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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File No. 0-11550
December 31, 1997
Pharmos Corporation
(Exact name of registrant as specified in its charter)
Nevada 36-3207413
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
33 Wood Avenue South, Suite 466
Iselin, NJ 08830
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (732) 603-3526
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.03 par value
(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. [ ]
The aggregate market value of the registrant's Common Stock at March 13,
1998 held by those persons deemed to be non-affiliates was approximately
$87,691,458
As of March 13, 1998, the Registrant had outstanding 36,296,751 shares of
its $.03 par value Common Stock.
PART I
Item 1. Business
Introduction
Pharmos Corporation (the "Company") is an emerging pharmaceutical Company
engaged in the discovery, design, development and commercialization of
pharmaceuticals to meet significant therapeutic needs in major markets. The
Company is developing pharmaceuticals in various fields including: site specific
drugs for ophthalmic indications, neuroprotective agents with a novel mechanism
of action for the treatment of central nervous system ("CNS") disorders, newly
designed molecules to treat cancer, and emulsion-based products for topical and
systemic applications. On March 10, 1998, the Company, together with Bausch &
Lomb Pharmaceuticals, Inc ("BLP"), announced the receipt of approval from the
Food and Drug Administration ("FDA") to manufacture and market two ophthalmic
products, LotemaxTM (loteprednol etabonate ophthalmic suspension 0.5%) and
AlrexTM (loteprednol etabonate ophthalmic suspension 0.2%).
Lotemax is a topical, site-specific steroid that will be used to treat
post-operative eye inflammation such as that experienced following cataract
surgery. The new prescription eye drop will also be used for various other
inflammatory eye conditions. The novel chemical structure of Lotemax allows it
to be predictably transformed by enzymes in the eye to an inactive metabolite,
and increases its safety profile. The safety profile of Lotemax was demonstrated
in clinical trials by a low incidence of increased intraocular pressure, a
significant side effect of ophthalmic steroid use. In addition, Lotemax has the
broadest range of indications of any ophthalmic steroid on the market.
Alrex is a specially developed formula of loteprednol etabonate that will
be used in the treatment of ophthalmic allergies. Alrex is indicated for the
treatment of seasonal allergic conjunctivitis, an inflammation of the eye
usually caused by pollens. Seasonal allergic conjunctivitis produces itching,
tearing, redness and swelling in the conjunctiva, the membrane that covers the
inside of the eyelid and the white part of the eye.
The regulatory approvals for Lotemax and Alrex are the first two of three
to be sought for the Registrant's and BLP's line of ophthalmic products
containing loteprednol etabonate. The third product, which combines the active
ingredient loteprednol etabonate with an anti-infective agent, is in
development.
BLP, a subsidiary of the global eye care company, Bausch & Lomb
Incorporated, co-developed Lotemax and Alrex with the Registrant after the
Registrant granted BLP the rights to process and market the new ophthalmic
pharmaceutical line in June 1995. In December 1996, BLP's rights were extended
to select international markets including Europe and Canada.
Dexanabinol (HU-211), the Company's lead CNS product aimed initially at
treating stroke and head trauma, is currently being studied in a Phase II
clinical trial for severe head trauma. The Company's tamoxifen analog
anti-cancer program is advancing in preclinical development.
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Strategy
The Company's business is the design and development of novel drugs with
superior safety and efficacy profiles, initially targeted to ophthalmic and
neurological disorders. The Company seeks to enter into collaborative
relationships with established pharmaceutical companies to complete development
and commercialize its products.
The Company is developing pharmaceuticals which are designed to address
unmet needs in certain markets and to exhibit superior efficacy and/or safety
profiles over competing products in other markets. For example, many current
anti-inflammatory ophthalmic drugs have either significant side effects, such as
the elevation of intraocular pressure ("IOP") by steroids, or are drugs which
are safer, but only moderately effective at reducing inflammation, such as
non-steroidal anti-inflammatory drugs ("NSAIDs"). For many neurological
indications, such as head trauma, there are no effective drug therapies
available. In the case of cancer treatment, potential side effects make current
therapies less desirable.
The Company is applying its experience in drug design and its novel drug
delivery technology in developing products directed at several fields including:
site specific drugs for ophthalmic indications, neuroprotective compounds
targeted at specific CNS biochemical pathways associated with neurological
indications, and systemic drugs specifically designed to avoid CNS side effects
and to have an excellent peripheral safety profile. The Company is also using
proprietary lipid-based technologies, primarily submicron emulsions, in tests
designed to achieve better delivery routes.
Products
Loteprednol Etabonate
Lotemax and Alrex are the trade names of drug products in the form of eye
drop suspensions in which the active compound is loteprednol etabonate ("LE").
LE is a unique steroid, designed to act in the eye and cure inflammatory and
allergic conditions, quickly hydrolyzed into a predictable inactive metabolite
once it reaches the inner eye or systemic circulation. This pharmacological
profile results in improved safety by avoiding the side effects related to
exposure to most ocular steroids. In the eye, the most unwanted side effect of
steroids is the elevation of IOP, which can be sight-threatening. While
glucocorticoids, for lack of an alternative, are regularly used for severe
inflammatory conditions of the eye, milder conditions, such as allergies, are
preferentially treated with less effective non-steroidal agents.
In March 1998, Lotemax received product approval from the FDA for the
treatment of steroid responsive inflammatory conditions of the eye, for the
treatment of uveitis and for post operative eye inflammation. Also in March
1998, Alrex received product approval from the FDA for the treatment of seasonal
allergic conjunctivitis. A combination of LE with the antibiotic tobramycin
("LE-T") for the treatment of inflammatory and infectious indications is in
development. A Phase III clinical trial is anticipated to begin in 1998.
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On June 30, 1995, the Company entered into an agreement with Bausch & Lomb
to market Lotemax, Alrex and LE-T in the U.S. A second agreement, covering
Europe, Canada and other selected countries, was signed on December 12, 1996 .
Both agreements give Bausch & Lomb the right to purchase the "drug substance"
from the Company, to manufacture the "drug product" and to assist the Company in
developing the products. In 1995, the Company also signed an agreement with
SIPSY Chemical Corporation for exclusive manufacturing of LE for sale to the
Company.
Dexanabinol (HU-211)
Dexanabinol (HU-211) is the Company's lead synthetic cannabinoid compound
in a family of non psychotic cannabinoids molecules originally designed to avoid
the psychotropic and sedative spectrum of cannabinimetic agents, while retaining
their beneficial properties as anti-emetics, analgesics and anti-glaucoma
agents.
It is now well established that the psychotropic effects of cannabinoids
are mediated via stereo selective (-) preferring receptors. Dexanabinol is a (+)
optical isomer and does not interact with cannabinoid receptors. It does,
nevertheless, retain anti-emetic and anti-glaucoma properties. More importantly,
it is also a stereo selective, non-competitive antagonist of the glutamate NMDA
receptor channel with a unique safety profile, activation of which is believed
to play a key role in secondary neuronal damage due to head trauma, stroke and
cardiac arrest. The molecule also has free radical scavenging properties, and
anti-inflammatory properties (involving inhibition of TNF-[alpha] production).
Both of these latter mechanisms are important for neuroprotection. Therefore,
dexanabinol appears to have a unique modality to neuroprotection, combining
three relevant mechanisms of action in a single molecule which act at different
steps of the neurotoxic process in stroke, head trauma and potentially other
indications.
While head trauma and stroke are the highest priority indications for
dexanabinol, its spectrum of activities has potential as an anti-inflammatory
and protectant in other diseases such as glaucoma, Parkinson's and Alzheimer's
diseases, as well as various other inflammatory conditions. Development of
dexanabinol for these chronic indications is being explored at the preclinical
level.
In several animal models (including closed head injury, focal and global
forebrain ischemia and optic nerve crush), the drug has demonstrated significant
neuroprotective activity. In these studies, a single injection of dexanabinol
given after the injury suggests significant long term functional improvement and
an increase in neuronal survival.
In early 1996, a Phase I study of rising dose tolerance in healthy
volunteers (50 subjects) showed dexanabinol to be safe and well tolerated at
doses up to and including the expected therapeutic doses. Specifically, there
were no hallucinations, sedation or blood pressure changes of the type reported
with other glutamate antagonists. In late 1996, the Company commenced a Phase II
study of head injured patients, which is targeted for completion in late 1998 or
early 1999. This study, being conducted at six medical centers in Israel on
patients with moderate to severe head injury, has been reviewed and approved by
the American Brain Institute Consortium (ABIC) and
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the European Brain Institute Consortium (EBIC). As of March, 1998, there were 67
patients enrolled in the study, which is expected to have a total enrollment of
approximately 90 patients.
Tamoxifen Analogs
Several diseases are currently treated with drugs that produce mild to
dose-limiting CNS side effects. For instance, tamoxifen, which is used to treat
breast cancer patients and has been suggested for use as a prophylactic agent in
healthy women at risk of developing the disease, causes hot flashes and may be
associated with cognitive and affective deficits as well. Additionally,
corticosteroids, used to treat chronic inflammatory and auto-immune diseases,
cause psychotic reactions in some patients and have been shown to cause
selective neuronal death in animals. Neuropathic pain could be treated by
certain systemic anesthetics, but the resulting CNS side effects make such
therapy unsafe. These side effects could be addressed by designing drugs with
limited passage to the brain through the blood brain barrier (BBB).
In light of this concept, several analogs of tamoxifen and lidocaine with
poor CNS uptake have been synthesized and tested in several animal models.
Tamoxifen methiodide, a permanently charged tamoxifen derivative, was tested in
animals (nude mice) inoculated with human breast cancer cells. Treatment
resulted in rapid arrest of growth followed by tumor regression. Growth arrest
was also observed in estrogen-independent tumors. The rate and magnitude of
response was higher than that seen with tamoxifen itself. The compound retains
the anti-osteoporotic effects of tamoxifen in bone but is considerably less
active than tamoxifen as a utero trophic agent, demonstrating an improved
therapeutic profile as compared to the parent compound. Permanently charged
lidocaine analogs suppress electrophysiological activities typical to
neuropathic pain in vivo, similar to that achieved with the parent compound.
Further preclinical pharmacology is underway to identify additional analogs
of tamoxifen and to gain a fuller understanding of the mechanism of action.
Competition
The pharmaceutical industry is highly competitive, and research relating to
drug delivery and formulation technologies is developing rapidly. The Company
competes with a number of pharmaceutical companies that have financial,
technical and marketing resources significantly greater than those of the
Company. Some companies with established positions in the pharmaceutical
industry may be better equipped than the Company to develop and market products
in the markets the Company is seeking to enter. A significant amount of
pharmaceutical research is also being carried out at universities and other
not-for-profit research organizations. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology they have developed. These institutions may
also market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel.
5
The Company is pursuing areas of product development in which there is a
potential for extensive technological innovation. The Company's competitors may
succeed in developing products that are more effective than those of the
Company. Rapid technological change or developments by others may result in the
Company's potential products becoming obsolete or non-competitive.
Collaborative Relationships
The Company's commercial strategy is to develop products independently and,
where appropriate, in collaboration with established pharmaceutical companies
and institutions. Collaborative partners may provide financial resources,
research and manufacturing capabilities and marketing infrastructure to aid in
the commercialization of the Company's products in development and potential
future products. Depending on the availability of financial, marketing and
scientific resources, among other factors, the Company may license its
technology or products to others and retain profit sharing, royalty,
manufacturing, co-marketing, co-promotion or similar rights. Any such
arrangements could limit the Company's flexibility in pursuing alternatives for
the commercialization of its products. There can be no assurance that the
Company will establish any additional collaborative arrangements or that, if
established, any such relationships will be successful.
Bausch & Lomb
On June 30, 1995, the Company signed a definitive agreement with Bausch &
Lomb to manufacture and market Lotemax and Alrex, the Company's lead products,
in the United States upon receipt of FDA approval. The agreement includes one
other loteprednol etabonate-based product (LE-T) currently being co-developed by
the Company and Bausch & Lomb. A second agreement signed December 12, 1996,
extends Bausch & Lomb's rights to market these products in Europe, Canada and
other selected countries pending regulatory approval.
Under the agreements, Bausch & Lomb will purchase the active drug substance
from the Company. As of March 1, 1998, Bausch & Lomb has provided the Company
with a total of $5 million in cash advances against future sales of drug
substance to Bausch & Lomb. Another $1 million is due subject to receiving
regulatory approval for LE-T in the United States. An additional $1.6 million in
advances against future sales of Bausch & Lomb will be payable to the Company
following receipt of regulatory clearance in certain markets outside of the
United States. Bausch & Lomb collaborates in the development of these products
by making available amounts up to 50% of their Phase III clinical trial costs.
The Company retains certain conditional co-marketing rights in the U.S. to all
of the products covered by the marketing agreement.
In a separate agreement completed in December 1996, Bausch & Lomb made a $2
million investment in the common stock of the Company.
Patents, Proprietary Rights and Licenses
Patents and Proprietary Rights
6
Proprietary protection generally has been important in the pharmaceutical
industry, and the commercial success of products incorporating the Company's
technologies may depend, in part, upon the ability to obtain strong patent
protection.
Some of the technologies underlying the Company's potential products were
invented or are owned by various third parties, including the University of
Florida, Dr. Nicholas Bodor, and the Hebrew University of Jerusalem ("Hebrew
University"). The Company is the licensee of these technologies under patents
held by the applicable owner through licenses which generally remain in effect
for the life of the applicable patent. The Company generally maintains, at its
expense, U.S. and foreign patent rights with respect to both the licensed and
its own technology and files and/or prosecutes the relevant patent applications
in the U.S. and foreign countries. The Company also relies upon trade secrets,
know-how, continuing technological innovations and licensing opportunities to
develop its competitive position. The Company's policy is to protect its
technology by, among other things, filing, or requiring the applicable licensor
to file, patent applications for technology that it considers important to the
development of its business. The Company intends to file additional patent
applications, when appropriate, relating to its technology, improvements to its
technology and to specific products it develops. There can be no assurance that
any additional patents will be issued, or if issued, that they will be of
commercial benefit to the Company. In addition, it is impossible to anticipate
the breadth or degree of protection that any such patents will afford.
The patent positions of pharmaceutical firms, including the Company, are
uncertain and involve complex factual questions. In addition, the coverage
claimed in a patent application can be significantly reduced before or after the
patent is issued. Consequently, the Company does not know whether any of the
pending patent applications underlying the licensed technology will result in
the issuance of patents or, if any patents are issued, whether they will provide
significant proprietary protection or will be circumvented or invalidated. Since
patent applications in the U.S. are maintained in secrecy until patents issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it or
its licensors, as the case may be, were the first creators of inventions covered
by pending and issued patents or that it or its licensors, as the case may be,
were the first to file patent applications for such inventions. Moreover, the
Company may have to participate in interference proceedings declared by the U.S.
Patent and Trademark Office to determine priority of invention, which could
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that the patents relating to
the licensed technology, if issued, will be upheld by a court of competent
jurisdiction or that a competitor's product will be found to infringe such
patents.
Other pharmaceutical and drug delivery companies and research and academic
institutions may have filed patent applications or received patents in the
Company's fields. If patents are issued to other companies that contain
competitive or conflicting claims and such claims are ultimately determined to
be valid, there can be no assurance that the Company would be able to obtain
licenses to these patents at a reasonable cost or be able to develop or obtain
alternative technology.
The Company also relies upon trade secret protection for its confidential
and proprietary
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information. There can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets.
It is the Company's policy to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting or
advisory relationships with the Company. These agreements generally provide that
all confidential information developed or made known to the individual during
the course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees and certain consultants, the agreements
provide that all inventions conceived by the individual in the course of their
employment or consulting relationship shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information. The Company's
patents and licenses underlying its potential products described herein are
summarized below.
Site-Specific Drugs. In the general category of site-specific drugs which
are active mainly in the eye and have limited systemic side effects, the Company
has licensed several patents from Dr. Nicholas Bodor. The earliest patents date
from 1984 and the most recent from 1996. Some of these patents cover loteprednol
etabonate-based products and adaprolol maleate, a patented beta blocker for the
treatment of glaucoma.
Neuroprotective Agents. The Company has licensed from the Hebrew
University, which is the academic affiliation of the inventor, Dr. Raphael
Mechoulam, patents covering novel compounds that have demonstrated certain
beneficial neuropharmacological activity while appearing to be devoid of most of
the deleterious effects usually associated with this class of compounds. This
group of patents has been designed to protect this family of compounds and their
uses devised by the Company and the inventors. The earliest patent applications
resulted in patents issued in 1989, and the most recent patents date from 1997.
These patents cover Dexanabinol, which is under development for the treatment of
head trauma, stroke and glaucoma and other indications.
Tamoxifen Analogs. The Company has filed patent applications in the U.S.,
Israel, Australia, Canada, Japan and the European Patent Office to protect
pharmaceutical compositions of Tamoxifen analogs and Tamoxifen Methiodide. In
November 1996, the Company received a Notice of Allowance from the U.S. Patent
and Trademark Office for a new patent with claims covering the use of
permanently ionic derivatives of steroid hormones and their antagonists known as
Tamoxifen Analogs. The patent also claims novel analogs of tamoxifen and other
steroid hormones and their antagonists. The Company believes that these charged
derivatives are superior to the parent compounds in that they are devoid of CNS
side effects and show an overall improved pharmacological profile.
Emulsion-based Drug Delivery Systems. In the general category of SubMicron
Emulsion (SME) technology, the Company licensed two patents from Hebrew
University and has separately
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filed ten patent applications which are at different stages of prosecution.
These patents and patent applications have been devised to protect a group of
formulation technologies devised by the Company and the inventors as they relate
to pharmaceutical and medicinal products. The earliest patent filings for SME
technology date from 1986 and the most recent from 1996. These patents cover
Pilocarpine-SME, which is an improved formulation to treat glaucoma.
Licenses
The Company's license agreements generally require the Company, as
licensee, to pay royalties on sale of products developed from the licensed
technologies, and fees on revenues the Company receives for sublicenses, where
applicable. The royalty rates defined in the licenses are customary and usual in
the pharmaceutical industry. The royalties will be payable for periods up to
fifteen years from the date of certain specified events, including the date of
the first sale of such products, or the date from which the first registered
patent from the developed technologies is in force, or the year following the
date in which FDA approval has been received for a developed product. Certain of
the license agreements also require annual payments.
Government Regulation
The Company's activities and products are significantly regulated by a
number of governmental entities, especially the FDA, in the U.S. and by
comparable authorities in other countries. These entities regulate, among other
things, research and development activities and the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising,
promotion, distribution and sale of the Company's potential products. Product
development and approval within this regulatory framework take a number of years
and involve the expenditure of substantial resources. Many products that appear
promising initially ultimately do not reach the market because they are found to
be unsafe (perhaps too toxic) or to lack effectiveness, as demonstrated by
testing required by government regulation during the development process. In
addition, there can be no assurance that this regulatory framework will not
change or that additional regulation will not arise at any stage of the
Company's product development that may preclude or otherwise adversely affect
approval, delay an application or require additional expenditures by the
Company. Moreover, even if approval is obtained, failure to comply with present
or future regulatory requirements, or new information adversely reflecting on
the safety or effectiveness of the approved drug, can lead to FDA withdrawal of
approval to market the product.
The regulatory process required to be completed by the FDA before a new
drug delivery system may be marketed in the U.S. depends significantly on
whether the drug (which will be delivered by the drug delivery system in
question) has existing approval for use and in what dosage form. If the drug is
a new chemical entity that has not been approved, the process includes (i)
preclinical laboratory and animal tests, (ii) an IND application which has
become effective, (iii) adequate and well-controlled human clinical trials to
establish the safety and effectiveness of the drug for its intended indication
and (iv) FDA approval of a pertinent NDA. If the drug has been previously
approved, the approval process is similar, except that certain toxicity tests
normally required for the IND application may not be necessary. Even with
previously approved drugs,
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additional toxicity testing may be required when the delivery form is
substantially changed, or when a company does not have access to the raw data
from the prior preclinical studies.
The activities required before a pharmaceutical product may be marketed in
the U.S. begin with preclinical testing. Preclinical tests include laboratory
evaluation of product chemistry and other end points and animal studies to
assess the potential safety and efficacy of the product as formulated. The
conduct of preclinical studies is regulated by the FDA under a series of
regulations called the Good Laboratory Practice regulations. Violations of these
regulations can, in some cases, lead to invalidation of the data from these
studies, requiring such studies to be replicated.
The entire body of preclinical development work necessary to administer
investigational drugs to volunteers or patients is summarized in an
Investigative New Drug ("IND") application to the FDA. FDA regulations provide
that human clinical trials may begin thirty days following the submission and
receipt of an IND application, unless the FDA advises otherwise or requests
additional information, clarification or additional time to review the IND
application; it is generally considered good practice to obtain affirmative FDA
response before commencing trials. There is no assurance that the submission of
an IND application will eventually allow a company to commence clinical trials.
Once trials have commenced, the FDA may stop the trials, or particular types or
parts of trials, by placing a "clinical hold" on such trials because of concerns
about, for example, safety of the product being tested or the adequacy of the
trial design. Such holds can cause substantial delay and in some cases may
require abandonment of a product.
Clinical testing involves the administration of the drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator, usually a physician pursuant to an FDA-reviewed protocol. Each
clinical study is conducted under the auspices of independent Institutional
Review Boards ("IRBs") at the institutions at which the study will be conducted.
An IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.
Phase I clinical studies are commonly performed in 20 to 40 healthy human
subjects or, more rarely, in selected patients with the targeted disease or
disorder. Their goal is to establish initial data about tolerance and safety of
the drug in humans. Also, the first data regarding the absorption, distribution,
metabolism, and excretion of the drug in humans are established.
In Phase II human clinical studies, preliminary evidence is sought
regarding the pharmacological effects of the drug and the desired therapeutic
efficacy in limited studies with small numbers of selected patients (50 to 200).
Efforts are made to evaluate the effects of various dosages and to establish an
optimal dosage level schedule and validate clinical efficacy endpoints to be
used in Phase III trials. Additional safety data are also gathered from these
studies.
Phase III clinical studies consist of expanded, large scale studies of
patients (200 to several thousand) with the target disease or disorder, to
obtain definitive statistical evidence of the effectiveness and safety of the
proposed product and dosing regimen. These studies may also include separate
investigations of the effects in subpopulations of patients, such as the
elderly.
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At the same time that the human clinical program is being performed,
additional non-clinical (i.e., animal) studies are also being conducted.
Expensive, long duration (12-18 months) toxicity and carcinogenicity studies are
done to demonstrate the safety of drug administration for the extended period of
time required for effective therapy. Also, a variety of laboratory, animal, and
initial human studies may be performed to establish manufacturing methods for
the drug, as well as stable, effective dosage forms.
The results of product development, preclinical studies and clinical
studies and other information are submitted to the FDA in an NDA to seek
approval for the marketing and interstate commercial shipment of the drug. With
the NDA, a company must pay the FDA a user fee in excess of $200,000. Companies
with less than 500 employees and no revenues from products may be eligible for
an exception. This exception was granted to the Company in connection with the
NDA for Lotemax and reduced the fee by 50%, which is payable 12 months after the
NDA is filed by the FDA. The FDA may refuse to file or deny an NDA if applicable
regulatory requirements, such as compliance with Current Good Clinical Practice
("cGCP") requirements, are not satisfied or may require additional clinical
testing. Even if such data are submitted, the FDA may ultimately decide that the
NDA does not satisfy the requirements for approval. If the FDA does ultimately
approve the product, it may require, among other things, post-marketing testing,
including potentially expensive Phase IV studies, and surveillance to monitor
the safety and effectiveness of the drug. In addition, the FDA may in some
circumstances impose restrictions on the use of the drug that may be difficult
and expensive to administer, and almost always seeks to require prior approval
of promotional materials. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems occur after the product
reaches the market. After a product is filed for a given indication in an NDA,
subsequent new indications or dosages for the same product are reviewed by the
FDA via the filing and upon receipt of a Supplemental NDA ("sNDA") submission as
well as payment of a separate user fee. The sNDA is more focused than the NDA
and deals primarily with safety and effectiveness data related to the new
indication or dosage, and labeling information for the sNDA indication or
dosage. Finally, the FDA requires reporting of certain information, e.g.,
adverse experience reports, that becomes known to a manufacturer of an approved
drug.
Each domestic drug product manufacturing establishment must be registered
with, and approved by, the FDA and must pay the FDA a registration fee and
annual fee. In addition, each such establishment must inform the FDA of every
drug product it has in commercial distribution and keep such list updated.
Establishments handling controlled substances must be licensed and are inspected
by the U.S. Drug Enforcement Agency ("DEA"). The Company has a current DEA
license appropriate for handling the substances it uses in its facilities.
Domestic establishments are also subject to inspection by the FDA for compliance
with cGMP regulations after an NDA has been filed and thereafter, at least
biennially. The labeling, advertising and promotion of drug products also must
be in compliance with pertinent FDA regulatory requirements. Failure to comply
with applicable requirements relating to production, distribution or promotion
of a drug product can lead to FDA demands that production and shipment cease,
and, in some cases, that product be recalled, or to enforcement actions that can
include seizures, injunctions and criminal prosecution.
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To develop and market its potential products abroad, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented by
foreign health authorities, governing, among other things, the design and
conduct of human clinical trials, pricing and marketing. The approval procedure
varies among countries and can involve additional testing, and the time required
to obtain approval may differ from that required to obtain FDA approval. At
present, foreign marketing authorizations are applied for at a national level,
although within the European Union ("EU") certain registration procedures are
available to companies wishing to market a product in more than one EU member
country. If a regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, marketing authorization is
almost always granted. The foreign regulatory approval process includes all of
the risks associated with obtaining FDA approval set forth above. Approval by
the FDA does not ensure approval by other countries.
Various aspects of the Company's business and operations are also regulated
by a number of other governmental agencies including the DEA, U.S. Department of
Agriculture, Environmental Protection Agency and Occupational Safety and Health
Administration as well as by other federal, state and local authorities. In
addition, any future international sales would be regulated by numerous foreign
authorities.
There continue to be a number of legislative and regulatory proposals aimed
at changing the health care system. It is uncertain what, if any, legislative
proposals will be adopted or what actions federal or state agencies, or third
party payors may take in response to any health care reform proposals or
legislation. Although the Company cannot predict whether any such legislative or
regulatory proposals will be adopted or the effect such proposals may have on
its business, the uncertainty surrounding such proposals could have a material
adverse effect on the Company. Furthermore, the Company's ability to
commercialize its potential product portfolio may be adversely affected to the
extent that such proposals have a material adverse effect on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of the Company's potential products.
The Company's ability to commercialize its products successfully may depend
in part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health insurers and other organizations. There can be no
assurance that adequate third-party coverage will be available to enable the
Company or any of its future licensees to maintain price levels sufficient to
realize an appropriate return on its investment in product development.
12
Corporate History
Pharmos Corporation (the "Company"), a Nevada corporation, formerly known
as Pharmatec, Inc., was incorporated under the laws of the State of Nevada on
December 20, 1982. On October 29, 1992, the Company completed a merger (the
"Merger") with Pharmos Corporation, a privately held New York corporation ("Old
Pharmos"), and on October 30, 1992 exercised an option to acquire all of the
outstanding shares of Xenon Vision, Inc., a privately held Delaware corporation
("Xenon"). Prior to the Merger, Old Pharmos was a biopharmaceutical company with
proprietary drug delivery and formulation technologies, one of which involved an
initial application of ophthalmic drugs, and another of which involved research
pharmaceuticals with neuroprotective properties being developed for applications
such as stroke and head trauma. Prior to the Merger, the Company was a
publicly-held company primarily engaged in the development and testing of a
chemical delivery system which has been shown in animal studies to permit the
passage of drugs across the blood-brain barrier. Prior to its acquisition, Xenon
was a research-based pharmaceutical company developing several patented products
for the ophthalmic field. In April 1995, the Company acquired Oculon Corporation
("Oculon") a privately-held development stage company with anti-cataract
technologies and net assets of approximately $3.5 million, consisting
substantially of cash and cash equivalents.
Human Resources
As of March 1, 1998, the Company had 37 full time employees, 5 in the U.S.
and 32 in Israel, of whom approximately 15 hold doctorate or medical degrees.
The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced employment-related work stoppages
and considers its employee relations to be excellent.
Public Funding and Grants
The Company's subsidiary, Pharmos Ltd., has received certain funding from
the Chief Scientist of the Israel Ministry of Industry and Trade (the "Chief
Scientist") for research and development of SME technology for injection and
nutrition as well as for research relating to pilocarpine, dexamethasone and
ophthalmic formulations for dry eyes. The Company has received $1,827,192 under
such agreements through December 31, 1997. The Company will be required to pay
royalties to the Chief Scientist from the sale of products developed, if any, as
a result of the research activities conducted with such funds. Aggregate royalty
payments are limited to the amount of funding received. Additionally, funding by
the Chief Scientist places certain legal restrictions on the transfer of
know-how and the manufacture of resulting products outside of Israel. See
"Conditions in Israel."
The Company has received certain funding of $925,780 from the Israel-U.S.
Binational Industrial Research and Development Foundation ("BIRD-F") to develop
Lotemax and LE-T. The Company will be required to pay royalties to BIRD-F from
the sale of products developed, if any,
13
as a result of the research activities conducted with such funds. Aggregate
royalty payments are limited to 150% of the amount of such funding received,
linked to the exchange rate of the U.S. dollar and the New Israeli Shekel.
Conditions in Israel
The Company conducts significant operations in Israel through its
subsidiary, Pharmos Ltd., and therefore is affected by the political, economic
and military conditions to which that country is subject.
Pharmos Ltd. has received certain funding from the Chief Scientist with
respect to its SubMicron Emulsion Technology and with respect to its new
chemical entity, Dexanabinol. The proclaimed purpose of the legislation under
which such funding was provided is to develop local industry, improve the state
balance of trade and to create new jobs in Israel. Such funding prohibits the
transfer or license of know-how and the manufacture of resulting products
outside of Israel without the permission of the Chief Scientist. Although it is
the Company's belief that the Chief Scientist does not unreasonably withhold
this permission if the request is based upon commercially justified
circumstances and any royalty obligations to the Chief Scientist are
sufficiently assured, there can be no assurance that such consent, if requested,
would be granted upon terms satisfactory to the Company or granted at all.
Item 2. Properties
The Company is headquartered in Iselin, New Jersey where it leases its
general administrative facilities. The Company also leases facilities used in
the operation of its research, development, pilot manufacturing and
administrative activities in Rehovot, Israel. These facilities have been
improved to meet the special requirements necessary for the operation of the
Company's research and development activities. In the opinion of the management
these facilities are sufficient to meet the current and anticipated future
requirements of the Company. In addition management believes that it has
sufficient ability to renew its present leases related to these facilities or
obtain suitable replacement facilities.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting held on January 9, 1998 the stockholders of the
Company elected the following persons as directors of the Company to hold office
until the next annual meeting of the stockholders or until their successors are
duly elected and qualified: Haim Aviv
14
(26,386,186 votes for and 1,150,059 votes against), Stephen C. Knight
(26,391,624 votes for and 1,144,621 votes against), David Schlachet (26,391,149
votes for and 1,145,096 votes against), Marvin P. Loeb (26,362,624 votes for and
1,173,621 votes against), E. Andrews Grinstead, III (26,391,624 votes for and
1,144,621 votes against), Fredric D. Price (26,391,624 votes for and 1,144,621
votes against) and Mony Ben Dor (26,391,149 votes for and 1,145,096 votes
against). The stockholders of the Company also voted to adopt the Company's 1997
Incentive and NonQualified Stock Option Plan (24,091,679 voted in favor,
2,646,101 voted against and 269,097 abstained or were withheld). In addition,
the stockholders of the Company voted to amend the Company's Restated Articles
of Incorporation to increase the authorized capital stock of the Company to 60
million shares of common stock (24,533,973 voted in favor, 2,259,826 voted
against and 213,078 abstained or were withheld).
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
From October 20, 1993 until January 26, 1995, the Company's Common Stock
was traded on the NASDAQ National Market System under the symbol "PARS", and
prior thereto was traded on the Nasdaq SmallCap Market. Prior to the Merger, the
Common Stock was quoted under the symbol "PHTC". The Company's Common Stock was
moved to the Nasdaq SmallCap Market, effective January 27, 1995, as a result of
the Company's non-compliance with certain Nasdaq corporate governance
requirements. The following table sets forth the range of high and low bid
prices for the Common Stock as reported on the NASDAQ National Market System and
the Nasdaq SmallCap Market during the periods indicated.
Year ended December 31, 1997 HIGH LOW
---------------------------- ---- ---
1st Quarter................. $1.94 $1.28
2nd Quarter................ 2.19 1.09
3rd Quarter................. 3.00 1.44
4th Quarter................. 3.00 1.66
Year ended December 31, 1996 HIGH LOW
---------------------------- ---- ---
1st Quarter................. $2.50 $1.38
2nd Quarter................ 2.88 1.69
3rd Quarter................. 2.00 1.22
4th Quarter................. 1.78 1.16
The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or
15
commission, and may not necessarily represent actual transactions.
On March 13, 1998, there were 468 record holders of the Common Stock of the
Company and approximately 5,473 beneficial owners of the Common Stock of the
Company, based upon the number of shares of Common Stock held in "street name".
The Company has paid no dividends on its Common Stock and does not expect
to pay cash dividends in the foreseeable future. The Company is not under any
contractual restriction as to its present or future ability to pay dividends.
The Company currently intends to retain any future earnings to finance the
growth and development of its business.
Item 6. Selected Financial Data
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Revenues -- -- $ 75,000 $ 7,815 $ 81,900
Operating expenses (8,563,019) (8,354,991) (8,253,666) (13,036,461) (9,594,091)
Loss Before Extraordinary (8,233,547) (8,077,210) (8,096,085) (12,955,299) (9,398,695)
Item
Extraordinary gain from
forgiveness of debt 416,248 -- -- -- --
Dividend embedded in
convertible preferred stock (1,952,767) -- -- -- --
Preferred Stock dividends (240,375) -- -- -- --
Net loss applicable to
common shareholders ($10,010,441) ($ 8,077,210) ($ 8,096,085) ($12,955,299) ($ 9,398,695)
============ ============ ============ ============ ============
Net loss per share ($ 0.31) ($ 0.28) ($ 0.37) ($ 1.19) ($ 1.24)
------------ ------------ ------------ ------------ ------------
Total assets $ 8,421,841 $ 7,468,293 $ 9,461,654 $ 4,289,416 $ 10,608,458
------------ ------------ ------------ ------------ ------------
Long term obligations $ 4,100,000 $ 4,161,767 $ 2,294,268 $ 91,318 $ 129,240
------------ ------------ ------------ ------------ ------------
Cash dividends declared -- -- -- -- --
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
16
The Company has generated limited revenues from product sales and has been
dependent upon external financing, interest income, and research and development
contracts to pursue its intended business activities. The Company has not been
profitable since inception and has incurred a cumulative net loss of $72,069,727
through December 31, 1997. Losses have resulted principally from costs incurred
in research activities aimed at identifying and developing the Company's product
candidates, clinical research studies, merger and acquisition costs, the
write-off of purchased research and development, and general and administrative
expenses. The Company expects to incur additional operating expenses over the
next several years as the Company's research and development and clinical trials
programs continue. The Company's ability to achieve profitability is dependent
on the level of revenues from the sale of drug substance to support Lotemax and
Alrex coupled with its ability to develop and obtain regulatory approvals for
its product candidates, to enter into agreements for product development and
commercialization with strategic corporate partners and to develop the capacity
to manufacture and sell its products, and to secure additional financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Results of Operations
Years Ended December 31, 1997 and 1996
Total operating expenses increased by $208,028, or 2.5 %, from $8,354,991 in
1996 to $8,563,019 in 1997. Overall, the net decrease was related to bulk
material purchases of loteprednol etabonate ("LE"), the active drug-substance of
Lotemax and Alrex, which was principally offset by reductions in other operating
expenses related to the filing of NDA's for Lotemax and Alrex.
Net research and development expenses decreased by $141,084, or 2.5%, from
$5,604,592 in 1996 to $5,463,508 in 1997. The completion of the clinical trials
associated with the Company's NDA submissions for LE resulted in a decrease in
R&D expense. The company increased participation in approved R&D reimbursement
programs which contributed to a reduction in R&D expense. Increased costs for
toxicology studies for the LE-T program (a combination of LE and Tobramycin) and
Dexanabinol, as well as activities to advance the manufacturing of LE, partially
offset the decrease in R&D expense.
In anticipation of approval by the FDA of the NDAs for Lotemax and Alrex and in
accordance with its obligations under the Marketing Agreements to supply Bausch
& Lomb with certain specified quantities of LE ( the active drug-substance), the
Company purchased quantities of LE and smaller quanitities of a key reagent
required for the manufacture of LE, in the amount of $2,403,012 Certain
purchases of LE, totaling $598,385, have been expensed in 1997. This amount
represents inventory to be used in testing, manufacturing and various marketing
programs.
On September 8, 1997, the Company signed an agreement terminating the 1992
licensing agreement with the University of Florida, and returned the rights to
technologies that the Company had previously ceased developing. The termination
agreement included a waiver of $416,249 in outstanding debts due the
17
University.
Patent expenses decreased by $70,096, or 25%, from $281,412 in 1996 to $211,316
in 1997. This decrease is due to the timing of completion of certain patent
applications.
General and administrative expense decreased by $89,300, or 4%, from $2,123,392
in 1996 to $2,034,092 in 1997. Lower expenses associated with the completion of
the Company's NDAs for Lotemax and Alrex as well as the closure of its Florida
facility were primarily responsible for the decreased general and administrative
costs.
Depreciation and amortization expenses decreased by $89,877, or 26%, from
$345,595 in 1996 to $255,718 in 1997, reflecting reduced depreciation expense
relating to the Alachua, Florida operation.
Interest and other income, net of interest and other expenses, increased by
$51,692, or 19%, from $277,782 in 1996 to $329,472 in 1997. Interest and other
income, net, increased as a result of higher average cash balances, favorite
transaction gains and the waiver of outstanding debts to the University of
Florida.
Years Ended December 31, 1996 and 1995
Total revenues decreased by $75,000 from 1995. Revenues in 1995 related to
fees the Company received as a result of sublicensing certain technologies which
were not being actively developed by the Company.
Total operating expenses increased by $101,325, or 1%, from $8,253,666 in
1995 to $8,354,991 in 1996 due to increased research and development spending
partially offset by lower general, administrative and other expenses.
Research and development expenses increased by $925,513, or 20%, primarily
due to significant spending on clinical trails in 1996. During the past year,
the company initiated and completed Phase III clinical trials of Lotemax for the
treatment of uveitis and post cataract surgery as well as Phase III clinical
trials of Alrex for the treatment of seasonal ocular allergies. In October of
1996, the Company commenced a Phase II study of HU-211 for severe head injury.
In February 1997, the Company submitted an NDA for Alrex and in March 1997, the
Company amended and supplemented the previously filed NDA for Lotemax with the
results of the 1996 clinical trials. The increased clinical trial expenses were
partially offset by cost saving measures taken by the Company in early 1995 that
focused research and development activities on products which were closest to
commercialization. Bausch & Lomb net reimbursements for clinical trials totaled
$1.2 million during 1996, thereby reducing research and development expenses by
this amount.
Patent expense decreased by $199,447, or 41%, in 1996. The company was able
to reduce patent maintenance costs by returning to an original patent holder
several patents covering technologies which are no longer being pursued.
Further, the Company's in-house patent counsel now executes work previously
undertaken by external patent attorneys.
18
General and administrative costs decreased by $434,326, or 17%, in 1996.
This reduction resulted primarily from the 1995 relocation of corporate
headquarters from New York to the Company's existing facility in Alachua,
Florida.
Depreciation and amortization expenses decreased by $190,415, or 35%, in
1996 due to the absence in 1996 of depreciation of New York facilities following
the 1995 closing, a write-off of certain leasehold improvements, as well as
reduced depreciation relating to the Florida operation.
Net interest income increased by $195,200 in 1996, reflecting the higher
level of investable funds in 1996. In addition, the Company had higher interest
expense in 1995 relating to interest on the convertible debentures issued by the
Company in February 1995 , and converted into Common Stock by July 1995, and a
note that was paid in full.
Liquidity and Capital Resources
The Company has had no sources of recurring revenues and has incurred
operating losses since its inception. At December 31, 1997, the Company has an
accumulated deficit of $72,069,727. The Company has financed its operations with
public and private offerings of securities, advances and other funding pursuant
to a marketing agreement with Bausch & Lomb, research contracts, license fees,
royalties and sales, and interest income.
The Company had working capital of $1.9 million, including cash and cash
equivalents of $4.4 million, as of December 31, 1997. On February 4, 1998, the
Company completed a private placement of convertible preferred stock and
warrants that generated $ 5 million in gross proceeds. Management believes that
existing cash and cash equivalents combined with anticipated cash inflows from
investment income, R&D grants and proceeds from sales of the drug substance for
Lotemax and Alrex to Bausch & Lomb will be sufficient to support operations
through the first quarter of 1999. The Company is continuing to actively pursue
various funding options, including additional equity offerings, strategic
corporate alliances, business combinations and the establishment of product
related research and development limited partnerships, to obtain the additional
financing that would be required to continue the development of its products and
bring them to commercial markets. The Company's success depends upon many
factors that are beyond the Company's immediate control, including market
acceptance of Lotemax and Alrex, competition, and the ability to obtain
additional financing. There can be no assurance that Lotemax or Alrex will
achieve market acceptance or that the Company will be successful in obtaining
additional financing or commercializing its product candidates.
During 1997, the Company raised additional equity of $5.8 million through the
issuance of common stock, convertible preferred stock and warrants. All net
proceeds were available to fund the Company's operations. Pursuant to the U.S.
Marketing agreement with Bausch & Lomb and following the NDA submission for
Alrex, the Company received in March 1997, an additional $ 1 million in advances
against future sales of the active drug substance (needed to manufacture the
drug), $ 143,333 of which was advanced to the license holder. Cumulative
advances from Bausch & Lomb as of December 31, 1997 total $5 million. Bausch &
Lomb will be entitled to recoup the advances by way of credits from future sales
of Lotemax, Alrex and line extension products. The Company may be obligated to
repay such advances if it is unable to supply Bausch & Lomb with certain
specified quantities of the active drug substance.
19
The Year 2000
Management believes, based on available information, that it will be able
to manage its Year 2000 transition for systems and infrastructure without any
material adverse effect on its business operations, products or financial
prospects. There can be no assurance, however, that a failure to resolve any
issue relating to such transition would not have a material adverse effect on
the Company.
Item 8. Financial Statements and Supplementary Data
The information called for by this Item 8 is included following the "Index
to Financial Statements" contained in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
20
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors, officers and key employees of the Company are as follows:
Name Age Position
- ---- --- --------
Haim Aviv, Ph.D. 57 Chairman, Chief Executive Officer,
Chief Scientist and Director
Gad Riesenfeld, Ph.D. 54 President, Chief Operating Officer
Robert W. Cook 42 Vice President Finance and
Chief Financial Officer
Anat Biegon, Ph.D. 44 Vice President/Research and Development
Marvin P. Loeb 71 Director
E. Andrews Grinstead III 52 Director
Stephen C. Knight, M.D. 38 Director
David Schlachet 52 Director
Fredric D. Price 52 Director
Mony Ben Dor 52 Director
Haim Aviv, Ph.D., is Chairman, Chief Executive Officer, Chief Scientist and
a Director of the Company and co-founded in 1990, Pharmos Corporation, a New
York corporation ("Old Pharmos"), which merged into the Company on October 29,
1992 (the "Merger"). Dr. Aviv also served as Chairman, Chief Executive Officer,
Chief Scientist and a Director of Old Pharmos prior to the Merger. Dr. Aviv was
the co-founder in 1980 of Bio-Technology General Corp. ("BTG"), a
publicly-traded company engaged in the development of products using recombinant
DNA, its General Manager and Chief Scientist from 1980 to 1985, and a Director
and Senior Scientific Consultant until August 1993. Prior to that time, Dr. Aviv
was a professor of molecular biology at the Weizmann Institute of Science. Dr.
Aviv is the principal stockholder of Avitek Ltd., a stockholder of the Company.
Dr. Aviv is also an officer and/or significant stockholder of several
privately-held Israeli pharmaceutical and venture capital companies and was
recently appointed Chairman of the Israel National Committee for Biotechnology .
21
Gad Riesenfeld, Ph.D., was named President and Secretary in February 1997,
and has served as Chief Operating Officer since March 1995. He served as
Executive Vice President from December 1994 to February 1997, Vice President of
Corporate Development and General Manager of Florida Operations from October
1992 to December 1994, and was employed by Pharmos from March 1992 until the
Merger. Prior thereto, he was engaged in free-lance consulting relating to the
commercialization of intellectual property, primarily in the pharmaceutical and
medical fields. From March 1990 through May 1991 Dr. Riesenfeld was a Managing
Director of Kamapharm Ltd., a private company specializing in human blood
products. Prior thereto, from May 1986, he was Managing Director of Galisar
Ltd., a private company involved in extracorporeal blood therapy.
Robert W. Cook was elected Vice President - Finance and Chief Financial
Officer of Pharmos in January 1998. From May 1995 until his appointment as the
Company's Chief Financial Officer, he was a vice president in GE Capital's
commercial finance subsidiary, based in New York. From 1978 until 1995, Mr. Cook
held a variety of corporate finance and capital markets positions at The Chase
Manhattan Bank, both in the U.S. and in several overseas locations. He was a
named a managing director of Chase in January 1986. Mr. Cook holds a degree in
international finance from The American University, Washington, D.C.
Anat Biegon, Ph.D., has served as Vice President of Research and
Development since December 1994. Dr. Biegon became head of Research and
Development for the Company in 1994. From 1992 to 1994, Dr. Biegon was a
director in Pharmos Ltd.'s Department of Pharmacology. From 1991 to 1992, she
was a Staff Physiologist at the University of California at Berkeley's Lawrence
Berkeley Laboratory, Division of Research Medicine and Radiation Biophysics.
From 1990 to 1991, Dr. Biegon was a Research Associate Professor in the
Department of Psychiatry at New York University Medical Center. From 1988 to
1990, she was an Associate Professor in the Department of Neurobiology at the
Weizmann Institute of Science.
Marvin P. Loeb, a Director, was Chairman of the Board of the Company (then
known as Pharmatec, Inc.) from December 1982 through October 1992. He has been
Chairman of Trimedyne, Inc. (and its subsidiaries), a publicly-held company
engaged in the manufacture of lasers, optical fibers and laser delivery systems,
since April 1981; a Director of Gynex Pharmaceuticals, Inc., from April 1986
until its merger with and into Biotechnology General Corporation in 1993, a
publicly-held company engaged in the development and commercialization of
pharmaceutical products; a Director of Petrogen, Inc., a privately-held company
engaged in the genetic engineering of bacteria for cleanup of oil waste and
toxic waste, from April 1987 to April 1992 (Chairman from November 1980 to
December 1982 and from July 1983 to April 1987); Chairman of Automedix Sciences,
Inc., an inactive, publicly-held company engaged in the development of products
for treating cancer and other diseases, since September 1980; Chairman of
Cardiomedics, Inc., a privately-held, development stage company engaged in the
development of heart assist devices, from May 1986; Chairman of Xtramedics,
Inc., a publicly-held company developing a feminine hygiene product, from
November 1986 to February 1994 and a Director of Xtramedics from November 1986
until May 1994; Chairman of Ultramedics, Inc., an inactive, privately-held
company developing blood treatment products, since November 1988; and President
and Director of Marvin P. Loeb & Co. since 1965, and Master Health Services,
Inc. since 1972, both of which are family-held companies engaged in licensing of
inventions and financial consulting.
E. Andrews Grinstead, III, a Director of the Company since 1991, is
Chairman of the Board and Chief Executive Officer of Hybridon, Inc., a
privately-held biotechnology company. Mr. Grinstead joined Hybridon in 1991.
From 1987 to October 1990, he was Managing Director and Group Head of the life
sciences group at PaineWebber, Inc. From 1986 to 1987, Mr. Grinstead was
Managing Director and Group Head of the life sciences group at Drexel
22
Burnham Lambert, Inc. From 1984 to 1986, he was a Vice President at Kidder,
Peabody & Co., Inc., where he developed the life sciences corporate finance
specialty group. Prior to his seven years on Wall Street, Mr. Grinstead served
in a variety of operational and executive positions with Eli Lilly & Company,
most recently as general manager of Venezuelan Pharmaceutical, Animal Health and
Agricultural Chemical Operations. Since 1991, Mr. Grinstead has served as a
Director of EcoScience Corporation, a development-stage company engaged in the
development of biopesticides. He also serves as a director of Meridian Medical
Technologies, Inc., a pharmaceutical and medical device company. Mr. Grinstead
has served as a member of the Board of Trustees for the Albert B. Sabine Vaccine
Foundation, a 501(c)(3) charitable foundation dedicated to disease prevention
since 1994, and on the Board of the Massachusetts Biotech Counsel since 1997.
Mr. Grinstead was appointed to the President's Council of the National Academy
of Sciences and the Institute of Medicine in 1992. Mr. Grinstead received an
A.B. from Harvard College in 1967, a J.D. from the University of Virginia School
of Law in 1974 and an M.B.A. from the Harvard Graduate School of Business
Administration in 1976.
Stephen C. Knight, M.D., a Director of the Company since November 10, 1994,
is Senior Vice President Finance, Corporate Development, of Epix Medical, Inc.
Prior to joining Epix Medical in July 1996, Dr. Knight was a Senior Consultant
at Arthur D. Little, Inc. During the past five years, he has been involved in a
variety of corporate and research and development strategic planning, technology
assessment, and merger and acquisition studies in the pharmaceutical,
biotechnology, health care information, medical equipment and diagnostic
industries. Prior to joining Arthur D. Little, Dr. Knight worked as a consultant
at APM, Inc. Dr. Knight has performed medical research at the National
Institutes of Health, AT&T Bell Laboratories, and Yale and Columbia
Universities. Dr. Knight holds an M.D. from the Yale University School of
Medicine and an MPPM from the Yale School of Organization and Management.
David Schlachet, a Director of the Company since December 15, 1994, is
Chief Executive Officer at Strauss Holdings Ltd. and Vice President at Strauss
Dairies Ltd. The Strauss Group is Israel's largest privately owned food
manufacturer. Mr. Schlachet was Vice President of Finance and Administration at
the Weizmann Institute of Science in Rehovot, Israel from 1990 to December,
1995. Mr. Schlachet was responsible for the Institute's administration and
financial activities, including personnel, budget and finance, funding,
investments, acquisitions and collaboration with the industrial and business
communities. From 1989 to 1990, Mr. Schlachet was President and Chief Executive
Officer of YEDA Research and Development Co. Ltd., a marketing and licensing
company at the Weizmann Institute of Science. Mr. Schlachet is a Director of
Taya Investment Company Ltd., an Israeli publicly-held investment company.
Fredric Price, a Director of the Company since August 1996 has been
President, Chief Executive Officer, and a member of the Board of Directors of
AMBI Inc. (NASDAQ: AMBI), a company that develops and commercializes proprietary
nutrition products for cardiovascular conditions and diabetes since September
1994. He is Secretary and a member of the Executive Committee of the Board of
Directors of the of the New York Biotechnology Association. From July 1991 to
September 1994, he was Vice President Finance & Administration and Chief
Financial Officer of Regeneron Pharmaceuticals, Inc. From March 1986 to July
1991, he was a pharmaceuticals and biotechnology industry strategy consultant.
From 1973 to 1986, he was employed by Pfizer Pharmaceuticals where he was a Vice
President. Mr. Price received a B.A. in 1967 from Dartmouth College and an
M.B.A. in 1969 from the Wharton School of the University of Pennsylvania.
Mony Ben Dor, a Director of the Company since September 1997, is Vice
President of The Israel corporations, Ltd. and chairman of two publicly traded
subsidiaries: H.L. Finance and Leasing and Albany Bonded International Trade. He
is also a director of a number of subsidiary companies of Israel Chemicals Ltd.
From 1992 to 1997, Mr. Ben Dor was Vice President of Business Development for
Clal Industries Ltd. (a subsidiary of Clal Israel), which is one of the leading
investment groups in Israel. He was actively involved in the acquisition of
23
companies including Jaffora Ltd. and a portfolio of pharmaceutical companies
including Pharmaceutical Resources Inc. and Finetech Ltd. He served as a
director representing Clal Industries in all of the acquired companies as well
as other companies of Clal Industries. Prior to his position at Clal Industries
Ltd., Mr. Ben Dor served as Business Executive at the Eisenberg Group of
companies.
Section 16 Filings
No person who, during the fiscal year ended December 31, 1997, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the "Act"), a
"Reporting Person" failed to file on a timely basis, reports required by Section
16 of the Act during the most recent fiscal year. The foregoing is based solely
upon a review by the Company of Forms 3 and 4 during the most recent fiscal year
as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and any representation received by the Company from any reporting
person that no Form 5 is required.
24
Item 11. Executive Compensation
The following table summarizes the total compensation of the Chief
Executive Officer of the Company for 1997 and the two previous years, as well as
all other executive officers of the Company who received compensation in excess
of $100,000 for 1997.
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Stock
Name/ Restricted Underlying
Principal Position Year Salary Bonus Other Stock Options
- ------------------ ---- ------ ------ ----- ----- --------
Haim Aviv, Ph.D
Chairman, Chief 1997 $227,471 $ 40,000 $ 16,119(1)
Executive Officer, and 1996 236,453 27,435(1)
Chief Scientist 1995 200,230 324,376
Gad Riesenfeld, Ph.D
President and 1997 $175,000 44,948(2)
Chief Operating Officer 1996 150,000 43,798(2)
1995 136,664 34,481(2) 79,333
Alan M. Mark
Acting Chief 1997 $255,000(3)
Financial Officer(4) 1996 150,000(3)
Anat Biegon, Ph.D
Vice President of 1997 $ 81,873 $ 20,456 $ 27,860(1)
Research and 1996 85,516 26,565(1)
Development
1) Consists of contributions to insurance premiums, car allowance and car
expenses.
2) Consists of housing allowance, contributions to insurance premiums, and car
allowance.
3) Consists of non-employee compensation.
4) Acting Chief Financial Officer from July 1996 through July 1997. On January
1, 1998, Mr. Robert W. Cook was appointed Vice President Finance and Chief
Financial Officer of the Company.
25
The following tables set forth information with respect to the named
executive officers concerning the grant, repricing and exercise of options
during the last fiscal year and unexercised options held as of the end of the
fiscal year.
Option Grants for the Year
Ended December 31, 1997:
None.(1)(2)(3)
(1) In 1997, the Company issued warrants to purchase an aggregate of
1,030,000 shares of common stock to certain employees of the
Company. Of such warrants, 955,000 were granted at an exercise
price of $1.59 per share and 75,000 were granted at an exercise
price of $1.66 per share, 250,000 were issued to Dr. Aviv,
175,000 were issued to Dr. Riesenfeld, and 125,000 were issued to
Dr. Biegon. Such warrants become exercisable in increments of 25%
each, on their respective anniversary dates, in the years 1998,
1999, 2000 and 2001. All of such warrants expire in the year
2007.
(2) In 1997, the Company issued an aggregate of 201,052 warrants to
Alan Mark. Of such warrants 15,000 were issued at an exercise
price of $1.59 per share, 15,000 were issued at an exercise price
of $1.22 per share and 171,052 were issued at an exercise price
of $1.38 per share. The 171,052 warrants were issued as a finders
fee for a private placement transaction that was completed in
March 1997.
(3) On January 9, 1998, the Company issued options to purchase an
aggregate of 100,000 shares of common stock at an exercise price
of $2.00 to Robert W. Cook, the Company's new Chief Financial
Officer. Of such options, 25,000 vested immediately, and the
remainder will become exercisable in increments of 25,000 on
January 1, 1999, January 1, 2000 and January 1, 2001,
respectively.
Aggregated Option Exercises
for the Year Ended December 31, 1997
and Option Values as of December 31, 1997:
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Shares Options at December 31, December 31, 1997
Acquired on Value -------------------------------- -----------------------------
Name Exercise Realized 1997 Exercisable Unexercisable
- ---- -------- -------- ---- ----------- -------------
Exercisable Unexercisable
----------- -------------
Haim Aviv,
Ph.D. 0 0 255,376 69,000 $72,000 $48,000
Gad
Riesenfeld, 0 0 57,466 21,867 $48,000 $32,000
Ph.D.
Anat Biegon, 0 0 34,426 16,107 $36,000 $24,000
Ph.D.
26
Stock Option Plans
It is currently the Company's policy that all full time key employees be
considered annually for the possible grant of stock options, depending upon
employee performance. The criteria for the awards are experience, uniqueness of
contribution to the Company and level of performance shown during the year.
Stock options are intended to improve loyalty to the Company and help make each
employee aware of the importance of the business success of the Company. The
amount and exercise price of all options discussed herein have been adjusted for
the Reverse Share Split.
As of December 31, 1997, the Company has 833,601 options to purchase shares
of the Company's Common Stock outstanding under various option plans, 247,626 of
which were issued under no established plan. During 1997, the Company did not
grant any options to purchase shares of its Common Stock to employees. A summary
of the various established stock option plans is as follows:
1983, 1984, 1986, 1988 Plans. The Company (then known as Pharmatec, Inc.)
established Incentive Stock Option Plans in 1983, 1984, 1986 and 1988 for
officers and employees. There are currently no options outstanding under these
plans and it is anticipated that future grants of stock options will not be made
from these plans.
1991 Plan. Old Pharmos established a stock option plan in 1991. There are
currently 11,476 options outstanding under this plan and it is anticipated that
future grants of stock options will not be made from this plan.
1992 Plan. The maximum number of shares of the Company's Common Stock
available for issuance under the 1992 Plan is 750,000 shares, subject to
adjustment in the event of stock splits, stock dividends, mergers,
consolidations and the like. Common Stock subject to options granted under the
1992 Plan that expire or terminate will again be available for options to be
issued under the 1992 Plan. As of December 31, 1997, there were options to
purchase 574,499 shares of the Company's Common Stock outstanding under this
plan. Each option granted outstanding under the 1992 plan as of December 31,
1997 expires on October 31, 2005.
1997 Plan. The 1997 Plan will be administered by a committee appointed by
the Board of Directors (the "Compensation Committee"). Members of the
Compensation Committee will not be eligible to receive options while they are
members except to the extent otherwise permitted under the requirements of Rule
16b-3 under the Securities Exchange Act of 1934. The Compensation Committee will
designate the persons to receive options, the number of shares subject to the
options and the terms of the options, including the option price and the
duration of each option, subject to certain limitations.
The maximum number of shares of Common Stock available for issuance under
the 1997 Plan is 600,000 shares, subject to adjustment in the event of stock
splits, stock dividends, mergers, consolidations and the like. Common Stock
subject to options granted under the 1997 Plan that expire or terminate will
again be available for options to be issued under the 1997 Plan.
The price at which shares of Common Stock may be purchased upon exercise of
an incentive stock option must be at least 100% of the fair market value of
Common Stock on the date the option is granted (or at least 110% of fair market
value in the case of a person holding more than 10% of the outstanding
27
shares of Common Stock (a "10% Stockholder")).
The aggregate fair market value (determined at the time the option is
granted) of Common Stock with respect to which incentive stock options are
exercisable for the first time in any calendar year by an optionee under the
1997 Plan or any other plan of the Company or a subsidiary, shall not exceed
$100,000. The Compensation Committee will fix the time or times when, and the
extent to which, an option is exercisable, provided that no option will be
exercisable earlier than one year or later than ten years after the date of
grant (or five years in the case of a 10% Stockholder). The option price is
payable in cash or by check. However, the Board of Directors may grant a loan to
an employee, pursuant to the loan provision of the 1997 Plan, for the purpose of
exercising an option or may permit the option price to be paid in shares of
Common Stock at the then current fair market value, as defined in the 1997 Plan.
Upon termination of an optionee's employment or consultancy, all options
held by such optionee will terminate, except that any option that was
exercisable on the date employment or consultancy terminated may, to the extent
then exercisable, be exercised within three months thereafter (or one year
thereafter if the termination is the result of permanent and total disability of
the holder), and except such three month period may be extended by the
Compensation Committee in its discretion. If an optionee dies while he is an
employee or a consultant or during such three-month period, the option may be
exercised within one year after death by the decedent's estate or his legatees
or distributees, but only to the extent exercisable at the time of death.
The 1997 Plan provides that outstanding options shall vest and become
immediately exercisable in the event of a "sale" of the Company, including (i)
the sale of more than 75% of the voting power of the Company in a single
transaction or a series of transactions, (ii) the sale of substantially all
assets of the Company, (iii) approval by the stockholders of a reorganization,
merger or consolidation, as a result of which the stockholders of the Company
will own less than 50% of the voting power of the reorganized, merged or
consolidated company.
The Board of Directors may amend, suspend or discontinue the 1997 Plan, but
it must obtain stockholder approval to (i) increase the number of shares subject
to the 1997 Plan, (ii) change the designation of the class of persons eligible
to receive options, (iii) decrease the price at which options may be granted,
except that the Board may, without stockholder approval accept the surrender of
outstanding options and authorize the granting of new options in substitution
therefor specifying a lower exercise price that is not less than the fair market
value of Common Stock on the date the new option is granted, (iv) remove the
administration of the 1997 Plan from the Compensation Committee, (v) render any
member of the Compensation Committee eligible to receive an option under the
1997 Plan while serving thereon, or (vi) amend the 1997 Plan in such a manner
that options issued under it intend to be incentive stock options, fail to meet
the requirements of Incentive Stock Options as defined in Section 422 of the
Code.
Under current federal income tax law, the grant of incentive stock options
under the 1997 Plan will not result in any taxable income to the optionee or any
deduction for the Company at the time the options are granted. The optionee
recognizes no gain upon the exercise of an option. However the amount by which
the fair market value of Common Stock at the time the option is exercised
exceeds the option price is an
28
"item of tax preference" of the optionee, which may cause the optionee to be
subject to the alternative minimum tax. If the optionee holds the shares of
Common Stock received on exercise of the option at least one year from the date
of exercise and two years from the date of grant, he will be taxed at the time
of sale at long-term capital gains rates, if any, on the amount by which the
proceeds of the sale exceed the option price. If the optionee disposes of the
Common Stock before the required holding period is satisfied, ordinary income
will generally be recognized in an amount equal to the excess of the fair market
value of the shares of Common Stock at the date of exercise over the option
price, or, if the disposition is a taxable sale or exchange, the amount of gain
realized on such sale or exchange if that is less. If, as permitted by the 1997
Plan, the Board of Directors permits an optionee to exercise an option by
delivering already owned shares of Common Stock valued at fair market value) the
optionee will not recognize gain as a result of the payment of the option price
with such already owned shares. However, if such shares were acquired pursuant
to the previous exercise of an option, and were held less than one year after
acquisition or less than two years from the date of grant, the exchange will
constitute a disqualifying disposition resulting in immediate taxation of the
gain on the already owned shares as ordinary income. It is not clear how the
gain will be computed on the disposition of shares acquired by payment with
already owned shares.
1997 Employees and Directors Warrants Plan
The 1997 Employees and Directors Warrants Plan was approved by the Stock
Option Committee as of February 12, 1997 and March 19, 1997. 1,030,000 Warrants
to purchase 1,030,000 shares of Common Stock were granted to certain employees
of the Company. Of such warrants, 955,000 were granted at an exercise price of
$1.59 per share and 75,000 were granted and an exercise price of 1.66 per share
(together, the "1997 Employees Warrants"). The 1997 Employees Warrants become
exercisable in increments of 25% each on their first, second, third and fourth
anniversaries, respectively, and shall expire in the year 2007. 100,000 Warrants
to purchase 100,000 shares of Common Stock were granted to directors of the
Company at an exercise price of $1.59 per share (the "1997 Directors Warrants")
on February 12, 1997. The 1997 Directors Warrants become exercisable in
increments of 25% each on the first, second, third and fourth anniversaries of
February 12, 1997 and shall expire on February 12, 2003.
Upon termination of a Warrant Holder's employment, consultancy or
affiliation with the Company, all Warrants held by such Warrant Holder will
terminate, except that any Warrant that was exercisable on the date which the
employment, consultancy or affiliation terminated may, to the extent then
exercisable, be exercised within three months thereafter (or one year thereafter
if the termination is the result of permanent and total disability of the
holder). If a Warrant Holder dies while he or she is an employee, consultant or
affiliate of the Company, or during such three month period, the Warrant may be
exercised within one year after death by the decedent's estate or his legatees
or distributees, but only to the extent exercisable at the time of death.
Employment/Consulting Contracts/Directors' Compensation
Haim Aviv, Ph.D. In addition to serving as Chairman of the Board and Chief
Executive Officer of the Company, Dr. Aviv has provided consulting services
under a consulting agreement with an initial three-year
29
term ended May 3, 1993. The term automatically renews for additional one-year
periods unless either the Company or Dr. Aviv terminates the agreement at least
90 days prior to a scheduled expiration date. The agreement has been renewed on
an annual basis and presently expires on May 3, 1998. Dr. Aviv is entitled to
severance pay equal to 25% of his salary in the event of termination or
non-renewal without cause. Under the agreement, Dr. Aviv is required to render
certain consulting services to the Company and in consideration therefore, Dr.
Aviv is entitled to receive $170,000 per year, subject to yearly increases and
review.
The Company's subsidiary, Pharmos Ltd., employs Dr. Aviv as its Chief
Executive Officer under an employment agreement with Dr. Aviv pursuant to which
Dr. Aviv receives $50,000 per year, subject to yearly increases and review. Dr.
Aviv is required to devote at least 50% of his business time and attention to
the business of Pharmos, Ltd. and to serve on its Board of Directors.
Gad Riesenfeld, Ph.D. In October 1992, Old Pharmos entered into a one-year
employment agreement with Dr. Riesenfeld, which is automatically renewable for
successive one-year terms unless either party gives three months prior notice of
non-renewal. Under the Agreement, Dr. Riesenfeld devotes his full time to
serving as President of the Company. Dr. Riesenfeld's annual gross salary is
$175,000.
Directors' Compensation. In 1997, Directors did not receive any
compensation for service on the Board or for attending Board meetings.
30
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 13, 1998, by (i)
each person who was known by the Company to own beneficially more than 5% of any
class of the Company's Common Stock, (ii) each of the Company's Directors, and
(iii) all current Directors and executive officers of the Company as a group.
Except as otherwise noted, each person listed below has sole voting and
dispositive power with respect to the shares listed next to such person's name.
Amount of
Name and Address of Beneficial Percentage of
Beneficial Ownership Ownership Total (1)
- -------------------- --------- ---------
Haim Aviv, Ph.D.(2) 1,167,305 3.2%
c/o Pharmos Ltd.
Kiryat Weitzman
Rehovot, Israel
Marvin P. Loeb(3) 293,990 *
Trimedyne, Inc.
2810 Barranca Road
Irvine, CA 92714
E. Andrews Grinstead III(4) 98,333 *
Hybridon, Inc.
One Innovation Drive
Worcester, MA 01605
Stephen C. Knight, M.D.(4) 11,667 *
Epix Medical, Inc.
71 Rogers Street
Cambridge, MA 02142
David Schlachet(4) 11,667 *
Strauss Ltd.
16 Bazel Street
Petach-Tikva, Israel 49510
31
Mony Ben Dor
The Israel Corporation
4 Weizman St. 0 *
Tel-Aviv 61336, Israel
Fredric D. Price (5) 9,250 *
Applied Microbiology, Inc.
771 Old Saw Mill River Road
Tarrytown, NY 10591
All Directors and 1,653,212 4.5%
Executive Officers
as a group
(9 persons)(6)
- ----------
* Indicates ownership of less than 1%.
1) Based on 36,296,751 shares of Common Stock outstanding, plus each
individual's currently exercisable warrants or options. Assumes that no
other individual will exercise any warrants and/or options.
(2) Includes 276,153 shares of Common Stock held in the name of Avitek Ltd., of
which Dr. Aviv is the Chairman of the Board of Directors and the principal
stockholder, and, as such, shares the right to vote and dispose of such
shares. Also includes currently exercisable options to purchase 255,376
shares of Common Stock.
(3) Held jointly with his wife. Also includes currently exercisable options and
warrants to purchase 48,344 shares of Common Stock. Does not include shares
held by his adult children, his grandchildren or a trust for the benefit of
his grandchildren.
(4) Consists of currently exercisable options and warrants to purchase Common
Stock.
(5) Includes currently exercisable options and warrants to purchase 7,500
shares of Common Stock.
(6) Based on the number of shares of Common Stock outstanding, plus 556,126
currently exercisable warrants and/or options held by the Directors and
executive officers.
Item 13. Certain Relationships and Related Transactions
None.
32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Exhibits
(1) FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because they are
not applicable or the required information is shown in the
financial statements or note thereto.
(3) EXHIBITS; EXECUTIVE COMPENSATION PLANS
Exhibits
2 Plan of acquisition, reorganization, arrangement, liquidation or succession
2(a) Agreement and Plan of Merger dated as of March 28, 1995 between
Pharmos Corporation, PMC Merger Corporation and Oculon Corporation
(Incorporated by reference to the Company's Current Report on Form
8-K, dated April 11, 1995, as amended).
33
3 Articles of Incorporation and By-Laws
3(a) Restated Articles of Incorporation (Incorporated by reference to
Appendix E to the Joint Proxy Statement/Prospectus included in
the Form S-4 Registration Statement of the Company dated
September 28, 1992 (No. 33-52398) (the "Joint Proxy
Statement/Prospectus").
3(b) Certificate of Amendment of Restated Articles of Incorporation
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1994).
3(c) Amended and Restated By-Laws (Incorporated by reference to Form
S-1 Registration Statement of the Company dated June 30, 1994
(No. 33-80916)).
3(d) Certificate of Amendment of Restated Articles of Incorporation
dated January 16, 1998 (Incorporated by reference to the
Company's Current Report on Form 8-K, dated February 6, 1998).
4 Instruments defining the rights of security holders, including indentures
4(a) 1983 Incentive Stock Option Plan (The Company's 1984 and 1986
Plans are identical in all respects except as to the number of
shares subject to option) (Incorporated by reference to Form S-18
Registration Statement of the Company dated June 7, 1983 (2-
84298-C)).
4(b) Amendment of 1983, 1984 and 1986 Incentive Stock Option Plans
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1988).
4(c) 1988 Incentive Stock Option Plan (Incorporated by reference to
Annual Report on Form 10-K for the year ended December 31, 1988).
4(d) Pharmos Corporation 1991 Incentive Stock Option Plan
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1992).
4(e) 1992 Incentive and Non-Qualified Stock Option Plan (Annexed as
Appendix F to the Joint Proxy Statement/Prospectus).
4(f) Form of Class A Warrant to purchase (x) shares of Common Stock
and (y) Class B Warrants (Incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1991).
4(g) Form of Class B Warrant to purchase shares of Common Stock
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1991).
34
4(h) Unit Purchase Option Agreement dated February 18, 1992 between
the Company and David Blech (Incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1991).
4(i) Form of Warrant to purchase Common Stock at an exercise price of
$1.31 per share (pre-reverse split) (Incorporated by reference to
Form S-3 Registration Statement of the Company dated September
14, 1993 (33-68762)).
4(j) Form of Placement Agent's Warrant Agreement, dated August 13,
1993, to purchase shares of Common Stock (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
September 14, 1993 (33-68762)).
4(k) Registration Agreement dated as of January 18, 1994 by and among
the Company, David Blech and Lake Charitable Remainder Trust
(Incorporated by reference to Form S-3 Registration Statement of
the Company dated January 28, 1993 (33-74638)).
4(l) Form of Stock Purchase Agreement dated as of September 2, 1994
between the Company and the Purchaser (Incorporated by reference
to Form S-1 Registration Statement of the Company dated June 30,
1994 [No. 33-80916], Amendment No. 2).
4(m) Form of Warrant Agreement dated September 2, 1994 to purchase
42,000 shares of Common Stock (Incorporated by reference to Form
S-1 Registration Statement of the Company dated June 30, 1994
[No. 33-80916], Amendment No. 2).
4(n) Form of Common Stock Purchase Agreement dated as of October 4,
1994 between the Company and the Purchasers (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
November 25, 1994 [No. 33-86720]).
4(o) Warrant Agreement dated October 4, 1994 between the Company and
Judson Cooper (Incorporated by reference to Form S-3 Registration
Statement of the Company dated November 25, 1994 [No. 33-86720]).
4(p) Form of Convertible Debenture Purchase Agreement dated as of
February 7, 1995 between the Company and the Investors
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1994).
4(q) Warrant Agreement dated February 7, 1995 between the Company and
Judson Cooper (Incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1994).
4(r) Form of Employee Warrant Agreement, dated April 11, 1995, between
the Company and Oculon Corporation (Incorporated by reference to
the Company's Current Report on Form 8-K, dated April 11, 1995,
as amended).
35
4(s) Form of Penalty Warrant Agreement, dated April 11, 1995, between
the Company and Oculon Corporation (Incorporated by reference to
the Company's Current Report on Form 8-K, dated April 11, 1995,
as amended).
4(t) Form of Unit Purchase Agreement dated as of September 14, 1995
between the Company and the Investors (Incorporated by reference
to the Company's Current Report on Form 8-K, dated September 14,
1995).
4(u) Form of Warrant Agreement dated as of September 14, 1995 between
the Company and the Investors (Incorporated by reference to the
Company's Current Report on Form 8- K, dated September 14, 1995).
4(v) Form of Warrant Agreement dated as of April 30, 1995 between the
Company and Charles Stolper (Incorporated by reference to Form
S-3 Registration Statement of the Company dated November 14,
1995, as amended [No. 33-64289]).
4(w) Form of Warrant Agreement dated as of April 30, 1995 between the
Company and Janssen/Meyers Associates, L.P. (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
November 14, 1995, as amended [No. 33-64289]).
4(x) Form of Warrant Agreement dated as of October 31, 1995 between
the Company and S. Colin Neill (Incorporated by reference to Form
S-3 Registration Statement of the Company dated November 14,
1995, as amended [No. 33-64289]).
4(y) Certificate of Designation, Rights, Preferences and Privileges of
Series A Preferred Stock of the Company (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
December 20, 1996, as amended [No. 333-15165]).
4(z) Form of 5% Preferred Stock Securities Purchase Agreement dated as
of September 30, 1996 between the Company and the Investors
(Incorporated by reference to Form S-3 Registration Statement of
the Company dated December 20, 1996, as amended [No. 333-15165]).
4(a)(a) Form of Stock Purchase Warrant dated as of September 30, 1996
between the Company and the Investors (Incorporated by reference
to Form S-3 Registration Statement of the Company dated December
20, 1996, as amended [No. 333-15165]).
4(a)(b) Form of Stock Purchase Warrant dated as of September 30, 1996
between the Company and Alan M. Mark (Incorporated by reference
to Form S-3 Registration Statement of the Company dated December
20, 1996, as amended [No. 333-15165]).
4(a)(c) Form of Warrant Agreement dated as of March 15, 1996 between the
Company and
36
Michael E. Lewis, Ph.D. (Incorporated by reference to Form S-3
Registration Statement of the Company dated December 20, 1996, as
amended [No. 333-15165]).
4(a)(d) Stock Purchase Agreement, dated December 12, 1996, between the
Company and Bausch & Lomb Pharmaceuticals, Inc.(Incorporated by
reference to Annual Report on Form 10-K dated March 29, 1997.
4(a)(e) Certificate of Designation, Rights Preferences and Privileges of
Series B Preferred Stock of the Company (Incorporated by
reference to Form S-3 Registration of the Company dated April 30,
1997 [No. 333-26155]).
4(a)(f) Form of 5% Preferred Stock Securities Purchase Agreement dated as
of March 31, 1997 between the Company and the Investors
(Incorporated by reference to Form S-3 Registration of the
Company dated April 30, 1997 [No. 333-26155]).
4(a)(g) Form of Stock Purchase Warrant dated as of March 31, 1997 between
the Company and the Investors (Incorporated by reference to Form
S-3 Registration Statement of the Company dated April 30, 1997
[No. 333-26155]).
4(a)(h) Certificate of Designation, Rights Preferences and Privileges of
Series C Preferred Stock of the Company (Incorporated by
reference to the Company's Current Report on Form 8-K filed on
February 6, 1998).
4(a)(i) Form of Securities Purchase Agreement dated as of February 4,
1998 between the Company and the Investor (Incorporate by
reference to the Company's Current Report on Form 8-K filed on
February 6, 1998).
4(a)(j) Form of Stock Purchase Warrant dated as of February 4, 1998
between the Company and the Investor and the Company and the
Placement Agent (Incorporated by reference to the Company's
Current Report on Form 8-K filed on February 6, 1998).
4(a)(k) Form of Stock Purchase Warrant dated as of March 31, 1997 between
the Company and the Investor (Incorporated by reference to Form
S-3 Registration Statement of the Company dated March 5, 1998
[No. 333-47359]).
10 Material Contracts
10(a) License Agreement dated as of March 14, 1989 between National
Technical Information Service (NTIS), U.S. Department of Commerce
and the Company (Incorporated by reference to Annual Report on
Form 10-K for year ended December 31, 1989).
10(b) Common Stock and Warrant Purchase Agreement, dated November 5,
1991, between
37
the Company and David Blech (Incorporated by reference to Annual
Report on Form 10-K for year ended December 31, 1991).
10(c) Private Placement Agreement, dated November 5, 1991, between the
Company and David Blech and D. Blech & Company, Incorporated
(Incorporated by reference to Annual Report on Form 10-K for year
ended December 31, 1991).
10(d) Stock Option Agreement, dated March 20, 1992, between the
Company, Pharmos Corporation, Xenon Vision, Inc. and the security
holders of Xenon Vision, Inc. (Incorporated by reference to
Annual Report on Form 10-K for year ended December 31, 1991).
10(e) Agreement and Plan of Merger, dated May 13, 1992, as amended, by
and among the Company, Pharmatec Merger Corporation and Pharmos
Corporation (composite copy as amended to date) (Incorporated by
reference to the Joint Proxy Statement/Registration Statement).
10(f) Registration Rights Agreement dated October 30, 1992 between the
Company and the security holders of Xenon Vision, Inc.
(Incorporated by reference to the Joint Proxy Statement/
Registration Statement).
10(g) Agreement between Avitek Ltd. ("Avitek") and Yissum Research
Development Company of the Hebrew University of Jerusalem
("Yissum") dated November 20, 1986 (Incorporated by reference to
Annual Report on Form 10-K, as amended by Form 10- K/A, for year
ended December 31, 1992).(1)
10(g)(1) Supplement to Agreement (Incorporated by reference to Annual
Report on Form 10-K, as amended by Form 10-K/A, for year ended
December 31, 1992).1
10(g)(2) Hebrew language original executed version of Agreement
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992).1
10(h) Agreement between Avitek and Yissum dated January 25, 1987
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992).1
10(h)(1) Schedules and Appendixes to Agreement (Incorporated by reference
to Annual Report on Form 10-K, as amended by Form 10-K/A, for
year ended December 31, 1992).1
10(h)(2) Hebrew language original executed version of Agreement
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992).1
38
10(i) Research, Development and License Agreement between Pharmos Ltd.,
Pharmos Corporation ("Old Pharmos") and Yissum dated February 5,
1991 (Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992).1
(10)(i)(1)Schedules and Appendixes to Agreement (Incorporated by reference
to Annual Report on Form 10-K, as amended by Form 10-K/A, for
year ended December 31, 1992).1
10(j) Pharmos Ltd. Employment Agreement with Haim Aviv ("Aviv") dated
as of May 2, 1990 and Old Pharmos Consulting Agreement with Aviv
dated as of May 2, 1990, as amended by letter from Old Pharmos to
Aviv dated June 27, 1990 and Unanimous Written Consent of the
Board of Directors of Old Pharmos dated March 17, 1992
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10- K/A, for year ended December 31, 1992).
10(k) Letter from Old Pharmos to D. Blech & Co. Incorporated ("D. Blech
& Co.") dated June 27, 1991 re: consulting services (Incorporated
by reference to Annual Report on Form 10-K, as amended by Form
10-K/A, for year ended December 31, 1992).
10(l) Old Pharmos Employment Agreement with Stephen Streber dated as of
July 1, 1992 (Incorporated by reference to Annual Report on Form
10-K, as amended by Form 10- K/A, for year ended December 31,
1992).
10(m) Letter dated July 27, 1992 from Old Pharmos to Henry Dachowitz re
employment (Incorporated by reference to Annual Report on Form
10-K, as amended by Form 10- K/A, for year ended December 31,
1992).
10(n) Personal Employment Agreement dated October 1, 1992 between Old
Pharmos and Gad Riesenfeld (Inc