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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
/ / 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 0-10379
INTERFERON SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2313648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
783 Jersey Avenue, New Brunswick, New Jersey 08901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (908) 249-3250
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 1, 1996, the aggregate market value of the
outstanding shares of the registrant's Common Stock, par value
$.01 per share, held by non-affiliates (assuming for this
calculation only that all officers and directors are affiliates)
was approximately $60,641,033 based on the last reported sale
price of such stock on the NASDAQ Small Cap Market on March 1,
1996.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Class Outstanding at March 1, 1996
Common Stock, par value $.01 per share 34,448,768 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 1996
Annual Meeting of Stockholders are incorporated by reference into
Part III hereof.
TABLE OF CONTENTS
Page
Item 1. Business 1
Item 2. Properties 25
Item 3. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of
Security Holders 26
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 27
Item 6. Selected Financial Data 28
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 29
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 60
Item 10. Directors and Executive Officers of the
Registrant 61
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners
and Management 61
Item 13. Certain Relationships and Related
Transactions 61
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 62
PART I
Item 1. Business
(a) General Development of Business
Interferon Sciences, Inc. (the "Company") is a
biopharmaceutical company currently engaged in the manufacture
and sale of ALFERON(R) N Injection, the only product approved by
the United States Food and Drug Administration ("FDA") that is
based upon a natural source, multi-species alpha interferon
("Natural Alpha Interferon"). ALFERON N Injection is approved for
the treatment by injection of certain types of genital warts and
is being developed by the Company for the potential treatment of
hepatitis C, hepatitis B, HIV, multiple sclerosis, cancers, and
other indications. The Company also is developing ALFERON N Gel
and ALFERON LDO(R), the Company's topical and oral formulations
of Natural Alpha Interferon.
(b) Financial Information about Business Segments.
This Item is not applicable because the Company has only a
single line of business.
(c) Narrative Description of Business
Clinical Trials Summary
The table appearing below summarizes the more detailed
information contained elsewhere in this report concerning
clinical trials of ALFERON N Injection, ALFERON N Gel, and
ALFERON LDO being conducted or proposed to be conducted and is
qualified in its entirety by reference to that information.
Potential Status of Clinical
Product Application/Indications Trials Sponsor
ALFERON N HIV-infected patients Initial Phase 1 completed
Injection Phase 3 in final stages Company
of planning
Comparison of side Phase 1 completed Purdue
effects in healthy
subjects with recombinant
alpha interferon
Hepatitis C Three multi-center Company
Phase 2 -- two completed,
one in progress
Hepatitis C Phase 2 in Mexico
expected to commence in
the near future
Hepatitis C Phase 3 being planned Company
Kaposi's sarcoma Phase 2 in progress Company
(in AIDS patients)
Small cell lung cancer Phase 2 open for enrollment Investigator
Multiple sclerosis Phase 2 proposed Company
Hepatitis B Phase 2 proposed
ALFERON N Gel Cervical dysplasia Phase 2 completed Company
Cervical dysplasia Phase 2 open for enrollment Investigator
(in HIV-infected patients)
Mucocutaneous herpes in Phase 2 proposed
immuno-compromised
patients
Recurrent genital herpes Phase 2 proposed
ALFERON LDO HIV-infected patients Initial Phase 2 completed Company
HIV-infected patients Phase 2 in final stages NIAID
of planning
__________
Generally, clinical trials for pharmaceutical products are conducted in three phases. In Phase 1, studies
are conducted to determine safety and tolerance. In Phase 2, studies are conducted to gain preliminary
evidence as to the efficacy of the product as well as additional safety data. In Phase 3, studies are
conducted to provide sufficient data to establish safety and statistical proof of efficacy in a specific
dose. Phase 3 is the final stage of such clinical studies prior to the submission of an application for
approval of a new drug or licensure of a biological product or for new uses of a previously-approved
product. See "Business -- Governmental Regulation."
Sponsored by Walter Reed Army Institute of Research ("Walter Reed"). Funded by Purdue Pharma
L.P. ("Purdue Pharma" and collectively with its affiliates, "Purdue") and the Company.
This trial may be funded in whole or in part from the Company's working capital. If not funded in
whole from the Company's working capital, the timing of this trial will be dependent upon the
Company's ability to obtain additional funding or a sponsor.
Previously funded by Purdue; currently funded by the Company.
Sponsored by Industria Farmaceutica Andromaco, S.A. De C.V. ("Andromaco"). Notice of Claimed
Investigational Exemption for a New Drug ("IND") has been filed.
The Company provides clinical supplies.
This trial will not be funded from the Company's working capital. The timing of this trial will be
dependent upon the Company's ability to obtain additional funding or a sponsor.
Scientific Background
Interferons are a group of proteins produced and secreted by
cells to combat diseases. Researchers have identified four major
classes of human interferon: alpha, beta, gamma, and omega. The
Company's three ALFERON products contain a form of alpha
interferon. The worldwide market for injectable alpha interferon-
based products has experienced rapid growth and various alpha
interferon injectable products are approved for 17 different
medical uses in more than 60 countries.
Alpha interferons are manufactured commercially in three ways:
by genetic engineering, by cell culture, and from human white
blood cells. In the United States, only two types of alpha
interferon are approved for commercial sale: recombinant
(genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells.
Outside of the United States, sales of alpha interferon produced
by cell culture account for a significant portion of the market.
The Company believes that the potential advantages of Natural
Alpha Interferon over recombinant interferon may be based upon
their respective molecular compositions. An analysis of Natural
Alpha Interferon shows that it is composed of a family of
proteins containing many different molecular species of
interferon. In contrast, recombinant alpha interferons each
contain only a single species. Researchers have reported that the
various species of interferon may have differing anti-viral
activity depending upon the strain of virus. Natural Alpha
Interferon presents a broad complement of species which the
Company believes may account for its higher efficacy in
laboratory studies with the HIV virus compared with that of
single species recombinant alpha interferon. Natural Alpha
Interferon is also glycosylated, or partially covered with sugar
molecules, which does not occur with recombinant alpha
interferon. The Company believes that the absence of
glycosylation may be responsible for the production of
interferon-neutralizing antibodies seen in patients treated with
recombinant alpha interferon.
The production of Natural Alpha Interferon is dependent upon a
supply of human white blood cells and other essential materials.
The Company currently obtains white blood cells from FDA-licensed
blood donor centers. The Company currently has no long-term
commitments for a supply of such white blood cells.
ALFERON N Injection
Approved Indication. On October 10, 1989, the FDA approved
ALFERON N Injection for the intralesional treatment of refractory
(resistant to other treatment) or recurring external genital
warts in patients 18 years of age or older. Substantially all of
the Company's revenues, to date, have been generated from the
sale of ALFERON N Injection for such treatment. Genital warts, a
sexually transmitted disease, are caused by certain types of
human papilloma viruses. A published report estimates that
approximately eight million new and recurrent cases of genital
warts occur annually in the United States alone. Genital warts
are usually treated using caustic chemicals or through physical
removal methods. These procedures can be quite painful and
effective treatment is often difficult to achieve.
In the second quarter of 1996, the Company plans to actively
pursue FDA approval to label and promote ALFERON N Injection for
use in combination with traditional primary treatment (with
surgical or chemical methods) as a way to reduce the recurrence
of genital and anal warts.
Clinical Trials for New Indications. In an effort to obtain
approval to market Natural Alpha Interferon for additional
indications in the United States and around the world, the
Company is focusing its research program on conducting and
planning various clinical trials for new indications.
Hepatitis C. Chronic viral hepatitis is a liver infection
caused by various hepatitis viruses. The United States Centers
for Disease Control estimates that approximately two to three
million people in the United States are presently infected with
the hepatitis C virus ("HCV") and an estimated 170,000 persons
become newly infected each year, a majority of whom become
chronic carriers and will suffer gradual deterioration of their
liver and possibly cancer of the liver. Several brands of
recombinant and cell-cultured interferon have been approved by
various regulatory agencies worldwide for the treatment of
hepatitis C, including a recombinant product in the United
States. See "Business -- ALFERON N Injection -- Competition."
However, reports have indicated that many patients either do not
respond to treatment with the recombinant product or relapse
after treatment. The Company has recently completed two multi-
center, randomized, open-label, dose-ranging Phase 2 clinical
trials utilizing ALFERON N Injection with patients chronically
infected with HCV and is presently conducting one additional such
trial. The objective of the Company's HCV clinical studies is to
compare the safety and efficacy of different doses of Natural
Alpha Interferon injected subcutaneously in naive (previously
untreated), refractory (unsuccessfully treated with recombinant
interferon), and relapsing (initially responded to recombinant
interferon but later relapsed) patients.
Enrollment of naive patients has been completed at six centers,
and all patients have now finished the 24-week treatment and 24-
week follow-up periods. Patients were treated with one of four
dose levels of ALFERON N Injection administered subcutaneously
three times per week. 77 patients were enrolled in the study with
66 patients completing the 24 weeks of treatment. Of the 66, 63
completed follow-up. In general, treatment was well tolerated,
even at the highest dose.
Results based on ALT values (ALT is a liver enzyme whose change
is used to determine the effectiveness of the therapy) indicated
a significant dose-dependent response at the end of treatment.
Complete response rates (normalization of ALT) ranged from 11% (2
of 18) for the lowest dose group to 67% (12 of 18) for the
highest. At the end of the follow-up period, complete response
rates ranged from 8% (1 of 13) for the second to lowest dose
group to 44% (8 of 18) for the highest. 33% (6 of 18) of the
patients receiving the highest dose exhibited a sustained
complete response (normal ALT at the end of treatment and
throughout the follow-up period).
In addition to the ALT testing, the quantity of HCV in the
bloodstream of patients was measured by polymerase chain reaction
(PCR) testing. Such testing also indicated a significant dose-
dependent response as measured by the proportion of patients
having no detectable HCV in the bloodstream at the end of
treatment. The percent of patients with no detectable HCV in the
bloodstream ranged from 0% (0 of 17) for the lowest dose group to
59% (10 of 17) for the highest. At the end of the follow-up
period, the percent of patients with no detectable HCV in the
bloodstream ranged from 0% (0 of 15) for the lowest dose group to
24% (4 of 17) for the highest. 18% (3 of 17) of the patients
receiving the highest dose had no detectable HCV in the
bloodstream at the end of treatment and throughout the follow-up
period. There was a high correlation among patients between ALT
response and detectable HCV in the bloodstream at the end of
treatment and at the end of the follow-up period.
Based on an abstract of the results submitted to the American
Association for the Study of Liver Diseases ("AASLD"), this study
was selected for an oral presentation at the AASLD meeting that
took place in November 1995.
Enrollment of refractory patients has been completed at seven
centers, and all patients have finished the 24-week treatment
period and the 24-week follow-up period. Patients were treated
with one of three dose levels of ALFERON N Injection administered
subcutaneously three times per week. 69 patients were enrolled in
the study with 63 patients completing the 24 weeks of treatment.
Of the 63, 58 completed follow-up. Again, in general, treatment
was well tolerated, even at the highest dose.
Preliminary results based on ALT values indicated a significant
response at the end of treatment, as measured by normalization or
near normalization (ALT less than 150% of the upper limit of
normal) of ALT, in the highest dose group. At the end of
treatment, the complete or near complete response rates were 14%
for the lowest (3 of 22) and middle (3 of 21) dose groups and 25%
(5 of 20) for the highest. 12% of the patients who have completed
follow-up (7 of 58) had complete or near complete response rates
at the end of follow-up, including 20% of the patients (4 of 20)
in the lowest dose group, 5% (1 of 19) in the middle dose group,
and 11% (2 of 19) in the highest dose group. Two patients with
antibodies at the commencement of the study to the recombinant
interferon product approved in the United States for treatment of
hepatitis C had complete responses: one at the end of treatment
(the patient relapsed during the follow-up period) and the other
at the end of the follow-up period.
In addition to the ALT testing, the quantity of HCV in the
bloodstream of patients was measured by PCR testing. Such testing
also indicated a significant response at the end of treatment, as
measured by the proportion of patients having at least a 90%
reduction in detectable HCV in the bloodstream, in the highest
dose group. At the end of treatment, the percent of patients with
at least a 90% reduction in detectable HCV in the bloodstream
ranged from 6% (1 of 18) for the middle dose group to 37% (7 of
19) for the highest. 3% of the patients who have completed
follow-up and for whom data are available (1 of 36, such patient
being in the lowest dose group) showed at least a 90% reduction
in detectable HCV in the bloodstream at the end of follow-up.
At the end of treatment, the percent of patients with either
normalization or near normalization of ALT, or at least a 90%
reduction in detectable HCV in the bloodstream, was 23% (5 of 22)
for the lowest dose group, 14% (3 of 21) for the middle, and 45%
(9 of 20) for the highest.
Based on an abstract of the available results submitted to the
AASLD, this study was selected for a poster presentation at the
AASLD meeting that took place in November 1995.
Enrollment is actively continuing in five centers for relapsing
patients. The original study protocol only permitted patients who
had been previously treated with a single six-month course of
recombinant interferon therapy. However, since so many patients
have a disease relapse after a single course of recombinant
interferon therapy, many of them had been treated with two or
more courses of this therapy, and therefore did not qualify for
this study. The inability to enroll qualified patients has
delayed the trial and led the Company to amend its protocol to
allow for enrollment of patients who have received up to three
six-month courses of recombinant interferon therapy. This
protocol change should help to accelerate enrollment.
The Company believes that the results of the trial with naive
patients are promising. In addition, treatment of naive patients
with ALFERON N Injection did not produce any interferon-
neutralizing antibodies. The Company also believes that the
preliminary results of the trial with refractory patients are
promising. Therefore, the Company intends to commence a Phase 3
multi-center, controlled clinical trial in the second quarter of
1996. However, there can be no assurance that the use of ALFERON
N Injection for the treatment of patients with hepatitis C will
be cost-effective, safe, and effective or that the Company will
be able to obtain FDA approval for such use. Furthermore, even if
such approval is obtained, there can be no assurance that such
product will be commercially successful or will produce
significant revenues or profits for the Company.
In addition to the Company's HCV clinical studies, Andromaco
has agreed to sponsor, under a United States Notice of Claimed
Investigational Exemption for a New Drug, a clinical trial in
Mexico of the use of ALFERON N Injection in patients infected
with HCV. See "ALFERON N Injection -- Marketing and Distribution
- -- Other Marketing and Distribution Arrangements."
HIV-infected patients. The Human Immunodeficiency Virus
("HIV") infection is at epidemic levels in the world. The World
Health Organization projects that this virus will affect 30 to 40
million people by the year 2000. HIV infection usually signals
the start of a progressive disease that compromises the immune
systems, ultimately resulting in Acquired Immune Deficiency
Syndrome or AIDS. HIV-infected patients can be asymptomatic for
many years before being afflicted by opportunistic infections or
cancer. The Company believes that slowing the progression of the
HIV infection in healthier patients may help fight against the
development of opportunistic infections and cancer.
An article published in AIDS Research and Human Retroviruses in
1993 by investigators at Walter Reed in collaboration with the
Company's scientists indicated that the various interferon
species display vast differences in their ability to affect virus
replication. Walter Reed researchers found that the Company's
Natural Alpha Interferon was 10 to 100 times more effective than
equal concentrations of recombinant interferons in blocking the
replication of HIV-1, the AIDS virus, in infected human cells in
vitro.
Moreover, the Company's scientists were able to separate
members of the interferon family in single protein fractions or
clusters of proteins using advanced fractionation techniques. The
individual fractions were tested for their ability to block HIV
replication in the laboratory by researchers at Walter Reed. They
found that the unusual anti-HIV activity was attributable to very
specific fractions in the Company's product. The most active
fractions are not present in marketed recombinant interferon.
This information provided additional support for a long-held
belief of the Company that its Natural Alpha Interferon has
unique anti-viral properties distinguishing it from recombinant
interferon products. In addition, published reports of trials
using recombinant alpha interferon in asymptomatic HIV-infected
patients indicated that while high doses blocked virus production
in many cases, such doses resulted in high levels of adverse
reactions, thereby limiting the usefulness of the recombinant
product. These facts led the Walter Reed researchers to conduct a
Phase 1 clinical trial with the Company's product in asymptomatic
HIV-infected patients.
In March 1992, Walter Reed launched a Phase 1 clinical trial
with asymptomatic HIV-infected patients to investigate the safety
and tolerance, at several dose regimens, of Natural Alpha
Interferon, self-injected subcutaneously for periods of up to 24
weeks. The investigators concluded that the treatment was
"surprisingly" well tolerated by patients, at all dose regimens.
Preliminary findings were reported by Walter Reed at the IXth
International Conference on AIDS in Berlin in 1993. The
investigators also reported that CD4 white blood cell counts
either stabilized or improved in most patients while on therapy
and that the expected interferon side effects, such as flu-like
symptoms, were rare or absent in the majority of patients treated
with the Company's product.
Although this Phase 1 clinical trial was designed primarily to
provide safety information on various doses of Natural Alpha
Interferon used for extended periods of time, there were
encouraging indications that certain disease parameters had
stabilized or even improved in certain patients by the end of the
experimental treatment.
In a recent follow-up analysis of patients' blood testing data,
it was found that after an average of 16 months after treatment,
CD4 lymphocyte levels (the white blood cells which normally
decline in HIV infected patients) remained essentially unchanged
or were higher than at the onset of the trial in 11 of 20
patients. In addition, the amount of HIV detectable in the
patients' blood, as measured by PCR testing, declined in a dose
dependent manner (the greatest declines were observed in the
highest dose group). Also, none of the patients were found to
have developed neutralizing antibodies to Natural Alpha
Interferon, even after being treated three times weekly for many
months. These results were reported at the Third International
Congress on Biological Response Modifiers held in Cancun, Mexico
in January 1995 and were selected for a poster presentation at
the 35th Interscience Conference on Antimicrobial Agents and
Chemotherapy held in San Francisco in September 1995. An
extensive report has been accepted for publication in the Journal
of Infectious Diseases.
It is important to note that, because of the small number of
study participants and the absence of a control group, no firm
conclusions can be drawn from these observations. However, the
information obtained from this trial has been helpful in
designing a multi-center Phase 3 clinical trial of Natural Alpha
Interferon in HIV-infected patients.
Kaposi's sarcoma (in AIDS patients). Kaposi's sarcoma is a
cancerous growth characterized by vascular skin tumors and
affects approximately 10% of AIDS patients in the United States.
It is often the first notable manifestation of AIDS, and as the
tumors become more widely disseminated on the skin, it is
associated with visceral lesions and lymph node involvement.
Traditional treatment involves single agent or combination
chemotherapy, but the typical side effects of chemotherapy can be
severe. In the United States, recombinant alpha interferon has
been approved for the treatment of Kaposi's sarcoma in AIDS
patients. However, response has been limited and often followed
by relapse. To determine its utility at substantially lower doses
than currently approved recombinant therapies, the Company
presently is conducting a Phase 2 clinical trial in Mexico
utilizing ALFERON N Injection for the treatment of Kaposi's
sarcoma in patients with AIDS.
Small Cell Lung Cancer. Small Cell Lung Cancer ("SCLC")
represents approximately 25% of all newly-diagnosed cases of lung
cancer and affected approximately 42,000 people in 1992. Although
patients with SCLC initially respond to high-dose combination
chemotherapy regimens, the rate of relapse is high and such
patients have a median survival rate of only 7 to 16 months,
depending upon the extent of disease.
The Company has agreed to supply Natural Alpha Interferon for a
multi-center, physician-initiated, Phase 2 study which is being
conducted at Allegheny General Hospital and at the University of
Pittsburgh. Patients who are in remission following successful
treatment with standard chemotherapy will be entered into this
study. They will first receive high dose combination
chemotherapy, followed by peripheral blood stem cell
augmentation. One month after hematologic recovery, patients will
then be given Natural Alpha Interferon injections until evidence
of disease progression or intolerable toxicity occurs. The
expected duration of treatment is up to 12 months. The goal of
this study is to investigate Natural Alpha Interferon's potential
to extend the disease-free period and overall survival of these
patients.
Multiple Sclerosis. Multiple sclerosis ("MS") is a chronic,
sometimes progressive, immune-mediated disease of the central
nervous system that is believed to occur in genetically
predisposed individuals following exposure to an environmental
factor, such as virus infection. The disease affects an estimated
250,000 to 350,000 people in the United States, primarily young
adults. Symptoms of MS, including vision problems, muscle
weakness, slurred speech, and poor coordination, are believed to
occur when the patient's own cells attack and ultimately destroy
the insulating myelin sheath surrounding the brain and spinal
cord nerve fibers, resulting in improper transmission of signals
throughout the nervous system.
In the United States, a recombinant form of beta interferon has
been approved for the treatment of relapsing-remitting MS.
However, reports in the scientific literature and elsewhere have
indicated that the significant adverse reactions associated with
the treatment may limit its usefulness. In December 1995, an FDA
advisory panel recommended approval of another recombinant form
of beta interferon for the treatment of MS. Such alternate form
appeared to be effective in halting the progression of the
disease in certain patients (something the approved form has not
been shown to do) and to cause less severe adverse reactions than
the approved form. The Company is planning to conduct a clinical
trial in order to investigate the potential use of Natural Alpha
Interferon for MS, but will not start such trials unless
additional funding or a sponsor is secured.
Chronic Viral Hepatitis B. Hepatitis B is currently the most
common form of hepatitis. Approximately three and a half to four
million people in the United States are infected with the
hepatitis B virus ("HBV"), with some 300,000 new infections
occurring annually and over 200 million infected people
worldwide. HBV is transmitted through contact with infected
blood, sexual intercourse, and needle-sharing among intravenous
drug users. Infants born to infected mothers may become infected
as they pass through the birth canal. According to the Centers
for Disease Control, approximately 25% of hepatitis B patients
develop irreversible chronic liver conditions, and about 10% of
all patients become lifetime carriers and can transmit the virus
to others. The Company is currently planning clinical trials
using ALFERON N Injection in persons infected with hepatitis B;
however, the Company does not anticipate starting the clinical
trials unless additional funding or a sponsor is secured.
Marketing and Distribution.
Agreements with Purdue. In 1988, the Company entered into
exclusive marketing and distribution agreements with Mundipharma
Pharmaceutical Company ("Mundipharma"), a related entity of
Purdue Pharma, with respect to ALFERON N Injection, which
agreements have been amended from time to time (as amended, the
"Purdue Marketing Agreements"). In 1991, Mundipharma assigned the
right to market and distribute ALFERON N Injection in the United
States to Purdue Pharma and retained the right to market and
distribute ALFERON N Injection in Canada, Western Europe, Israel,
India, Japan, and Australia. In 1993, the Company reacquired the
right to market and distribute ALFERON N Injection in Japan.
In 1994, an amendment to these agreements was entered into (the
"1994 Purdue Amendment") pursuant to which the Company reacquired
the right to market ALFERON N Injection in Western Europe and
other countries and took over from Purdue the conduct and funding
of clinical trials. Specifically, the 1994 Purdue Amendment
provided, among other things, that (i) the Company reacquired the
right to market ALFERON N Injection in Western Europe, Israel,
India, and Australia (the "Returned Territories"), subject to the
payment to Mundipharma of a royalty equal to 3% of net sales (as
defined) in the Returned Territories until Mundipharma has
received royalty payments equal to $3 million ($5 million under
certain circumstances) and 1% of net sales thereafter; (ii) the
Company assumed responsibility for the conduct and funding of
clinical trials to develop new indications for ALFERON N
Injection; Purdue was granted the right to obtain marketing and
distribution rights for each additional indication of ALFERON N
Injection at such time as the Company files a product license
application or receives FDA approval for any such additional
indication, by reimbursing the Company for some or all of its
clinical costs plus an additional lump-sum payment; and the
Company was given the right to reacquire the rights to market and
distribute ALFERON N Injection in the United States and Canada
after each of the first three additional indications if Purdue
does not exercise its right to obtain marketing and distribution
rights for such indication, at a price based on a percentage of
total sales or gross profit during a specified period of all
products subject to the agreement; (iii) the Company agreed to
purchase for $4.00 per share 994,994 shares of Common Stock held
by Purdue and certain related parties over a period of 18 months;
(iv) Purdue Pharma and Mundipharma retained the right to market
and distribute ALFERON N Injection in the United States and
Canada, respectively, subject to the Company's option (the "First
Option") to reacquire such rights at a price of $12 million until
July 25, 1995 ($10 million if the First Option had been exercised
before January 1995); provided that the First Option could not
have been exercised unless the Company simultaneously paid the
unpaid balance of the purchase price for the 994,994 shares
referred to above, which payment would have reduced the First
Option exercise price; and (v) Purdue ordered 45,000 vials of
ALFERON N Injection at an agreed upon price. Unless certain
minimum purchase levels are reached during certain annual
periods, or minimum payments are made to the Company in lieu of
such minimum purchases, the Company can terminate Purdue Pharma
and Mundipharma's exclusive marketing and distribution rights.
All marketing and distribution costs are borne by Purdue Pharma
and Mundipharma in their respective territories.
In March 1995, the Company entered into an amendment to the
1994 Purdue Amendment (the "March 1995 Purdue Amendment")
pursuant to which the Company obtained an option, exercisable
until June 30, 1995 (the "Second Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma
and Mundipharma. The exercise price of the Second Option was 2.5
million shares of Common Stock; provided that the Option could
not have been exercised unless the Company simultaneously paid
the unpaid balance of the purchase price for the 994,994 shares
referred to above. If, 18 months from the date of exercise of the
Second Option by the Company (the "Valuation Date"), the 2.5
million shares of Common Stock did not have a value of at least
$9,037,807 (which value was calculated using the average of the
closing bid and asked prices of the Common Stock as quoted by the
NASDAQ National Market System for the ten trading days ending on
the day prior to the Valuation Date), the Company was required to
issue a note for the shortfall. Such note was required to bear
interest at the prime rate and became due and payable 24 months
from the Valuation Date. The Company agreed that it would utilize
its best efforts to ensure that the 2.5 million shares of Common
Stock would be registered and freely tradeable 18 months from the
date of exercise of the Second Option. If the Second Option were
exercised, the First Option, the royalty obligations, and
Purdue's right to obtain marketing and distribution rights for
new indications contained in the 1994 Purdue Amendment would have
terminated.
In July 1995, the Company entered into an amendment, which
became effective upon the sale on August 22, 1995 of more than
the minimum number of shares of Common Stock pursuant to a best
efforts public offering (the "August/September Offering"), to the
1994 Purdue Amendment and the March 1995 Purdue Amendment (the
"July 1995 Purdue Amendment"), pursuant to which the balance owed
to Purdue for the 62,500 shares of Common Stock required to be
repurchased in April 1995 was forgiven and the Company obtained
an option, exercisable until December 31, 1996 (the "Third
Option"), to reacquire the remaining marketing and distribution
rights from Purdue Pharma and Mundipharma. The exercise price of
the Third Option is $5,029,133, subject to reduction as set forth
below, plus 750,000 shares of Common Stock (350,000 shares of
Common Stock if the Third Option had been exercised on or before
December 31, 1995). The Company has agreed that it will utilize
its best efforts to ensure that such shares will be registered
and freely tradeable upon issuance. The Third Option may not be
exercised unless the Company simultaneously pays the unpaid
balance of the purchase price for any of the 994,994 shares
referred to above then held by Purdue. As of March 15, 1996,
Purdue held 619,994 of such shares and such unpaid balance was
$2,479,976. The cash exercise price of the Third Option will be
reduced by the aggregate of (i) the amount paid by the Company to
Purdue to repurchase any of such 619,994 shares then held by
Purdue, (ii) if Purdue sells any or all of such 619,994 shares,
which may only be done until December 31, 1996 with the consent
of the Company, the amount received by Purdue from such sale, and
(iii) the amount by which the transfer price for vials sold by
the Company to Purdue Pharma or Mundipharma exceeds $25 per vial.
If the Third Option is exercised, the royalty obligations and
Purdue's right to obtain marketing and distribution rights for
new indications contained in the 1994 Purdue Amendment will
terminate. If the Third Option is not exercised, the Company will
no longer have the obligation to repurchase the 619,994 shares.
In July 1995, the Company and Purdue also agreed to extend the
date on which the Company was obligated to repurchase the final
619,994 shares of Common Stock if the July 1995 Purdue Amendment
did not become effective from July 25, 1995 to August 31, 1995
(or such earlier date on which the August/September Offering
shall have terminated prior to the sale of the minimum number of
shares of Common Stock).
The Company entered into the 1994 Purdue Amendment, the March
1995 Purdue Amendment, and the July 1995 Purdue Amendment to
provide it with greater financial flexibility and control over
the worldwide marketing and distribution of ALFERON N Injection.
The July 1995 Purdue Amendment provides the Company with the
flexibility to enter into a strategic alliance with a
multinational marketing partner if it elects to exercise the
Third Option.
Under the terms of the Purdue Marketing Agreements, the Company
receives a transfer price for the sale of vials of ALFERON N
Injection to Purdue Pharma or Mundipharma. Such transfer price is
calculated based on either a manufacturing cost formula or a
fixed price formula (subject to consumer price index
adjustments); provided, however, that if the Company chooses the
fixed price formula, the Company may be entitled to additional
payments if the net sales price received by Purdue Pharma or
Mundipharma for ALFERON N Injection exceeds certain levels.
Pursuant to the July 1995 Purdue Amendment, the transfer price
for each vial will be payable $25 in cash and the balance as an
offset to the cash exercise price of the Third Option. If the
Third Option is not exercised, such offsets will have no value.
The Company may choose the applicable formula every six months.
Purdue Pharma and Mundipharma presently have no recourse against
the Company in the event that they are unable to resell ALFERON N
Injection to third parties.
In January 1994, pursuant to the 1994 Purdue Amendment, Purdue
ordered 45,000 vials of ALFERON N Injection at an agreed upon
price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources." In addition, the Company agreed, under certain
circumstances, to replace up to 15,000 vials of ALFERON N
Injection from Purdue's existing inventory at an agreed upon
discounted price. The Company also granted Purdue an option,
exercisable (in whole only) until July 25, 1995, to purchase an
additional 100,000 vials of ALFERON N Injection at an agreed upon
discounted price. The option was not exercised.
Purdue Pharma utilizes its affiliate's, The Purdue Frederick
Company's, sales force in the United States. The Purdue Frederick
Company's principal products include BETADINE(R) antiseptics,
UNIPHYL(R) controlled release theophylline, TRILISATE(R)
analgesic/anti-inflammatory products, and M.S. CONTIN(R) tablets
for the prolonged relief of pain in cancer patients.
Other Marketing and Distribution Arrangements. In the first
quarter of 1995, the Company concluded an agreement with Fujimoto
Diagnostics, Inc. ("Fujimoto") for the commercialization of
ALFERON N Injection and ALFERON N Gel in Japan (the "Fujimoto
Agreement"). Fujimoto is affiliated with Fujimoto Pharmaceutical
Company, a 60-year old company with facilities in central Japan.
The Fujimoto Agreement grants Fujimoto exclusive rights to
develop, distribute, and sell ALFERON N Injection and ALFERON N
Gel in Japan. Pursuant to the terms of the Fujimoto Agreement,
Fujimoto agreed to fund and conduct all preclinical and clinical
studies required for Japanese regulatory approval. The Company
will supply Fujimoto with ALFERON N Injection and will also
manufacture and supply Fujimoto with ALFERON N Gel. Fujimoto will
also purchase certain quantities of ALFERON N Injection and
ALFERON N Gel at agreed-upon prices during the preclinical and
clinical phases. For the injectable product, ALFERON N Injection,
Fujimoto has advised the Company that it will initially focus on
the use of the product for the treatment of patients infected
with HCV. The first indication to be developed for ALFERON N Gel
has not yet been determined. In connection with the Fujimoto
Agreement, Fujimoto purchased $1,500,000 of Common Stock for
$1.45 per share (the then current market price), and agreed to
purchase an additional $500,000 of Common Stock on February 6,
1996 at the then current market price. Such additional $500,000
of Common Stock has to date not been purchased. To date, Fujimoto
has incurred higher than anticipated development expenses, and
Fujimoto has determined that there may be greater difficulties in
obtaining Japanese regulatory approval than originally
anticipated. Fujimoto has, therefore, requested that the Company
renegotiate the Fujimoto Agreement and the agreement to purchase
an additional $500,000 of Common Stock on February 6, 1996. The
Company intends to meet with Fujimoto to consider its request.
In February 1994, the Company entered into an exclusive
distribution agreement for ALFERON N Injection in Mexico with
Andromaco, a privately-held pharmaceutical company headquartered
in Mexico City which specializes in oncology and immunology
products. Under the agreement, Andromaco applied for and recently
obtained approval from the Mexican regulatory authorities to sell
ALFERON N Injection for the treatment of genital warts, which
will be marketed under the trade name ALTEMOL(R). Andromaco has
also agreed to sponsor, under a United States IND, a clinical
trial in Mexico of the use of ALFERON N Injection in patients
infected with the HCV. The agreement establishes performance
milestones for the maintenance of distribution rights by
Andromaco in Mexico. In addition, the Company has a buy-out
option to reacquire the marketing and distribution rights in
Mexico under certain terms and conditions.
The Company is also exploring other development and marketing
arrangements that would involve the potential use of Natural
Alpha Interferon for the treatment of hepatitis B and C, multiple
sclerosis, HIV-infected patients, and cancer.
Although the Company has exclusive marketing and distribution
agreements with Purdue Pharma, Mundipharma, Fujimoto, and
Andromaco, and has the right to sell ALFERON N Injection in the
Returned Territories, no sales of ALFERON N Injection can be made
in Canada, Japan, or the Returned Territories until such product
is approved for sale in these countries. Submissions for
regulatory approval to sell ALFERON N Injection for treatment of
genital warts have been filed in a number of countries other than
the United States and regulatory approval has been obtained in
Mexico. There can be no assurance, however, that any additional
approvals will be granted. In May 1990, the Company's licensee
applied for a product license in the United Kingdom for the use
of ALFERON N Injection for the intralesional treatment of
refractory or recurring external genital warts in patients 18
years of age or older. The Company's licensee was advised that
additional information and possibly clinical work would be
necessary to resolve certain quality and safety issues before a
product license would be recommended. The Company is considering
whether to continue to pursue this matter. See "Business --
Governmental Regulation."
Manufacturing. The purified drug concentrate utilized in the
formulation of ALFERON N Injection is manufactured in the
Company's facility located in New Brunswick, New Jersey, and
ALFERON N Injection is formulated and packaged at a production
facility located in McPherson, Kansas and operated by Sanofi
Winthrop, Inc. ("Sanofi") pursuant to a processing and supply
agreement entered into in September 1994. Under the terms of the
agreement with Sanofi, the Company pays Sanofi an agreed price to
formulate and package ALFERON N Injection in accordance with
specifications provided by the Company. These facilities received
FDA approval in October 1989. Subsequently, the Company developed
process improvements and completed an expansion of its
manufacturing facility, both of which were approved by the FDA in
June 1991. The process improvements and expanded facility enabled
the Company to reduce the manufacturing costs of ALFERON N
Injection and gave the Company increased production capacity for
ALFERON N Injection.
Competition. Presently, INTRON(R) A, manufactured by Schering
Plough Corp. ("Schering"), is the one other injectable interferon
product approved by the FDA for the treatment of genital warts.
INTRON(R) A is made from recombinant alpha interferon. ALFERON N
Injection also competes with surgical, chemical, and other
methods of treating genital warts. The Company cannot assess the
impact products developed by the Company's competitors or
advances in other methods of the treatment of genital warts will
have on the commercial viability of its product.
If and when the Company obtains approvals for additional
indications of ALFERON N Injection and its proposed products, it
expects to compete primarily on the basis of product performance
and price with a number of pharmaceutical companies (such as
Hoffmann-La Roche, Inc. ("Hoffmann") and F. Hoffmann-La Roche
Ltd. ("Roche"), Schering, Amgen Inc., and Glaxo Wellcome Inc.),
both in the United States and abroad. In addition, the Company's
potential competitors have developed or may develop products
(containing either alpha interferon or other therapeutic
compounds) or other treatment modalities which may compete with
the Company's products. For example, Schering's recombinant
interferon product is already approved for the treatment of
hepatitis C and hepatitis B in the United States and other
markets, as well as for many other medical uses, and there is no
assurance that, if the Company is able to obtain regulatory
approval of ALFERON N Injection for the treatment of those
diseases, it will be able to achieve any significant penetration
into those markets. In addition, since production of the
competitive products is not dependent on a source of human blood
cells, such products may be able to be produced in greater volume
and at a lower cost than ALFERON N Injection. Currently, the
Company's wholesale price on a per unit basis of ALFERON N
Injection is substantially higher than that of the competitive
recombinant alpha interferon products. Many of the Company's
potential competitors are among the largest pharmaceutical
companies in the world, are well known to the public and the
medical community, and have substantially greater financial
resources and product development, manufacturing, and marketing
capabilities than the Company or its marketing partners.
Patents and Licenses. On March 5, 1985, the United States
Patent and Trademark Office issued a patent to Hoffmann claiming
purified human alpha (leukocyte) interferon (regardless of how it
is produced). In 1988, the Company obtained a non-exclusive
license from Hoffmann which allowed the Company to make, use, and
sell in the United States, without a potential patent
infringement claim from Hoffmann, (i) ALFERON N Injection for the
treatment of genital warts and (ii) injectable formulations of
interferon alfa-n3 (which is the same active ingredient contained
in ALFERON N Injection), for the treatment of patients with
diseases which are refractory to recombinant interferon therapy.
On May 6, 1994, the United States Patent and Trademark Office
issued an Office Action in Reexamination on the Hoffmann patent
and rejected all of the 14 claims in the Hoffmann patent. Claims
in a patent under reexamination are valid and enforceable until
such time as a final disposition on the claims is reached. On
July 11, 1994, Hoffmann filed a response objecting to the Patent
Office's rejection of such claims. On July 20, 1995, the Patent
Office issued another Office Action in Reexamination on the
Hoffmann patent and rejected three of the claims in the Hoffmann
patent and concluded that the remaining 11 claims are patentable.
In November 1995, Hoffmann filed another response objecting to
the Patent Office's rejection of such three claims. The outcome
of such reexamination of the Hoffmann patent cannot be determined
at this time. Roche, the parent of Hoffmann, also has been issued
patents covering human alpha interferon in many countries
throughout the world. As of March 31, 1995, the Company obtained
a non-exclusive license from Hoffmann and Roche (the "Hoffmann
Agreement") which grants the Company the worldwide rights to
make, use, and sell, without a potential patent infringement
claim from Hoffmann or Roche, any formulation of Natural Alpha
Interferon. The Hoffmann Agreement permits the Company to grant
marketing rights with respect to Natural Alpha Interferon
products to third parties, except that the Company cannot grant
marketing rights with respect to injectable products in any
country in which Hoffmann or Roche has patent rights covered by
the Hoffmann Agreement (the "Hoffmann Territory") to any third
party not listed on a schedule of approximately 50 potential
marketing partners without the consent of Hoffmann and Roche,
which consent cannot be unreasonably withheld. The Hoffmann
Agreement will enable the Company, if it is successful in
obtaining necessary regulatory approvals, to expand the
formulations of Natural Alpha Interferon it makes, uses, and
sells in the United States and the rest of the world and to
market its products for the treatment of additional indications.
"Business -- ALFERON N Injection -- Royalty Obligations."
Royalty Obligations. The Company is a party to certain license
agreements pursuant to which it is obligated to pay royalties
based upon the commercial exploitation of Natural Alpha
Interferon products. Under the terms of the Hoffmann Agreement,
the Company is obligated to pay Hoffmann and Roche an aggregate
royalty on net sales (as defined) of Natural Alpha Interferon
products by the Company in an amount equal to (i) 8% of net sales
in the Hoffmann Territory, and 2% of net sales outside the
Hoffmann Territory of products manufactured in the Hoffmann
Territory, up to $75,000,000 of net sales in any calendar year
and (ii) 9.5% of net sales in the Hoffmann Territory, and 2% of
net sales outside the Hoffmann Territory of products manufactured
in the Hoffmann Territory, in excess of $75,000,000 of net sales
in any calendar year, provided that the total royalty payable in
any calendar year shall not exceed $8,000,000. The Hoffmann
Agreement can be terminated by the Company on 30 days' notice
with respect to the United States patent, any individual foreign
patent, or all patents owned by Hoffmann or Roche. If the
Hoffmann Agreement is terminated with respect to the patents
owned by Hoffmann or Roche in a specified country, such country
is no longer included in the Hoffmann Territory. If Hoffmann's
United States patent, or the claims in such patent which the
marketing of Natural Alpha Interferon products by the Company
might infringe, were found to be invalid, the Company intends to
terminate the Hoffmann Agreement with respect to Hoffmann's
United States patent, which would eliminate the royalty payable
to Hoffmann and Roche on net sales in the United States of
products manufactured in the United States. When the Company
received FDA approval for ALFERON N Injection for the treatment
of genital warts in 1989, the Company became obligated to issue
shares of Common Stock to Hoffmann as a prepaid royalty against
future net sales by the Company. Under the terms of the Hoffmann
Agreement, certain payments previously made to Hoffmann
(including a portion of the value of the Common Stock previously
issued to Hoffmann) are available as offsets against 50% of the
Company's future royalty obligations to Hoffmann until the
Company obtains an FDA approval to market ALFERON N Injection for
an additional indication. As of December 31, 1995, the Company
had approximately $719,437 of credits available to offset its
future royalty obligations to Hoffmann and Roche.
Under the terms of the Purdue Marketing Agreements, unless the
Third Option is exercised and the royalty obligation is
terminated as provided in the July 1995 Purdue Amendment, the
Company is obligated to pay Mundipharma a royalty equal to 3% of
the net sales of ALFERON N Injection in the Returned Territories
until Mundipharma has received royalty payments equal to $3
million ($5 million under certain circumstances) and 1% of the
Company's net sales in the Returned Territories thereafter. See
"Business -- ALFERON N Injection -- Marketing and Distribution --
Agreements with Purdue."
In addition, the Company agreed to pay National Patent
Development Corporation ("NPDC") a royalty of $1 million in
connection with the acquisition of certain intellectual property
and technology rights from NPDC. Such amount is payable if and
when the Company generates income before taxes, limited to 25% of
such income before income taxes per year until the amount is paid
in full.
Products Under Development
ALFERON N Gel.
ALFERON N Gel is a topical, Natural Alpha Interferon
preparation which the Company has developed and believes has
potential in the treatment of cervical dysplasia, vaginal human
papilloma virus infection, recurrent genital herpes, other viral
diseases, and cancers.
Clinical Trials for ALFERON N Gel. The Company has completed
one clinical trial and plans to conduct various other clinical
trials for its ALFERON N Gel formulation to develop applications
and obtain initial approvals for such products.
Cervical Dysplasia. Affecting approximately 500,000 to one
million women each year in the United States alone, cervical
dysplasia, or abnormal cervical cells, has been identified as a
potential precursor to cervical cancer. Cervical cancer strikes
approximately 13,000 women in the United States each year,
causing 5,000 deaths, and is responsible for more than half a
million deaths worldwide. Cervical dysplasia is caused by certain
strains of the human papilloma virus (HPV), the same family of
viruses that causes genital warts. The Company has completed a
Phase 2 dose-ranging study using ALFERON N Gel at the Columbia-
Presbyterian Medical Center in New York for the treatment of mild
cervical dysplasia. In this pilot study, patients were treated
with either a high or low dose of ALFERON N Gel, both of which
were well-tolerated. From both the high and low dose groups,
cytological analyses of Pap smears, identification tests for the
presence of HPV, and cervical biopsies indicated that ALFERON N
Gel potentially improved the course of cervical dysplasia in the
majority of patients who completed the treatment course. Based
upon these initial results, a physician-sponsored study in HIV-
infected women with cervical dysplasia commenced in August 1995,
as described below.
Cervical Dysplasia (in HIV-infected patients). Cervical
dysplasia is particularly difficult to treat in HIV-infected
women. These women have a high recurrence rate of cervical
dysplasia after their initially successful surgical treatment. As
a result of the preliminary results in the initial cervical
dysplasia study described above, the investigator at Columbia-
Presbyterian Medical Center is conducting this physician-
sponsored, multi-center study in which ALFERON N Gel is being
used as an adjuvant to surgical treatment in HIV-infected women
with mild and more severe forms of cervical dysplasia.
Other widespread dermatological lesions potentially treatable
with ALFERON N Gel therapy. Nearly 30 million people in the U.S.
are infected with the herpes simplex type II virus, which is the
infectious virus that causes genital herpes. Up to 500,000 new
cases are reported each year, according to the Alan Guttmacher
Institute. To date, there is no cure for genital herpes.
Preliminary findings with a previous formulation of recombinant
interferon in the Company's proprietary gel showed significant
shortening of the contagious period and relief of symptoms, but
the Company will not start clinical trials unless additional
funding or a sponsor is secured. ALFERON N Gel may also be of
benefit to immunocompromised patients with mucocutaneous herpes.
Patients with this form of herpes suffer from persistent skin
lesions which have become resistant to existing therapies. While
this disease represents an important potential target for ALFERON
N Gel treatment, additional studies will be dependent upon
securing additional funding or a sponsor.
Competition. The Company believes that only one product
presently sold in the United States is indicated for the
treatment of recurrent genital herpes. This product, ZOVIRAX(R),
produced by Glaxo Wellcome Inc., contains a drug called acyclovir
which is administered orally in either solution or capsule form
for the management of recurrent episodes of genital herpes. Two
other ZOVIRAX(R) formulations, one of which is an ointment and
the other of which is an intravenous product, also are sold by
Glaxo Wellcome Inc. in the United States for this use. The only
current treatment for cervical dysplasia in the United States is
surgery.
ALFERON LDO.
ALFERON LDO is a low dose oral liquid Natural Alpha Interferon
preparation. In October 1989, the Company entered into an
agreement (as amended, the "ACC Agreement") with Amarillo Cell
Culture Company, Incorporated ("ACC"), a privately-held company
located in Amarillo, Texas, engaged in the research and
development of animal health products. Under the terms of the ACC
Agreement, the Company has a non-exclusive license under all of
ACC's issued patents, patent applications, and "know-how"
relating to the treatment of humans by the oral administration of
Natural Alpha Interferon in low doses. The Company will be
obligated to pay ACC royalties of 10% on the sales of Natural
Alpha Interferon products using ACC's patented technology as
determined under the ACC Agreement. In addition, ACC has the
right to purchase the Company's Natural Alpha Interferon for use
in the animal health market and is obligated to pay royalties to
the Company based upon sales using the Company's Natural Alpha
Interferon. In April 1995, in connection with certain amendments
to the ACC Agreement, ACC agreed to purchase 312,500 shares of
Common Stock at $2.00 per share and Pharma Pacific Management
Pty. Ltd. ("PPM"), a company which has also obtained a license
from ACC, agreed to purchase 62,500 shares of Common Stock at
$2.00 per share, all of which shares were purchased during the
second quarter of 1995.
Clinical Trials for ALFERON LDO. The Company has conducted and
plans to conduct various clinical trials for its ALFERON LDO
formulation to develop applications and obtain initial approvals
for such products.
HIV-infected patients. The Company has completed two studies
at Mount Sinai Medical Center in New York involving ALFERON LDO.
One was a placebo-controlled study in AIDS-related complex
("ARC") patients, and the other was a dose ranging study in AIDS
or ARC patients. The results from the placebo-controlled study
did not demonstrate a significant improvement or alteration in
the expected progression of the disease, although patients
receiving ALFERON LDO reported greater energy and appetite than
those given the placebo. Preliminary results from the dose
ranging study indicate that one of the doses may promote weight
gain and increased energy.
At the insistence of AIDS groups and community-based physicians
who had been using low-dose formulations of interferon in their
practice, the NIAID agreed to launch a trial of low-dose oral
interferon in the United States. An advisory committee comprised
of representatives from interferon manufacturers, AIDS support
groups, FDA, and National Institutes of Health was organized to
design a nationwide, controlled study. This study will
investigate the effect of a number of oral dosage forms of alpha
interferon on several quality-of-life parameters of importance to
patients infected with the AIDS virus.
The Company has been active in helping plan this trial, and has
agreed to make clinical quantities of ALFERON LDO available for
use in the study. An IND for the study was submitted by the NIAID
to the FDA in July 1995. The first batch of clinical supplies for
the study is being completed, and the study is scheduled to open
for enrollment in the second quarter of 1996.
Competition. Under the terms of the ACC Agreement, (i) the
Company has the exclusive right to sell ALFERON LDO, containing
Natural Alpha Interferon, in the United States and all foreign
countries other than Japan, (ii) ACC and PPM each has the right
to sell any interferon other than Natural Alpha Interferon in the
United States and all foreign countries other than Japan, and
(iii) Hayashibara Biochemical Laboratory has the right to sell
its low dose alpha interferon in Japan. Therefore, with respect
to low dose oral interferon products, the Company will
potentially compete with ACC and PPM in the United States and in
the rest of the world except Japan and with Hayashibara
Biochemical Laboratory in Japan.
ALFERON N Gel and ALFERON LDO.
Sales and Marketing Staff. The Company does not have a
marketing or sales staff nor does it have a marketing agreement
with respect to ALFERON N Gel (other than the Fujimoto Agreement)
or ALFERON LDO and, if FDA marketing approval of ALFERON N Gel or
ALFERON LDO is obtained, no assurance can be given that the
Company will be able to enter into a marketing agreement for such
products on terms satisfactory to the Company. In February 1995,
the Company entered into the Fujimoto Agreement which, among
other things, grants Fujimoto the exclusive right to develop,
distribute, and sell ALFERON N Gel in Japan. See "Business --
ALFERON N Injection -- Other Marketing and Distribution
Agreements."
Patents and Licenses. The United States Patent and Trademark
Office issued two patents to the Company which disclose and claim
topical interferon preparations. The patents encompass interferon
preparations for the topical delivery of one or more interferons
to the site of a disease which responds therapeutically to
interferon, and a system for delivering interferon topically
which prevents oxidation of the protein. The inventions
specifically encompass the topical treatment for treating viral
diseases, such as herpes genitalis, with alpha interferon. The
Company has various other issued patents and patent applications
pending in the field of biotechnology, purification processes,
and therapeutics. See "Business -- ALFERON N Injection -- Patents
and Licenses."
Royalty Obligations. The Company is a party to certain license
agreements, including the Hoffmann Agreement, pursuant to which
it is obligated to pay royalties based upon commercial
exploitation of ALFERON N Gel and ALFERON LDO. Under the terms of
such license agreements, the Company would pay royalties of up to
13.5% and 19.5% of net sales of ALFERON N Gel and ALFERON LDO,
respectively.
Governmental Regulation
Regulations imposed by U.S. federal, state, and local
authorities, as well as their counterparts in other countries,
are a significant factor in the conduct of the research,
development, manufacturing, and marketing activities for present
and proposed products developed by the Company.
The Company's or its licensees' potential products will require
regulatory approval by governmental agencies prior to
commercialization. In particular, human medical products are
subject to rigorous pre-clinical and clinical testing and other
approval procedures by the FDA in the United States and similar
health authorities in foreign countries. Various federal and, in
some cases, state statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record
keeping, and marketing of such products, including the use,
manufacture, storage, handling, and disposal of hazardous
materials and certain waste products. The process of obtaining
these approvals and the subsequent compliance with applicable
federal and foreign statutes and regulations involves a time-
consuming process and requires the expenditure of substantial
resources.
The effect of government regulation may be to delay for a
considerable period of time or prevent the marketing of any
product that the Company may develop and/or impose costly
procedures on the Company's activities, the result of which may
be to furnish an advantage to the Company's competitors. Any
delay in obtaining or failure to obtain such approvals would
adversely affect the marketing of the Company's products and the
ability to earn product revenue.
Before testing of any agents with potential therapeutic value
in healthy human test subjects or patients may begin, stringent
government requirements for pre-clinical data must be satisfied.
These data, obtained from studies in several animal species, as
well as from laboratory studies, are submitted in a Notice of
Claimed Investigational Exemption for a New Drug or its
equivalent in countries outside the U.S. where clinical studies
are to be conducted. If the necessary authorizations are
received, the Company then conducts clinical tests of its
products on human beings at various unaffiliated medical centers
and institutions. Initial trials (Phase 1) are conducted on a
small number of volunteers to determine whether the drug is safe
for human beings. If the initial trials demonstrate the safety of
the product, trials (Phase 2) are then conducted on patients
affected with the disease or condition under investigation to
establish the proper dose and dosing interval. The findings of
these trials are then used to design and implement large-scale
controlled trials (Phase 3) to provide statistical proof of
effectiveness and adequate evidence of safety to meet FDA and/or
foreign approval requirements.
The FDA closely monitors the progress of each of the phases of
clinical testing and may, at its discretion, re-evaluate, alter,
suspend, or terminate the testing based on the data which have
been accumulated to that point and its assessment of the
risk/benefit ratio to the patient. Estimates of the total time
required for completing clinical testing vary between four and
ten years. Upon successful completion of clinical testing of a
new drug, a company typically submits a New Drug Application
("NDA"), or for biological products such as Natural Alpha
Interferon, a Product and Establishment License Applications
("PLA/ELA") to the FDA summarizing the results and observations
of the drugs during the clinical trials.
Each facility in which products are produced and packaged,
whether operated by the Company or a third party, must meet the
FDA's standards for current good manufacturing practices and must
also be approved prior to marketing any product produced or
packaged in such facility. Any significant change in the
production process which may be commercially required, including
changes in sources of certain raw materials, or any change in the
location of the production facilities will also require FDA
approval. To the extent a portion of the manufacturing process
for a product is handled by an entity other than the Company, the
Company must similarly receive FDA approval for the other
entity's participation in the manufacturing process. The Company
has entered into an agreement with Sanofi, pursuant to which
Sanofi formulates and packages ALFERON N Injection. The Company
presently has a biologic establishment license for the facilities
in which it produces ALFERON N Injection, which includes the
facilities in which Sanofi formulates and packages ALFERON N
Injection. In addition, FDA approval would have to be obtained if
the Company should choose to use an outside formulator and/or
packager for ALFERON N Gel or ALFERON LDO.
Once the manufacture and sale of a product is approved, various
FDA regulations govern the production processes and marketing
activities of such product. A post-marketing testing,
surveillance, and reporting program may be required to monitor
the product's usage and effects. Product approvals may be
withdrawn, or other actions may be ordered, if compliance with
regulatory standards is not maintained.
Each individual lot of Natural Alpha Interferon produced must
be tested for compliance with specifications and released for
sale by the FDA prior to distribution in the marketplace. Even
after initial FDA marketing approval for a product has been
granted, further studies may be required to provide additional
data on safety or efficacy; to obtain approval for marketing a
product as a treatment for specific diseases other than those for
which the product was originally approved; to change the dosage
levels of a product; to support new safety or efficacy claims for
the product; or to support changes in manufacturing methods,
facilities, sources of raw materials, or packaging.
In many markets, effective commercialization also requires
inclusion of the product in national, state, provincial, or
institutional formularies or cost reimbursement systems. The
impact of new or changed laws or regulations cannot be predicted
with any accuracy. The Company uses its own staff of regulatory
affairs professionals and outside consultants to enable it to
monitor compliance, not only with FDA laws and regulations, but
also with state and foreign government laws and regulations.
Promotional and educational communications by the Company and
its distributors also are regulated by the FDA and are governed
by statutory and regulatory restrictions and FDA policies
regarding the type and extent of data necessary to support claims
that may be made. The Company currently does not have data
adequate to satisfy FDA requirements with respect to potential
comparative claims between Natural Alpha Interferon and competing
recombinant interferon products.
For marketing outside the United States, the Company will also
be subject to foreign regulatory requirements governing human
clinical trials, manufacturing, and marketing approval for drugs
and other medical products. The requirements governing the
conduct of clinical trials, product licensing, pricing, and
reimbursement vary widely from country to country.
Research Staff and Employees
As of March 15, 1996, the Company had approximately 69 full-
time employees, of whom approximately 12 hold Ph.D. degrees and
35 hold other degrees in scientific or technical fields. Of such
employees, approximately 18 were engaged in research and product
development, 21 were engaged in manufacturing and quality
control, and the remainder were general and administrative
personnel. Certain direct and indirect management services are
provided to the Company by employees of NPDC and its other
subsidiaries pursuant to a Management Agreement (the "Management
Agreement") at a cost to the Company of $120,000 per annum. In
addition, beginning in 1996, certain services, such as legal,
maintenance, shipping and receiving, purchasing, secretarial
work, informational retrieval, and regulatory compliance, are
provided by approximately 12 employees of the Company to NPDC on
an "as used" basis at the Company's approximate cost.
Research and Development
During the fiscal years ended December 3l, 1995, l994, and
l993, the Company expended approximately $3.7 million, $5.2
million, and $4.2 million, respectively for research and
development. Substantially all of these expenditures were for
Company-sponsored research and development programs.
Executive Officers of the Registrant
The following table sets forth the names of the principal
executive officers of the Company as of March l5, l996 and their
positions with the Company. The principal business experience of
the executive officers for the last five years is also described
below.
Name Age Position
Martin M. Pollak 68 Chairman of the Board
Jerome I. Feldman 67 Chairman of the Board's
Executive Committee, Treasurer
and a Director
Samuel H. Ronel, Ph.D 59 Vice Chairman of the Board
Lawrence M. Gordon 42 Chief Executive Officer and a
Director
Stanley G. Schutzbank, Ph.D 50 President and a Director
Donald W. Anderson 46 Controller (Principal
Accounting and Financial
Officer) and Secretary
Drew Stoudt 48 Vice President, Regulatory
Affairs and Quality
Mei-June Liao, Ph.D 44 Vice President, Research and
Development
Martin M. Pollak has been Chairman of the Board since 1981. He
is a founder of NPDC (a holding company) and has been Executive
Vice President, Treasurer and a director of NPDC since 1959. Mr.
Pollak is Chief Executive Officer, President and a director of
American Drug Company ("ADC"), a subsidiary of NPDC which markets
American-made generic pharmaceutical products in Russia. He has
been Chairman of the Board and a director of General Physics
Corporation ("GPC"), a subsidiary of NPDC which provides
personnel training and technical support services to the domestic
commercial nuclear power industry and to the United States
Department of Energy since 1988; and a director since 1987;
Chairman of the Executive Committee of GTS Duratek, Inc.
("Duratek"), a company which provides environmental technology
and consulting, and staff augmentation services to various
utility, industrial and commercial clients from 1985 to January
1995 and a director since 1982; Chairman of the Board and a
director of SGLG, Inc. ("SGLG"), a subsidiary of NPDC, which is a
holding company with a (26%) interest in GSE Systems, Inc.
("GSE"), a software simulator company, since May 1991; and a
director of GSE since 1994. Mr. Pollak is Chairman of the Czech
and Slovak United States Economic Council, a member of the Board
of Trustees of the Worcester Foundation for Experimental Biology
and a director of Brandon Systems Corporation, a personnel
recruiting company, since 1986.
Jerome I. Feldman has been Chairman of the Board's Executive
Committee and a director of the Company since 1981. He has also
been the Treasurer of the Company since 1984. Mr. Feldman is a
founder of, and since 1959 has been President, Chief Executive
Officer and a director of, NPDC. Mr. Feldman is Chairman of the
Board of and a consultant to ADC. He has been Chairman of the
Executive Committee of GPC since 1988 and a director of GPC since
1987; Chairman of the Board of Duratek from 1985 to January 1995
and a director since 1982 and Chairman of the Executive Committee
and a director of SGLG since May 1991; and a director of GSE
since 1994. He has been a director of Hamilton Financial
Services, Inc., a financial service company, since 1983. He is a
trustee of the New England Colleges Fund and of Bard College.
Samuel H. Ronel, Ph.D. has been Vice Chairman of the Board
since January 1996 and was President, Chief Executive Officer,
and a director of the Company from 1981 to January 1996. He was
responsible for the interferon research and development program
since its inception in 1979. Dr. Ronel joined NPDC in 1970 and
has served as the Vice President of Research and Development of
NPDC since 1976 and as the President of Hydro Med Sciences, a
division of NPDC, since 1976. Dr. Ronel served as President of
the Association of Biotechnology Companies, an international
organization representing United States and foreign biotechnology
firms, from 1986-88 and has served as a member of its Board of
Directors until 1993. Dr. Ronel was elected to the Board of
Directors of The Biotechnology Industry Organization in 1993.
Lawrence M. Gordon has been Chief Executive Officer and a
director of the Company since January 1996, Vice President of the
Company from June 1991 to January 1996, General Counsel of the
Company from 1984 to January 1996, General Counsel of NPDC since
November 1986, and Vice President of NPDC since June 1991. He was
Associate General Counsel of NPDC from 1983 through November
1986. Mr. Gordon has been a director of GPC since October 1994.
Stanley G. Schutzbank, Ph.D. has been President of the Company
since January 1996, Executive Vice President of the Company from
1987 to January 1996, and a director of the Company since 1981
and has been associated with the interferon research and
development program since its inception in 1979. He is involved
with all facets of administration and planning of the Company and
has coordinated compliance with FDA regulations governing
manufacturing and clinical testing of interferon, leading to the
approval of ALFERON N Injection in 1989. Dr. Schutzbank joined
NPDC in 1972 and has served as the Corporate Director of
Regulatory and Clinical Affairs of NPDC since 1976 and as
Executive Vice President of Hydro Med Sciences since 1982. Dr.
Schutzbank is a member of the Regulatory Affairs Professionals
Society and has served as Chairman of the Regulatory Affairs
Certification Board from its inception until 1994. Dr. Schutzbank
received the 1991 Richard E. Greco Regulatory Affairs
Professional of the Year Award for his leadership in developing
the United States Regulatory Affairs Certification Program. In
September 1995, Dr. Schutzbank was elected to serve as President-
elect in 1996, President in 1997, and Chairman of the Board in
1998 of the Regulatory Affairs Professionals Society.
Donald W. Anderson has been the Controller of the Company since
1981 and Corporate Secretary of the Company since 1988. He has
been an officer of various subsidiaries of NPDC since 1976.
Drew Stoudt has been Vice President, Regulatory Affairs and
Quality of the Company since March 1991. He was Vice President,
Quality Assurance and Quality Control from February 1990 to March
1991. Mr. Stoudt has served as Director of Quality Assurance for
the Company and other divisions of NPDC from 1985 to 1990.
Mei-June Liao, Ph.D., has been Vice President, Research and
Development of the Company since March 1995. She has served as a
Director, Research & Development since 1987, and held senior
positions in the Company's Research & Development Department
since 1983. Dr. Liao received her Ph.D. from Yale University and
completed a three-year post doctoral appointment at the
Massachusetts Institute of Technology under the direction of
Nobel Laureate in Medicine, Professor H. Gobind Khorana. Dr. Liao
has authored many scientific publications and invention
disclosures.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales
All of the Company's material operations and sales are
conducted in the United States.
Item 2. Properties
The Company's executive offices and its research and
production facilities are located at 783 Jersey Avenue, New
Brunswick, New Jersey 08901, and its telephone number is (908)
249-3250. The Company also maintains offices at 9 West 57th
Street, New York, New York 10019, the cost of which is included
in the Management Agreement.
The Company owns two free standing buildings comprising
approximately 44,000 square feet located in New Brunswick, New
Jersey. The Company occupies approximately 25,000 square feet for
staff offices, for the production and purification of interferon,
for quality control and research activities, and for the storage
of raw, in process and finished materials. The Company also
shares approximately 9,000 square feet with NPDC, and leases
approximately 10,000 square feet to NPDC. The Company believes
that its current facilities are (i) suitable and adequate for
research and development and commercial production of purified
interferon, (ii) well maintained, and (iii) in good condition.
Substantially all equipment owned by the Company has been
acquired over the past ten years and is in good working
condition.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The Common Stock is traded in the over-the counter market and
is quoted on the NASDAQ Small Cap Market under the symbol IFSC.
Effective August 3, 1995, the trading market for the Common Stock
was changed from the NASDAQ National Market System to the NASDAQ
Small Cap Market because of the failure of the Company to satisfy
the listing requirements for the NASDAQ National Market System.
The following table sets forth for each period indicated, the
high and low sales prices for the Common Stock as reported on the
NASDAQ National Market System through August 2, 1995 and on the
NASDAQ Small Cap Market commencing August 3, 1995.
1995 1994
Quarter High Low High Low
First..... $ 3 $ 1 5/16 $ 5 3/8 $ 3 5/8
Second.... 2 1/2 1 11/16 4 1/8 2 3/4
Third..... 2 3/4 1 11/16 3 7/8 1 1/2
Fourth.... 3 3/32 1 9/16 2 5/8 1 1/4
As of March 1, 1996, the Company had 836 stockholders of
record.
The Company has not paid any dividends on the Common Stock
since its inception and does not contemplate paying dividends on
the Common Stock in the foreseeable future.
Item 6. Selected Financial Data
(Thousands of dollars except per share data)
Year Ended December 31,
1995 1994 1993 1992 1991
Revenues $ 1,296 $ 1,166 $ 51 $ 3,306 $ 2,503
Research and development
costs, net 3,726 5,196 4,151 3,983 3,162
General and administrative
expense 1,940 4,974 2,367 2,113 1,872
Loss from operations (7,447) (11,782) (8,347) (5,953) (5,087)
Interest and other income
(expense), net 75 (295) (113) (44) (809)
Net loss (7,372) (12,078) (8,460) (5,997) (5,896)
Net loss per share of common stock (.28) (.62) (.55) (.42) (.62)
Dividends NONE NONE NONE NONE NONE
December 31,
1995 1994 1993 1992 1991
Total assets $ 13,953 $ 8,182 $ 20,301 $ 21,096 $ 25,035
Current maturities of
long-term debt -- 409 1,999 2,001 1,188
Long-term debt, net of
current maturities -- -- 138 1,679 3,680
Common Stock subject to
repurchase commitment -- 2,730 -- -- --
Working capital (deficiency) 7,062 (782) 7,985 7,706 12,002
Stockholders' equity 12,827 2,979 17,131 16,157 19,045
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Since January 1981, the Company has been primarily engaged in
the research and development of pharmaceutical products
containing Natural Alpha Interferon for the treatment of viral
diseases, cancers, and diseases of the immune system. The Company
has experienced significant operating losses since its inception.
Although the Company received FDA approval in October 1989 to
market ALFERON N Injection in the United States for the treatment
of certain genital warts, it has had limited revenues from the
sale of ALFERON N Injection to date. ALFERON N Injection
currently is marketed and sold in the United States by Purdue and
was approved for sale in Mexico in December 1994. In order for
the Company to operate profitably, the Company must sell
significantly more ALFERON N Injection. Increased sales will
depend primarily upon the expansion of existing markets and/or
successful attainment of FDA approval to market ALFERON N
Injection for additional indications. The future revenues and
profitability of, and availability of capital for, biotechnology
companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the
costs of health care through various means. The Company has
primarily financed its operations to date through private
placements and public offerings of the Company's securities.
Liquidity and Capital Resources
As of March 1, 1996, the Company had an aggregate of $5.5
million in cash and cash equivalents. Until utilized, such cash
and cash equivalents are being invested principally in short-term
interest-bearing investments.
Management believes that the cash currently available will be
sufficient to enable the Company to continue operations until
approximately December 1996, although no assurance can be given
in this regard. To fund the Company's operations beyond such date
and, if it decides to do so, to exercise the option to repurchase
certain marketing rights from Purdue and to repurchase certain
shares of Common Stock from Purdue, the Company will require
additional funding, whether from financial markets or
collaborative or other arrangements with corporate partners or
from other sources, which may not be available when needed, or on
terms acceptable to the Company. Insufficient funds will require
the Company further to delay, scale back, or eliminate certain or
all of its research and development programs or license third
parties to commercialize products or technologies that the
Company would otherwise seek to develop itself or to shut down or
curtail its manufacturing facility. Consequently, management is
actively pursuing raising required additional capital through
private placements and public offerings of the Company's
securities and by licensing rights to its injectable, topical, or
oral formulations of alpha interferon or entering into
collaborative or other arrangements with corporate partners.
In August and September 1995, the Company completed the sale
of 12,000,000 shares of Common Stock for an aggregate of
$14,400,000 (the "August/September Offering"). Of the $12,494,000
of net proceeds from the August/September Offering, the Company
has used $1,870,000 to repay indebtedness to certain principal
stockholders and anticipates that it will use approximately
$7,000,000 for research, product development, and clinical trials
of the Company's products and the balance for working capital and
general corporate purposes.
Between May and August 1995, three principal stockholders of
the Company loaned the Company an aggregate of $1,870,000. Such
loans bore interest at prime plus 2% and were repaid with a
portion of the proceeds of the August/September Offering.
In April 1995, ACC and its licensee agreed to purchase an
aggregate of $750,000 of Common Stock at $2.00 per share, all of
which cash was received during the second quarter of 1995. See
"Business - Products Under Development - ALFERON LDO."
In the first quarter of 1995, the Company concluded an
agreement with Fujimoto, a pharmaceutical company located in
Osaka, Japan, for the commercialization of the Company's ALFERON
N Injection and ALFERON N Gel in Japan. In connection with the
agreement, Fujimoto purchased $1,500,000 of Common Stock at $1.45
per share (the then market price), all of which cash was received
during the first quarter of 1995, and agreed to purchase an
additional $500,000 of Common Stock on February 6, 1996 at the
then market price. Such additional $500,000 of Common Stock has
to date not been purchased. To date, Fujimoto has incurred higher
than anticipated development expenses, and Fujimoto has
determined that there may be greater difficulties in obtaining
Japanese regulatory approval than originally anticipated.
Fujimoto has therefore requested that the Company renegotiate
such investment agreement and the related commercialization
agreement. The Company intends to meet with Fujimoto to consider
its request. See "Business - ALFERON N Injection - Marketing and
Distribution - Other Marketing and Distribution Agreements."
In connection with the amendments to agreements with Purdue as
described below, during January 1994, Purdue ordered 45,000 vials
of ALFERON N Injection at an agreed upon price. With respect to
this order, approximately three-quarters of the purchase price of
the vials was payable upon shipment by the Company to Purdue and
the balance was payable upon sale by Purdue. A portion of the
shipments to fill this order was made on a consignment basis,
i.e. the purchase was subject to a right of return until
notification by Purdue that such vials have been resold. In June
and August 1994, the Company began to fill this order by making
shipments of 10,000 and 10,735 vials, respectively, of ALFERON N
Injection to Purdue on a consignment basis. In addition,
shipments of 5,718, 9,040, and 3,562 vials of ALFERON N Injection
were made to Purdue in September 1994, April 1995, and September
1995, respectively, on a non-consignment basis. The 5,945 vial
balance of this order was shipped in November 1995. In June
1995, the Company received purchase orders from Purdue totalling
22,744 vials of ALFERON N Injection on a non-consignment basis,
of which 4,431 vials were shipped in November 1995 and the
balance will be shipped in 1996.
Purdue has informed the Company that from June 1994 through
December 31, 1994, it had sold or distributed as free samples
approximately 15,800 vials of the 20,735 vials purchased on a
consignment basis, and that as of March 1995, Purdue had sold or
distributed as free samples the balance of such consignment
inventory. Purdue has also informed the Company that during the
years ended December 31, 1995 and 1994, it sold approximately
23,900 vials and 25,000 vials, respectively, and distributed as
free samples approximately 400 vials and 2,000 vials,
respectively, of ALFERON N Injection from its inventory.
In January 1994, the Company amended its marketing and
distribution agreements with Purdue and related parties. See
"Business - ALFERON N Injection - Marketing and Distribution -
Agreements with Purdue." Pursuant to such amended agreements, the
Company assumed sole responsibility to conduct and fund clinical
trials required to obtain FDA approval for additional indications
for ALFERON N Injection. Prior to these amendments, Purdue was
responsible for the payment of the costs of such clinical trials.
The Company anticipates that the expansion of its research and
development efforts and clinical trial activities and its
assuming responsibility for the conduct and funding thereof will
increase operating expenses. The Company intends to seek to enter
into joint ventures or other arrangements with strategic partners
who agree to bear all or part of such expenses.
In connection with the amendments to the agreements with
Purdue, the Company agreed to purchase an aggregate of 994,994
shares of its Common Stock for $3,979,976 ($4.00 per share) from
Purdue and two related entities over a period of 19 months. The
Company purchased 62,500 of such shares of Common Stock for
$250,000 in January 1994 and was obligated to purchase an
additional 250,000 shares of Common Stock for $1,000,000 in 1994.
In 1994, the Company and Purdue agreed to offset $700,000 owed to
the Company by Purdue, for the purchase of ALFERON N Injection
during 1994, against the Company's obligation to purchase
$1,000,000 of Common Stock from Purdue in 1994. As of December
31, 1994, $300,000 of this obligation to Purdue had not been paid
and was reflected as a current liability on the balance sheet. In
addition, as of March 31, 1995, the Company had an additional
$67,783 of offsets based upon additional sales of ALFERON N
Injection by Purdue leaving $232,217 of this obligation
outstanding as of such date. In April 1995, the Company was
required to purchase 62,500 shares of Common Stock for $250,000
and on August 31, 1995 (or such earlier date on which the
August/September Offering shall have terminated prior to the sale
of minimum number of shares of Common Stock) was obligated to
purchase 619,994 shares of Common Stock for $2,479,976. As of
July 31, 1995, the Company had generated sufficient additional
offsets based upon additional sales of ALFERON N Injection to and
by Purdue to repay the $232,217 owed to Purdue as of March 31,
1995 and to pay $200,843 of the $250,000 owed to Purdue for the
April 1995 stock repurchase. In July 1995, the Company entered
into a further amendment to the agreements with Purdue, which
became effective upon the sale on August 22, 1995 of more than
the minimum number of shares of Common Stock in the
August/September Offering, pursuant to which the balance owed to
Purdue for the April 1995 stock repurchase (which had been
reduced by further offsets) was forgiven and the Company obtained
an option, exercisable until December 31, 1996, to reacquire the
remaining marketing and distribution rights from Purdue. The
exercise price of the option is $5,029,133, subject to reduction
as set forth below, plus 750,000 shares of Common Stock (350,000
shares of Common Stock if the option had been exercised on or
before December 31, 1995). The option may not be exercised
unless the Company simultaneously purchases any of the 619,994
shares of Common Stock described above then held by Purdue for
$4.00 per share. The cash exercise price of the option will be
reduced by the aggregate of (i) the amount paid by the Company to
Purdue to repurchase any of such 619,994 shares then held by
Purdue, (ii) if Purdue sells any or all of such 619,994 shares,
which may only be done with the consent of the Company, the
amount received by Purdue from such sale, and (iii) the amount by
which the transfer price for vials sold by the Company to Purdue
exceeds $25 per vial. If the option is not exercised, the Company
will no longer have the obligation to repurchase the 619,994
shares. In addition, the parties agreed that the transfer price
for each vial will be payable $25 in cash and the balance as an
offset to the cash exercise price of the option. If the option is
not exercised, such offsets will have no value. See "Business -
ALFERON N Injection - Marketing and Distribution - Agreements
with Purdue."
Results of Operations
Year Ended December 31, 1995 versus Year Ended December 31, 1994
For the year ended December 31, 1995 (the "1995 Period"), the
Company's revenues of $1,295,662 included $1,260,933 from the
sale of ALFERON N Injection and the balance from sales of
research products and other revenues. Revenues of $1,165,931 for
the year ended December 31, 1994 (the "1994 Period") included
$979,425 from the sale of ALFERON N Injection and the balance
from sales of research products, contract research, and other
revenues. Cost of goods sold and excess/idle production costs
totalled $3,076,249 in the 1995 Period and $2,778,109 in the 1994
Period. The inventory which was sold in the 1995 Period and the
1994 Period had been written down to its net realizable value.
For the portion of the 1995 Period and the 1994 Period during
which the facility was operating, excess/idle production costs
primarily represented current production costs in excess of the
estimated net realizable value of inventory produced which
resulted from limited production volumes. Excess/idle production
costs were reduced by suspending ALFERON N Injection production
during a portion of both the 1995 Period and the 1994 Period.
Research and development expenses during the 1995 Period of
$3,726,230 decreased by $1,469,469 from $5,195,699 for the 1994
Period, principally because the Company reduced its level of
research and product development on ALFERON N Injection. The
Company received $181,992 and $150,000 during the 1995 Period and
1994 Period, respectively, as rental income from NPDC for the use
of a portion of the Company's facilities, which offset research
and development expenses.
General and administrative expenses for the 1995 Period were
$1,939,864 as compared to $4,974,224 for the 1994 Period. The
decrease of $3,034,360 was principally due to the amortization
and subsequent write-off of prepaid royalties totalling
$2,100,000 in the 1994 Period and decreases in payroll and other
expenses in the 1995 Period. NPDC provides certain administrative
services for which the Company paid NPDC $120,000 for each of the
1995 Period and the 1994 Period. In addition, during the 1995
Period and the 1994 Period, NPDC provided to the Company, at its
estimated cost, certain personnel and services which the Company
used in its operations. For the 1995 Period and the 1994 Period,
such charges amounted to $1,121,145 and $1,194,380, respectively.
Commencing January 1, 1996, the NPDC personnel who had been
providing such services to the Company became employees of the
Company, and will provide certain services to NPDC at the
Company's estimated cost.
Interest and other income for the 1995 Period was $155,478 as
compared to $157,929 for the 1994 Period.
For the 1994 Period, the Company realized a net loss of
$300,430 on the sales of marketable securities which resulted
from declines in the fair value of the Company's investments in
obligations of agencies of the United States Government.
Interest expense for the 1995 Period and the 1994 Period was
$80,511 and $152,935, respectively. The decrease of $72,424 was
due to reduced long-term debt.
As a result of the foregoing, the Company incurred net losses
of $7,371,714 and $12,077,537 for the 1995 Period and the 1994
Period, respectively.
Year Ended December 31, 1994 versus Year Ended December 31, 1993
For the 1994 Period, the Company's revenues of $1,165,931
included $979,425 from the sale of ALFERON N Injection and the
balance from sales of research products, contract research, and
other revenues. The revenues of $51,323 for the year ended
December 31, 1993 (the "1993 Period") were derived from sales of
research products. Cost of goods sold and excess/idle production
costs totalled $2,778,109 in the 1994 Period and $1,880,563 in
the 1993 Period. The inventory which was sold in the 1994 Period
had been written down to its net realizable value. For the
portion of the 1994 Period and the 1993 Period during which the
facility was operating, excess/idle production costs primarily
represented current production costs in excess of the estimated
net realizable value of inventory produced which resulted from
limited production volumes. Excess/idle production costs were
reduced by suspending ALFERON N Injection production during a
portion of both the 1994 Period and the 1993 Period.
Research and development expenses during the 1994 Period of
$5,195,699 increased by $1,044,541 from $4,151,158 for the 1993
Period, principally because, effective January 1994, the Company
took over the responsibility for conducting and funding the
hepatitis C clinical studies from Purdue and increased its level
of research and product development of ALFERON N Injection. The
Company received $150,000 and $138,996 during the 1994 Period and
1993 Period, respectively, as rental income from NPDC for the use
of a portion of the Company's facilities, which offset research
and development expenses.
General and administrative expenses for the 1994 Period were
$4,974,224 as compared to $2,366,897 for the 1993 Period. The
increase of $2,607,327 was principally due to the amortization
and subsequent write-off of prepaid royalties totalling
$2,100,000, increases in payroll, and certain costs related to a
proposed public stock offering which was not consummated. NPDC
provides certain administrative services for which the Company
paid NPDC $120,000 for each of the 1994 Period and the 1993
Period. In addition, during the 1994 Period and the 1993 Period,
NPDC provided to the Company, at its estimated cost, certain
personnel and services which the Company used in its operations.
For the 1994 Period and the 1993 Period, such charges amounted to
$1,194,380 and $895,700, respectively.
Interest and other income for the 1994 Period was $157,929 as
compared to $255,344 for the 1993 Period. The decrease of $97,415
was due to less funds available for investment in the 1994
Period.
For the 1994 Period, the Company realized a net loss of
$300,430 from sales of marketable securities which resulted from
declines in the fair value of the Company's investments in
obligations of agencies of the United States Government. During
the 1993 Period, the Company realized a net gain of $3,297 from
sales of such investments.
Interest expense for the 1994 Period and 1993 Period was $152,935
and $371,208, respectively. The decrease of $218,273 was due to
reduced long-term debt.
As a result of the foregoing, the Company incurred net losses
of $12,077,537 and $8,459,862 for the 1994 Period and the 1993
Period, respectively.
Recent Tax and Accounting Developments
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Statement 121 requires the Company to estimate the
future cash flows expected to result from the use and eventual
disposition of its property, plant and equipment, and if the sum
of such cash flows is less than the carrying amount of these
assets, to recognize an impairment loss to the extent, if any,
that the carrying amount of the assets exceeds their fair values.
The Company believes that, although it has a current period
operating loss and a history of operating losses, expected future
cash flows derived from these assets will be at least equal to
their carrying values, and that no impairment loss will be
indicated. The Company bases this assessment both upon expected
future product revenues and upon the fact that it completed a
major manufacturing facility expansion and purchase of
manufacturing equipment in 1991, the cost of which constitutes a
major portion of the carrying value of its property, plant and
equipment. The Company believes that this expanded facility will
be suitable for a number of years without significant repairs.
In December 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for years beginning after
December 15, 1995. Under SFAS 123, the Company may elect either
a "fair value" based method or the current "intrinsic value"
based method of accounting prescribed by APB No. 25, "Accounting
for Stock Issued to Employees," for its stock-based compensation
arrangements. Under the "intrinsic value" based method, the
Company will be required to disclose in the footnotes to the
consolidated financial statements net income and earnings per
share computed under the "fair value" based method. The Company
has elected to continue accounting for stock-based compensation
arrangements using the "intrinsic value" based method; therefore,
the adoption of SFAS 123 will not impact the Company's results of
operations or financial condition.
Forward-Looking Statements
This report contains certain forward-looking statements
reflecting management's current views with respect to future
events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements, including, but not limited to,
uncertainty of obtaining additional funding for the Company;
uncertainty of obtaining United States regulatory approvals for
the Company's products under development and foreign regulatory
approvals for the Company's FDA-approved product and products
under development and, if such approvals are obtained,
uncertainty of the successful commercial development of such
products; substantial competition from companies with
substantially greater resources than the Company in the Company's
present and potential businesses; no guaranteed source of
required materials for the Company's products; dependence on
certain distributors to market the Company's products; potential
adverse side effects from the use of the Company's products;
potential patent infringement claims against the Company;
possible inability of the Company to protect its technology;
uncertainty of pharmaceutical pricing; substantial royalty
obligations payable by the Company; limited production experience
of the Company; risk of product liability; and risk of loss of
key management personnel, all of which are difficult to predict
and many of which are beyond the control of the Company.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and 1994 . . . . . . 38
Consolidated Statements of Operations - Years ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1995, 1994 and 1993 . . . . . . . 40
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . 41
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 42
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Interferon Sciences, Inc.:
We have audited the consolidated financial statements of
Interferon Sciences, Inc. and subsidiary as listed in the
accompanying index. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Interferon Sciences, Inc. and subsidiary at December
31, 1995 and 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 16, 1996
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 7,221,108 $ 330,617
Accounts and other receivables 47,351 35,546
Inventories 815,978 1,029,158
Consignment inventory 220,410
Receivables from NPDC and affiliated companies 27,211 20,001
Prepaid expenses and other current assets 76,000 55,221
Total current assets 8,187,648 1,690,953
Property, plant and equipment, at cost
Land 140,650 140,650
Buildings and improvements 7,384,102 7,384,102
Equipment 4,369,424 4,301,317
11,894,176 11,826,069
Less accumulated depreciation and amortization (6,760,181) (6,013,839)
5,133,995 5,812,230
Intangible assets, net of accumulated amortization
of $1,049,923 and $1,018,989
Patent costs 341,596 355,019
Other assets 289,343 323,900
$ 13,952,582 $ 8,182,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ $ 409,275
Accounts payable 872,552 882,090
Accrued expenses 253,254 746,935
Amount due NPDC 134,347
Amount due Purdue for repurchase of common stock 300,000
Total current liabilities 1,125,806 2,472,647
Common stock subject to repurchase commitment
(0 and 682,494 shares) 2,729,976
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.01 per share; authorized
- 5,000,000 shares; none issued and outstanding
Common stock, par value $.01 per share; authorized
- 55,000,000 and 30,000,000 shares; issued and
outstanding - 34,448,768 and 19,509,291 shares 344,488 195,093
Capital in excess of par value 82,641,859 65,572,243
Accumulated deficit (70,159,571) (62,787,857)
Total stockholders' equity 12,826,776 2,979,479
$ 13,952,582 $ 8,182,102
The accompanying notes are an integral part of these consolidated financial
statements.
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Revenues
Sales
Alferon N Injection $ 1,260,933 $ 979,425 $
Research products and other revenues 34,729 186,506 51,323
Total revenues 1,295,662 1,165,931 51,323
Costs and expenses
Cost of goods sold and excess/idle
production costs 3,076,249 2,778,109 1,880,563
Research and development
(net of $181,992, $150,000 and $138,996
of rental income received from NPDC) 3,726,230 5,195,699 4,151,158
General and administrative (includes
$1,241,145, $1,314,380 and $1,015,700 of
charges from NPDC for management fees
and reimbursements of expenses) 1,939,864 4,974,224 2,366,897
Total costs and expenses 8,742,343 12,948,032 8,398,618
Loss from operations (7,446,681) (11,782,101) (8,347,295)
Interest and other income 155,478 157,929 255,344
Net (loss) gain on sales of
marketable securities (300,430) 3,297
Interest expense (includes $34,889
in 1995 to NPDC) (80,511) (152,935) (371,208)
Net loss $ (7,371,714) $ (12,077,537) $ (8,459,862)
Net loss per share $ (.28) $ (.62) $ (.55)
Weighted average number of
shares outstanding 26,646,654 19,594,285 15,432,287
The accompanying notes are an integral part of these consolidated financial statements.
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Capital in Total
Common Stock excess of Accumulated stockholders'
Shares Amount par value deficit equity
Balance at December 31, 1992 14,411,118 $ 144,111 $ 58,263,555 $ (42,250,458) $ 16,157,208
Net proceeds from issuance of common
stock and warrants to D. Blech and
his designees 5,000,000 50,000 9,200,501 9,250,501
Issuance of common stock as required
by various agreements 40,967 410 142,975 143,385
Proceeds from exercise of common stock options 12,200 122 39,203 39,325
Net loss (8,459,862) (8,459,862)
Balance at December 31, 1993 19,464,285 194,643 67,646,234 (50,710,320) 17,130,557
Net proceeds from sale of common stock
and warrants 610,000 6,100 1,470,335 1,476,435
Commitment to purchase common stock from
Purdue Frederick, Runham and Banela (994,994) (9,950) (3,970,026) (3,979,976)
Net proceeds from the sale of common stock
to Sentinel Charitable Remainder Trust 430,000 4,300 425,700 430,000
Net loss (12,077,537) (12,077,537)
Balance at December 31, 1994 19,509,291 195,093 65,572,243 (62,787,857) 2,979,479
Net proceeds from public sale
of common stock 12,000,000 120,000 12,374,035 12,494,035
Termination of commitment to repurchase
common stock from Purdue Frederick 619,994 6,200 2,473,776 2,479,976
Net proceeds from sale of common stock
to Fujimoto Diagnostics, Inc. 1,034,483 10,345 1,472,155 1,482,500
Net proceeds from sale of common stock
to Amarillo Cell Culture Company, Inc.
and its licensee 375,000 3,750 738,750 742,500
Issuance of common stock in exchange
for warrants to purchase common stock 900,000 9,000 (9,000)
Proceeds from exercise of common stock options 10,000 100 19,900 20,000
Net loss (7,371,714) (7,371,714)
Balance at December 31, 1995 34,448,768 $ 344,488 $ 82,641,859 $ (70,159,571) $ 12,826,776
The accompanying notes are an integral part of these consolidated financial statements.
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Cash flows used for operations:
Net loss $ (7,371,714) $ (12,077,537) $ (8,459,862)
Adjustments to reconcile net loss
to net cash used for
operating activities:
Depreciation and amortization 777,276 2,926,439 1,017,949
Reduction of other assets 150,000 50,000
Net loss (gain) on sales of marketable securities 300,430 (3,297)
Change in operating assets
and liabilities:
Receivables from NPDC and affiliated companies (7,210) (1,500) 1,500
Inventories 213,180 1,129,847 (49,752)
Consignment inventory 220,410 (220,410)
Accounts and other receivables (561,805) (647,897) 12,023
Prepaid expenses and other current assets (20,779) 154,958 (162,338)
Accounts payable and accrued expenses (503,219) 604,359 (148,859)
Net cash used for operations (7,103,861) (7,781,311) (7,792,636)
Cash flows from investing activities:
Sales of marketable securities 6,490,406 4,153,719
Purchases of marketable securities (2,496,445) (3,891,422)
Additions to property, plant and equipment (68,107) (82,498) (87,412)
Additions to intangible and other assets (132,954) (101,345) (84,537)
Net cash (used for) provided by investing activities (201,061) 3,810,118 90,348
Cash flows from financing activities:
Net proceeds from purchase agreement with D. Blech 430,000 9,355,500
Net proceeds from sale of common stock and warrants 14,719,035 1,476,435
(Decrease) increase in advances from NPDC (134,347) 126,297 (38,627)
Reduction of long-term debt (409,275) (1,727,989) (1,542,481)
Purchase of common stock from Runham and Banela (250,000)
Loans from principal stockholders 1,870,000
Repayment of loans from principal stockholders (1,870,000)
Proceeds from exercise of common stock options 20,000 39,325
Net cash provided by financing activities 14,195,413 54,743 7,813,717
Net increase (decrease) in cash and cash equivalents 6,890,491 (3,916,450) 111,429
Cash and cash equivalents at beginning of year 330,617 4,247,067 4,135,638
Cash and cash equivalents at end of year $ 7,221,108 $ 330,617 $ 4,247,067
Cash paid for interest expense $ 79,166 $ 205,190 $ 329,643
Non cash investing and financing activities:
Issuances of common stock in payment of liabilities $ $ $ 143,385
Commitment to purchase common stock $ $ 3,729,976 $
Offset of receivables in settlement of obligation
to repurchase common stock $ 550,000 $ 700,000 $
Termination of commitment to repurchase
common stock $ 2,479,976 $ $
The accompanying notes are an integral part of these consolidated financial statements.
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization, Business and Transactions with National
Patent
Since January 1981, Interferon Sciences, Inc. (the "Company")
has been primarily engaged in the research and development of
pharmaceutical products containing alpha interferon for the
treatment of viral diseases, cancers and diseases of the immune
system. ALFERON N Injection is a preparation for the treatment of
genital warts by local injection. In October 1989, the Company
received from the Food and Drug Administration ("FDA") approval
to market ALFERON N Injection for the intralesional treatment of
refractory or recurring external genital warts in patients 18
years of age or older. Nationwide distribution of ALFERON N
Injection commenced during July 1991 (See Note 5). Additional
products under development by the Company include ALFERON LDO and
ALFERON N Gel. ALFERON LDO is a low dose oral liquid alpha
interferon preparation which the Company believes has potential
for treating HIV-infected individuals and possibly other viral
diseases. ALFERON N Gel is a topical interferon preparation which
the Company believes has potential in the treatment of cervical
dysplasia, recurrent genital herpes, other viral diseases and
cancers (See Note 6).
All commercial sales by the Company of ALFERON N Injection
have been to two distributors, Purdue Pharma L.P. ("Purdue
Pharma," and collectively with its affiliates, "Purdue") in the
United States and Industria Farmaceutica Andromaco, S.A. De C.V.
in Mexico.
The Company is a party to a management agreement with National
Patent Development Corporation ("NPDC") pursuant to which certain
legal, financial and administrative services have been provided
by employees of NPDC. The fee for such services in 1995, 1994 and
1993 was $120,000 annually. In addition, during such years NPDC
provided to the Company, at its estimated cost, certain personnel
and services which the Company used in its operations. For the
years ended December 31, 1995, 1994 and 1993, such charges
amounted to $1,121,145, $1,194,380 and $895,700, respectively.
Commencing January 1, 1996, the NPDC personnel who had been
providing such services to the Company became employees of the
Company, and will provide certain services to NPDC at the
Company's estimated cost. The Company was also covered under
NPDC's insurance policies except for certain policies which the
Company has in its own name beginning in 1994. The Company's
allocated portion of insurance costs was $15,000, $114,000 and
$291,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
The Company owns the buildings which contain its offices and
laboratories and presently leases out a portion of the buildings
to NPDC. Total occupancy costs for the years ended December 31,
1995, 1994 and 1993 were approximately $729,000, $760,000 and
$686,000, respectively. NPDC paid to the Company as rent NPDC's
proportionate share of such occupancy costs (based on both square
feet occupied and number of personnel), which amounted to
$181,992, $150,000 and $138,996, respectively.
See Note 16 for information with respect to royalty
obligations to NPDC.
Transactions with David Blech
On May 28, 1993, David Blech, the Chief Executive Officer,
sole shareholder and a director of D. Blech & Company,
Incorporated ("DBC"), and the Company entered into a Purchase
Agreement (the "Purchase Agreement"), pursuant to which David
Blech or his designees purchased for $4.00 per unit, an aggregate
of 2,500,000 units ("Units"), each Unit consisting of two shares
of Common Stock, one Class A Warrant (the "Class A Warrants") to
purchase one share of Common Stock at an exercise price of $3.25
per share and one Class B Warrant (the "Class B Warrants") to
purchase one share of Common Stock at an exercise price of $5.00
per share. The Class A Warrants and the Class B Warrants expire
on August 31, 2000. The purchasers have certain registration
rights as to the securities acquired by them under the Purchase
Agreement. The Company paid DBC a $500,000 fee for its services
in connection with the Purchase Agreement, and incurred $100,000
in legal and other fees. In addition, fees totalling
approximately $105,000 relating to this transaction were paid by
issuance of Common Stock to another party.
Concurrently with the execution of the Purchase Agreement, the
Company entered into a consulting agreement with DBC under which
the Company agreed to pay $100,000 per year, payable monthly, to
DBC for advisory services with respect to the Company's field of
interest and business, strategic and commercial matters related
to the biotechnology industry. The term of the consulting
agreement was one year and commenced on June 1, 1993.
On May 13, 1994, the Company filed a registration statement
with the Securities and Exchange Commission, which statement was
amended on July 1, 1994 and was subsequently amended again on
August 10, 1994, covering a proposed public offering of 2,000,000
shares of Common Stock through DBC as underwriter. On September
22, 1994, DBC could not meet certain minimum capital requirements
and was forced to discontinue its operations. Consequently, the
Company had to cancel the proposed public offering of Common
Stock.
On December 6, 1994, the Company entered into a Purchase and
Exchange Agreement with David Blech and certain other parties
pursuant to which Sentinel Charitable Remainder Trust purchased
430,000 shares of the Common Stock for $430,000. In addition,
pursuant to such agreement David Blech and another individual
agreed to exchange an aggregate of 462,500 Class A Warrants and
1,200,000 Class B Warrants for an aggregate of 332,500 shares of
Common Stock. The issuance and exchange of the shares of Common
Stock by David Blech and the other individual pursuant to the
Purchase and Exchange Agreement were completed during the first
quarter of 1995.
Note 2. Summary of Significant Accounting Policies
Principles of consolidation -- The financial statements
include the operations of the Company and Interferon Sciences
Development Corporation ("ISD"), its wholly owned subsidiary.
Statements of cash flows -- For purposes of the statements of
cash flows, the Company considers all highly liquid instruments
with maturities of three months or less from purchase date to be
cash equivalents.
Property, plant and equipment -- Property, plant and equipment
are carried at cost. Major additions and betterments are
capitalized while maintenance and repairs which do not extend the
lives of the assets are expensed currently.
Depreciation -- The Company provides for depreciation and
amortization of plant and equipment following the straight-line
method over the estimated useful lives of such assets as follows:
Estimated
Class of Assets Useful Lives
Buildings and Improvements 15 to 30 years
Equipment 5 to 10 years
Intangible assets -- The Company capitalizes costs to obtain
and maintain patents and licenses. Patent costs are amortized
over 17 years and license costs are amortized over 5 years, each
on a straight-line basis. To the extent a patent is determined to
be worthless, the related capitalized cost is immediately
expensed.
Revenue recognition -- Sales are recorded generally upon
shipment of product. However, when a sale is made subject to a
right of return, revenues are not recognized until notification
by the customer that the product has been resold, and the related
product is recorded as consignment inventory until such
notification.
Collaborative agreement research and development revenues and
costs -- The costs of performing research and development are
reported when incurred and are included in research and
development expenses and the purchase of equipment in accordance
with the nature of the costs incurred. Generally, the Company
matches its collaborative research and development revenues in
the same accounting periods in which the related research costs
are incurred. However, when the revenues are exhausted, the
Company has the option to continue the research activities at its
own expense.
Inventories -- Inventories, consisting of raw materials, work
in process and finished goods, are stated at the lower of cost or
market on a FIFO basis. Inventories, if any, which are expected
to become obsolete before sale or use in research are written
off.
Pension plan -- The Company's employees are included in NPDC's
pension plan. The Company provides for its allocable share of
such costs as they accrue. Effective December 31, 1991, the plan
benefits were frozen (See Note 13).
Net loss per share -- Net loss per share is based on the
weighted average number of shares of Common Stock outstanding
during the period.
Note 3. Liquidity
The Company has experienced significant operating losses since
its inception in 1980. As of December 31, 1995, the Company had
an accumulated deficit of approximately $70.2 million. For the
years ended December 31, 1995, 1994 and 1993, the Company had
losses from operations of approximately $7.4 million, $11.8
million and $8.3 million, respectively. Although the Company
received FDA approval to market ALFERON N Injection in October
1989, it has had only limited revenue from the sale of ALFERON N
Injection. In order for the Company to operate profitably, the
Company must sell significantly more ALFERON N Injection.
Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to
market ALFERON N Injection for additional uses, of which there
can be no assurance. There can be no assurance that sufficient
quantities of ALFERON N Injection will be sold to allow the
Company to operate profitably.
In August and September 1995, the Company completed the sale
of 12,000,000 shares of Common Stock for an aggregate of
$14,400,000 with net proceeds to the Company of $12,494,000 (the
"August/September Offering"). However, the Company has limited
financial resources as of December 31, 1995 with which to support
future operating activities and to satisfy its financial
obligations as they become payable. Insufficient funds will
require the Company further to delay, scale back, or eliminate
certain or all of its research and development programs or
license third parties to commercialize products or technologies
that the Company would otherwise seek to develop itself or to
shut down or curtail its manufacturing facility. Consequently,
management is actively pursuing raising required additional
capital through private placements and public offerings of the
Company's securities and by licensing rights to its injectable,
topical or oral formulations of alpha interferon or entering into
collaborative or other arrangements with corporate partners.
Note 4. Agreements with Hoffmann-LaRoche
In June 1988, Hoffmann-LaRoche, Inc. ("Hoffmann") and the
Company entered into an agreement (the "1988 License Agreement")
pursuant to which the Company received a non-exclusive license
from Hoffmann, under a U.S. Patent held by Hoffmann, which
enabled the Company to sell ALFERON N Injection in the United
States for the treatment of genital warts. As part of the 1988
License Agreement, Hoffmann received 100,000 shares of Common
Stock in June 1988, the value of which was recorded as a license
cost on the balance sheet in 1988. In addition, when the Company
granted marketing rights to Purdue for the distribution of
ALFERON N Injection (See Note 5), the Company became obligated to
pay Hoffmann $250,000. Such obligation was recorded by the
Company as an additional license cost in 1988. The 1988 License
Agreement also required the Company to pay Hoffmann a royalty of
8% of net sales of ALFERON N Injection up to $20,000,000 and 9.5%
of net sales in excess of $20,000,000 in any calendar year. Net
sales were defined as the invoiced amount of product sold by the
Company (other than to a marketing partner) or by a marketing
partner, less certain deductions. Finally, as a result of
receiving FDA approval for ALFERON N Injection in 1989, the
Company was obligated to issue 484,262 shares of Common Stock to
Hoffmann as a prepaid royalty against a portion of future net
sales by the Company. Such shares, valued at $2,100,000, were
issued in February 1990. The value of the Common Stock previously
issued for the license as well as the additional license cost of
$250,000 recorded in 1988 were also to be credited against a
portion of future royalties payable to Hoffmann.
In January 1991, the Company and Hoffmann signed an agreement
(the "Hoffmann Gel Agreement") pursuant to which the Company
could obtain supplies of Hoffmann's bulk purified recombinant
interferon for use in the Company's topical products, thereby
eliminating the need for the Company to build a recombinant
interferon manufacturing facility. Alternatively, under the
Hoffmann Gel Agreement, the Company could use its own natural
alpha interferon in ALFERON N Gel under a license from Hoffmann.
In January 1991, the 1988 License Agreement was amended to
allow the Company to sell ALFERON N Injection for diseases which
are refractory to recombinant interferon therapy and to redefine
net sales as the invoiced amount of product sold by the Company
in arms' length transactions, less certain deductions.
In March 1992, the Company obtained a non-exclusive license
from Hoffmann, which allowed the Company to make, have made, use
and sell in the United States, without a potential patent
infringement claim from Hoffmann, natural alpha interferon for
the oral treatment of human diseases.
F. Hoffmann-LaRoche Ltd. ("Roche"), the parent of Hoffmann,
also has been issued patents covering human alpha interferon in
many countries throughout the world. As of March 31, 1995, the
Company obtained a non-exclusive license from Hoffmann and Roche
(the "1995 License Agreement") which grants the Company the
worldwide rights to make, use, and sell, without a potential
patent infringement claim from Hoffmann or Roche, any formulation
of Natural Alpha Interferon. The 1995 License Agreement permits
the Company to grant marketing rights with respect to Natural
Alpha Interferon products to third parties, except that the
Company cannot grant marketing rights with respect to injectable
products in any country in which Hoffmann or Roche has patent
rights covered by the 1995 License Agreement (the "Hoffmann
Territory") to any third party not listed on a schedule of
approximately 50 potential marketing partners without the consent
of Hoffmann and Roche, which consent cannot be unreasonably
withheld. The 1995 License Agreement will enable the Company, if
it is successful in obtaining necessary regulatory approvals, to
expand the formulations of Natural Alpha Interferon it makes,
uses, and sells in the United States and the rest of the world
and to market its products for the treatment of additional
indications.
On May 6, 1994, the United States Patent and Trademark Office
issued an Office Action in Reexamination on the Hoffmann patent
and rejected all of the 14 claims in the Hoffmann patent. Claims
in a patent under reexamination are valid and enforceable until
such time as a final disposition on the claims is reached. On
July 11, 1994, Hoffmann filed a response objecting to the Patent
Office's rejection of such claims. On July 20, 1995, the Patent
Office issued another Office Action in Reexamination on the
Hoffmann patent and rejected three of the claims in the Hoffmann
patent and concluded that the remaining 11 claims are patentable.
In November 1995, Hoffmann filed another response objecting to
the Patent Office's rejection of such three claims. The outcome
of such reexamination of the Hoffmann patent cannot be determined
at this time.
Under the terms of the 1995 License Agreement, the Company is
obligated to pay Hoffmann and Roche an aggregate royalty on net
sales (as defined) of Natural Alpha Interferon products by the
Company in an amount equal to (i) 8% of net sales in the Hoffmann
Territory, and 2% of net sales outside the Hoffmann Territory of
products manufactured in the Hoffmann Territory, up to
$75,000,000 of net sales in any calendar year and (ii) 9.5% of
net sales in the Hoffmann Territory, and 2% of net sales outside
the Hoffmann Territory of products manufactured in the Hoffmann
Territory, in excess of $75,000,000 of net sales in any calendar
year, provided that the total royalty payable in any calendar
year shall not exceed $8,000,000. Net sales are defined as the
invoiced amount of product sold by the Company, less certain
deductions. The 1995 License Agreement can be terminated by the
Company on 30 days' notice with respect to the United States
patent, any individual foreign patent, or all patents owned by
Hoffmann or Roche. If the 1995 License Agreement is terminated
with respect to the patents owned by Hoffmann or Roche in a
specified country, such country is no longer included in the
Hoffmann Territory. If Hoffmann's United States patent, or the
claims in such patent which the marketing of Natural Alpha
Interferon products by the Company might infringe, were found to
be invalid, the Company intends to terminate the 1995 License
Agreement with respect to Hoffmann's United States patent, which
would eliminate the royalty payable to Hoffmann and Roche on net
sales in the United States of products manufactured in the United
States. Under the terms of the 1995 License Agreement, the
unused credits against future royalties from the 1988 License
Agreement are available as offsets against 50% of the Company's
future royalty obligations to Hoffmann and Roche until the
Company obtains an FDA approval to market ALFERON N Injection for
an additional indication. The value of the Company's Common Stock
which may be credited against royalties payable is the lesser of
its value on the date of issuance and on the date the Company
exercises its right to credit such stock against its royalty
obligations. As of December 31, 1995, based upon the market value
of the Common Stock, the Company had approximately $719,437 of
credits available to offset 50% of its future royalty obligations
to Hoffmann and Roche.
During the second quarter of 1994, the Company adopted a
policy of amortizing prepaid royalties at the greater of the
straight line rate over a five-year period or the amount of
royalties incurred based upon sales. During the third quarter of
1994, the Company, in its quarterly evaluation of whether the
unamortized balance of prepaid royalties is realizable,
determined that it was prudent to write off such prepaid
royalties. The Company based this decision on the reduced market
price during the third quarter of the Company's Common Stock, the
uncertainty created by the decision of the United States Patent
and Trademark Office in May 1994 to reexamine the claims of the
Hoffmann patent and upon sales of ALFERON N Injection. During
1994, the amortization and writeoff of prepaid royalties
totalling $2,100,000 were included as general and administrative
expense in the statements of operations and reflected as
depreciation and amortization in the statements of cash flows.
Through December 31, 1995, the Company had incurred $715,669
of royalties due Hoffmann resulting from sales of ALFERON N
Injection. However, the Company applied $626,054 of the
prepayments previously made to Hoffmann against the amount due.
Note 5. Agreements with Purdue
In 1988, the Company entered into exclusive marketing and
distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma"), a related entity of Purdue, with respect to
ALFERON N Injection, which agreements have been amended from time
to time (as amended, the "Purdue Marketing Agreements"). In
1991, Mundipharma assigned the right to market and distribute
ALFERON N Injection in the United States to its affiliate, Purdue
Pharma, and retained the right to market and distribute ALFERON N
Injection in Canada, Western Europe, Israel, India, Japan, and
Australia. In 1993, the Company reacquired the right to market
and distribute ALFERON N Injection in Japan.
In 1994, an amendment to these agreements was entered into
(the "1994 Purdue Amendment") pursuant to which the Company
reacquired the right to market ALFERON N Injection in Western
Europe and other countries and took over from Purdue the conduct
and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company
reacquired the right to market ALFERON N Injection in Western
Europe, Israel, India, and Australia (the "Returned
Territories"), subject to the payment to Mundipharma of a royalty
equal to 3% of net sales (as defined) in the Returned Territories
until Mundipharma has received royalty payments equal to $3
million ($5 million under certain circumstances) and 1% of net
sales thereafter; (ii) the Company assumed responsibility for the
conduct and funding of clinical trials to develop new indications
for ALFERON N Injection; Purdue was granted the right to obtain
marketing and distribution rights for each additional indication
of ALFERON N Injection at such time as the Company files a
product license application or receives FDA approval for any such
additional indication, by reimbursing the Company for some or all
of its clinical costs plus an additional lump-sum payment; and
the Company was given the right to reacquire the rights to market
and distribute ALFERON N Injection in the United States and
Canada after each of the first three additional indications if
Purdue does not exercise its right to obtain marketing and
distribution rights for such indication, at a price based on a
percentage of total sales or gross profit during a specified
period of all products subject to the agreement; (iii) the
Company agreed to purchase for $4.00 per share 994,994 shares of
Common Stock held by Purdue and certain related parties over a
period of 18 months; (iv) Purdue Pharma and Mundipharma retained
the right to market and distribute ALFERON N Injection in the
United States and Canada, respectively, subject to the Company's
option (the "First Option") to reacquire such rights at a price
of $12 million until July 25, 1995 ($10 million if the First
Option had been exercised before January 1995); provided that the
First Option could not have been exercised unless the Company
simultaneously paid the unpaid balance of the purchase price for
the 994,994 shares referred to above, which payment would have
reduced the First Option exercise price; and (v) Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price.
Unless certain minimum purchase levels are reached during certain
annual periods, or minimum payments are made to the Company in
lieu of such minimum purchases, the Company can terminate Purdue
Pharma and Mundipharma's exclusive marketing and distribution
rights. All marketing and distribution costs are borne by Purdue
Pharma and Mundipharma in their respective territories.
In March 1995, the Company entered into an amendment to the
1994 Purdue Amendment (the "March 1995 Purdue Amendment")
pursuant to which the Company obtained an option, exercisable
until June 30, 1995 (the "Second Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma
and Mundipharma. The exercise price of the Second Option was 2.5
million shares of Common Stock; provided that the Option could
not have been exercised unless the Company simultaneously paid
the unpaid balance of the purchase price for the 994,994 shares
referred to above. If, 18 months from the date of exercise of the
Second Option by the Company (the "Valuation Date"), the 2.5
million shares of Common Stock did not have a value of at least
$9,037,807 (which value was calculated using the average of the
closing bid and asked prices of the Common Stock as quoted by the
NASDAQ National Market System for the ten trading days ending on
the day prior to the Valuation Date), the Company was required to
issue a note for the shortfall. Such note was required to bear
interest at the prime rate and became due and payable 24 months
from the Valuation Date. The Company agreed that it would
utilize its best efforts to ensure that the 2.5 million shares of
Common Stock would be registered and freely tradeable 18 months
from the date of exercise of the Second Option. If the Second
Option were exercised, the First Option, the royalty obligations,
and Purdue's right to obtain marketing and distribution rights
for new indications contained in the 1994 Purdue Amendment would
have terminated.
In July 1995, the Company entered into an amendment, which
became effective upon the sale on August 22, 1995 of more than
the minimum number of shares of Common Stock in the
August/September Offering, to the 1994 Purdue Amendment and the
March 1995 Purdue Amendment (the "July 1995 Purdue Amendment"),
pursuant to which the balance owed to Purdue for the 62,500
shares of Common Stock required to be repurchased in April 1995
was forgiven and the Company obtained an option, exercisable
until December 31, 1996 (the "Third Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma
and Mundipharma. The exercise price of the Third Option is
$5,029,133, subject to reduction as set forth below, plus 750,000
shares of Common Stock (350,000 shares of Common Stock if the
Third Option had been exercised on or before December 31, 1995).
The Company has agreed that it will utilize its best efforts to
ensure that such shares will be registered and freely tradeable
upon issuance. The Third Option may not be exercised unless the
Company simultaneously pays the unpaid balance of the purchase
price for any of the 994,994 shares referred to above then held
by Purdue. As of March 1, 1996, Purdue held 619,994 of such
shares and such unpaid balance was $2,479,976. The cash exercise
price of the Third Option will be reduced by the aggregate of (i)
the amount paid by the Company to Purdue to repurchase any of
such 619,994 shares then held by Purdue, (ii) if Purdue sells any
or all of such 619,994 shares, which may only be done until
December 31, 1996 with the consent of the Company, the amount
received by Purdue from such sale, and (iii) the amount by which
the transfer price for vials sold by the Company to Purdue Pharma
or Mundipharma exceeds $25 per vial. If the Third Option is
exercised, the royalty obligations and Purdue's right to obtain
marketing and distribution rights for new indications contained
in the 1994 Purdue Amendment will terminate. If the Third Option
is not exercised, the Company will no longer have the obligation
to repurchase the 619,994 shares. In July 1995, the Company and
Purdue also agreed to extend the date on which the Company was
obligated to repurchase the final 619,994 shares of Common Stock
if the July 1995 Purdue Amendment did not become effective from
July 25, 1995 to August 31, 1995 (or such earlier date on which
the August/September Offering shall have terminated prior to the
sale of the minimum number of shares of Common Stock).
The Company entered into the 1994 Purdue Amendment, the March
1995 Purdue Amendment, and the July 1995 Purdue Amendment to
provide it with greater financial flexibility and control over
the worldwide marketing and distribution of ALFERON N Injection.
The July 1995 Purdue Amendment provides the Company with the
flexibility to enter into a strategic alliance with a
multinational marketing partner if it elects to exercise the
Third Option.
Under the terms of the Purdue Marketing Agreements, the
Company receives a transfer price for the sale of vials of
ALFERON N Injection to Purdue Pharma or Mundipharma. Such
transfer price is calculated based on either a manufacturing cost
formula or a fixed price formula (subject to consumer price index
adjustments); provided, however, that if the Company chooses the
fixed price formula, the Company may be entitled to additional
payments if the net sales price received by Purdue Pharma or
Mundipharma for ALFERON N Injection exceeds certain levels.
Pursuant to the July 1995 Purdue Amendment, the transfer price
for each vial will be payable $25 in cash and the balance as an
offset to the cash exercise price of the Third Option. If the
Third Option is not exercised, such offsets will have no value.
The Company may choose the applicable formula every six months.
Except as described below and in Note 9, Purdue Pharma and
Mundipharma had no recourse against the Company in the event that
they were unable to resell ALFERON N Injection to third parties.
Purdue Pharma and Mundipharma presently have no such recourse.
In January 1994, pursuant to the 1994 Purdue Amendment, Purdue
ordered 45,000 vials of ALFERON N Injection at an agreed upon
price. In addition, the Company agreed, under certain
circumstances, to replace up to 15,000 vials of ALFERON N
Injection from Purdue's existing inventory at an agreed upon
discounted price. The Company also granted Purdue an option,
exercisable (in whole only) until July 25, 1995, to purchase an
additional 100,000 vials of ALFERON N Injection at an agreed upon
discounted price. The option was not exercised.
Note 6. Research and Development Agreement with Interferon
Sciences Research Partners, Ltd.
During January 1984, the Company organized ISD to act as the
sole general partner of Interferon Sciences Research Partners,
Ltd., a New Jersey limited partnership (the "Partnership"). The
Company and the Partnership entered into a development contract
whereby the Company received substantially all of the net
proceeds ($4,414,475) of the Partnership's public offering of
limited partnership interests. The Company used the proceeds to
perform research, development and clinical testing on behalf of
the Partnership for the development of ALFERON Gel containing
recombinant interferon.
In connection with the formation of the Partnership, ISD
agreed to make additional cash contributions for purposes of
continuing development of ALFERON Gel if the Partnership
exhausted its funds prior to development of such product. ISD is
wholly dependent upon the Company for capital to fund such
commitment. The Partnership exhausted its funds during 1986, and
the Company contributed a total of $1,997,000 during the period
from 1986 to 1990, for the continued development of ALFERON Gel.
During May 1987, the Company filed a Product License Application
with the FDA for approval to market ALFERON Gel. At a meeting
with the FDA in February, 1990, the FDA indicated that additional
process development and clinical trials would be necessary prior
to approval of ALFERON Gel. The Company believed, at that time,
that the costs to complete the required process development and
clinical trials would be substantial, and there could be no
assurance that the clinical trials would be successful.
As a result of the above events, in March 1992, the Company
withdrew its FDA Product License Application for ALFERON Gel
containing recombinant interferon. In place of single species
recombinant interferon, previously ALFERON Gel's active
ingredient, the Company commenced, in 1992, further development
of ALFERON Gel using the Company's natural source multi-species
alpha interferon ("ALFERON N Gel"). Assuming successful
development and commercial exploitation of ALFERON N Gel, the
Company may be obligated to pay the Partnership royalties equal
to 4% of the Company's net sales of ALFERON N Gel and 15% of
revenues received from sublicensing ALFERON N Gel.
Note 7. Agreement with Fujimoto Diagnostics, Inc.
In the first quarter of 1995, the Company concluded an
agreement with Fujimoto Diagnostics, Inc. ("Fujimoto"), a
pharmaceutical company located in Osaka, Japan, for the
commercialization of the Company's ALFERON N Injection and
ALFERON N Gel in Japan. In connection with the agreement,
Fujimoto purchased $1,500,000 of Common Stock at $1.45 per share
(the then market price), all of which cash was received during
the first quarter of 1995, and agreed to purchase an additional
$500,000 of Common Stock on February 6, 1996 at the then market
price. Such additional $500,000 of Common Stock has to date not
been purchased. To date, Fujimoto has incurred higher than
anticipated development expenses, and Fujimoto has determined
that there may be greater difficulties in obtaining Japanese
regulatory approval than originally anticipated. Fujimoto has
therefore requested that the Company renegotiate such investment
agreement and the related commercialization agreement. The
Company intends to meet with Fujimoto to consider its request.
Note 8. Marketable Securities
As of January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115").
There was no material effect on the consolidated financial
statements as a result of the adoption of this principle. The
Company's marketable securities consisted of United States
Government obligations. Under SFAS No. 115, the Company
classifies these debt securities as available-for-sale and
records the securities at their fair value. Unrealized holding
gains and losses on available-for-sale securities are excluded
from earnings and are reported as a separate component of
stockholders' equity until realized. The effect of the change in
accounting was not material to the Company and all of the
Company's marketable equity securities were sold by December 31,
1994.
A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost
basis for the security.
Realized gains and losses for securities classified as
available-for-sale are included in earnings and are derived using
the specific identification method for determining the cost of
securities sold.
Proceeds from the sale of marketable securities were
$6,490,406 for the year ended December 31, 1994. Net realized
losses on such sales for the year ended December 31, 1994 were
$300,430.
Note 9. Inventories
Inventories, consisting of material, labor and overhead, are
classified as follows:
December 31,
1995 1994
Finished goods $ 344,550 $ 342,330
Work in process 162,567 303,111
Raw materials 308,861 383,717
$ 815,978 $ 1,029,158
Inventories at December 31, 1995 and 1994 are stated at their
estimated net realizable value.
Finished goods inventory at December 31, 1995 consisted of
vials of ALFERON N Injection.
Consignment inventory at December 31, 1994 consisted of
ALFERON N Injection shipped to Purdue during 1994; however such
shipment was subject to a right of return until notification by
Purdue that the product had been resold. Such inventory was
resold by Purdue in 1995.
Cost of goods sold and excess/idle production costs for 1995,
1994 and 1993 includes the write-down of 1995, 1994 and 1993
inventories to their estimated net realizable value.
Note 10. Long Term Debt
On March 13, 1990, the Company borrowed $4.2 million from
United States Capital Corporation, an indirect subsidiary of The
Hong Kong and Shanghai Bank, at an effective interest rate of
approximately 12.4%. The proceeds of the loan were used to
finance (i) the expansion of the Company's manufacturing facility
and (ii) the purchase of additional equipment for the facility.
During December 1994, the Company renegotiated the terms of
the loan such that the $409,275 balance on the loan was extended,
with interest, until April 1995 when the obligation was paid in
full.
The Company currently has no long-term debt.
Note 11. Income Taxes
On May 30, 1991, NPDC exchanged the Company's Class B Common
Stock for an equal number of shares of the Company's Common
Stock. As a result, on that date the Company ceased to be
included in NPDC's consolidated Federal income tax return. For
periods subsequent to May 30, 1991, the Company files its own
consolidated Federal income tax return, including its wholly-
owned subsidiary.
As a result of the loss allocation rules contained in the
Federal income tax consolidated return regulations, approximately
$6,008,000 of net operating loss carryforwards, which expire in
2001-2006, are available to the Company upon ceasing to be a
member of NPDC's consolidated return group. In addition, the
Company has net operating loss carryforwards from tax years prior
to joining the NPDC consolidated return group of approximately
$2,147,000, which expire in 1996-1998. Further, the Company has
net operating loss carryforwards for periods subsequent to May
31, 1991, and through December 31, 1994 of approximately
$29,263,000, which expire in 2006-2009. For the year ended
December 31, 1995, the Company had a tax net operating loss of
$7,047,000, which expires in 2010.
At present, the Company believes that the events culminating
with the first closing of the August/September Offering on August
22, 1995 resulted in an "ownership change" under Internal Revenue
Code Section 382 with respect to its stock (See Note 3). The
Company believes that as a result of the ownership change, the
future utility of its pre-change net operating losses are limited
to an annual amount of approximately $3,230,000. In addition,
the Company has approximately $116,000 of investment tax credit
carryforwards and $973,000 of research and development credit
carryforwards that are, in accordance with Internal Revenue Code
Section 383, subject to the annual limitation under Internal
Revenue Code Section 382. The following table summarizes the tax
net operating losses as of December 31, 1995:
Description Amount Years Expire
Subject to Section 382 $ 42,116,000 1996 - 2010
Not Subject to Section 382 2,349,000 2010
$ 44,465,000
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company has determined, based on the Company's
recent history of annual net losses, that a full valuation
allowance is appropriate.
The Company has, as of December 31, 1995, deferred tax assets
of approximately $16,207,000, deferred tax liabilities of
approximately $222,000 and a valuation allowance of approximately
$15,985,000. At January 1, 1995, the valuation allowance was
$13,303,000. The increase to the valuation allowance of
$2,682,000 is due primarily to net operating losses. The tax
effects that give rise to these deferred tax assets and
liabilities consist of the following as of December 31, 1995:
Deferred tax assets
Net operating loss carryforwards $ 15,118,000
Tax credit carryforwards 1,089,000
16,207,000
Deferred tax liabilities
Property and equipment, principally due to
differences in depreciation (222,000)
Net deferred tax asset 15,985,000
Valuation allowance (15,985,000)
Net deferred tax asset after valuation allowance $ ---
Note 12. Stock Options, Warrants and Other Shares Reserved
In 1981, the Company adopted the 1981 Stock Option Plan (the
"Plan"), authorizing a committee of the Board of Directors to
grant options, over a 10-year period, to purchase not more than
500,000 shares of Common Stock to officers, directors, employees
and consultants of the Company. Since 1981, the Plan has been
amended several times to increase the number of shares issuable
under the Plan to 3,500,000 and to extend the Plan until 2001.
Pursuant to the terms of the Plan, no option may be exercised
after 10 years from the date of grant. The exercise price for any
option issued may not be less than 85 percent of the market price
of the common stock on the date of issuance.
Options and warrants outstanding and exercisable, and shares
reserved for issuance at December 31, 1994 and 1993, include
20,000 shares under a warrant agreement with U.S. Capital
Corporation. Such warrants expired unexercised in 1995.
Options and warrants outstanding and exercisable, and shares
reserved for issuance at December 31, 1993, include 375,000
shares under warrant agreements with Purdue. Such warrants were
terminated in 1994 as a result of the amended marketing and
distribution agreements with Purdue (See Note 5).
Options and warrants outstanding and exercisable, and shares
reserved for issuance at December 31, 1995, 1994 and 1993,
include 200,000 shares under warrant agreements with the
underwriter of the October 1991 public offering of Common Stock.
Options and warrants outstanding and shares reserved for
issuance at December 31, 1995, 1994 and 1993, and options and
warrants exercisable at December 31, 1995 and 1994, include
125,000 shares under a warrant agreement with Strategic Growth
International, the Company's outside public relations advisor.
Options and warrants outstanding and exercisable, and shares
reserved for issuance at December 31, 1995 include 500,000 shares
and at December 31, 1994 and 1993 include 5,000,000 shares under
a warrant agreement with David Blech. During 1995, David Blech
and certain other parties agreed to exchange 2,250,000 Class A
Warrants and 2,250,000 Class B Warrants for 900,000 shares of
Common Stock (See Note 1).
Options and warrants outstanding and exercisable, and shares
reserved for issuance at December 31, 1995 and 1994 include
61,000 shares under a warrant agreement issued as a commission in
connection with the sale of shares of Common Stock to an
institutional investor.
Options and warrants outstanding and shares reserved for
issuance at December 31, 1995 include 1,123,333 shares under
warrant agreements with the underwriter of the August/September
1995 Offering.
Changes in options and warrants outstanding during the years
ended December 31, 1995, 1994 and 1993, options and warrants
exercisable and shares reserved for issuance at December 31,
1995, 1994 and 1993 are as follows:
Price Range Number of
Per Share Shares
Options and Warrants
Outstanding at December 31, 1992 $ 2.25 - $ 10.00 3,502,550
Granted 2.13 - 5.00 5,138,250
Exercised 2.25 - 4.25 (12,200)
Terminated 3.50 - 9.00 (28,750)
Outstanding at December 31, 1993 2.13 - 10.00 8,599,850
Granted 2.00 - 2.70 2,318,700
Exercised --
Terminated 3.13 - 10.00 (2,638,200)
Outstanding at December 31, 1994 2.00 - 6.50 8,280,350
Granted 1.56 - 2.10 1,693,333
Exercised 2.00 - (10,000)
Terminated 2.00 - 6.50 (4,909,000)
Outstanding at December 31, 1995 1.56 - 5.00 5,054,683
Exercisable
December 31, 1993 2.13 - 10.00 7,738,950
December 31, 1994 2.00 - 6.50 7,841,200
December 31, 1995 1.56 - 5.00 3,348,950
Shares reserved for issuance
December 31, 1993 8,885,320
December 31, 1994 8,571,320
December 31, 1995 5,164,653
Note 13. Pension and Investment Plans
NPDC had a Defined Benefit Pension Plan (the "Plan") for
employees of certain divisions and subsidiaries including those
of the Company. Benefits were based primarily on years of service
and a fixed rate of benefits per year of service. Contributions
were intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the
future.
Effective December 31, 1991, the Plan benefits were frozen. In
the future, accrued vested benefits will be paid to terminated
participants in the form of a lump sum distribution in cases
where the accrued vested benefit is less than $3,500. Terminated
participants can elect a lump sum distribution if the accrued
vested benefit is greater than $3,500 but less than $7,500.
In the event that the accrued vested benefit exceeds the
$7,500 payable limit as outlined in the Plan, payment will be
deferred until a terminated vested participant reaches age 65 or
elects early retirement, at age 60 or later. As of December 31,
1995, 1994 and 1993, the projected benefit obligation of the NPDC
Plan was $5,890,000, $4,469,000 and $4,917,000 and the fair value
of plan assets was $4,352,900, $3,405,000 and $3,528,000. The
discount rate used in determining the actuarial present value of
the projected benefit obligation was 7.25%. The expected long-
term rate of return on assets was 10 percent.
Effective March 1, 1992, NPDC adopted the 1992 401(k) Savings
Plan (the "Savings Plan"). Effective December 31, 1991, the Plan
participants would no longer accrue benefits under the Defined
Benefit Pension Plan, but became eligible to participate in
NPDC's Savings Plan.
NPDC's Savings Plan is for employees who have completed one
year of service; however, past vesting service credit was
recognized for employees who participated in the Savings Plan at
the date of initial enrollment, March 1, 1992.
The Savings Plan permits pre-tax contributions to the Savings
Plan by participants pursuant to Section 401(k) of the Internal
Revenue Code of 2% to 6% of base compensation. The Company
matches 40% of the participants' eligible contributions based on
a formula set forth in the Savings Plan. For 1995, 1994 and 1993,
the Company's contribution to the Savings Plan was $49,000,
$53,000 and $49,000, respectively. Participants are fully vested
in their contributions and may withdraw such contributions at
time of employment termination, or at age 59(1/2), or earlier in the
event of financial hardship. Amounts otherwise are paid at
retirement or in the event of death or disability. Employer
contributions vest at a rate of 20% per year.
The Savings Plan is administered by a trustee appointed by the
Board of Directors of NPDC and all contributions are held by the
trustee and invested at the participants' direction in various
mutual funds.
The Company does not provide any post-retirement benefits,
other than pensions, to its employees.
Note 14. Profit Sharing Plan
Effective June 6, 1988, the Company adopted the 1988 Profit
Sharing Plan (the "Profit Sharing Plan") providing key employees
and consultants with an opportunity to share in the profits of
the Company. The Profit Sharing Plan is administered by the
Company's Compensation Committee.
Pursuant to the terms of the Profit Sharing Plan, the
Compensation Committee, in its sole discretion, based upon the
significance of the employee's contributions to the operations of
the Company, selects certain key employees and consultants of the
Company who are entitled to participate in the Profit Sharing
Plan and determines the extent of their participation. The amount
of the Company's profits available for distribution to the
participants (the "Distribution Pool") is the lesser of (a) 10%
of the Company's income before taxes and profit sharing expense
and (b) an amount equal to 100% of the base salary for such year
of all the participants in the Profit Sharing Plan. A number of
key employees are eligible to participate in the Profit Sharing
Plan.
The Compensation Committee may require as a condition to
participation that a participant remain in the employ of the
Company until the end of the fiscal year for which payment is to
be made. Payments required to be made under the Profit Sharing
Plan must be made within 10 days of the filing of the Company's
tax return. To date, there have been no contributions by the
Company under the Profit Sharing Plan.
Note 15. Non-cash Financing and Investing Activities
During the years ended December 31, 1995, 1994 and 1993 the
following noncash financing and investing activities occurred:
1995:
Offset of receivables in settlement of obligation to
repurchase Common Stock for $550,000 and forgiveness of balance
due.
By agreement, the Company terminated a commitment to
repurchase 619,994 shares, valued at $2,479,976, of Common Stock
from Purdue.
1994:
The Company committed to purchase 932,494 shares, valued at
$3,729,976, of its Common Stock from Purdue.
Offset of receivables of $700,000 in settlement of obligation
to repurchase Common Stock.
1993:
The Company issued 40,967 shares, valued at $143,385, of
Common Stock as required by various agreements.
Note 16. Commitments and Contingencies
As consideration for the transfer to the Company of certain
licenses, rights and assets upon the formation of the Company by
NPDC, the Company agreed to pay NPDC royalties of $1,000,000, but
such payments will be made only with respect to those years in
which the Company has income before income taxes, and will be
limited to 25% of such income.
See Notes 4 and 6 for information relating to royalties
payable to Roche and the Partnership, respectively.
In October 1989, the Company entered into a license agreement
with a non-affiliated party for co-exclusive rights to certain
low dose oral formulations of interferon. The Company will be
required to pay a royalty of 10% of net sales, as defined, of
products produced and marketed by the Company that may be
developed under the license agreement.
Note 17. Use of Estimates in the Preparation of Financial
Statements
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 contingent assets
and liabilities, at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Note 18. Fair Value of Financial Instruments
The carrying values of financial instruments, including cash
and cash equivalents, accounts receivable and accounts payable,
approximate fair market values, because of short maturities or
interest rates that approximate current rates.
Item 9. Changes and Disagreements with Accountants on Accounting
and Financial Disclosure
There has been no change of accountants since January 1, 1994.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company is
incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which proxy statement
will be filed not later than 120 days after the end of the fiscal
year covered by this report.
Item 11. Executive Compensation
Information with respect to compensation of executives of the
Company is incorporated herein by reference to the Company's
definitive proxy statement pursuant to Regulation 14A, which
proxy statement will be filed not later than 120 days after the
end of the fiscal year covered by this Report.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information with respect to Security Ownership of Certain
Beneficial Owners and Management is incorporated herein by
reference to the Company's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120
days after the end of the fiscal year covered by this Report.
Item 13. Certain Relationships and Related Transactions
Information with respect to Certain Relationships and Related
Transactions is incorporated herein by reference to the Company's
definitive proxy statement pursuant to Regulation 14A, which
statement will be filed not later than 120 days after the end of
the fiscal year covered by this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) The following financial statements are included in
Part II, Item 8:
Page
Independent Auditor's Report 37
Financial Statements:
Consolidated Balance Sheets - 38
December 31, 1995 and 1994
Consolidated Statements of
Operations - Years ended 39
December 31, 1995, 1994, and 1993
Consolidated Statements of Changes in
Stockholders' Equity - Years ended
December 31, 1995, 1994 and 1993 40
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993 41
Notes to Consolidated Financial Statements 42
(a)(2) Schedules have been omitted because they are not
required or are not applicable, or the required information
has been included in the financial statements or the notes
thereto.
(a)(3) See accompanying Index to Exhibits
(b) There were no reports on Form 8-K filed by the Registrant
during the last quarter of the period covered by this
report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERFERON SCIENCES, INC.
By: /s/ Lawrence M. Gordon
Lawrence M. Gordon
Chief Executive Officer
Dated: March 21, 1996
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 dates indicated.
Signature Title
/s/ Martin M. Pollak Chairman of the Board
Martin M. Pollak
__________________ Chairman of the Board's Executive
Jerome I. Feldman Committee, Treasurer and Director
/s/ Samuel H. Ronel Vice Chairman of the Board
Samuel H. Ronel, Ph.D.
/s/ Lawrence M. Gordon Chief Executive Officer and Director
Lawrence M. Gordon (Principal Executive Officer)
/s/ Stanley G. Schutzbank President and Director
Stanley G Schutzbank, Ph.D.
/s/ Donald W. Anderson Controller (Principal Accounting
Donald W. Anderson and Financial Officer)
/s/ Ogden Reid Director
Ogden Reid
____________________ Director
Leon Botstein, Ph.D.
____________________ Director
Roald Hoffmann, Ph.D.
_____________________ Director
Sheldon L. Glashow
/s/ Scott N. Greenberg Director
Scott N. Greenberg
INDEX TO EXHIBITS
Exhibit Number
3.1 - Restated Certificate of Incorporation of the Registrant.
Incorporated herein by reference to Exhibit 3B of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.
3.2 - Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant. Incorporated herein by reference
to Exhibit 3.4 of Registration Statement No. 33-40902.
3.3 - Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant. Incorporated herein by
reference to Exhibit 3.2 of Registration Statement No. 33-40902.
3.4 - Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant. Incorporated herein by reference
to Exhibit 3.4 of Registration Statement No. 33-00845.
3.5 - By-Laws of the Registrant, as amended. Incorporated herein
by reference to Exhibit 3.2 of Registration Statement No. 2-7117.
4.1 - Underwriter's Warrant dated October 29, 1991 between the
Registrant and Commonwealth Associates. Incorporated herein by
reference to Exhibit 4.2 of Registration Statement No. 33-40902.
4.2 - Agam Warrant dated October 29, 1991 between the Registrant
and Jacob Agam. Incorporated herein by reference to Exhibit 4.3
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
4.3 - Form of Purchase Option issued to the Underwriter in
connection with the August/September Offering. Incorporated
herein by reference to Exhibit 4.1 of Registration Statement No.
33-59479.
10.1 - Transfer and License Agreement among National Patent,
Hydron Laboratories, Inc. and the Registrant dated as of January
1, 1981. Incorporated herein by reference to Exhibit 10.8 of the
Registrant's Registration Statement No. 2-71117.
10.2 - Management Services Agreement dated January 1, 1981
between the Registrant and National Patent. Incorporated herein
by reference to Exhibit 10.9 of the Registration Statement No. 2-
71117.
10.3 - Registrant's 1981 Stock Option Plan, as amended.
Incorporated herein by reference to Exhibit 10.3 to Registration
Statement No. 33-59479.
10.4 - Cross License Agreement dated October 26, 1984 between the
Registrant and the Partnership. Incorporated herein by reference
to Exhibit 10V of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1984.
10.5 - Supply Agreement dated September 25, 1992 between the
Registrant and Celltech Limited. Incorporated herein by reference
to Exhibit 10.27 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.
10.6 - Profit Sharing Plan of the Registrant. Incorporated herein
by reference to Exhibit 10X of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.
10.7 - License Agreement dated October 20, 1989 between the
Registrant and Amarillo Cell Culture Company, Incorporated.
Incorporated herein by reference to Exhibit 10Y of the
Registrant's Annual Report on Form 10K for the year ended
December 31, 1989.
10.8 - Distribution Agreement dated June 14, 1991 between Purdue
Pharma L.P. and the Registrant. Incorporated herein by reference
to Exhibit 10.26 of Registration Statement No. 33-40902.
10.9 - Amended and Restated Distribution Agreement dated June 14,
1991 between Mundipharma Pharmaceutical Corporation and the
Registrant. Incorporated herein by reference to Exhibit 10.27 of
Registration Statement No. 33-40902.
10.10 - NPDC 401(k) Savings Plan dated January 9, 1992, effective
March 1, 1992. Incorporated herein by reference to Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1992.
10.11 - Amendment dated January 26, 1994 to the Distribution
Agreement dated June 14, 1991 between the Registrant and Purdue
Pharma L.P. Incorporated herein by reference to Exhibit 10.18 to
the Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1993.
10.12 - Amendment dated January 26, 1994 to the Amended and
Restated Distribution Agreement dated June 14, 1991 between the
Registrant and Mundipharma Pharmaceutical Company. Incorporated
herein by reference to Exhibit 10.19 to the Registrant's Annual
Report on Form 10-K for the Year ended December 31, 1993.
10.13 - Amended and Restated RS Agreement dated January 26, 1994
among the Registrant, Mundipharma Pharmaceutical Company and
Purdue Pharma L.P. Incorporated herein by reference to Exhibit
10.20 to the Registrant's Annual Report on Form 10-K for the Year
ended December 31, 1993.
10.14 - Agreement dated January 26, 1994 between the Registrant
and The Purdue Frederick Company. Incorporated herein by
reference to exhibit 10.21 to the Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1993.
10.15 - Agreement dated January 26, 1994 among the Registrant,
Banela Corporation and Runham Corporation. Incorporated herein by
reference to Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1993.
10.16 - Purchase Agreement dated as of May 28, 1993 between the
Registrant and David Blech. Incorporated herein by reference to
Exhibit 10.26 to Registration Statement No. 33-78952.
10.17 - Form of Warrant to be issued pursuant to the Purchase
Agreement. Incorporated herein by reference to Exhibit 10.28 to
Registration Statement No. 33-78952.
10.18 - Distribution Agreement dated as of February 3, 1994
between Registrant and Industria Farmaceutica Andromaco, S.A.
Incorporated herein by reference to Exhibit 6(a) to the
Registrant's Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1994.
10.19 - Processing and Supply Agreement dated as of September 1,
1994 between Registrant and Sanofi Winthrop L.P. Incorporated
herein by reference to Exhibit 6(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994.
10.20 - Amendment dated March 24, 1995 to Distribution Agreement
dated as of February 3, 1994 between Registrant and Industria
Farmaceutica Andromaco S.A. Incorporated herein by reference to
Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.21 - Purchase and Exchange Agreement dated as of December 6,
1994 between the Registrant, David Blech and certain designated
purchasers. Incorporated herein by reference to Exhibit 10.31 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.22 - Purchase and Exchange Agreement dated as of January 31,
1995 between the Registrant and Neoprobe Corp. Incorporated
herein by reference to Exhibit 10.32 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.23 - Stock Purchase Agreement dated as of January 24, 1995
between the Registrant and Fujimoto Diagnostics Inc. Incorporated
herein by reference to Exhibit 10.33 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.24 - Agreement dated as of January 24, 1995, between the
Registrant and Fujimoto Diagnostics, Inc. Incorporated herein by
reference to Exhibit 10.34 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.25 - Form of Stock Purchase Agreement dated as of August 31,
1994 between the Registrant and Dimensional Funds Advisors, Inc.
Incorporated herein by reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.26 - Form of Warrant Agreement dated as of August 31, 1994
between the Registrant and Capello Capital Corp. Incorporated
herein by reference to Exhibit 10.36 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.27 - Amendment dated March 29, 1995 to Agreement dated January
26, 1994 between the Registrant and The Purdue Frederick Company.
Incorporated herein by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.28 - Amendment dated March 29, 1995 to Agreement dated January
26, 1994 between the Registrant, Banela Corporation and Runham
Corporation. Incorporated herein by reference to Exhibit 10.38 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.29 - Amendment dated March 29, 1995 to Distribution Agreement
dated June 14, 1991 between the Registrant and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.39 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.30 - Amendment dated March 29, 1995 to Amended and Restated
Distribution Agreement dated June 14, 1991 between the Registrant
and Mundipharma Pharmaceutical Company. Incorporated herein by
reference to Exhibit 10.40 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.31 - Amendment dated March 29, 1995 to Amended and Restated RS
Agreement dated January 26, 1994 among the Registrant,
Mundipharma Pharmaceutical Company and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.41 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.32 - Letter dated March 29, 1995 between the Registrant and
Purdue Pharma L.P. Incorporated herein by reference to Exhibit
10.42 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.33 - License Agreement, dated as of March 29, 1995, among the
Registrant, Hoffmann-La Roche, Inc. and F. Hoffmann La-Roche,
Ltd. Incorporated herein by reference to Exhibit 10.42 to
Registration Statement No. 33-59479.
10.34 - Amendment of ACC/ISI License Agreement, dated April 27,
1995, between Registrant and Amarillo Cell Culture Company,
Incorporated. Incorporated herein by reference to Exhibit 10.43
to Registration Statement No. 33-59479.
10.35 - Form of note issued by the Registrant to National Patent
Development Corporation, Biotechnology Investment Group, L.L.C.,
and Edward Blech Charitable Remainder Trust. Incorporated herein
by reference to Exhibit 10.44 to Registration Statement No. 33-
59479.
10.36 - Form of note issued by the Registrant to National Patnet
Development Corporation and Biotechnology Investment Group,
L.L.C. Incorporated herein by reference to Exhibit 10.45 to
Registration Statement No. 33-59479.
10.37 - Amendment, dated July 31, 1995, to the Distribution
Agreement, dated June 14, 1991, between the Registrant and Purdue
Pharma L.P. Incorporated herein by reference to Exhibit 10.46 to
Registration Statement No. 33-59479.
10.38 - Amendment, dated July 31, 1995, to the Amended and
Restated Distribution Agreement, dated June 14, 1991, between the
Registrant and Mundipharma Pharmaceutical Company. Incorporated
herein by reference to Exhibit 10.47 to Registration Statement
No. 33-59479.
10.39 - Letter dated July 31, 1995, between The Purdue Frederick
Company and the Registrant. Incorporated herein by reference to
Exhibit 10.48 to Registration Statement No. 33-59479.
10.40 - Letter dated July 31, 1995, by and among the Registrant,
Banela Corporation, and Runham Corporation. Incorporated herein
by reference to Exhibit 10.49 to Registration Statement No. 33-
59479.
10.41 - Amended and Restated R S Agreement, dated July 31, 1995,
by and among the Registrant, Mundipharma Pharmaceutical Company,
and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.50 to Registration Statement No. 33-59479.
10.42 - Settlement Agreement, dated April 27, 1995, among the
Registrant, Amarillo Cell Culture Company, Incorporated, Pharma
Pacific Management Pty. Ltd., Pharma Pacific Pty. Ltd., Pharma
Pacific Ltd., and Fernz Corporation Limited. Incorporated herein
by reference to Exhibit 10.51 to Registration Statement No. 33-
59479.
10.43 - PPM/ACC Sub License Agreement, dated April 27, 1995,
between Pharma Pacific Management Pty. Ltd., and Amarillo Cell
Culture Company, Incorporated. Incorporated herein by reference
to Exhibit 10.52 to Registration Statement No. 33-59479.
10.44 - Letter Agreement, dated April 29, 1992, between the
Registrant and Strategic Growth International, Inc. Incorporated
herein by reference to Exhibit 10.53 to Registration Statement
No. 33-59479.
10.45 - Agreement, dated May 27, 1993, between the Registrant and
Strategic Growth International, Inc. Incorporated herein by
reference to Exhibit 10.54 to Registration Statement No. 33-
59479.
10.46 - Lease Agreement, dated August 1, 1995, between the
Registrant and National Patent Development Corporation.
Incorporated herein by reference to Exhibit 10.55 to Registration
Statement No. 33-59479.
10.47 - Amendment dated January 1, 1996 to Management Services
Agreement dated January 1, 1981 between the Registrant and
National Patent Development Corporation.*
21.0 - Subsidiaries of the Registrant. *
23.1 - Consent of Independent Auditors. *
_________________
*Filed herewith