-----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, RlNIDGPL8ZievNsCDHYqMhsmdTmeOUhuUhEZj44wnpQlOP0qYcUcBDZtU9Sna1nQ Tt2Y5Z1vnq9kWCkcjtHi/g== 0000912057-97-017686.txt : 19970515 0000912057-97-017686.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-017686 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERAPEUTIC DISCOVERY CORP CENTRAL INDEX KEY: 0000899753 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943173191 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21478 FILM NUMBER: 97605487 BUSINESS ADDRESS: STREET 1: 1375 CALIFORNIA AVENUE STREET 2: P O BOX 10051 CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4154968203 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant To Section 13 or 15(d) of the Securities - ---- Exchange Act of 1934 For the quarterly period ended MARCH 31, 1997 or Transition Report Pursuant to Section 13 or 15(d) of the Securities - ---- Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 0-21478 ---------- THERAPEUTIC DISCOVERY CORPORATION -------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-3173191 ---------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1454 Page Mill Road, Suite 220, P.O. Box 10051, Palo Alto, CA 94303-0806 - -------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 496-8200 -------------- 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 ----- ----- Number of shares outstanding of each of the registrant's classes of common stock as of May 12, 1997 Class A Common Stock, $.01 par value - 7,734,424 shares Class B Common Stock, $.01 par value - 100 shares -1- Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS THERAPEUTIC DISCOVERY CORPORATION (a development stage company) Statement of Operations (unaudited) (in thousands, except number of shares and per share data)
Period From Quarter Ended Inception March 31, (November 1992) 1997 1996 to March 31, 1997 ------- ------ --------------------- REVENUES: Net interest and investment income and license fees $ 667 $ 2,672 $ 35,003 EXPENSES: Research and development paid to ALZA Corporation 22,241 21,573 227,620 General and administrative 655 550 10,111 --------- --------- ----------- Total expenses 22,896 22,123 237,731 --------- --------- ----------- Loss before tax (22,229) (19,451) (202,728) --------- --------- ----------- Income tax -- -- 301 --------- --------- ----------- Net loss $ (22,229) $ (19,451) $ (202,427) --------- --------- ----------- --------- --------- ----------- Net loss per common share $ (2.87) $ (2.51) --------- --------- --------- --------- Weighted average common shares 7,734,524 7,734,524 ----------- ----------- ----------- -----------
See accompanying notes. -2- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) Balance Sheet (unaudited) (in thousands, except number of shares and per share data)
ASSETS March 31, December 31, 1997 1996 -------------- -------------- Current assets: Cash and cash equivalents $ 6,736 $ 10,597 Short-term investments 55,424 74,707 Interest receivable 521 809 Prepaid expenses and other current assets 424 1,033 -------------- -------------- Total current assets 63,105 87,146 Long-term assets: Employee loans, long-term 300 300 Prepaid expenses and other long-term assets -- -- Organization costs, (net of accumulated amortization) 835 1,014 -------------- -------------- Total assets $ 64,240 $ 88,460 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Payable to ALZA Corporation $ 16,719 $ 19,129 Accounts payable and other current liabilities 31 72 -------------- -------------- Total current liabilities 16,750 19,201 Long-term liabilities: Deferred compensation 221 115 Total liabilities Stockholders' equity: Class A Common Stock, $.01 par value, 12,000,000 shares authorized, 7,734,424 issued and outstanding 77 77 Class B Common Stock, $.01 par value, 100 shares authorized, issued and outstanding -- -- Additional paid-in capital 251,650 251,650 Net unrealized losses on available-for-sale securities (932) (1,166) Deficit accumulated during the development stage (202,427) (180,198) Deferred compensation (1,099) (1,219) -------------- -------------- Total stockholders' equity 47,269 69,144 -------------- -------------- Total liabilities and stockholders' equity $ 64,240 $ 88,460 -------------- -------------- -------------- --------------
See accompanying notes. -3- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) Condensed Consolidated Statement of Cash Flows (unaudited) (in thousands)
Period From Quarter Ended Inception March 31, (November 1992) to 1997 1996 March 31, 1997 ----------- ---------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (22,229) $ (19,451) $ (202,427) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of organization costs 179 179 2,745 Amortization of deferred compensation 120 40 848 (Increase) decrease in assets: Interest receivable 288 (355) (521) Other receivable -- -- (252) Organization costs -- -- (3,581) Prepaid expenses and other assets 609 (19) (172) Increase (decrease) in liabilities: Payable to ALZA Corporation (2,410) (1,161) 16,719 Accounts payable and other current liabilities (41) (132) 31 Long-term liabilities 106 6 221 ----------- ---------- ---------------- Total adjustments (1,149) (1,442) 16,038 ----------- ---------- ---------------- Net cash used in operating activities (23,378) (20,893) (186,389) CASH FLOWS FROM INVESTING ACTIVITIES: Investments in available-for-sale securities -- (5,032) (1,363,067) Sale of available-for-sale securities 19,517 4,071 606,191 Maturities of available-for-sale securities -- 20,968 700,523 Employee loans, long-term -- -- (300) ----------- ---------- ---------------- Net cash provided by (used in) investing activities 19,517 20,007 (56,653) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Class B Common Stock -- -- 2 Issuance of Class A Common Stock -- -- 249,998 Issuance costs -- -- (222) ----------- ---------- ---------------- Net cash provided by financing activities -- -- 249,778 ----------- ---------- ---------------- Net increase (decrease) in cash and cash equivalents (3,861) (886) 6,736 Cash and cash equivalents at beginning of period 10,597 13,314 -- ----------- ---------- ---------------- Cash and cash equivalents at end of period $ 6,736 $ 12,428 $ 6,736 ----------- ---------- ---------------- ----------- ---------- ----------------
See accompanying notes. -4- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION Therapeutic Discovery Corporation ("TDC") was incorporated in Delaware on November 12, 1992 and commenced operations on June 11, 1993. TDC was formed to select and develop new human pharmaceutical products (the "TDC Products") combining the proprietary drug delivery systems of ALZA Corporation ("ALZA") with various drug compounds. TDC has been engaged in these and related activities since its formation. TDC's principal activities consist of research and development activities under its agreements with ALZA. Under generally accepted accounting principles, TDC is considered a development stage company and, accordingly, must present financial information for the quarters ended March 31, 1997 and 1996 and for the period from inception (November 1992) to March 31, 1997. The information at March 31, 1997, for the quarters ended March 31, 1997 and 1996, and the period from inception (November 1992) to March 31, 1997 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which the management of TDC believes necessary for fair presentation of the results for such periods. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the audited financial statements of TDC for the year ended December 31, 1996 included in TDC's 1996 Annual Report on Form 10-K. 2. SHORT-TERM INVESTMENTS TDC has classified its entire investment portfolio as available-for-sale. TDC's investment portfolio is available for current operations and, therefore, has been classified as a current asset. Investments in the available-for-sale category are carried at fair market value with unrealized losses recorded as a separate component of stockholders' equity. At March 31, 1997, net unrealized losses on available-for-sale securities were approximately $0.9 million. At March 31, 1996, net unrealized losses on available-for-sale securities were approximately $1.4 million. The cost of securities when sold is based upon specific identification. -5- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 The following is a summary of available-for-sale securities at March 31, 1997: AVAILABLE-FOR-SALE SECURITIES
Estimated Unrealized Unrealized Fair (in thousands) COST Gains Losses Value ----------- ---------- ------------ ------------- U.S. Treasury securities and obligations of U.S. government agencies $ 28,521 $ 0 $ (532) $ 27,989 Collateralized mortgage obligations and asset backed securities 12,850 5 (253) 12,602 Corporate securities 21,511 0 (152) 21,359 ----------- ---------- ------------ ------------- $ 62,882 $ 5 $ (937) $ 61,950 ----------- ---------- ------------ ------------- ----------- ---------- ------------ -------------
The amortized cost and estimated fair value of debt and marketable securities at March 31, 1997, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Estimated Fair (in thousands) Cost Value ---------- ------------- Due in one year or less $ 29,606 $ 29,492 Due after one year through four years 26,314 25,773 Due after four years through eight years 6,962 6,685 ---------- ------------- $ 62,882 $ 61,950 ---------- ------------- ---------- ------------- -6- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 3. ARRANGEMENTS WITH ALZA CORPORATION TDC was formed by ALZA for the purpose of selecting and developing new human pharmaceutical products combining ALZA's proprietary drug delivery technologies with various drug compounds, and commercializing such products, most likely through licensing to ALZA. In connection with the distribution to ALZA stockholders of a special dividend of units (each unit includes one share of TDC Class A Common Stock and one warrant to purchase one-eighth of one share of ALZA Common Stock at an exercise price of $65 per share), ALZA made a $250 million cash contribution to TDC's capital. The cash is being used primarily to fund activities under a development agreement (the "Development Contract") between ALZA and TDC pursuant to which ALZA conducts research and development activities on behalf of TDC. In accordance with TDC's Restated Certificate of Incorporation, on June 11, 1996, the Units separated into their component securities--TDC Class A Common Stock and ALZA warrants. As a result of the separation, both securities are listed and trade independently on the Nasdaq Stock Market. The trading symbol for the TDC Class A Common Stock is "TDCA". PRODUCT LICENSE OPTION. TDC has granted to ALZA an option to acquire, on a product-by-product and country-by-country basis, a perpetual, exclusive, royalty-bearing license to make, have made, use and sell any or all TDC Products (the "License Option"). If ALZA exercises its License Option for any TDC Product (a "Licensed TDC Product"), ALZA will pay the following royalties ("Product Royalties") to TDC: (a) if the Licensed TDC Product is sold by ALZA, Product Royalties of up to a maximum of 5% of ALZA's net sales of the Licensed TDC Product determined as follows: (i) 1% of net sales, other than sales to distributors or sublicensees who agree to pay royalties or make percentage of sales payments to ALZA or any affiliate of ALZA and in respect of which the Product Royalties are determined as provided in clause (b) below, plus (ii) an additional 0.1% of such net sales for each full $1 million of the Development Costs (as defined in the Development Contract) of the Licensed TDC Product paid by TDC; and (b) if the Licensed TDC Product is sold by a third party, Product Royalties of up to a maximum of 50% of third party payments to ALZA with respect to such Licensed TDC Product determined as follows: (i) 10% of such third party payments, plus (ii) an additional 1% of such third party payments for each full $1 million of the Development Costs of the Licensed TDC Product paid by TDC. In each case, net sales and other third party payments will be reduced by the dollar amount of any license or similar payments due to third parties from ALZA with respect to the Licensed TDC Product. In addition, ALZA has the option to buy out TDC's right to receive Product Royalties with respect to any Licensed TDC Product on either a country-by-country or worldwide basis. -7- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 ALZA may exercise the License Option with respect to any TDC Product, on a country-by-country basis, at any time until 90 days after the earliest of the following: (a) approval to market the TDC Product in such country by the appropriate regulatory agency; (b) approval to market the TDC Product in the United States by the FDA; or (c) the expiration of the Purchase Option (as defined below). PURCHASE OPTION. ALZA has certain rights pursuant to the Restated Certificate of Incorporation of TDC to purchase all (but not less than all) of the TDC Class A Common Stock (the "Purchase Option"). Except as otherwise set forth below, the Purchase Option may be exercised by written notice to TDC at any time during the period ending on December 31, 1999; provided that such date will be extended for successive one year periods if, as of any June 30 beginning with June 30, 1999, TDC has not used at least 90% of all funds available for product development as set forth in the Development Contract. Notwithstanding the foregoing, the Purchase Option will terminate on the 60th day after the later of the filing or the due date of a Form 10-K or Form 10-Q of TDC containing a balance sheet showing less than $5 million of cash, cash equivalents and short-term and long-term investments. Based on TDC's current rate of expenditures on TDC Products, it can be expected that TDC's balance sheet will reach this threshold during the third quarter of 1997. If the Purchase Option is exercised, the exercise price (the "Purchase Option Exercise Price") will be the greatest of the following: (a) $100 million; (b) the greater (i) of 25 times the worldwide royalties and sublicensing fees paid by ALZA to TDC during four specified calendar quarters or (ii) 100 times such royalties and sublicensing fees during a specified calendar quarter, in each case, less any amounts previously paid by ALZA to exercise a buy-out option with respect to any product; (c) the fair market value of one million shares of ALZA Common Stock; or (d) $325 million less all amounts spent by TDC under the Development Contract. Based on information available at March 31, 1997, the Purchase Option Exercise Price is expected to be $100 million. At the time of exercise of the Purchase Option ALZA may decide, in its discretion, to pay the Purchase Option Exercise Price in cash, in ALZA Common Stock, or in any combination of cash and ALZA Common Stock. -8- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 ALZA has not made a decision as to whether it will exercise the Purchase Option. ALZA is under no obligation to exercise the Purchase Option and will do so only if ALZA determines that it is in the best interests of ALZA and its stockholders at the time the decision is made. For a more detailed discussion of the License Option, the Purchase Option and the arrangements between ALZA and TDC, see TDC's 1996 Annual Report on Form 10-K. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTICE CONCERNING FORWARD-LOOKING STATEMENTS:- Some of the statements made in this quarterly report on Form 10-Q are forward-looking in nature, including but not limited to statements that are not historical facts and statements including forms of the words "intend", "believe", "will", "may", "could", "expect", "anticipate", "possible" and similar terms. The occurrence of the events described are subject to the future occurrence of many events which are unpredictable or outside TDC's control (including without limitation any possible future actions by ALZA) and various risk factors, many of which are described in TDC's 1996 Annual Report on Form 10-K and include, without limitation, risks associated with technology and product development, risks relating to clinical development, changes in the health care marketplace, regulatory risks, risks related to patent and intellectual property matters, market acceptance of products (including third-party reimbursement) and competition and the risk of a lack of funds to complete development of products. LIQUIDITY AND CAPITAL RESOURCES TDC was formed in November 1992 by ALZA and was fully capitalized and commenced operations in June 1993 with approximately $250 million in cash contributed by ALZA. At March 31, 1997, TDC had cash and cash equivalents, and short-term investments of approximately $62.2 million, as compared with approximately $85.3 million at December 31, 1996. TDC's cash expenditures for operating activities were approximately $23.4 million for the quarter ended March 31, 1997, as compared with $20.9 million for the quarter ended March 31, 1996. Cash expenditures for operating activities were approximately $186 million for the period from inception (November 1992) to March 31, 1997 and differ from TDC's net losses of approximately $202 million for the same period due primarily to the amount payable to ALZA for research and development and amortization of organization expenses. TDC's remaining cash, plus interest earned thereon, less administrative expenses (including reasonable reserves for TDC's operations) will be used primarily to fund the development of TDC Products under the Development Contract. Funds not -9- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 immediately required for development activities and administrative expenses have been invested in low risk securities. TDC's investment portfolio includes investments in collateralized mortgage securities, U.S. Government securities, corporate notes, and asset backed notes. As TDC's funds continue to be utilized under the Development Contract, increasingly lower cash balances will be available for investment. At March 31, 1997, the cost of short-term investments exceeded their fair value by approximately $0.9 million. Based on TDC's current rate of expenditures on TDC Products, it is expected that funds available for product development will be exhausted during the third quarter of 1997 and product development funding by TDC will cease. However, several factors could impact the level and timing of TDC funding, including the discontinuation of the development of any TDC Products, any commercial arrangements between ALZA and other companies which would cause ALZA to exercise its License Option with respect to any TDC Product, any change in the number of projects advancing to or continuing in later stages of development or any acceleration or deceleration in the rate of spending on products currently in development or clinical activities. When cash available for product development is exhausted, which is anticipated to occur during the third quarter of 1997, certain critical timetables will be triggered. First, ALZA's Purchase Option with respect to all of TDC's Class A Common Stock will expire on the 60th day after the later of the filing or the due date of a Form 10-K or Form 10-Q of TDC containing a balance sheet showing less than $5 million of cash, cash equivalents and short-term and long-term investments. In addition, ALZA has the right, for 90 days after expiration of the Purchase Option, to license any or all TDC Products which have not yet been licensed, on a product-by-product and country-by-country basis. ALZA is under no obligation to exercise the Purchase Option or the License Option with respect to any TDC Product and will do so only if ALZA determines that it is in the best interests of ALZA and its stockholders at the time the decision is made. In the event that ALZA does not exercise the Purchase Option or the License Option for all TDC Products, TDC will not have funds to continue or complete development of any remaining products. ALZA has undertaken to fund certain TDC Product development activities which will not be completed before available cash is exhausted and which are described in work plans approved by TDC. Such funding by ALZA would begin on a product-by-product basis when TDC no longer has funds available to pay for such activities. Such funding will continue only during the period prior to the expiration of the Purchase Option and the License Option when ALZA has not yet made a determination whether or not to exercise its Purchase Option or its License Option for the particular product. However, this undertaking is subject to ALZA's determination of the continued technical and commercial feasibility of the product and the compatibility of the product with ALZA's product portfolio and business objectives. -10- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 The Board of Directors of TDC has initiated activities to establish a contingency plan for the continued operations of TDC in the event that ALZA chooses not to exercise the Purchase Option. Possible actions under the contingency plan, which could be implemented individually or in combination, include the sale or license of TDC Products for which ALZA has not exercised its License Option, either worldwide or for countries for which ALZA has not exercised its option; the sale of TDC's rights to future payments with respect to TDC Products licensed by ALZA, the sale of TDC's rights to future payments from ALZA with respect to all technology developed or otherwise obtained pursuant to the Development Contract ("Developed Technology"); and exploring alternative funding sources to continue or complete development of TDC Products not licensed by ALZA. TDC's Board will review the contingency plan on a regular basis. In the event that ALZA does not exercise the Purchase Option, there can be no assurance that the contingency plan will result in returns to TDC stockholders. The Board has the right, under its agreements with ALZA, to take necessary steps to cease development funding and maintain an adequate reserve to ensure TDC's ability to meet its operating cash needs through at least December 31, 1997. RESULTS OF OPERATIONS Revenues, consisting of net interest and investment income earned on invested funds, were approximately $0.7 million for the quarter ended March 31, 1997, as compared with approximately $2.7 million for the quarter ended March 31, 1996. Revenues totaled approximately $35.0 million for the period from inception (November 1992) to March 31, 1997. As TDC's funds are utilized under the Development Contract, lower cash balances are available for investment, and therefore net interest income continues to decrease. TDC anticipates that the only income to TDC will be interest income and sublicensing revenues, if any, resulting from ALZA's exercise of its License Option for any TDC Product. TDC spent approximately $22.2 million on research and development activities in the quarter ended March 31, 1997, as compared with approximately $21.6 million in the quarter ended March 31, 1996. Research and development expenses have totaled approximately $227.6 million for the period from inception (November 1992) to March 31, 1997. TDC's research and development expenses are expected to continue at approximately current levels during the second and third quarters of 1997, subject to the occurrence of various events which could affect the level and timing of TDC's expenditures on research and development as described above. TDC incurred general and administrative expenses of approximately $0.7 million for the quarter ended March 31, 1997 as compared with $0.6 million for the quarter ended March 31, 1996. General and administrative expenses totaled approximately $10.1 million -11- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 for the period from inception (November 1992) to March 31, 1997. Expenses incurred by TDC under its administrative services agreement with ALZA were approximately $48,000 for the quarter ended March 31, 1997, as compared with approximately $49,000 for the quarter ended March 31, 1996. The expenses incurred under such agreement for the period from inception (November 1992) to March 31, 1997 were approximately $662,000. TDC reported a net loss of approximately $22.2 million or $2.87 per common share for the quarter ended March 31, 1997, as compared with a net loss of approximately $19.5 million or $2.51 per common share for the quarter ended March 31, 1996. TDC had a net loss of approximately $202.4 million for the period from inception (November 1992) to March 31, 1997. The increasing net loss resulted primarily from the increase in development activities during the relevant periods. It is anticipated that TDC will continue to record significant net losses as products enter or continue in later stages of development, if additional products are accepted by TDC for development, and as investment income decreases as funds available for investment are reduced. For the quarter ended March 31, 1997 and the period from inception (November 1992) to March 31, 1997, the provision for income taxes was not material. -12- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 PART II OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.8 Agreement and Amendment No. 1 to License Agreement between ALZA Corporation and Therapeutic Discovery Corporation dated February 10, 1997. 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter. -13- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) March 31, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Therapeutic Discovery Corporation Date: May 13, 1997 By: /s/ Gary L. Neil ------------------------------------ Gary L. Neil President and Chief Executive Officer Date: May 13, 1997 By: /s/ David R. Hoffmann ------------------------------------ David R. Hoffmann Vice President, Finance (Principal Financial and Accounting Officer) -14- EXHIBIT INDEX EXHIBIT 10.8 Agreement and Amendment No. 1 to License Agreement between ALZA Corporation and Therapeutic Discovery Corporation dated February 10, 1997. 27 Financial Data Schedule EX-10.8 2 EXHIBIT 10.8 AGREEMENT AND AMENDMENT NO. 1 TO LICENSE AGREEMENT DATED FEBRUARY 10, 1997 This Agreement and Amendment No. 1 to License Agreement dated as of February 10, 1997 (the "Agreement") is made effective as of the 10th day of February, 1997 by and between ALZA Corporation ("ALZA") and Therapeutic Discovery Corporation ("TDC"). RECITALS WHEREAS, ALZA and TDC have entered into that certain Development Agreement dated as of March 10, 1993 (the "Development Contract") pursuant to which ALZA performs research and development activities on behalf of TDC directed toward the development of pharmaceutical products; and WHEREAS, under the terms of the Development Contract, ALZA has performed research and development activities on behalf of TDC directed toward the development of a product, referred to by the parties as "TDC-4", for the delivery of hydromorphone by means of ALZA's OROS-Registered Trademark- technology (the "Licensed Product"); and WHEREAS, ALZA and TDC have entered into that certain License Option Agreement dated as of March 10, 1993 (the "Option Agreement") pursuant to which TDC granted ALZA an option to license any product accepted by TDC for development under the Development Contract on a product-by-product and country-by-country basis; and WHEREAS, ALZA exercised its option to license the Licensed Product on a worldwide basis effective as of February 10, 1997 and entered into a License Agreement dated as of February 10, 1997 (the "Product License Agreement"), in the form required under the Option Agreement, to memorialize ALZA's license of the Licensed Product; and WHEREAS, ALZA has entered into an agreement with Knoll Pharmaceutical Company and its parent Knoll AG (collectively, "Knoll") for the continued development and worldwide commercialization of the Licensed Product; and WHEREAS, ALZA and TDC desire to amend the Product License Agreement to reflect the agreement of the parties with respect to certain payments to be made by ALZA to TDC under the Product License Agreement and to memorialize certain other arrangements between the parties. NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, ALZA and TDC hereby agree as follows: 1. DEFINITIONS. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Product License Agreement. 2. AMENDMENTS TO SECTION 3.1 OF THE PRODUCT LICENSE AGREEMENT. The first sentence of Section 3.1 of the Product License Agreement is hereby deleted in its entirety and the following substituted therefor: -16- 3.1 PAYMENTS. In consideration of the grant of the license, ALZA shall pay TDC royalties with respect to the Licensed Product as follows: (a) up to a maximum of 5% of Net Sales of the Licensed Product in the Territory determined as follows: 2% of such Net Sales, plus an additional 0.1% of such Net Sales for each full one million dollars of Development Costs of the Licensed Product paid by TDC; plus (b) up to a maximum of 50% of Sublicensing Revenues in respect of sales of the Licensed Product in the Territory determined as follows: 20% of such Sublicensing Revenues, plus an additional 1% of such Sublicensing Revenues for each full one million dollars of Development Costs of the Licensed Product paid by TDC. 3. EXCLUSIONS FROM SPECIAL ROYALTY PAYMENTS AND SUBLICENSING REVENUES. ALZA and TDC hereby agree that, for purposes of the Product License Agreement, the payments due to ALZA from Knoll in the first quarter of 1997 with respect to the Licensed Product shall not be included within the definition of Special Royalty Payments or Sublicensing Revenues with respect to the Licensed Product. 4. LICENSED PRODUCT CLINICAL SUPPLIES. The parties acknowledge that substantial clinical supplies and other materials have been acquired by ALZA in connection with the development of the Licensed Product and paid for by TDC under the Development Contract. Certain of those supplies and other materials are expected to be utilized by Knoll in the ongoing development of the Licensed Product. TDC hereby grants to ALZA, and ALZA hereby accepts, the right to use (i) all clinical supplies of the Licensed Product which have been manufactured as of the date hereof under the Development Contract, and (ii) all materials, goods and services (including supplies of hydromorphone, placebos and comparator drugs to be used in clinical studies) which have been purchased or manufactured for use under the development program for the Licensed Product pursuant to the Development Contract (collectively, the "Supplies"). TDC grants ALZA the right to use, and ALZA accepts, the Supplies on an "AS-IS" and "WHERE-IS" basis. TDC EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES WITH RESPECT TO THE SUPPLIES, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF TITLE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 5. MISCELLANEOUS. Except as otherwise expressly provided herein, the terms of the Product License Agreement shall remain in full force and effect. This Agreement may not be amended except by a writing signed by both parties. This Agreement shall be governed by the laws of the State of California as applied to residents of that state entering into contracts to be performed in that state. The headings set forth at the beginning of the various sections of this Agreement are for reference and convenience and shall not affect the meanings of the provisions of this Agreement. -17- IN WITNESS WHEREOF, ALZA and TDC have caused this Agreement to be executed as of the date first set forth above by their duly authorized representatives. ALZA Corporation Therapeutic Discovery Corporation By: /s/ Bruce C. Cozadd By: /s/ Gary L. Neil ----------------------------- --------------------------------------- Bruce C. Cozadd Gary L. Neil Senior Vice President and President and Chief Executive Officer Chief Financial Officer -18- EX-27 3 EXHIBIT 27; FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1997 MAR-31-1997 7 55 0 0 0 63 0 0 64 17 0 0 0 0 47 64 0 0 0 0 22 0 0 (22) 0 0 0 0 0 (22) (2.87) (2.87)
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