts Pharmaceutical Corporation Restricted Stock Option Plan. a 10.72 License Agreement, dated as of March 27, 1993, by and among Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, Sawai Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co., Ltd. a 10.73 Agreements, dated as of May 5, 1993, between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and Glaxo Canada Inc., dated as of May 5, 1993. (a) First Asset Purchase Agreement. (b) Promotion Agreement. (c) Supply Agreement. (d) Distribution Agreement. (e) License Agreement. (f) Registered User Agreement. (g) Assignment of Trademarks. (h) Second Asset Purchase Agreement. a 10.74 Stock Purchase Agreement, dated August 30, 1993, by and among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A. Inc. aa 10.75 Amendment to Stock Purchase Agreement, dated August 30, 1993, by and among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A. Inc. aa 10.76 Agreements, dated as of September 14, 1993, among Bristol-Myers Squibb Company, Bristol-Myers Squibb Company Canada Inc. and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. (a) COLACE Et Al. Sale Agreement. (b) COLACE Et Al. Supply Agreement. (c) Security Agreement. (d) Notice of Security Interest in Trademark. (e) Assignment of Collateral. (f) Guaranty. E-6 aa 10.77 Underwriting Agreement, dated September 27, 1993, by and among Roberts, Morgan Stanley & Co., Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the several underwriters. bb 10.78 License Agreement, dated as of July 6, 1994, between The Rockefeller University and Roberts Laboratories Inc., a wholly owned subsidiary of Roberts. bb 10.79 Agreements between Roberts Laboratories Inc., a wholly owned subsidiary of Roberts, and SmithKline Beecham Pharmaceuticals, an unincorporated division of SmithKline Beecham Corporation: (a) TIGAN Asset Purchase Agreement dated as of March 27, 1995. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A through D and Schedules 5.4 through 5.11 and Appendix I as follows: A - List of Products; B - Assignment and Assumption Agreement; C -Promissory Note; D - Transitional Services Agreement; 5-4 - Financial Information; 5.5 - Litigation; 5.6 -Inventory; 5.7 - Product Formulas; 5.8 -Regulatory Issues; 5.9 - FDA and Other Administrative Approvals, Registrations and Permits; 5.11 -Intellectual Property Rights; I - Purchase Price Adjustments. (b) EMINASE Asset Purchase Agreement dated as of March 27, 1995. Upon the request of the Securities and Exchange Commission, Roberts agrees to furnish a copy of Exhibits A through D, Schedules 2.1(a)(1) through 5.11 and Appendices I and II as follows: A - List of Products; B - Manufacturing Agreement; C - Promissory Note; D - Transitional Services Agreement; 2.1(a)(1) -Transferable Product Rights; 2.1(a)(2) - Non-Transferable Product Rights; 2.1(b)- Transferred Contracts; 5.4 - Financial Information; 5.5 - Litigation; 5.6 -Inventory; 5.7 - Product Formulas; 5.8 - Regulatory Issues; 5.9 - FDA and Other Administrative Approvals, Registrations and Permits; 5.11 - Intellectual Property Rights; I - Territories; II - Purchase Price Adjustments. 10.80 Distribution Agreement, dated February 23, 1995, between Roberts Laboratories, Inc., a wholly owned subsidiary of the Company, and Merck and Co., Inc. with respect to NOROXIN. 21. Subsidiaries of the Registrant. 23. Consent of Coopers & Lybrand L.L.P. cc 27. Financial Data Schedules. (*) Constitutes a management contract required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (**)Constitutes a compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. E-7 y Incorporated by reference to the identically numbered exhibit to the Registrant's Registration Statement on Form S-4 (Registration No. 33- 44441). o Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration No. 33- 31876). + Incorporated by reference to the identically numbered exhibit to Amendment No. 1 to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). x Incorporated by reference to the identically numbered exhibit to Amendment No. 2 to Registrant's Registration Statement on Form S-1 (Registration No. 33-31876). z Incorporated by reference pursuant to the identically numbered exhibit to Amendment No. 1 to Registrant's Registration Statement on Form S-1 (Registration No. 33-40636). k Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-1 (Registration No. 33- 45069). # Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-8 (Registration No. 33- 34767). a Incorporated by reference to the identically numbered exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 33- 68080). b Incorporated by reference to Registrant's Registration Statement on Form S- 8 (Registration No. 33-51198). @ Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990. zz Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. j Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. aa Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. bb Incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. cc Financial Data Schedules are submitted in electronic format only. xx Incorporated by reference to Registrant's Current Report on Form 8-K, dated February 15, 1991. ++ Incorporated by reference to Registrant's Current Report on Form 8-K, dated March 6, 1991. E-8 vv Incorporated by reference to Registrant's Current Report on Form 8-K, dated November 5, 1991. kk Incorporated by reference to Registrant's Current Report on Form 8-K, dated September 29, 1992. E-9 EX-10.8 2 DISTRIBUTION AGREEMENT EXHIBIT 10.8 FIRST AMENDMENT TO DISTRIBUTION AGREEMENT ----------------------------------------- This is the first Amendment to the Distribution Agreement between Merck & Co., Inc. ("MERCK") and Roberts Laboratories, Inc. ("ROBERTS") dated February 23, 1995. This Amendment shall be in effect from October 1, 1995 through March 31, 1996. WHEREAS, ROBERTS and MERCK wish to amend the Distribution Agreement between them to reflect certain agreements between the parties entered into since the Execution Date of the Distribution Agreement; WHEREAS, ROBERTS and MERCK wish to alter the payment period for COGS under the Agreement, to allow ROBERTS to make three equal monthly payments of the quarterly invoice instead of one payment of the quarterly invoice due 30 days after receipt of the invoice. NOW, THEREFORE, ROBERTS and MERCK agree as follows: (1) Section 3.4(c) of the Agreement shall be amended to provide as follows in its entirety: "(c) ROBERTS shall make separate COGS payments to MERCK for all COGS purchased. MERCK shall invoice ROBERTS at the beginning of each Contract Quarter for COGS, and ROBERTS shall make three separate payments in equal amounts of the invoice, each payment to be due on the last business day of each month of the Contract Quarter. Any payment not received on or before the date specified shall bear interest at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum permitted by law." (2) Section 3.5 of the Agreement shall be amended to provide as follows in its entirety: "3.5 ROBERTS shall make payments to MERCK on a quarterly basis, within 45 days of the close of each Contract Quarter, except that payment for COGS shall be made in accordance with Section 3.4(c). Any invoice not paid when due shall bear interest at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate permitted by law. Each quarterly payment shall be calculated on the basis of Net Sales for that quarter as provided in Section 3.4(a), provided, however, that not quarterly payment shall be less than one fourth of the Guaranteed Minimum Payment exclusive of COGS payments. For Net Sales up to and including Baseline Net Sales, the quarterly payment shall be adjusted to reflect COGS payments made to MERCK for the Net Sales in that Contract Quarter. If, during a Contract Quarter, cumulative Net Sales for the year exceed Baseline Net Sales, the quarterly payments shall be calculated as provided in Section 3.4(b). In the event that the sum of ROBERTS's first three quarterly payments in a calendar year is more or less than the actual amount due, ROBERTS shall make an adjustment to reflect the difference in the fourth quarter payment. (A sample calculation of amounts due under this Section 3.5 is attached to this Agreement as Schedule II.)" (3) The effective date of this First Amendment is October 1, 1995 and it shall be in effect until March 31, 1996, at which time, the original sections of the Agreement amended herein shall take effect as they originally appeared in the Distribution Agreement. (4) Except as amended herein, the Distribution Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. MERCK & CO., INC. ROBERTS LABORATORIES, INC. /s/ Signature Illegible By:_________________________ By: Anthony P. Marts ----------------------------- Title:Vice President for DWA Title: V.P. - Finance ---------------------- -------------------------- Date: 10/23/95 Date: 11/2/95 ----------------------- --------------------------- ROBERTS PHARMACEUTICAL CORPORATION By: Anthony A. Rascio --------------------------- Title: VP ------------------------ Date: 11/3/95 ------------------------- -2- DISTRIBUTION AGREEMENT ---------------------- This Agreement, by and between Merck & Co., Inc., a New Jersey corporation, having an address at One Merck Drive, Whitehouse Station, New Jersey 08889-0100 ("MERCK"), and Roberts Laboratories, Inc. a New Jersey Corporation, having an address at Meridian Center II, 4 Industrial Way West, Eatontown, NJ 07724 ("ROBERTS"), shall be effective as of 23 Feb. 1995 (the "Execution Date"). WITNESSETH ---------- WHEREAS, ROBERTS is engaged in the distribution and marketing of prescription and OTC pharmaceuticals; and WHEREAS, MERCK is engaged in the research and development, manufacture, marketing and distribution of pharmaceutical products, and currently manufactures and sells the human prescription pharmaceutical product containing the compound norfloxacin as the sole active ingredient, under the trademark "NOROXIN"; and WHEREAS, MERCK and ROBERTS desire that ROBERTS be appointed as the sole distributor in the United States of this product in accordance with the terms of this Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS ----------- The following terms as used in this Agreement will have the meanings set forth below: 1.1 "Product" shall mean the MERCK brand of human prescription pharmaceutical oral dosage forms containing the compound norfloxacin as the sole active ingredient, sold under the trademark "NOROXIN." 1.2 "Advertising & Promotion / Sales Force Allowance" shall be the amount of $4,000,000 in each calendar year of this Agreement in consideration of ROBERTS advertising, promoting and selling Product and incurring expenses associated therewith. 1.3 "Baseline Net Sales", for each calendar year, shall mean: Year Baseline Net Sales (Full Calendar Year) (US. $ OOOs) -------------------- ------------ 1995 $* 1996 27,184 1997 24,348 1998 21,872 1999 19,619 2000 17,599 2001 15,786 The parties hereto agree that Baseline Net Sales may be adjusted for any calendar year in the event of a shortage of Product due to recall of Product. (*The Baseline Net Sales figure for 1995 shall be determined at the Execution Date and equal $30,305,000 less Net Sales of Product by MERCK between January 1, 1995 and the Execution Date.) 1.4 "Baseline Sales Compensation" shall mean eighty per cent (80%) of Net Sales of Product up to and including Baseline Net Sales. 1.5 "Contract Quarter" shall mean the period from the Execution Date through March 31, 1995, and each successive period of three (3) consecutive calendar months ending on June 30, September 30, December 31 or March 31 as the case may be during the term of this Agreement. 1.6 "Cost of Goods Sold" or "COGS"' shall equal $.40 per tablet multiplied by the number of tablets of Product purchased by ROBERTS, provided, however, that if in any calendar year, the price of active ingredient for Product to MERCK rises by greater than ten percent (10%) from the previous year, MERCK may exercise the option to request that the parties engage in good faith negotiations regarding an increase in COGS. 1.7 "Detail" shall mean a face-to-face meeting, in an individual or group practice setting, between a ROBERTS professional representative and either a urologist, gynecologist or High-Prescribing Primary Care Physician, during which Product information is communicated to such physician. A "High-Prescribing Primary Care Physician" shall be a primary care physician who prescribes anti- infectives and urological products at a significantly greater rate than average primary care physicians. A "First Position Detail" shall be a Detail where Product information is the first pharmaceutical product - 2 - information conveyed to the physician by the professional representative. A "Second Position Detail" shall be a Detail where Product information is the second pharmaceutical product information conveyed to the physician by the professional representative. A "Tertiary Position Detail" shall be a Detail where Product information is the third pharmaceutical product information conveyed to the physician by the professional representative. When used as a verb, "Detail" shall mean to engage in a Detail. 1.8 "FDA" shall mean the U.S. Food and Drug Administration. 1.9 "General & Administrative Allowance" shall be the sum of 10% of Net Sales up to and including Baseline Net Sales and 5% of Net Sales over Baseline Net Sales in a calendar year in consideration of ROBERTS incurring general and administrative expenses associated with sale of Product (other than those expenses associated with the "Advertising and Promotion / Sales Force Allowance") including, but not limited to, order taking, management and insurance directly related to Product. 1.10 "Guaranteed Minimum Payment", for each calendar year, shall mean: Year Guaranteed Minimum Payment (Full Calendar Year) (in U.S. $00s) ---------------------- ---------------- 1995 $8,333 1996 8,800 1997 8,000 1998 7,100 1999 6,400 2000 5,700 2001 5,100 1.11 "HCFA" shall mean the Health Care Financing Administration. 1.12 "Manufacture" shall mean all operations of MERCK in the formulation, packaging, labeling, warehousing and quality control testing of Product. 1.13 "NDC number" shall mean National Drug Code number, which is the complete identifying drug number maintained by the FDA for pharmaceutical products, including the labeler code, product code and package size code. 1.14 "Net Sales" shall mean the gross amount invoiced by - 3 - ROBERTS for Product sold to its customers, less cash discounts, returns and allowances, customary trade and/or quantity discounts actually allowed, and any rebates actually paid by ROBERTS. 1.15 "Sample" shall mean a unit of Product that is not intended to be sold and is intended to promote the sale of Product. 1.16 "Territory" shall mean the fifty states of the United States of America and the District of Columbia. 1.17 "Trademark" shall mean the MERCK trademark NOROXIN(R), and the registration therefor, U.S. Registration No. 1,339,981. 2. APPOINTMENT OF DISTRIBUTOR -------------------------- 2.1 MERCK hereby appoints ROBERTS as sole and exclusive distributor of Product in the Territory. 2.2 This Agreement does not constitute a grant to ROBERTS of any property rights or interests other than the rights specifically granted to ROBERTS hereunder, and in no event shall constitute a license or sub-license to Product. MERCK shall retain all rights to applicable new drug applications and registrations with respect to Product. 2.3 The appointment of ROBERTS hereunder as a distributor shall not create a joint venture, or an employer-employee relationship or a principal-agent relationship other than as specifically provided in this Agreement. 2.4 Nothing in this Agreement shall be deemed to authorize ROBERTS to act for, represent, or bind MERCK other than as specifically provided in this Agreement. 2.5 Neither party shall have any responsibility for the hiring, firing, compensation or benefits of the other party's employees. No employee or representative of a party shall have any authority to bind or obligate the other party to this Agreement for any sum or in any manner whatsoever, or to create or impose any contractual or other liability on the other party without said party's authorized written approval. 3. DISTRIBUTOR"S PURCHASE OF PRODUCT --------------------------------- 3.1 MERCK shall exercise its best efforts to supply, and ROBERTS shall purchase Product from MERCK as provided in this Article 3 for sale in the Territory, in finished form and packaged with the label bearing ROBERTS's NDC number for Product - 4 - and disclosing that Product was manufactured by MERCK and distributed by ROBERTS. 3.2 ROBERTS shall furnish to MERCK within sixty (60) days of the effective date of this Agreement its best estimates of the quantities of Product that it will purchase during the first twelve-month period of this Agreement by Contract Quarter. At least one hundred ninety (190) days prior to the beginning of each Contract Quarter commencing with the second calendar quarter of 1996, ROBERTS shall submit to MERCK its best estimates of its purchase requirements of Product ("Estimated Quantity") for that Contract Quarter and the next following Contract Quarter for the remaining term of this Agreement. 3.3 Except in the case of the first, second and third Contract Quarters of this Agreement, not less than one hundred (100) days prior to the beginning of every Contract Quarter, ROBERTS shall submit to MERCK a firm purchase order for Product, which shall not be less than 75% nor more than 125% of the Estimated Quantity for such Product for each Contract Quarter as updated. ROBERTS shall notify MERCK on or before March 1, 1995 of its firm purchase order for the period April 1, 1995 though September 30, 1995. Notwithstanding the foregoing, MERCK shall make a reasonable effort to comply with any unplanned changes in firm orders but shall not be held liable for its inability to do so. 3.4 The price of Product purchased by ROBERTS hereunder in each calendar year shall be calculated as follows: (a) For Net Sales up to and including Baseline Net Sales, ROBERTS shall pay to MERCK eighty per cent (80%) of Net Sales (the "Baseline Sales Compensation") or the sum of the Guaranteed Minimum Payment and COGS applicable to Net Sales for that calendar year, whichever is larger. (b) For Net Sales above Baseline Net Sales, ROBERTS shall pay MERCK fifty percent (50%) of Net Sales remaining above the sum of Baseline Sales Compensation, Advertising & Promotion / Sales Force Allowance, General and Administrative Allowance and COGS on Net Sales over Baseline Net Sales applicable to Net Sales for that calendar year. (A sample calculation of amounts due under this Section 3.4 is attached to this Agreement as Schedule 1.) - 5 - (c) ROBERTS shall make separate COGS payments to MERCK for all COGS purchased within thirty (30) days of the date of invoice. Any invoice not paid when due shall bear interest at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate permitted by law. 3.5 ROBERTS shall make payments to MERCK on a quarterly basis, within 45 days of the close of each Contract Quarter, except that payment for COGS shall be made within thirty (30) days of the date of invoice. Any invoice not paid when due shall bear interest at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate permitted by law. Each quarterly payment shall be calculated on the basis of Net Sales for that quarter as provided in Section 3.4(a), provided, however, that no quarterly payment shall be less than one fourth of the Guaranteed Minimum Payment exclusive of COGS payments. For Net Sales up to and including Baseline Net Sales, the quarterly payment shall be adjusted to reflect COGS payments made to MERCK for the Net Sales in that Contract Quarter. If, during a Contract Quarter, cumulative Net Sales for the year exceed Baseline Net Sales, the quarterly payment shall be calculated as provided in Section 3.4(b). In the event that the sum of ROBERTS's first three quarterly payments in a calendar year is more or less than the actual amount due, ROBERTS shall make an adjustment to reflect the difference in the fourth quarter payment. (A sample calculation of amounts due under this Section 3.5 is attached to this Agreement as Schedule 11.) 3.6 ROBERTS shall provide to MERCK within three (3) days of the close of each Contract Quarter, the total amount of Net Sales and tablet volume for that Contract Quarter, or ROBERTS's best estimate thereof if the actual figure is not available. If the figure is estimated, ROBERTS shall provide the actual figure to MERCK as soon as it is available. 4. DELIVERY AND RISK OF LOSS ------------------------- 4.1 MERCK shall deliver or arrange for delivery of Product to a carrier designated by ROBERTS, F.O.B. MERCK's facility. Risk of loss or damage to Product passes to ROBERTS upon MERCK's delivery of Product to the carrier. 5. SPECIFIC RESPONSIBILITIES OF THE PARTIES ---------------------------------------- 5.1 MERCK shall be responsible for exercising its best efforts to supply Product to ROBERTS in sufficient quantity for ROBERTS to fulfill its responsibilities under this Agreement, subject to - 6 - ROBERTS's obligations under Sections 3.2 and 3.3 of this Agreement. In the event of a shortage of active ingredient for Product, MERCK shall not decrease ROBERTS's pro rata percentage of the total quantity of Product Manufactured by MERCK and sold to all customers, including MERCK's own subsidiaries. ROBERTS's pro rata percentage referred to in the preceding sentence shall be the average of ROBERTS's purchases of Product hereunder for the four (4) most recent Contract Quarters prior to the shortage (on a per unit basis) as compared with MERCK's total sales of Product (on a per unit basis) for the same period. 5.2 ROBERTS shall be responsible for all aspects of the distribution, marketing and sales of Product in the Territory. ROBERTS shall exercise its best efforts to promote the sales of Product in the Territory and shall maintain a well-staffed sales force technically trained and knowledgeable about Product, consistent with its obligations hereunder. In particular, ROBERTS shall maintain a field sales force of no fewer than 150 professional representatives during the term of this Agreement. ROBERTS's professional representatives shall engage in a minimum of 100,000 Details in each calendar year of this Agreement, of which a minimum of 63,000 shall be First Position Details, 31,500 shall be Second Position Details, and 5,500 shall be Tertiary Position Details, except that in the first calendar year of this Agreement, ROBERTS's obligation shall be as follows: a minimum of 80,000 Details, of which 50,400 shall be First Position Details, 25,200 shall be Second Position Details, and 4,400 shall be Tertiary Position Details. Lower position Details may be replaced with higher position Details, however, a minimum of 100,000 Details (or 80,000 in the first year) must still be delivered. ROBERTS shall provide to MERCK within forty five (45) days of the end of each Contract Quarter ROBERTS's internal call reporting records in order to verify Detail and Detail position levels. ROBERTS's failure in any calendar year to maintain the requisite number of professional representatives or to engage in at least ninety five percent (95%) of the requisite number of Details under this Section 5.2 shall be a material breach and give MERCK grounds for immediate termination of this Agreement, notwithstanding the termination provisions set forth in Article 17. ROBERTS shall also conduct active sales promotion programs in order to expand the sales of Product, and shall keep MERCK advised of significant market, economic and regulatory developments that may affect the sale of Product. 5.3 ROBERTS shall store, promote and sell Product in strict adherence to all regulatory, professional, and legal requirements and MERCK promotional policies (copies of which are attached as Schedule I11 to this Agreement), and the American Medical - 7 - Association Gifts to Physicians From Industry Guidelines. ROBERTS shall limit its claims of efficacy and safety, both express and implied, for Product in the Territory to those which are consistent with MERCK's approved product circular for Product in the Territory. ROBERTS shall not add, delete or modify claims of efficacy and safety in the promotion of Product. In the event of a breach of this Section 5.3, MERCK agrees to give ROBERTS a reasonable time period under the circumstances, not to exceed thirty (30) days, to cure the breach. ROBERTS's failure to cure the breach to MERCK's reasonable satisfaction shall be grounds for immediate termination of this Agreement, notwithstanding the termination provisions set forth in Article 17. 5.4 ROBERTS shall do nothing that will jeopardize the goodwill or reputation of MERCK or the reputation of Product. Any breach of this Section 5.4 shall constitute a basis for immediate termination of this Agreement, at MERCK's option, notwithstanding the termination provisions set forth in Article 17. 5.5 Upon execution of this Agreement, MERCK will provide to ROBERTS examples of past promotional materials used by MERCK in its promotion of Product, if any are available, and copies of any correspondence received from regulatory agencies regarding the promotion of Product. ROBERTS shall use such materials as guidance in developing promotional materials for use in promoting Product in accordance with this Agreement. If, in MERCK's sole and exclusive reasonable discretion, any promotional activity or claim made by ROBERTS about Product violates any regulatory or legal requirement, professional standard, MERCK policy or raises product liability concerns, MERCK reserves the right to (i) immediately terminate this Agreement, notwithstanding the termination provisions set forth in Article 17 of this Agreement; or (ii) review and preapprove any promotional labeling or advertising for Product before ROBERTS uses such materials. Prior to any termination of this Agreement by Merck under this provision, MERCK agrees to give ROBERTS a reasonable time period under the circumstances, not to exceed thirty (30) days, to cure the breach. ROBERTS's failure to cure the breach to MERCK's reasonable satisfaction shall be grounds for immediate termination of this Agreement, notwithstanding the termination provisions set forth in Article 17. In the event that MERCK determines that preapproval of promotional material is needed, MERCK shall so notify ROBERTS, and the parties will work together to develop an appropriate preapproval procedure. ROBERTS agrees to revise the promotional materials in accordance with MERCK's instructions. 5.6 MERCK shall provide to ROBERTS a copy of any submissions - 8 - to the FDA regarding proposed package circular changes. Such notice shall, if possible, include the date MERCK will require ROBERTS, and ROBERTS hereby agrees, to (i) begin using the revised package circular in Detailing, (ii) modify all promotional materials to reflect the revised package circular language and begin using such materials, and (iii) cease use of all promotional materials containing the outdated package circular. MERCK shall provide ROBERTS with immediate notice of any FDA approved package circular changes and ROBERTS hereby agrees to put such revised package circulars into use as soon thereafter as is reasonably possible. 5.7 ROBERTS shall be responsible for submitting to the FDA Form FDA-2253 with samples of all promotional labeling and advertising materials for Product as required under Title 21 of the Code of Federal Regulations, Section 314.81(b)(3). ROBERTS shall provide to MERCK copies of such submissions at the time of those submissions to FDA. ROBERTS shall also provide to MERCK copies of any bulletins and instructions to its professional representatives regarding promotion of Product at the time such materials are provided to the professional representatives. Copies should be sent to the attention of Gail Ryan, Regulatory Liaison, Office of Medical/Legal, Merck & Co., Inc., P.O. Box 4, West Point, PA 19046. MERCK shall retain responsibility for providing to the FDA all other information regarding Product as required by FDA regulations. ROBERTS shall provide to MERCK, in a timely manner, any additional information regarding Product as may be required by the FDA or MERCK to meet such regulatory requirements. MERCK shall provide to ROBERTS copies of any communications from the FDA that affect the distribution, promotion or marketing of Product. 5.8 ROBERTS shall be an Authorized Distributor of Record for Product for purposes of the requirements of the Prescription Drug Marketing Act (the "PDMA") and shall comply with the PDMA, FDA regulations and applicable state law requirements regarding marketing, sale and distribution of Product, including but not limited to, applicable wholesale drug distribution licensing guidelines and requirements. Prior to execution of this Agreement, ROBERTS shall provide to MERCK a copy of its written procedures established to ensure that ROBERTS and all ROBERTS professional representatives comply with the requirements of the PDMA, FDA regulations and applicable state laws. Specifically, such procedures shall include a requirement that ROBERTS notify MERCK immediately upon learning that any Product, or samples of Product, shipped by MERCK to ROBERTS have been lost or have not been received as scheduled. In the event that ROBERTS or any of its professional representatives fails to comply or causes MERCK - 9 - to fail to comply with any applicable legal requirement and a civil penalty is assessed against MERCK or its employees, then ROBERTS shall hold harmless and indemnity MERCK and its employees from any such civil penalty or other damages or losses related thereto, including attorneys' fees. ROBERTS shall also permit MERCK to conduct, upon reasonable notice, such audits and inspections of books, records and ROBERTS's facilities as are necessary to ensure compliance with the PDMA, FDA regulations and applicable state law requirements regarding marketing, sale and distribution of Product. 5.9 MERCK shall retain responsibility for compliance with the FDA's drug listing regulations, including submitting to the FDA drug listing information for Product. 5.10 Excluding promotional, marketing and distribution activities by ROBERTS, MERCK shall be solely responsible for responding to all communications, comments, requests or inquiries (hereinafter "Communications") of the health care profession or any other third parties relating to Product, including but not limited to responses to requests for medical information regarding Product ("Professional Information Requests"). ROBERTS shall communicate to MERCK any such Communications of which it becomes aware within forty eight (48) hours. ROBERTS shall provide reasonable assistance to MERCK, as MERCK deems necessary, to fully respond to such communications. 5.11 MERCK shall have the sole responsibility for Communications with government agencies concerning Product, except as set forth in Sections 5.7 and 5.12 of this Agreement. MERCK shall provide to ROBERTS copies of any such Communications that affect the distribution, promotion or marketing of Product. ROBERTS shall, as requested by MERCK, provide reasonable assistance to MERCK in responding to Communications from government agencies. 5.12 ROBERTS shall obtain an NDC number for Product and shall have the sole responsibility for payment of rebates, offering of discounts and all reporting and other requirements imposed on "manufacturers" by Section 1927 of the Social Security Act (42 U.S.C. (S)1396r-8) and all other federal statutes and regulations referred to therein or promulgated thereunder, including but not limited to, 38 U.S.C. (S)8126 and 42 U.S.C. (S)256b for sales made by ROBERTS of Product bearing ROBERTS's NDC number. ROBERTS warrants that it has in effect all agreements necessary for Medicaid reimbursement of Product under 42 U.S.C. SS (S)1396r-8, including a HCFA Agreement, an agreement with the Secretary of Veterans Affairs pursuant to 42 U.S.C. (S)8126 (including the - 10 - Federal Supply Schedule), and an agreement with the Public Health Service pursuant to 42 U.S.C. (S)256b. ROBERTS shall also have the sole responsibility for payment of rebates and all reporting and other requirements imposed by any and all state laws concerning Medicaid sales, including specifically those obligations imposed by California law, for sales made by ROBERTS of Product bearing ROBERTS's NDC number. ROBERTS shall also compensate MERCK for any increase in rebates or other payments due under the aforesaid laws for Product bearing MERCK's NDC number to the extent such increase is caused by pricing or other actions undertaken by ROBERTS with respect to Product. 5.13 MERCK shall continue to distribute Product bearing MERCK's NDC number up through and including March 31, 1995. ROBERTS shall commence distribution of Product bearing ROBERTS's NDC number on April 1, 1995, at which time MERCK will cease all distribution of Product bearing MERCK's NDC number. For that Product bearing MERCK's NDC number sold by MERCK between the Execution Date of this Agreement and April 1, 1995, MERCK shall pay ROBERTS the sum to which ROBERTS would be entitled under Section 3.4 of this Agreement as if ROBERTS had sold and distributed said Product during that period, net of an amount representing rebates or other payments due under the laws referred to in Section 5.12 of this Agreement for said Product. This amount shall represent MERCK's best estimate, based on historical sales data, of the rebates actually due for sales of Product during this period. 5.14 ROBERTS shall not mix or package Product with any other pharmaceutical or non-pharmaceutical substance nor shall ROBERTS use Product in any clinical trials. 5.15 ROBERTS shall be responsible for all returns and disposal of Product bearing ROBERTS's NDC number once ROBERTS has received Product from MERCK. 5.16 MERCK shall provide to ROBERTS reasonable and necessary technical, clinical and medical support in order for ROBERTS to carry out its obligations under this Agreement. 5.17 ROBERTS shall adhere to and comply with all MERCK guidelines with respect to storage and handling of Product. (A copy of MERCK's current guidelines is attached hereto as Schedule IV.) ROBERTS also acknowledges receipt of MERCK's audit report regarding ROBERTS's warehouse facility where Product is to be stored. ROBERTS agrees to rectify to its best efforts and to MERCK's reasonable satisfaction, the items listed for corrective action in such report and to provide MERCK with evidence thereof prior to delivery by MERCK of the first shipment of Product under - 11 - this Agreement. MERCK reserves the right to reinspect the warehouse facility, upon reasonable notice, to review compliance with the foregoing and all other provisions of this Agreement. ROBERTS shall not relocate the storage of Product to a different location without MERCK's prior consent, which MERCK shall not unreasonably withhold. 6. EXCLUSIVITY ----------- 6.1 ROBERTS shall not promote, market or distribute, or enter into any agreement to promote, market or distribute, any fluoroquinolones other than Product during the term of this Agreement. 7. TRADEMARK --------- 7.1 Product distributed and sold by ROBERTS shall be in strict accordance with the standards and specifications of MERCK, and ROBERTS shall not distribute or sell any Product under the Trademark which for any reason fails to comply with such standards and specifications. 7.2 In order to ensure that Product continues to meet the standards and specifications described in the applicable NDA, ROBERTS will allow MERCK access to its premises where Product is stored for the purpose of quality inspection during normal business hours and subject to reasonable notice. MERCK shall have the right to inspect, test and take samples of stored Product. 7.3 ROBERTS shall use the Trademark only in such form and manner as approved in writing by MERCK. ROBERTS shall not use the Trademark in any manner whatsoever which may jeopardize or endanger the distinctiveness or validity of the Trademark. ROBERTS agrees that it will place on promotional materials bearing Trademark such trademark notice as MERCK shall direct in writing. 7.4 The Trademark shall at all times remain the property of MERCK. ROBERTS expressly recognizes and acknowledges the validity of MERCK's title in and to the Trademark and will not contest its validity. All use of the Trademark hereunder shall inure to the benefit of MERCK. 7.5 ROBERTS shall not use or register any trademark which is confusingly similar to Trademark. 7.6 ROBERTS shall give prompt notice to MERCK of any - 12 - infringement by any person of the rights of MERCK in and to the Trademark which come to its attention. ROBERTS shall reasonably cooperate with MERCK in taking action against infringement of the Trademark, the control of such action, including whether to initiate action and settlement thereof, being exclusively that of MERCK. MERCK shall reimburse ROBERTS for its reasonable expenses in connection therewith, incurred at the specific written request of MERCK. 7.7 Immediately upon the termination or expiration of this Agreement for any reason whatsoever, ROBERTS shall cease all use of the Trademark. In such event, any promotional material and any existing stock of Product purchased pursuant to this Agreement should be returned to MERCK. Any COGS payments made by ROBERTS for such Product shall be returned or credited, as appropriate. 8. WARRANTY AND LIMITATIONS ------------------------ 8.1 MERCK warrants that: (i) Product will, when delivered to ROBERTS, meet the specifications and standards of Product identity, strength, quality and purity set forth in the NDA, as it may be supplemented from time to time by MERCK, for such Product; and (ii) When delivered to ROBERTS, Product will not be adulterated or misbranded within the meaning of the United States Food, Drug and Cosmetic Act (the "Act"), or any other applicable laws in which the definitions of adulteration and misbranding are substantially the same as those contained in the Act, as the Act and such laws are constituted and in effect at the time of delivery of Product to ROBERTS. 8.2 THE FOREGOING WARRANTIES ARE THE SOLE AND EXCLUSIVE WARRANTIES OFFERED BY MERCK REGARDING PRODUCT PURCHASED HEREUNDER. ALL OTHER WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY, ARE DISCLAIMED. 8.3 If ROBERTS at any time shall claim that a shipment of Product did not meet the foregoing warranties when delivered to ROBERTS, ROBERTS shall notify MERCK and MERCK shall conduct an assay of its retained sample, if any, of such shipment. If MERCK - 13 - agrees with ROBERTS's claim, MERCK, at its option, will either replace such shipment of Product or credit ROBERTS for payment made for such shipment. If the parties are unable to resolve their differences, then either party may refer the matter to an independent specialized firm of international reputation agreeable to both parties for final analysis, which shall be binding on both parties thereto. The cost of any analysis shall be paid (a) by ROBERTS, if Product is determined to have met the foregoing warranties or (b) by MERCK, if Product is determined not to have met the foregoing warranties. 8.4 Any claim on account of quantity, weight, loss or damage to Product, or any other matter that should be discernible by visual inspection, must be made by ROBERTS within thirty (30) days of ROBERTS's receipt of shipment of such Product. ROBERTS's remedy in this event shall be replacement of Product. 9. INDEMNITY --------- 9.1 MERCK shall indemnify, defend and hold ROBERTS, its subsidiaries, parents and successors, and their respective directors, officers, employees and agents harmless from and against any and all claims, actions, causes of action, liabilities, loss, costs and expenses (including reasonable attorneys' fees), arising out of third party claims relating to Product, to the extent that such claims result from (i) failure of Product to satisfy the warranty specified in Section 8.1 above, (ii) failure to provide adequate disclosure of contraindications, warnings, precautions and adverse reactions in Product packaging, labels or related physician circulars as delivered to ROBERTS, (iii) any negligent or intentional act or omission of MERCK in storing or delivering Product, (iv) any other negligent or intentional act or omission of MERCK, and (v) any breach by MERCK of its obligations under this Agreement; provided, however, that MERCK shall have no such duties to the extent such claims, actions, causes of action, liabilities, losses, costs and expenses are caused by breach of this Agreement by ROBERTS or by the negligent or more culpable act or omission of ROBERTS, its subsidiaries, parents and successors, and their respective directors, officers, employees and agents, or a third party to whom Product is sold or delivered. 9.2 ROBERTS agrees to indemnify, defend and hold MERCK, its subsidiaries, parents and successors, and their respective officers, directors, employees and agents, harmless from and against any and all third party claims, actions, causes of action, liabilities, losses, costs and expenses (including reasonable attorneys' fees) arising out of third party claims - 14 - relating to Product, to the extent that such claims result from (i) packaging, labeling, or other items which are produced or modified to ROBERTS's specifications, (ii) distribution, marketing, sales or promotion of Product by ROBERTS, including but not limited to, implied or express claims of efficacy or safety for Product which are not consistent with MERCK's approved product circular or FDA regulations, (iii) any misrepresentations or negligent or intentional act or omission of ROBERTS, or its directors, officers, employees or agents, (iv) any misrepresentation or negligent or intentional act or omission of a third party acting on ROBERTS's behalf to whom Product is sold or delivered, and (v) any breach by ROBERTS of its obligations under this Agreement; provided, however, that ROBERTS shall have no such duties to the extent such claims, actions, causes of action, liabilities, losses, costs and expenses are caused by the breach of this Agreement or by the negligent or intentional act or omission of MERCK, its subsidiaries, parents and successors, and their respective officers, directors, employees and agents. 9.3 Each party agrees to give the other prompt written notice of any claims made for which the other might be liable under the foregoing indemnification, together with the opportunity to defend, negotiate, and settle such claims. The party seeking indemnification under this Agreement shall provide the other party with all information in its possession, authority, and assistance necessary to enable the indemnifying party to carry on the defense of such claims. 9.4 Neither party shall be responsible or bound by any settlement made without its prior written consent. 9.5 ROBERTS shall secure comprehensive general liability insurance with minimum limits of $5 million per occurrence and in the aggregate. ROBERTS shall name MERCK as an additional insured under a broad form vendors endorsement. ROBERTS shall provide to MERCK a certificate of insurance disclosing the policy limits and all other information necessary to ascertain whether ROBERTS is meeting its obligations under this Section 9.5 prior to the execution of this Agreement, and from time to time as requested by MERCK during the term of this Agreement. The insurance policy shall require notice to MERCK at least thirty (30) days prior to cancellation, non-renewal or material change in such insurance. 10. SAMPLES ------- 10.1 MERCK shall supply samples of Product to be used by ROBERTS in the amount of three and one-half percent (3.5%) of the volume of Product purchased by Roberts each calendar year. Such - 15 - samples shall be sent to ROBERTS at MERCK's expense. The storage and distribution of samples is the exclusive responsibility of ROBERTS and shall be in conformance with ROBERTS's obligations under Section 5.8 of this Agreement. 11. RECALL ------ 11.1 In the event MERCK or ROBERTS shall be required or shall voluntarily decide to recall or undertake a market withdrawal of Product, then MERCK and ROBERTS shall fully cooperate with each other in taking any action required to effectuate such recall or market withdrawal. If a recall or market withdrawal is initiated for any of the reasons which would give rise to a MERCK indemnity obligation under Section 9. 1, MERCK shall pay the costs and expenses of such action, including reasonable costs for public relations communications. If the recall or market withdrawal is initiated for any of the reasons which would give rise to a ROBERTS indemnity obligation under Section 9.2, ROBERTS shall pay the costs and expenses of such action, including reasonable costs for public relations communications. 11.2 MERCK and ROBERTS agree to abide by all decisions of the other to recall Product or undertake a market withdrawal of Product. 12. ADVERSE EXPERIENCES: COMPLAINTS ------------------------------- 12.1 ROBERTS shall notify MERCK immediately, but in no event more than forty eight (48) hours, if ROBERTS receives any notice of a serious or unexpected adverse drug experience associated with the use of Product. The terms "serious," "unexpected," and "adverse drug experience" as used in this Section 12.1, shall have the same meaning as the definitions set forth in Title 21 of the Code of Federal Regulations, Section 314.80(a), and in effect at the time of ROBERTS's notice or report to MERCK. Notice shall be sent to Worldwide Product Safety & Epidemiology, Merck & Co., Inc., P.O. Box 4, West Point, PA 19486, and shall be in conformance with Merck Policy Letter No. 105 (in Schedule III of this Agreement) to the extent possible. 12.2 ROBERTS shall notify MERCK immediately upon receiving notice of (i) information concerning any incident that causes Product or its labeling to be mistaken for, or applied to, another article; (ii) information concerning any change or deterioration in distributed Product; (iii) any complaint alleging mislabeling; or (iv) any incident involving an allegation of tampering or a defective child-resistant closure. In this event, ROBERTS shall fax the following information to - 16 - MERCK, Regulatory Services, Customer Complaint Unit at (215) 652-2441: (i) description of the complaint; (ii) lot numbers involved; (iii) number of product units affected; (iv) customer name, address and phone number; and (v) whether or not the customer will be sending a "complaint sample," i.e. a sample of the problem. Complaint samples should be sent to Regulatory Services, Customer Complaint Unit, Merck & Co., Inc., P.O. Box 4, WP38B-5, West Point, PA 19486. Once MERCK has completed its investigation of the complaint, MERCK shall forward a copy of the report to ROBERTS. ROBERTS shall report the results back to the customer. 12.3 ROBERTS shall report in no less than ten (10) days to MERCK all other information concerning any complaint of any kind regarding Product, its labeling, quality or packaging, including but not limited to, any adverse drug experience not reported pursuant to Section 12.1 above, such as any non-serious or expected adverse drug experience. Such reports shall be made in accordance with the procedures of either Section 12.1 or Section 12.2, as applicable. 12.4 It is understood and agreed that the reporting requirements set forth in this Article 12 are based on MERCK policies and procedures and regulatory reporting requirements. Accordingly, in the event of changes to regulatory requirements or MERCK policies and procedures for adverse experience reporting, ROBERTS agrees to comply with such revised notification procedures as requested in writing by MERCK. 13. REGULATORY ACTIONS ------------------ 13.1 ROBERTS shall immediately notify MERCK of any information ROBERTS receives regarding any threatened or pending action by any governmental regulatory authority responsible for granting approvals or registrations for marketing, distribution or promotion of Product, for implementing or enforcing government rebate or discount agreements relating to Product, or for inspection or licensing of ROBERTS's facilities that are used for distribution of Product, which may affect the safety or efficacy claims of Product or the continued marketing, distribution, reimbursement or promotion of Product. Upon receipt of any such information, ROBERTS shall consult with MERCK in an effort to arrive at a mutually acceptable response or procedure for taking appropriate action; provided, however, that nothing contained herein shall be construed as restricting the rights of either party to make a timely report of such matter to any governmental agency or take other action that it deems to be appropriate or required by applicable law. - 17 - 14. RECORDS; AUDITS; INSPECTIONS ---------------------------- 14.1 ROBERTS shall keep current and accurate books and records in sufficient detail to enable MERCK to calculate MERCK's compensation under Article 3 of this Agreement, and to ensure compliance with this Agreement, including but not limited to ROBERTS's Detailing obligations under Section 5.2 of this Agreement, and all applicable laws, rules and regulations regarding marketing, sale and distribution of Product. ROBERTS shall also permit MERCK to conduct, upon reasonable notice, such audits and inspections of books, records and ROBERTS's facilities as are necessary to ensure compliance with this Agreement and with all applicable laws, rules and regulations regarding marketing, sale and distribution of Product. 14.2 MERCK shall provide ROBERTS quality control certificates which certify that Product was Manufactured in accordance with current Good Manufacturing Processes and meets the specifications therefor, if required by regulation or requested by ROBERTS. 14.3 All other records relating to the Manufacture of Product hereunder shall be retained by MERCK for a period of not less than one (1) year from the date of expiration of the lot of Product to which said records pertain. 15. CONFIDENTIALITY --------------- 15.1 Each party agrees to keep secret and confidential any and all information which may be disclosed by the other hereunder, and the party receiving such confidential information shall not, without the disclosing party's prior written approval (i) use such information except in connection with the performance of the receiving party's obligations hereunder or (ii) disclose such information to any employee or to any third party; except those who need to know in connection with the receiving party's performance of its obligations hereunder or as is required by law. The obligations imposed by this Section shall not apply to any information: (a) which at the time of disclosure is in the public domain; or (b) which, after disclosure, becomes part of the public domain by publication or otherwise, through no fault of the receiving party; or (c) which is made available to the receiving party from sources independent of the disclosing party who do - 18 - not have any confidentiality obligation to the disclosing party or any other party with respect to such information. 15.2 Any public announcement by either of the parties concerning this Agreement or the arrangements between the parties provided for in this Agreement must be preapproved by both parties. 15.3 Upon request by the disclosing party, the receiving party shall return to the disclosing party all documents containing the disclosing party's confidential information (including all copies). 16. FORCE MAJEURE ------------- 16.1 Neither party shall be liable for failure or delay in performance hereunder (except the payment of money) if such failure or delay is due to acts of God, weather, fire or explosions; war, invasion, riot or other civil unrest, governmental laws, orders, restrictions, actions, embargoes or blockades; actions by regulatory agencies which delay, prohibit or otherwise adversely affect MERCK's ability to Manufacture Product; national or regional emergency, injunctions, strikes, lockouts, labor trouble or other industrial disturbances; inability to obtain, shortage or interruption of materials, labor, containers, fuel or transportation; breakage of machinery or equipment or other accidents; or any other cause beyond the control of such party. 17. TERM AND TERMINATION -------------------- 17.1 This Agreement shall take effect as of the date first above written and shall continue in effect until December 31, 1999, unless sooner terminated as set forth herein. MERCK and ROBERTS shall extend the Agreement for an additional two (2) year period, provided, however, that such extension shall be at MERCK's option if in any calendar year of this Agreement (i) Net Sales are below Baseline Net Sales, or (ii) ROBERTS is in breach of its obligations with respect to Details provided in Section 5.2 of this Agreement. MERCK's failure to declare the Agreement terminated or breached as a result of either of these events shall not effect MERCK's option under this Section 17.1. 17.2 Except as otherwise provided in this Agreement, this Agreement may be terminated upon thirty (30) days prior written notice by either party at any time if it is proven by reasonable evidence that the other party is in breach of its essential - 19 - obligations under this Agreement. In the event of termination of this Agreement under this Section 17.2 or any other provision of this Agreement, ROBERTS shall provide MERCK reasonable assistance in transferring responsibility for distribution of Product to MERCK, including but not limited to, providing MERCK with a list of customer names and addresses, copies of any contracts with customers, and any inventory of Product if requested by MERCK. 17.3 In the event that MERCK's current supply contract for bulk Product is terminated, MERCK shall give ROBERTS notice within ten (10) days. MERCK shall continue to supply ROBERTS with Product under the terms of this Agreement for an additional two (2) years after such notice, provided, however, that MERCK may, within one year of giving such notice, at its option terminate this Agreement effective at the expiration of that two year period. 17.4 The termination of this Agreement shall not affect any obligation of the parties to make payments under the provisions of the Agreement which may be outstanding at the time of termination. Any such amount owed shall be paid within (30) days of the termination of this Agreement. In addition, the provisions of Section 5.6, Section 5.12, Section 5.15, Section 5.17, Section 7.5, Section 7.7, Article 9, Article 11, Article 12, Article 13, Article 15 and Article 25 shall also survive the termination of this Agreement. 17.5 In the event that Net Sales of Product are less than $15,000,000 in any one calendar year of this Agreement and ROBERTS is not and has not been in default of any of its obligations herein, MERCK and ROBERTS agree to negotiate in good faith a modification of the terms of this Agreement, if so requested by ROBERTS. In the event that the parties are unable to reach an agreement after such negotiations, ROBERTS shall have the right to terminate this Agreement upon ninety (90) days written notice to MERCK. In the event of such a termination, ROBERTS shall bear all costs associated with the transfer of marketing and distribution of Product, including but not limited to, costs incurred to change Product labeling, communicate the change to MERCK's and ROBERTS's customers, ship Product from ROBERTS's facilities to MERCK's facilities, and to repackage such returned Product. 18. SUPERIORITY ----------- 18.1 This Agreement constitutes the entire agreement between MERCK and ROBERTS with respect to the distribution of Product hereunder and supersedes any other agreements, understandings or commitments made prior hereto. The terms of this Agreement may - 20 - not be altered except in a writing signed by MERCK and ROBERTS. Provisions in any purchase orders or other documents prepared by ROBERTS or MERCK which are in addition to or inconsistent with the terms and conditions of this Agreement shall be ineffective unless expressly consented to by both parties in writing. 19. GOVERNING LAW ------------- 19.1 This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to the provisions of conflicts of law thereof. 20. ARBITRATION ----------- 20.1 Any controversy, claim or dispute arising out of or relating to the performance, construction, interpretation or enforcement of this Agreement, including disputes as to the scope of this clause, shall be resolved through good faith negotiations between the parties. If such efforts prove unsuccessful, all such controversies, claims or disputes shall be submitted to binding arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. (S) 1 et seq. Arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Act. The arbitration award shall be final and binding and it may be confirmed and enforced in any court of competent jurisdiction. The arbitration proceeding shall commence no later than forty-five (45) days from the date of the selection of the arbitrator. The arbitrator shall issue the Award no later than thirty (30) days from the close of the hearing. Each party shall pay for all attorney fees it incurred in connection with the arbitration. Materials, submissions and documents relating to the arbitration shall be deemed confidential subject to the provisions of Article 15 above. 21. SEVERABILITY ------------ 21.1 In the event that any provision of this Agreement shall be found unenforceable, such finding shall not be construed to affect any other provision of this Agreement, which shall remain in full force and effect. 22. HEADINGS -------- 22.1 The headings contained in this Agreement are inserted for convenience of reference only and shall not be used in construing this Agreement. - 21 - 23. NOTICES ------- 23.1 Except as otherwise provided in this Agreement, notices under this Agreement shall be in writing and shall be delivered by certified first class mail, return receipt requested, to the following addresses of the parties or to such other addresses as may be hereafter designated in writing by the parties: If to ROBERTS: Roberts Laboratories, Inc. Attn.: Vice-President and General Counsel Meridian Center II 4 Industrial Way West Eatontown, NJ 07724 If to MERCK: Merck & Co., Inc. Attn.: Sr. Director, Business Development & Relations P.O. Box 4 West Point, PA 19486-0004 24. ASSIGNABILITY ------------- 24.1 Neither party may assign, transfer or otherwise dispose of this Agreement, or any obligation with respect thereto, to any third party without the prior written consent of the other party, except that MERCK may assign or transfer this Agreement, or any part thereof, to a subsidiary or joint venture in which it owns at least fifty percent (50%), without the consent of ROBERTS. Any attempted assignment in violation of this Section shall be void. 25. GUARANTEE OF PARENT ------------------- 25.1 ROBERTS warrants and represents that Roberts Pharmaceutical Corporation, a New Jersey corporation, is the parent of ROBERTS, and unconditionally guarantees ROBERTS's performance under this Agreement, including but not limited to, all of the obligations and liabilities of ROBERTS set forth in this Agreement. This guarantee shall be continuing and shall survive the termination of this Agreement for any reason whatsoever, and may operate as an indemnification or an assumption of liabilities by Roberts Pharmaceutical Corporation as may be required by MERCK. - 22 - 26. WAIVER ------ 26.1 No waiver by any party in one or more instances of any of the provisions of this Agreement or the breach thereof shall establish a precedent for any other instance with respect to that or any other provision. Furthermore, in case of waiver of a particular provision, all other provision of this Agreement will continue in full force and effect. 27. NO INTELLECTUAL PROPERTY RIGHTS ACQUIRED ---------------------------------------- 27.1 Each party agrees that it shall not obtain any rights in or license to any patents, trademarks, copyrights, knowhow, trade secrets or other intellectual property rights of the other party by virtue of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. MERCK & CO., INC. ROBERTS LABORATORIES, INC. Legal Approval (AD 2/15/95) By: Raymond V. Gilmartin By: Anthony P. Maris ---------------------- -------------------------- Title: Chairman, President, Title: Vice President Finance and CEO Date: 2/23/95 Date: Feb. 16, 1995 ROBERTS PHARMACEUTICAL CORPORATION By: Anthony A. Rascio ------------------- Title: Vice President Date: Feb. 16, 1995 v1/A-Team/RPC/General/GPL 5354-52/*NOROXIN AGREEMENT - 23 - EX-21 3 SUBSIDIARIES OF THE REGISTRANT LIST OF SUBSIDIARIES STATE OR OTHER JURISDICTION SUBSIDIARIES OF INCORPORATION - ------------ ---------------------------- Roberts Laboratories, Inc. New Jersey Linz-Roberts, Inc. Delaware Pronetics Health Care Group, Inc. * VRG International, Inc. New Jersey Monmouth Pharmaceuticals, Ltd. United Kingdom Roberts Pharma GmbH Germany Roberts Pharmaceutical of Canada, Inc. Canada Roberts Investments, Inc. Delaware RPC Acquisition Corp. New Jersey Geriatric Pharmaceutical Corp. New York - -------------- * Pronetics Healthcare Group, Inc. is the name of 4 separate subsidiary corporations organized in New Jersey, New York, North Carolina and South Carolina. In 1995, the Company adopted a plan to discontinue and divest the operations of each of these subsidiaries. EX-23 4 CONSENT OF INDENPENDENT ACCOUNTANTS COOPERS Coopers & Lybrand L.L.P. & LYBRAND a professional services firm CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Roberts Pharmaceutical Corporation on Form S-8 (File No. 33-34767 and File No. 33-61543) of our report dated March 20, 1996, on our audits of the consolidated financial statements of Roberts Pharmaceutical Corporation and Subsidiaries as of December 31, 1995, 1994 and 1993 and for each of the three years in the period ended December 31, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Princeton, New Jersey March 20, 1996 Coopers & Lybrand L.L.P., a registered limited liability partnership, is a member firm of Coopers & Lybrand (International). EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 16357 13649 26918 0 20785 93770 15681 0 340290 81782 16183 0 0 189 235278 340290 113380 113427 52870 52870 6108 0 3453 5519 2816 2703 (27045) 0 0 (24342) (1.30) (1.30) Includes shareholder receivable of $600. Includes raw material inventory of $3,539. The Company decided to sell its Pronetics (Homecare) and VRG subsidiaries in August 1995, and March 1996, respectively. Estimated loss on discontinuing these subsidiaries is $22,498, including a provision of $6,901 for operating losses until disposal.
-----END PRIVACY-ENHANCED MESSAGE-----