-----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, K6kagl36GS0aMOuSYW5hrgTwLWAbzqfcqPlWiZPdji7a1qBO5TVRJ4wXXQnMCAMk GTaZQvlhtOCbw2bGnn2TIA== 0000912057-97-027835.txt : 19970815 0000912057-97-027835.hdr.sgml : 19970815 ACCESSION NUMBER: 0000912057-97-027835 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 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: 97660941 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 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 JUNE 30, 1997 ------------- or Transition Report Pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 0-21478 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 (650) 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 August 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 Three Months Ended Six Months Ended Inception June 30, June 30, (November 1992) 1997 1996 1997 1996 to June 30, 1997 --------- -------- -------- -------- ---------------- REVENUES: Net interest and investment income $ 838 $ 1,993 $ 1,505 $ 4,665 $ 35,841 EXPENSES: Research and development paid to ALZA Corporation 26,375 28,312 48,616 49,886 253,995 General and administrative 513 705 1,168 1,254 10,624 ---------- ----------- --------- --------- ---------- Total expenses 26,888 29,017 49,784 51,140 264,619 ---------- ----------- --------- --------- ---------- Loss before tax (26,050) (27,024) (48,279) (46,475) $ (228,778) Income tax - - - - 301 ---------- ----------- --------- --------- ---------- Net loss $ (26,050) $ (27,024) $ (48,279) $ (46,475) $ (228,477) ---------- ----------- --------- --------- ---------- ---------- ----------- --------- --------- ---------- Net loss per common share $ (3.37) $ (3.49) $ (6.24) $ (6.01) ---------- ----------- --------- --------- ---------- ----------- --------- --------- Weighted average common shares 7,734,524 7,734,524 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 June 30, December 31, 1997 1996 ---------- ------------ Current assets: Cash and cash equivalents $ 1,913 $ 10,597 Short-term investments 36,643 74,707 Interest receivable 448 809 Prepaid expenses and other current assets 395 1,033 ---------- --------- Total current assets 39,399 87,146 Long-term assets: Employee loans, long-term 300 300 Prepaid expenses and other long-term assets - - Organization costs, (net of accumulated amortization) 776 1,014 ---------- --------- Total assets $ 40,475 $ 88,460 ---------- --------- ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Payable to ALZA Corporation $ 18,445 $ 19,129 Accounts payable and other current liabilities 22 72 ---------- --------- Total current liabilities 18,467 19,201 Long-term liabilities: Deferred compensation 229 115 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 (493) (1,166) Deficit accumulated during the development stage (228,477) (180,198) Deferred compensation (978) (1,219) ---------- --------- Total stockholders' equity 21,779 69,144 ---------- --------- Total liabilities and stockholders' equity $ 40,475 $ 88,460 ---------- --------- ---------- ---------
See accompanying notes. -3- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) Condensed Consolidated Statement of Cash Flows (unaudited) (in thousands)
Period From Six Months Ended Inception June 30, (November 1992) to 1997 1996 June 30, 1997 ----------- ----------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (48,279) $ (46,475) $ (228,477) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of organization costs 238 358 2,804 Amortization of deferred compensation 241 82 969 (Increase) decrease in assets: Interest receivable 361 (81) (448) Other receivable - - (252) Organization costs - - (3,581) Prepaid expenses and other assets 638 52 (143) Increase (decrease) in liabilities: Payable to ALZA Corporation (684) 3,924 18,445 Accounts payable and other current liabilities (50) (52) 22 Long-term liabilities 114 12 229 ---------- ---------- ----------- Total adjustments 858 4,295 18,045 ---------- ---------- ----------- Net cash used in operating activities (47,421) (42,180) (210,432) CASH FLOWS FROM INVESTING ACTIVITIES: Investments in available-for-sale securities - (25,667) (1,363,067) Sale of available-for-sale securities 35,737 58,503 622,411 Maturities of available-for-sale securities 3,000 8,070 703,523 Employee loans, long-term - - (300) ---------- ---------- ----------- Net cash provided by (used in) investing activities 38,737 40,906 (37,433) 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 (8,684) (1,274) 1,913 Cash and cash equivalents at beginning of period 10,597 13,314 - ---------- ---------- ----------- Cash and cash equivalents at end of period $ 1,913 $ 12,040 $ 1,913 ---------- ---------- ----------- ---------- ---------- -----------
See accompanying notes. -4- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 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 three and six months ended June 30, 1997 and 1996 and for the period from inception (November 1992) to June 30, 1997. The information at June 30, 1997, for the three and six months ended June 30, 1997 and 1996, and the period from inception (November 1992) to June 30, 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 June 30, 1997, net unrealized losses on available-for-sale securities were approximately $0.5 million. The cost of securities when sold is based upon specific identification. -5- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 1997 The following is a summary of available-for-sale securities at June 30, 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 $ 23,159 $ 0 $ (300) $ 22,859 Collateralized mortgage obligations and asset backed securities 3,997 0 (125) 3,872 Corporate securities 10,634 0 ( 68) 10,566 --------- ---- ------- --------- $ 37,790 $ 0 $ (493) $ 37,297 --------- ---- ------- --------- --------- ---- ------- ---------
The amortized cost and estimated fair value of debt and marketable securities at June 30, 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 $ 17,177 $ 17,085 Due after one year through four years 13,676 13,438 Due after four years through eight years 6,937 6,774 --------- --------- $ 37,790 $ 37,297 --------- --------- --------- ---------
-6- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 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) June 30, 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, 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 June 30, 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) June 30, 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, and the achievement of the intended results, are subject to the future occurrence of many events some or all of 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 June 30, 1997, TDC had cash and cash equivalents, and short-term investments of approximately $38.6 million, as compared with approximately $62.2 million at March 31,1997 and $85.3 million at December 31, 1996. TDC's cash expenditures for operating activities were approximately $47.4 million for the six months ended June 30, 1997, as compared with $42.3 million for the six months ended June 30, 1996. Cash expenditures for operating activities were approximately $210.4 million for the period from inception (November 1992) to June 30, 1997 and differ from TDC's net losses of approximately $228.5 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. -9- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 1997 Funds not 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. TDC's funds continue to be utilized under the Development Contract, resulting in substantially lower cash balances available for investment than were available in the past. At June 30, 1997, the cost of short-term investments exceeded their fair value by approximately $0.5 million. All of TDC funds available for product development will be exhausted during the third quarter of 1997, and product development funding by TDC will then cease. Once TDC has expended all of its funds available for product development, ALZA will be required to determine, in its sole discretion, whether or not to exercise its Purchase Option with respect to all of the outstanding shares of TDC Class A Common Stock. The Purchase Option will expire, if not exercised, on the 60th day after TDC files a Form 10-K or Form 10-Q with the Securities and Exchange Commission containing a balance sheet showing less than an aggregate of $5 million in cash and cash equivalents, short-term and long-term investments. The expiration date for the Purchase Option will occur no later than January 13, 1998. Under the formula set forth in TDC's Restated Certificate of Incorporation, the Purchase Option exercise price is expected to be $100 million. The purchase price may be paid in cash, in ALZA common stock, or in any combination of the two, at the option of ALZA. If ALZA were to decide not to exercise the Purchase Option, ALZA would have the right, for an additional 90 days, to exercise its License Option with respect to any or all TDC Products which have not yet been licensed, on a product-by-product and country-by-country basis. 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 agreed to fund certain TDC product development activities that are already underway and that will not be completed before TDC's funds are exhausted. Such funding by ALZA would begin, on a product-by-product basis, when TDC no longer has funds available to pay for such activities, and would continue until the exercise or the expiration of the Purchase Option and ALZA's license option for each TDC product, on a product-by-product and country-by-country basis. 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. ALZA has not yet determined whether it will exercise its Purchase Option or its License Option for any TDC Product (other than those already exercised) and will do so only if ALZA determines that it is in the best interests of ALZA and its stockholders. The Board of Directors of TDC (the "Board") established 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 -10- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 1997 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 to ALZA. The Board has reviewed 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. The Board has established a reserve that should be adequate to provide for continued operations through at least July 1998. RESULTS OF OPERATIONS Revenues, consisting of net interest and investment income earned on invested funds, were approximately $0.8 million and $1.5 million for the three and six months ended June 30, 1997, as compared with approximately $2.0 million and $4.7 million for the three and six months ended June 30, 1996. Revenues totaled approximately $35.8 million for the period from inception (November 1992) to June 30, 1997. As TDC's funds have been utilized under the Development Contract, lower cash balances have been available for investment, and therefore net interest income continues to decrease. TDC anticipates that the only income to TDC will be decreasing interest income and sublicensing revenues, if any, resulting from ALZA's exercise of its License Option for any TDC Product. TDC spent approximately $26.4 million and $48.6 million on research and development activities in the three and six months ended June 30, 1997, as compared with approximately $28.3 million and $49.9 million in the three and six months ended June 30, 1996. Research and development expenses have totaled approximately $254 million for the period from inception (November 1992) to June 30, 1997. TDC's research and development expenses are expected to continue at approximately current levels until TDC's cash available for product development is utilized. TDC's remaining cash available for research and development will be exhausted during the third quarter of 1997. TDC incurred general and administrative expenses of approximately $0.5 million and $1.2 million for the three and six months ended June 30, 1997, as compared with $0.7 million and $1.3 million for the three and six months ended June 30, 1996. General and administrative expenses totaled approximately $10.6 million for the period from inception (November 1992) to June 30, 1997. Expenses incurred by TDC under its administrative services agreement with ALZA were approximately $63,000 and $111,000 for the three -11- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 1997 and six months ended June 30, 1997, as compared with approximately $21,000 and $70,000 for the three and six months ended June 30, 1996. The expenses incurred under such agreement for the period from inception (November 1992) to June 30, 1997 were approximately $725,000. TDC reported a net loss of approximately $26.0 million or $3.37 per common share and $48.3 million or $6.24 per common share for the three and six months ended June 30, 1997, as compared with a net loss of approximately $27.0 million or $3.49 per common share and $46.5 million or $6.01 per common share for the three and six months ended June 30, 1996. TDC had a net loss of approximately $228.5 million for the period from inception (November 1992) to June 30, 1997. It is anticipated that TDC will continue to record net losses; however, product development funded by TDC will cease when cash available for research and development is exhausted by the end of the third quarter 1997, and TDC losses therefore will be substantially less than in prior periods. For the quarter ended June 30, 1997 and the period from inception (November 1992) to June 30, 1997, the provision for income taxes was not material. -12- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 1997 PART II OTHER INFORMATION Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of stockholders of TDC was held on May 8, 1997. (b) At the annual meeting, stockholders approved the following proposal: Election of Director: Votes Votes For Against --------- ------- Gary L. Neil, Ph.D. 7,210,509 11,955 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.9 Letter Agreement Amending Form of License Agreement and Regarding Reserves between Therapeutic Discovery Corporation and ALZA Corporation. 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter. -13- THERAPEUTIC DISCOVERY CORPORATION (a development stage company) June 30, 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: August 13, 1997 By: /s/ Gary L. Neil ------------------------------------ Gary L. Neil President and Chief Executive Officer Date: August 13, 1997 By: /s/ David R. Hoffmann ------------------------------------ David R. Hoffmann Vice President, Finance (Principal Financial and Accounting Officer) -14- EXHIBIT INDEX Exhibit - ------- 10.9 Letter Agreement Amending Form of License Agreement and Regarding Reserves between Therapeutic Discovery Corporation and ALZA Corporation. 27 Financial Data Schedule -15- EX-10.9 2 EXHIBIT 10.9 July 30, 1997 Gary L. Neil, Ph.D. Therapeutic Discovery Corporation 1454 Page Mill Road, Ste. 220 P.O. Box 10051 Palo Alto, CA 94303-0806 Dear Dr. Neil: This letter serves to set forth the agreement reached by ALZA Corporation ("ALZA") and Therapeutic Discovery Corporation ("TDC") regarding the royalties payable to TDC in the event ALZA exercises its license option for any TDC product, and the amount of TDC's operating reserve. I believe that ALZA and TDC have agreed as follows: 1. The parties agree that the last sentence in Section 3.1 of the form of License Agreement which is attached as Exhibit A to the License Option Agreement by and between ALZA and TDC dated as of March 10, 1993 is hereby deleted and the following replaced therefor in any License Agreement entered into by ALZA and TDC after June 30, 1997 for any country or countries pursuant to the License Option Agreement: "In determining payments under this Section 3.1, Development Costs shall be determined as of the last day of each calendar quarter (beginning with the calendar quarter preceding the effective date of the relevant License Agreement) in order to determine the rates payable for the next calendar quarter for all countries included in the Territory as of the first day of such next calendar quarter and for any country added to the Territory during such next calendar quarter." In addition, in the event ALZA does not exercise its license option under the License Option Agreement with respect to a particular product prior to the expiration of the license option for such product, ALZA agrees, at no additional charge to TDC, to provide TDC with ongoing technical support in connection with TDC's efforts to make arrangements with third parties for the commercialization of such product. 2. TDC agrees to limit to $500,000 the amount that TDC will set aside as its operating reserve out of "Available Funds" (as such term is defined in the Development Agreement by and between ALZA and TDC dated as of March 10, 1993). ALZA acknowledges that the foregoing does not prevent TDC from maintaining all or any portion of its funds other than Available Funds as an operating reserve. -16- Page 2 Gary L. Neil July 30, 1997 If the foregoing accurately reflects your understanding of the agreement between the parties, please sign the acknowledgment below on behalf of TDC. Except as otherwise expressly set forth in this letter, the terms of the outstanding agreements between ALZA and TDC, as previously amended, remain in full force and effect. Very truly yours, ALZA Corporation Bruce C. Cozadd Senior Vice President and Chief Financial Officer TDC hereby agrees to the foregoing amendments to the agreements between ALZA and TDC. Therapeutic Discovery Corporation /s/Gary L. Neil - ----------------------------------------- Name: Gary L. Neil, Ph.D. Title: President and Chief Executive Officer -17- EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 2 37 0 0 0 39 0 0 40 18 0 0 0 0 22 40 0 2 0 0 49 0 0 (48) 0 0 0 0 0 (48) (6.24) (6.24)
-----END PRIVACY-ENHANCED MESSAGE-----