QUESTCOR PHARMACEUTICALS INC - 10-K Annual Report

Indicate by mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 þ No o

As of March 15, 2002 the Registrant had 38,228,005 shares of Common Stock, no par value, outstanding, and the aggregate market value of the shares held by non-affiliates on that date was $46,305,102* based upon the last sales price of the Registrant’s Common Stock reported on the American Stock Exchange.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Portions of the Registrants Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A in connection with the 2002 Annual Meeting are incorporated by reference into Part III of this Report.

Excludes 12,359,233 shares of Common Stock held by directors, executive officers and shareholders whose beneficial ownership exceeds ten percent of the shares outstanding on March 15, 2002. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.

Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Questcor’s actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Item 1 “Business of Questcor,” including without limitation “Risk Factors,” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as those discussed in any documents incorporated by reference herein or therein. When used in this annual report, the terms “Questcor,” “Company,” “we,” “our,” “ours” and “us” refer to Questcor Pharmaceuticals, Inc. and its consolidated subsidiaries.

We are an integrated specialty pharmaceutical company focused on the development, acquisition, and marketing of acute care and critical care hospital/ specialty pharmaceutical and related healthcare products. We currently market four products through our internal sales force in the U.S. We expect to launch a fifth product in the U.S. in the first half of 2002, and we market a sixth product in Italy through a strategic partner. Our current products target pediatric neurologists, gastroenterologists, nephrologists, transplant centers and nuclear medicine centers.

On November 17, 1999, Questcor, formerly Cypros Pharmaceutical Corporation, completed a merger with RiboGene, Inc. (“RiboGene”) and subsequently changed its name to Questcor Pharmaceuticals, Inc. Under the terms of the merger agreement, each share of RiboGene common stock was exchanged for 1.509 shares of our common stock and each outstanding share of RiboGene Series A preferred stock was converted into 1.509 shares of our Series A preferred stock. In conjunction with the November 1999 acquisition of RiboGene, we changed our fiscal year end from July 31 to December 31. Since the completion of the merger, we have focused our resources on: i) acquiring new products, ii) increasing the sales of our existing products, and iii) out-licensing and partnering our research and development stage products. During 2001, we completed our transition from operating as essentially two independent companies to emerge as a specialty pharmaceutical company focused on the sales and marketing of our branded products.

We currently market four products in the U.S.: HP Acthar® Gel (“Acthar”), an injectable drug that helps patients with infantile spasm, or West Syndrome; Ethamolin®, an injectable drug used to treat esophageal varices that have recently bled; and Glofil^TM-125 and Inulin in Sodium Chloride, which are both injectable agents that assess kidney function by measuring glomerular filtration rate. Additionally, we earn royalties from our strategic partner, Crinos Industria Farmacobiologica S.p.A. (“Crinos”), on sales in Italy of Pramidin®, an intranasal form of metoclopramide for the treatment of various gastrointestinal disorders. We recently acquired the U.S. rights to market VSL#3^TM, a patented probiotic. We intend to market VSL#3^TM as a dietary supplement, to promote normal gastrointestinal function. We intend to begin sales of VSL#3^TM in the first half of 2002.

Consistent with our efforts to focus on sales and marketing, we have reduced spending on research and development. Accordingly, we have entered into several agreements with pharmaceutical and biotechnology companies to further the development of certain technology acquired from RiboGene. In January 2002, we signed a revised Letter of Understanding with Fabre Kramer Pharmaceuticals (“Fabre Kramer”), which anticipates a license agreement whereby Fabre Kramer will manage and provide funding for the clinical development programs for Hypnostat^TM (an intranasal triazolam for insomnia) and Panistat^TM, (an intranasal alprazolam for panic disorders). Our antifungal drug discovery program has been partnered with Tularik, Inc., of South San Francisco, CA; our antiviral drug discovery program has been partnered with Rigel Pharmaceuticals, Inc. of South San Francisco, CA; and our antibacterial program has been partnered with Dainippon Pharmaceuticals Co., Ltd. of Osaka, Japan.

During 2001, we sold an aggregate of 11,666,160 shares of common stock and a warrant to purchase an additional 1,800,000 shares of common stock for $7.8 million to Sigma-Tau Finance Holding S.A. and certain

affiliates of Sigma-Tau (“Sigma-Tau”). On December 11, 2001, we received $1.26 million, $960,000 for the purchase of 640,000 shares of common stock at $1.50 per share, and $300,000 for the purchase of the above-mentioned warrant to purchase an additional 1,800,000 shares of common stock from the principal stockholders of Sigma-Tau. We issued the common stock for the December transaction in February 2002. Additionally, we entered into an agreement with Sigma-Tau and its affiliates to limit Sigma-Tau’s purchases of our common stock on the open market to 2,000,000 shares through July 2003. Based on the purchases Sigma-Tau has made directly from us and information provided to the Securities and Exchange Commission (the “SEC”), Sigma-Tau and their affiliates own approximately 30% of our outstanding voting stock as of December 31, 2001. Assuming Sigma-Tau exercises its warrant in full, they would own approximately 34% (including the 640,000 shares of common stock issued in February 2002) of our outstanding common stock as of December 31, 2001.

On March 15, 2002, in two separate transactions, we issued $4.0 million of 8% convertible debentures to an institutional investor and Sigma-Tau. We will pay interest on the debentures at a rate of 8% per annum on a quarterly basis. The debentures are convertible into shares of our common stock at a fixed conversion price of $1.58 per share (subject to adjustment for stock splits and reclassifications). At the end of the term of the debenture, under certain circumstances, we have the option to repay the principal in stock and, under certain circumstances, we can also redeem the debenture for cash prior to maturity. The debentures mature on March 15, 2005. In conjunction with this transaction, we issued warrants to both the institutional investor and Sigma-Tau to acquire an aggregate of 1,518,988 shares of common stock at an exercise price of $1.70 per share. Both warrants expire on March 15, 2006. Assuming the conversion and exercise of the above-mentioned debenture and warrant by Sigma-Tau and assuming the exercise of all other outstanding warrants held by Sigma-Tau, Sigma-Tau would own approximately 38% of our outstanding common stock as of March 15, 2002.

As of December 31, 2001, we had $10.2 million of cash on hand. On January 18, 2002, we paid our outstanding $5 million note and reduced our cash balance accordingly. Based on our internal forecasts and projections, we believe that our cash on hand at December 31, 2001, together with the $4.0 million of cash raised through the issuance of the above-mentioned convertible debentures and the cash to be generated through the expected sale of our products, will be sufficient to fund operations through December 31, 2002.

We have rights to the following registered trademarks: HP Acthar® Gel and Ethamolin®. We also have the following unregistered trademarks: Glofil^TM-125, Migrastat^TM, Emitasol^TM, Hypnostat^TM, Panistat^TM, Ceresine^TM, Cordox^TM, Dermaflo^TM, Neoflo^TM, and Sildaflo^TM. VSL#3^TM is owned by VSL Pharmaceuticals, Inc. Pramidin® is owned by Crinos Industria Farmacobiologica SpA. Each other trademark, trade name or service mark appearing in this document belongs to its respective holder.

Our overall objective is to acquire and market acute care and critical care hospital/specialty pharmaceutical and related healthcare products. Our strategy includes acquiring marketed or near-to-market products that complement existing products and, where appropriate, forming corporate alliances to facilitate and fund the clinical development of our drug candidates.

Our operating objectives include: (1) building a strong hospital/ specialty market-oriented sales, marketing and distribution capability to increase and support sales of our products currently being marketed as well as new complementary products which we may acquire in the future; (2) acquiring marketed products to leverage our existing sales, marketing and distribution infrastructure; and (3) building a sustainable cash flow by reducing our overall cash consumption or “burn” rate. Consistent with our strategy, we acquired Acthar from Aventis Pharmaceuticals Inc. (“Aventis”), in July 2001. We began commercial shipment of Questcor-labeled Acthar to drug wholesalers in September 2001. For the year ended December 31, 2001, we had $2.1 million in revenues from Acthar. We also acquired the rights to market VSL#3, a patented probiotic, from VSL Pharmaceuticals, Inc. (“VSL”), in December 2001. VSL is owned in part by the principal shareholders of Sigma-Tau. We expect to launch VSL#3 in the first half of 2002.

We have built a sales, marketing, and distribution capability that is adequate to support and increase our sales of currently marketed products. We are looking to acquire additional hospital/ specialty based products currently on the market, that are available to be licensed or purchased. Products to be considered for acquisition would have to be complementary to our existing products, synergistic with promotional efforts currently being undertaken by our sales force, and contribute to our gross margins. There is no assurance we will be able to acquire such products or that, if acquired, they will be profitable. As of December 31, 2001, we had a group of 20 sales and marketing professionals to sell and promote our products in the hospital/specialty market.

An important part of our strategy includes the development of strategic alliances for out-licensing our currently marketed products to other world markets and the corporate partnering of our drug candidates in various stages of clinical development. Through agreements with other companies, we have acquired five marketed products: Acthar, Ethamolin, Glofil-125, Inulin and VSL#3.

To expand the sales of Emitasol (marketed as Pramidin in Italy) worldwide, we have entered into marketing and distribution agreements with the following:

We have received some upfront payments and, in certain cases, may receive milestone payments if our partners receive approval to market products in their territories. To date, Pramidin is only marketed in Italy. We receive royalties on sales of Pramidin by Crinos Industria Farmacobiologica SpA (“Crinos”). Royalty revenue has not been significant and we do not believe royalty revenue will increase in the future. CSC Pharmaceuticals Handels GmbH (“CSC”), has received approval to market Pramidin in Poland and the Czech Republic, but it has not begun to market the product. When and if CSC decides to begin selling Pramidin in these territories, we do not believe the royalty revenue will be significant.

Consistent with our objective of de-emphasizing our research and development stage projects, we have entered into various agreements to out-license certain anti-infective drug discovery programs as follows:

We received some upfront payments for these programs and will receive milestone and royalty payments if the compounds covered by these agreements advance through clinical development and eventually into sales. Although we retain some information rights to these programs, we do not control their progress. We have discontinued research and development on all remaining anti-infective programs. We retain certain patents and other intellectual property on these and other drug discovery programs. We are required to pay certain legal fees and patent expenses in order to maintain ownership of this intellectual property. Legal fees and patent expenses may be significant and there can be no assurance that we will ever recognize any value from these expenditures. We may seek to out-license some or all of our intellectual property in this area or a

selection of compounds for development and resultant potential milestones. Additionally, royalty payments from these agreements may not be received for several years, if ever. There can be no assurance that compounds covered by these agreements will ever advance through to commercialization or that we will ever receive any future payments under these agreements.

We intend to out-license to appropriate partners in certain geographic areas the marketing and distribution rights to Emitasol (intranasal metoclopramide) for the treatment of gastrointestinal disorders including delayed onset emesis. In July 2001, the exclusive option to develop and market Emitasol in North America, held by Shire Pharmaceuticals Group plc, had expired. We intend to seek a corporate partner to continue the development of Emitasol in North America. Until such corporate partner is found, we do not expect to incur any significant expense related to the development of Emitasol in North America except legal fees, patent expenses and minimum royalty payments. We currently have four licensing agreements for the marketing of Emitasol in the following territories: Italy, Austria, Poland, Czech Republic, Russia, Hungary, Slovak Republic, South Korea and Chile. It is our goal to enter into more licensing agreements in the future in other countries.

Our marketed products as of December 31, 2001 include: Acthar, which was acquired in July 2001, Ethamolin, which was acquired in November 1996, and Glofil-125 and Inulin, which were acquired in August 1995. We intend to begin marketing VSL#3 during the first half of 2002.

Acthar. In July 2001, we signed an agreement with Aventis to acquire the worldwide rights to Acthar. Acthar is a corticotropin product that had previously been made available to patients as part of a special program administered by the National Organization for Rare Disorders (“NORD”), to treat seriously ill children with a seizure complex, referred to as infantile spasm, or West Syndrome, a potentially fatal disorder, and patients with multiple sclerosis who experience severe and painful episodes of flare.

Due to limited production of Acthar and the resulting limited availability of the product over the past few years, distribution had been tightly controlled by Aventis through the NORD limited access program. Under this program approximately 10,000 vials of Acthar were made available to patients in 2001. Following the acquisition of Acthar in July 2001, we began shipping the product to drug wholesalers at the end of the third quarter. We are able to support general market distribution since Acthar is now back in full production. As part of our agreement, Aventis has agreed to manufacture and supply Acthar through July 2002 at a fixed price per vial. A formal manufacturing agreement has not yet been executed. Failure to complete this manufacturing agreement may adversely affect our ability to obtain an adequate supply of Acthar, which in turn would impact future revenues. We are in the process of securing a new manufacturer for the production of the active pharmaceutical ingredient (the “API”) in Acthar and also the production of the finished product. We have identified several potential third party contract manufacturers for the API and finished product. We believe that existing supplies of the API, coupled with our existing relationship with Aventis, should ensure adequate supply of Acthar through 2002 based on our internal sales forecast. However, there can be no assurance that the existing inventory of the API will be sufficient to meet our demand beyond 2002, or that we will be able to enter into agreements with third party manufacturers to supply Acthar, or if these agreements are entered into that the third party manufacturers will be able to supply Acthar. Additionally, under our current arrangement, Aventis has agreed to supply Acthar at a fixed price per vial through July 2002. There can be no assurance, even if we are able to secure an adequate supply of the API and enter into an agreement for the production of the finished product, that the cost of the API and the finished product will not increase substantially.

Based on information received by us from NORD and the previous distributor of Acthar, we estimate that approximately 1,600 patients annually were allowed access to Acthar over the past four years of the Aventis limited access program. We believe, through internal forecasts, that the re-introduction of Acthar into normal distribution channels could open access to more patients suffering from various autoimmune disorders who may be helped by Acthar. Through NORD, we maintain a program to provide vials of Acthar free of

Ethamolin. End stage liver disease, also known as hepatic cirrhosis, results in approximately 26,000 deaths annually. Hepatic cirrhosis promotes the formation of esophageal varices through development of portal hypertension. When portal venous blood pressure rises, the varicosities that develop may cause life threatening upper gastrointestinal hemorrhage and are associated with a high mortality rate. At least 33,000 patients in the U.S. have either actively bleeding esophageal varices or esophageal varices that are at imminent risk of bleeding.

Early and effective treatment of esophageal varices to achieve hemostasis is essential to a favorable outcome in a bleeding patient. The most common pharmaceutical treatment protocol involves the injection of a sclerosing agent into the varix, achieving clot formation and obliteration of the varix. This form of hemostasis is called sclerotherapy and usually requires multiple treatment sessions. Ethamolin is the only sclerotherapy agent approved by the Food and Drug Administration (“FDA”) for the treatment of esophageal varices that have recently bled. There is strong competition from band ligation, a form of surgery, but we believe that Ethamolin is the only sclerosant that is actively promoted at this time. We estimate Ethamolin to have 18% (on a mL basis), of the total sclerosant market share, at this time.

Glofil-125 and Inulin. Kidney disease afflicts more than 8.3 million persons in the U.S. and is increasing primarily due to an increase in diabetes mellitus, hypertension and glomerulonephritis cases. Kidney disease results in over $15 billion annually in healthcare costs in the U.S. The market includes 700,000 persons with severe kidney diseases, 13,500 persons receiving kidney transplants annually, and an additional 50,000 persons awaiting kidney transplants. The measurement of kidney function, glomerular filtration rate or (“GFR”) is critical to the understanding of the disease state and its appropriate therapeutic intervention. GFR has historically been estimated by the measurement of endogenous serum creatinine and by creatinine clearance. These diagnostic assays may overestimate kidney function by as much as 100% in some patients. We believe that the use of renal filtration markers, such as Glofil-125 or Inulin, offer a more accurate and direct means of determining GFR, and thereby result in better clinical decision making.

Glofil-125 and Inulin are FDA-approved products for the measurement of GFR. Nephrology, transplant, oncology and nuclear medicine departments at major medical centers are the primary users of these products. Glofil-125 is an injectable radioactive diagnostic agent, which provides rapid information on GFR with great accuracy. Inulin is a non-radioactive injectable diagnostic agent, which provides a measure of GFR.

We believe that there is an opportunity for increased utilization of Glofil-125. Present diagnostic procedures for measuring kidney function include serum creatinine and creatinine clearance tests. These two tests are the most commonly performed methods of measuring kidney function because of their low cost; however, both methods may significantly overestimate kidney function in the estimated 700,000 patients with severe renal disease. The utility of Glofil-125 has been established in published clinical studies as being a more direct, accurate measure of kidney function, yielding much more reliable results than serum creatinine or creatinine clearance tests. This improved accuracy can be essential in monitoring disease progression, and implementing appropriate interventions and assessing the degree of success of kidney grafts post transplant. We believe that as new interventional therapies emerge, such as the use of ACE inhibitors to slow down disease progression and the Modification of Diet in Renal Disease (“MDRD”), for the treatment of early stage renal disease, the use of Glofil-125 will take on much greater importance; however, at this point, most early stage patients are not felt to require this degree of accuracy in the determination of renal function.

Glofil-125 has also been used in clinical trials administered by the National Institutes of Health (“NIH”). Use of Glofil-125 in clinical trials can provide the trial administrators an accurate measure of kidney function and show the effects of the drug being studied on normal kidney function. Glofil-125 has been included in several recent clinical trials administered by the NIH. One of these trials ended in the third quarter of 2001. We plan to promote the use of Glofil-125 to the NIH and to large pharmaceutical companies for use in clinical trials as a means of detecting kidney toxicity and measuring overall kidney function. Although we believe that Glofil-125 may be used in clinical trials in the future, there can be no assurance that

The biggest impediment to the growth in the sales of Glofil-125 is the lack of availability of the test to practicing clinicians. Routine testing with Glofil-125 requires dedicated laboratory facilities and trained technicians. Our promotional efforts are focused on establishing testing sites in all major market areas in the U.S. We are not aware of any new diagnostic agents that would pose a competitive threat to Glofil-125.

Inulin, which is also sold by us, is an alternative agent for GFR measurement. However, the preparation and use of Inulin is time consuming and it does not provide the practical advantages of Glofil-125. The use of and demand for Inulin is relatively limited. We do not expect revenues from the sale of Inulin to increase in the future.

VSL#3. We have acquired the U.S. marketing rights for VSL#3, a patented probiotic preparation of eight live freeze-dried lactic acid bacterial species. Probiotics are living organisms in foods and dietary supplements, which, upon ingestion in certain numbers, improve the health of the host beyond their inherent basic nutrition. We intend to market VSL#3 in the first half of 2002, as a dietary supplement to promote normal GI function.

VSL#3 is also being studied for use as a biological product to treat a number of Inflammatory Bowel Diseases (“IBDs”). IBD is one of the most common chronic gastrointestinal illnesses and consists mainly of two conditions — ulcerative colitis and Crohn’s disease. It is estimated that almost one million Americans have IBD, with roughly 50% due to ulcerative colitis and 50% due to Crohn’s disease. About 25-40 % of ulcerative colitis patients eventually must have their colon removed because of massive bleeding, severe illness, rupture of the colon, or risk of cancer. A number of surgeries may be performed for ulcerative colitis. One such procedure, which is becoming increasingly common for ulcerative colitis, is ileal pouch anal anastomosis (“IPAA”) surgery. This operation allows the patient to have relatively normal bowel movements because it preserves part of the rectum. The major long-term complication that occurs as a result of this surgery is pouchitis. Pouchitis is the non-specific inflammation of the ileal reservoir that appears to be associated with bacterial overgrowth and dysbiosis. Studies have found that probiotics are effective in preventing flare-ups of chronic pouchitis.

In a specific study regarding chronic pouchitis, conducted by Gionchetti, et al, and discussed in the U.S. peer-reviewed clinical Journal of Gastroenterology and Hepatology, 15:489-493 (2000), VSL#3 has been effective in preventing chronic pouchitis. In this study, the efficacy of VSL#3 was compared with a placebo in 40 patients who had undergone the IPAA surgical procedure and had achieved clinical and endoscopic remission from chronic pouchitis after antibiotic treatment. Of the 20 patients who received the placebo, all had a relapse of pouchitis during the nine-month study period. Of the patients that received VSL#3, 85% were still in remission at nine months post-treatment. No side effects were observed from the treatment with VSL#3.

VSL#3 has received Orphan Drug designation from the Office of Orphan Products Development at FDA for two indications: (1) the treatment of active chronic pouchitis, and (2) the prevention of disease relapse in patients with chronic pouchitis. Orphan Drug designation applies to diseases and disease states with a prevalence of less than 200,000 patients in the U.S. Orphan Drug designation confers certain protection such as market exclusivity for seven years once the product has been approved. For VSL and us to take advantage of this designation, VSL#3 would have to be approved as a new biological product by the FDA. The process to file for approval would require additional clinical trial work as well as a significant amount of manufacturing validation. This could take years and may cost several hundred thousands of dollars to complete. We do not control the clinical development strategy for VSL#3. There can be no assurance that VSL#3 will be studied in additional clinical trials or that it will ever enjoy the benefits of this Orphan Drug designation.

We believe the emerging role for probiotics in the management of patients with IBD offers an attractive market opportunity for VSL#3 while at the same time effectively complements the current promotion of Ethamolin to this same group of gastroenterologists.

In November 1997, we acquired the Dermaflo technology, a patented topical drug delivery system, from Enquay, Inc. for a combination of cash and royalties on net sales. The technology is a polymer matrix system that can store a variety of different drugs and release them at a desired rate over an extended period of time so that optimal clinical response is obtained. Included in the assets acquired were the products Neoflo, a triple antibiotic over-the-counter wound care product, and Sildaflo, a potential prescription burn care product, and required manufacturing equipment.

We had a multi-year agreement with NutraMax Products, Inc. (“NutraMax”), a leading supplier of first aid and wound care products, under which we were supplying Neoflo, a proprietary triple antibiotic product using the Dermaflo technology, to NutraMax for conversion and sale in the form of adhesive strips and patches. NutraMax had the exclusive right to sell the finished products to the retail and industrial first aid markets. Further, the agreement called for us and NutraMax to jointly develop several new products using the Dermaflo technology and to share the development expense and profits from future sales. We began shipping the product to NutraMax in March 1999. In May 2000, NutraMax filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The NutraMax bankruptcy filing had a negative impact on our sales and cash flow during calendar year 2000 and first quarter of 2001. Approximately $190,000 of our sales to NutraMax was included in the unsecured creditors class and was subject to a reduced payment. Of this amount, only $19,000 was recovered. In February 2001, NutraMax’s plan of reorganization was approved by the Bankruptcy Court. When NutraMax emerged from Chapter 11, NutraMax further reduced its forecast for adhesive strips to be supplied. On April 2, 2001, NutraMax filed a motion with the U.S. Bankruptcy Court to reject our supply agreement effective on that date. The NutraMax product was manufactured in our facility in Lee’s Summit, Missouri. Since the Dermaflo business is not strategically important to us and since the investment needed to build the business into a profitable venture is substantial, in May 2001 we ceased our manufacturing operations at Lee’s Summit after completion of the remaining orders for NutraMax.

In May 2001, we closed our Lee’s Summit facilities and discontinued any work using the Dermaflo technology. During the remainder of 2001, we had been in discussion with Franklin Pharmaceuticals Inc. (“Franklin”), an entity owned by a former employee who ran the Lee’s Summit facility. We had an agreement in principle with Franklin to acquire the rights to the Dermaflo technology and to sublease the Lee’s Summit facility and the equipment necessary to manufacture products using the Dermaflo technology. In November 2001, in order to avoid the payment of minimum royalties owed to Enquay under the original license agreement, Questcor and Enquay assigned all Dermaflo drug technology to Franklin. Through the end of 2001, we continued to negotiate with Franklin as to the sublease of the facility and the rental of the manufacturing equipment. Since Franklin was unable to secure adequate financing to fund its operations, we did not enter into the sublease and the equipment rental agreement. In December 2001, we determined that the probability of recognizing any future value for the Lee’s Summit facility, the related leasehold improvements, and the manufacturing equipment was minimal. Accordingly, we recorded a charge of $677,000 as a loss on the discontinued product line consisting of a write-off of the remaining net book value of leasehold improvements, a write-down of the manufacturing equipment to its estimated fair market value and the total estimated remaining lease payments remaining on the Lee’s Summit facility.

We continue to discuss the possibility of subleasing the facility and rental of the manufacturing equipment with interested parties. In February 2002, Enquay notified Franklin that it was terminating the Dermaflo license assigned by us in November 2001 unless Franklin was able to obtain adequate funding. To date, we cannot determine if Franklin has obtained adequate funding or if they still have any rights to the Dermaflo technology under the assigned license. It is our intention to try and sublease the Lee’s Summit facility and to sell the manufacturing equipment located in that facility. The market for specialized clean room space in Lee’s Summit is nearly non-existent and it is highly unlikely that we will be successful in entering into a sublease in the near future or ever. Accordingly, it appears we will continue to pay the monthly rent on this facility through December 2004. Although certain equipment contained in the Lee’s Summit facility had recently undergone extensive refurbishment, the equipment is highly specialized and must be recalibrated and

revalidated if it is moved. We have made the equipment available for sale but it is highly unlikely that we will be able to sell this equipment in the near future, if ever. With the exception of the monthly rental and related facilities charges, we do not anticipate any additional significant cash outlay as a result of our decision to discontinue this product line.

Our development programs include the intranasal drugs Emitasol, Hypnostat, and Panistat and the cytoprotective compound Ceresine (dichloroacetate or “DCA”).

Through our merger with RiboGene, Inc., we acquired Emitasol, an intranasal form of metoclopramide. Metoclopramide is an approved antiemetic and is available in both oral and intravenous forms to treat diabetic gastroparesis and to prevent acute chemotherapy-induced emesis. We, through future strategic partners, may choose to investigate Emitasol for the treatment of diabetic gastroparesis and delayed onset emesis (nausea and vomiting) associated with cancer chemotherapy.

Emitasol is currently being developed and marketed in certain countries throughout the world through corporate partners. It is on the market in Italy as Pramidin, and is licensed to and distributed by Crinos in Italy for the treatment of a variety of gastrointestinal disorders and emesis. For the year ended December 31, 2001, Crinos distributed approximately 29,000 units of Pramidin in Italy. We entered into a marketing agreement in December 2000 with Ahn-Gook Pharmaceuticals (“Ahn-Gook”), for intranasal metoclopramide, to be marketed under the trade name Emitasol, in Korea. Ahn-Gook also signed an agreement with Crinos to obtain the intranasal metoclopramide finished product. This product is sold as Pramidin in Italy. Emitasol has been filed for approval in Korea, and if approved, will be distributed by Ahn-Gook in Korea for the treatment of gastrointestinal disorders and emesis. In the U.S., Emitasol is proposed as a method to control diabetic gastroparesis and to prevent delayed onset emesis associated with cancer chemotherapy. Currently, there are no drugs specifically approved to treat delayed onset emesis. We believe that Emitasol, when given intranasally, may be effective in preventing delayed onset emesis. Advantages may include ease of administration, an increased level of efficacy as compared to alternatives, and cost effectiveness.

Diabetic gastroparesis. Questcor, together with its former North American collaborative partner Shire Pharmaceuticals Group plc (“Shire”), (see “Strategic Alliances and Collaborations”), concluded a U.S. Phase II clinical trial in diabetic gastroparesis in the fourth quarter of 2000. For some diabetics, proper digestion may be difficult. Variable blood glucose levels may lead to a condition known as gastroparesis or stomach paralysis. Gastroparesis can result in general loss of appetite, nausea and vomiting, and in some cases severe dehydration. Many prescription medications are used to treat gastroparesis, including bethanchol and erythromycin. Each of these prescription drugs has limited effectiveness and contain side effects. Metoclopramide is approved for treating gastroparesis. We believe that the intranasal form of metoclopramide may provide diabetics who have gastroparesis with an easier route of administration, resulting in better patient compliance. In October 2000, we announced the results of the Phase II study of Emitasol (metoclopramide nasal spray) in the treatment of diabetic gastroparesis. The study showed that both Emitasol (metoclopramide nasal spray) and oral metoclopramide were bioavailable when administered to diabetic gastroparesis patients. The trial also suggested that Emitasol (metoclopramide nasal spray) treatment may enhance the clinical response versus oral metoclopramide. In July 2001, Shire’s exclusive option to develop and market Emitasol in North America expired and all rights were returned to us. We currently intend to seek a corporate partner for the development of Emitasol in the U.S. and in other countries around the world.

Delayed onset emesis. According to the American Cancer Society, about 1.3 million new patients are diagnosed with cancer in the U.S. each year, many of whom are treated with chemotherapy. Nausea and vomiting (emesis) are common side effects of cancer chemotherapy. Chemotherapy-induced emesis is considered to occur in two phases: acute (within 24 hours of the initiation of chemotherapy) and delayed (on the second and subsequent days). Several drugs have been approved by the FDA for preventing nausea and

vomiting associated with emetogenic chemotherapy, including injectable forms of ondansetron, granisetron and metoclopramide. Ondansetron and granisetron are representatives of a newer class of drugs called serotonin antagonists or setrons, and are considered highly effective in controlling acute chemotherapy-induced emesis. There are conflicting reports, however, about the efficacy of serotonin antagonists in controlling delayed onset emesis. There are, in fact, no FDA-approved treatments specifically for delayed onset emesis. Increasing numbers of these patients are being treated as outpatients and experience delayed onset emesis when they are no longer under the immediate care of a medical professional. Any medication for such emetic episodes should therefore be suitable for self-administration by the patient. Injectable medications are unlikely to be suitable in this context. It appears that current practice is to provide patients initially with oral antiemetics in tablet form. Tablets are not, however, particularly suitable for patients who are nauseated and may vomit.

Prior clinical trials for Emitasol have demonstrated that metoclopramide is absorbed and effective when given intranasally. Phase I trials indicated that the overall amount of metoclopramide which reaches the plasma is very similar whether the drug is given intranasally, intravenously or orally. Given the similarity in uptake of the three dosage forms, similarity might also be expected in their clinical performance. For acute emesis, the expected similarity in performance has been demonstrated for the intranasal and intravenous dosage forms. In a prior Phase III study, Emitasol provided protection against acute emesis comparable to that previously reported for intravenous metoclopramide. We therefore anticipate that intranasal metoclopramide may be effective for controlling delayed onset emesis, an activity suggested for oral metoclopramide in the clinical literature.

Regardless of which indication is selected for Emitasol, substantial additional development, clinical testing (potentially including one or more Phase III trials) and investment will be required prior to seeking regulatory approval for commercialization of this product in the U.S. There can be no assurance that a Phase III clinical trial of Emitasol will demonstrate the safety and efficacy of the product to the extent necessary to obtain regulatory approvals for the indications being studied, or at all. The failure to demonstrate adequately the safety and efficacy of Emitasol could delay or prevent regulatory approval of the product.

Through our merger with RiboGene, we acquired Hypnostat, an intranasal form of triazolam. Oral triazolam is approved for short-term treatment of insomnia. In June 2001, we signed a Letter of Understanding with Fabre Kramer of Houston, TX, to jointly pursue the worldwide development and commercialization of Hypnostat (intranasal triazolam) for insomnia and Panistat (intranasal alprazolam) for panic disorders, two of our product candidates. Under this agreement, we were reimbursed $32,000 in 2001 for consultants, employees, materials and supplies expenses related to this project. This original agreement was replaced with a new Letter of Understanding, dated January 2002, which anticipates entering into a License Agreement with the development to be funded by Fabre Kramer. We, together with our partner, are developing Hypnostat for the short-term treatment of insomnia. We believe that Hypnostat, when given intranasally, may be effective in treating insomnia. Advantages may include ease of administration, an increased level of efficacy as compared to alternatives, cost effectiveness, and possibly reduced side effects.

The potential advantages of Hypnostat are significant in light of the fact that thirty to forty million Americans suffer from serious sleep disorders which are often untreated or inadequately treated. Continued sleep impairment may cause severe health effects. Oral triazolam (Halcion®) has been one of the most successful and most prescribed sleep-inducing agents in the world, with over 11 billion prescriptions filled. Oral triazolam is considered safer in terms of overdose, drug interactions, and addictive potential compared to barbiturates. In addition, oral triazolam produces less morning grogginess, as compared to other benzodiazepines, due to a short plasma half-life. Oral triazolam and other benzodiazepines are recommended for short-term use in conservative doses. Zolpidem (Ambien®) and zaleplon (Sonata®) are newer hypnosedative agents that are chemically unrelated to benzodiazepines. However, both zolpidem and zaleplon have similar pharmacokinetic and pharmacodynamic effects and do not differ with respect to efficacy, tolerability, residual effects, memory impairment, rebound insomnia, or abuse potential compared to oral triazolam. Over the counter medications containing diphenhydramine (such as Benadryl® and Sominex®) have been shown to

increase the risk of symptoms of delirium including disorganized speech, poor attention level, and altered consciousness in the elderly. Other over the counter medications such as valerian and melatonin may be useful in alleviating mild short-term insomnia, but further clinical trials are required to fully evaluate efficacy and safety.

Prior clinical trials for Hypnostat support that triazolam is absorbed and effective when given intranasally. Phase I trials indicated that the overall amount of triazolam which reaches the plasma is very similar whether the drug is given intranasally or orally. Given the similarity in uptake of the two dosage forms, similarity might also be expected in their clinical performance. The expected similarity in performance is supported for the intranasal dosage form. In a prior Phase II pilot study, Hypnostat at 0.125 mg was superior to oral triazolam at 0.250 mg for time to sleep onset (p=0.008), effective sleep time (p=0.008), and stage two sleep time (p<0.05) and was equivalent to oral triazolam at 0.250 mg for quality of sleep. We therefore anticipate that intranasal triazolam may be effective for treating insomnia. The drug is in Phase II stage of development.

Through our merger with RiboGene, we acquired Panistat, an intranasal form of alprazolam. Oral alprazolam is approved for the management of panic disorder or the short-term relief of anxiety symptoms. Questcor and Fabre Kramer intend to develop Panistat for the management of panic disorder or the short-term relief of anxiety symptoms. We believe that Panistat, when given intranasally, may be effective in treating panic disorders. Advantages may include ease of administration, an increased level of efficacy as compared to alternatives, and cost effectiveness.

The potential advantages of Panistat are significant in light of the fact that anxiety disorders are the most common mental disorder in the U.S., affecting approximately 19 million people. According to the National Institute of Mental Health, approximately 25% of those affected seek treatment. Generalized anxiety disorder is characterized by constant uncontrollable worry. Panic disorder is characterized by acute, spontaneous, and repeated anxiety attacks which involve an intense, terrifying, and unfocused fear in the absence of any external threat. Panic attacks typically last for approximately 20 to 30 minutes and may cause racing heartbeat, chest pains, difficulty breathing, choking sensations, dizziness, and numbness. Panic attacks can occur as often as several times per week or several times per day. Approximately 2.4 million people in the U.S. suffer from panic disorder, which often progresses into chronic anxiety and agoraphobia.

Early treatment can help keep a panic disorder from progressing. Benzodiazepines, including oral alprazolam (Xanax®), have proven to be safe and effective for treating panic disorder for over 20 years. Benzodiazepines block panic attacks during the first or second day of treatment. Surprisingly low rates of abuse of this and other medicines are reported in persons with panic disorder. Many antidepressants, including doxepin (Sinequan®), sertraline (Zoloft®), fluoxetine (Prozac®), imipramine (Tofranil®), and paroxetine hydrochloride (Paxil®), are useful in treating panic attacks without causing physical dependence. However, successful treatment requires full strength dosage and usually takes four to eight weeks for therapeutic effects to be observed. In addition, antidepressants cause panic attacks to initially increase in approximately half of panic disorder sufferers. As a rule, the less expensive antidepressants have more side effects than the newer, more expensive, ones. Phenelzine sulfate (Nardil®) is effective for panic disorder, but is complicated to use. Although phenelzine sulfate is safe when used by an experienced physician, it is typically reserved for cases where simpler medications have failed or cannot be used. Unsafe elevations of blood pressure for several hours can occur if one does not adhere to diet and medication restrictions. Cognitive-behavioral therapy (“CBT”) teaches the patient to anticipate and prepare for situations and bodily sensations that may trigger panic attacks. CBT generally requires at least eight to twelve weeks for the patient to learn the skills and put them into practice. CBT requires a motivated patient and a specially trained therapist. Clinical experience suggests that for many patients with panic disorder, a combination of CBT and medication may be the best treatment. Other treatment options include relaxation, breathing techniques, hypnotherapy, and psychotherapy.

Cytoprotective drugs for acute care settings that treat ischemic injury are not currently available and the market opportunities for us may be significant, potentially totaling several million cases annually in the U.S. We believe that our drugs, if approved, may reduce the number of fatalities associated with ischemia-related and inherited metabolic disorders and also reduce the high cost of rehabilitation and ongoing care in the U.S. of these patients.

Our cytoprotective drugs are administered intravenously, which allows for rapid delivery to the ischemic tissue, or orally, which facilitates chronic administration. In order to ensure early interventions, our cytoprotective drugs are intended to be standard components in hospital emergency rooms, operating theater suites, endoscopy suites and radiology suites. Chemically demonstrated lack of toxicity should suit them for this purpose, but such a demonstration is dependent on ongoing and future clinical trials, which may not be successful.

Ceresine is a small non-peptide molecule, which acts on glycolysis at the level of the mitochondria. Ceresine is a form of sodium dichloroacetate, or (“DCA.”) We have licensed or obtained two issued U.S. patents covering the use of Ceresine in cerebral ischemia and received orphan drug designation for Ceresine for this indication. We believe that Ceresine stimulates a specific enzyme which is present in the membrane of the mitochondria that removes a precursor of lactic acid, known as pyruvic acid, from the cytoplasm of the cell by transporting it into the mitochondria and converting it to acetyl coA. This results in a reduction of lactic acid in the cell. Increased post-ischemia accumulation of lactic acid is a major causal factor in the cessation of glycolysis, the resultant decrease in cellular ATP levels and eventual cell death. Numerous studies have shown that Ceresine reduces post-ischemia lactic acid levels in humans subjected to various traumatic events, which would otherwise have resulted in increased lactic acid or lactic acidosis.

Ceresine has been employed by clinical investigators in patients on an experimental basis for the intravenous and oral treatment of lactic acidosis. Published clinical studies and our own Phase I data have established that Ceresine reduces serum lactic acid and exhibited no serious side effects at the dose levels studied. Ceresine has also been shown in human studies to cross the blood-brain barrier and to reduce cerebrospinal fluid lactic acid levels in congenital lactic acidosis patients.

Approximately 100 patients participated in the Phase I and two Phase II trials of Ceresine under our Investigational New Drug application or (“IND”) and the drug was well tolerated. Our Phase II clinical trial data on Ceresine in closed head injury patients showed that the drug crosses the blood-brain barrier at high levels and very quickly after crossing reduces lactate levels substantially. This effect lasted for at least 12 hours. Serum lactate levels were also reduced substantially in the drug-treated group. In July 1998, the FDA granted expedited development status to Ceresine in head injury under Subpart E of the FDA regulations. We are not currently pursuing clinical development of Ceresine in head injury and have no plans to pursue this indication in the future.

Congenital Lactic Acidosis (“CLA”) is a heterogeneous group of disorders characterized by mitochondrial dysfunction. Mitochondria are sub cellular organelles responsible for production of energy necessary for cellular function and survival. When mitochondria do not function normally there are inadequate stores of energy (ATP) produced and the accumulation of poisonous metabolic intermediates such as lactate. Clinically, disorders of mitochondrial dysfunction may affect cells of the nervous system (retardation, seizures, strokes, migraines, psychiatric disturbances, weakness, poor gastrointestinal function), muscles (weakness, cramping, pain), kidneys (electrolyte abnormalities), heart (cardiomyopathy, heart block), liver (hypoglycemia, hepatic failure), eyes (blindness), ears (deafness) and other organs (failure to grow normally). When the mitochondrial problem is severe, the condition is lethal. In other less extreme instances, there may not be any clinical symptoms. There are over 20,000 patients in the U.S. suffering from some type of mitochondrial disease. Diagnosis of the disorder may be made on physical examination, medical history review, and in some cases special laboratory tests. These laboratory tests may include identification of the gene responsible for the mitochondrial dysfunction. Muscle biopsy is often performed to identify the mitochondrial disorder; however,

the test is not always diagnostic. There is currently no effective approved therapy for CLA. Temporizing measures such as dietary therapy include avoidance of fasting and use of increased dietary fat. Vitamins have been given without proven benefit. Avoidance of stress and sleep deprivation have also been advocated.

DCA has been administered orally to individuals with CLA with anecdotal reports of benefit. Some side effects have been observed with chronic dosing, including peripheral neuropathies that required drug interruptions or dose reductions although individuals nearly always were able to continue on treatment. The treatment of CLA with Ceresine has also been granted orphan drug status by the FDA. This confers seven years of marketing exclusivity to the first licensed agent as well as certain tax advantages. An additional six months of exclusivity may be granted upon licensure or at some time prior to the expiration of all existing marketing exclusivity or patent protection if adequate studies have been conducted in pediatric subjects.

To accelerate any potential NDA filing, collaborations have been discussed with two academic sites actively investigating DCA in individuals with CLA. Upon finalization of these two relationships, databases would become available to us. These databases could be used as part of the clinical information necessary for NDA filing with regulatory authorities. If a clinical benefit is demonstrated, regulatory authorities could act favorably on the application. We currently have no rights to the data generated by the academic institutions that studied various formulations of DCA in patients with CLA. We have been in discussion with these groups about a potential agreement to gain access to the data. The trials are complete and the data are being analyzed. The final data analysis will take several months to complete. After data analysis is complete, if the results are extremely positive and if the combined results are sufficient to allow us to file for an accelerated review with the FDA for approval, we may seek to finalize these agreements to gain access to the data. There can be no assurance, however, that the clinical results would be positive, that we could successfully complete agreements to gain access to the data or that the FDA would approve the product for use. In addition, the studies have been conducted with different formulations of DCA. There is no assurance the FDA would not require substantial additional testing of Ceresine, or the re-formulation of DCA used to complete the trials in order to grant approval.

The GERIs series of neuroprotective compounds may prevent ischemic brain damage originating from astrocytes (astroglial cells). Astrocytes serve important metabolic functions and are thought to be responsible for the bulk of brain swelling following stroke or injury. The swelling constricts blood vessels and worsens the injury — resulting in ischemia and subsequent cell death. In addition, upon onset of ischemia, astrocytes release excitotoxins such as glutamate and aspartate over an extended period of time — not rapidly, as in the case of neurons — that result in significant and persistent damage to neurons. Because astrocyte swelling and excitotoxin releases are late-stage events in the development of ischemia following brain injury or stroke, they may be more appropriate targets for drug intervention than neuron-related events.

In animal models and cell culture experiments, the GERI compounds exert a powerful neuroprotective effect by blocking chloride-ion channels, to reduce swelling, and by inhibiting excitotoxin release, to limit or prevent damage to neurons. In vitro, excitotoxin release from cultured astrocytoma cells is fully inhibited at very low concentrations by many compounds of the GERI series. A greater than 30-fold decrease in drug concentration required to inhibit excitotoxin release has been achieved by designing novel derivatives in the GERI compound family. In animal models of global and focal brain ischemia, a number of the GERI compounds demonstrated reduction of the infarct volume by as much as 50% in comparison to untreated controls. In addition, the toxicity profile of existing development candidates appears excellent.

The GERI compounds are currently being funded by a Small Business Innovation Research (“SBIR”) grant from the NIH. It is anticipated that reimbursement under this grant will be completed in April 2002. Although we have had some preliminary discussions with potential corporate partners regarding the GERI compounds, there can be no assurance that we will enter into a collaboration to fund future research on these compounds. Pending completion of the reimbursement under the existing SBIR grant, we do not intend to expend any additional resources on these compounds.

At this time, we continue to define the chemical, toxicological and pharmacological effect of a number of GERI compounds in animal models having utilized $443,000 through December 31, 2001 of the $749,000 in funding from an NIH SBIR grant. Funding for this project expires in April 30, 2002. There can be no assurance that we will be successful in licensing the GERI program or that we will realize license fees or revenues from such programs.

Cordox has been studied in the past for a variety of indications including its use in several acute ischemic indications and as a blood preservative. To date, the results of the clinical studies have not been compelling enough to warrant further development of Cordox for any indication.

In September 2001, we completed our final review of the final report from Hoxworth Blood Center in Cincinnati on the ability of Cordox to improve the biochemical and physical characteristics of stored human red blood cells. During storage at 4 degrees centigrade, red cell concentrate incubated with Cordox did not demonstrate improved levels of ATP or 2,3 DPG compared to red blood cells stored in currently licensed blood additive solutions. In addition, experiments with 13C labeled Cordox failed to show metabolism to lactate in stored red blood cells. The results indicate that Cordox does not enter red blood cells and does not reach its intended target. This is a prerequisite for Cordox to have a beneficial effect on cellular metabolism. Based on these results, all further work on Cordox has been discontinued.

We intend to terminate all the agreements relating to Cordox and Dr. Markov, the individual that we obtained the Cordox license from. We have also abandoned all our patents relating to Cordox.

Subsequent to our merger with RiboGene, we implemented a strategy to focus on the sales and marketing of approved pharmaceutical products and late stage drug development candidates. As a result, we planned to out-license our early stage drug targets and technology. Thus, we discontinued our drug discovery programs in the first quarter of 2000 and anticipate that future in-house drug discovery research expenses associated with drug discovery will be limited to legal fees, patent costs and other costs to license such programs.

We have an exclusive, worldwide license agreement with Dainippon to use our antibacterial ppGpp degradase and peptide deformylase technology for the research, development and commercialization of pharmaceutical products. We have retained the right to co-promote, in Europe and the U.S., certain products resulting from the arrangement. We will be entitled to receive potential milestone payments upon the achievement of clinical and regulatory milestones in the amount of $5.0 million in Japan and $5.0 million in one other major market. We will receive a potential royalty on net sales that will range from 5% to 10%, depending on sales volume and territory.

Dainippon has been conducting research on two specific bacterial targets, deformylase and ppGpp degradase. To date, Dainippon has focused most of their efforts on the deformylase project. Several compounds have been synthesized and tested in vivo against drug resistant bacteria. Although the compounds have shown good in vivo activity, Dainippon has not selected any compounds for pre-clinical studies. There can be no assurance that Dainippon will ever select any compounds for preclinical studies or if selected that these compounds will eventually be approved as drugs. There can also be no assurance that we will ever receive any milestone payments or royalties under our agreement with Dainippon.

We have an exclusive agreement with Rigel Pharmaceuticals, Inc. (“Rigel”), to use our antiviral technology. Under the agreement, we have assigned to Rigel certain antiviral technology, including our Hepatitis C virus internal ribosome entry site and NS5A drug discovery technology, for the research, development and commercialization of pharmaceutical products. We will be entitled to potential future

In February 2001, we announced that we had exclusively licensed certain antifungal drug research technology to Tularik, Inc. In addition, we have transferred to Tularik certain biological and chemical reagents to be used in the discovery and development of novel antifungal agents. In exchange, we received a cash payment, payment for reimbursement of patent expenses, and will be entitled to future potential milestone payments upon the achievement of certain clinical and regulatory milestones as well as royalty payments on sales. Tularik has screened numerous compounds through the antifungal capping assay that it acquired as part of this agreement. Several of these compounds have been identified as having activity against C. albicans capping enzymes. Tularik is continuing to review these compounds.

In July 2001, the option held by Shire Pharmaceuticals Group to acquire exclusive rights to Emitasol in North America expired and all rights reverted to us. In December 2001, Shire notified the FDA that it will no longer be our agent and, as such, will transfer to us all responsibilities previously conducted by them. This transfer is currently in progress.

In June 2001, we signed a Letter of Understanding with Fabre Kramer of Houston, TX, to jointly pursue the worldwide development and commercialization of two of our product candidates, Hypnostat (intranasal triazolam) for insomnia and Panistat (intranasal alprazolam) for panic disorders. This was replaced with a new Letter of Understanding, dated January 2002. This Letter of Understanding anticipates entering into a License Agreement with the development to be funded by Fabre Kramer.

Crinos Industria Farmacobiologica SpA (“Crinos”). In January 1994, as part of our acquisition of Emitasol and certain other intranasal products from Hyline Laboratories, Inc., we entered into a license agreement with Crinos. The agreement grants Crinos an exclusive license to manufacture and market Emitasol in Italy. The agreement expires 10 years after the first commercial sale in Italy subject to automatic renewal for three-year periods. In October 1996, the agreement was amended to grant Crinos a non-exclusive worldwide license to manufacture Emitasol. The amendment provides that we will receive additional royalties on all supply arrangements between Crinos and any of our licensees to Emitasol. We may terminate the license agreement in the event Crinos fails to pay certain minimum royalties. We also retain the right to all data generated by Crinos on Emitasol, including clinical and manufacturing information.

Crinos has received governmental approval to market Emitasol in Italy and launched this product under the trade name Pramidin in 1999 for the treatment of gastrointestinal disorders. Pramidin is marketed in two dosage forms under the names Pramidin 10 (200 milligrams/mL of active ingredient) and Pramidin 20 (400 milligrams/mL of active ingredient). To date, we have received minimal royalties from the sale of Pramidin in Italy. For the year ended December 31, 2001 unit sales of Pramidin were approximately 29,000.

CSC Pharmaceuticals Handels GmbH (“CSC”). In April 1997, RiboGene entered into an agreement with CSC. The agreement grants CSC an exclusive license to market and sell Emitasol in Austria, Poland, the Czech Republic, Bulgaria, Russia, Hungary, the Slovak Republic, Romania, and the remaining Community of Independent States and eight other eastern European countries. CSC has agreed to pay us a royalty based on net sales within the countries listed above. The agreement will expire on a country-by-country basis 10 years after the first commercial sale in that country. Although we can terminate the license if CSC did not obtain approval in any country contained in the agreement by April 16, 1999, we have not done so, since CSC has filed for regulatory approval in Austria, Russia, Hungary and the Slovak Republic. In 2001,

Laboratorios Silesia SA. In December 1999, we signed a license agreement with Laboratorios Silesia SA for marketing intranasal metoclopramide, to be marketed under the trade name Emitasol, in Chile. Laboratories Silesia SA also signed an agreement with Crinos to obtain the intranasal metoclopramide, finished product under the trade name Pramidin. This product is sold as Pramidin in Italy. We received a small up-front payment and will receive royalties on the net sales of Emitasol in the territory.

Ahn-Gook Pharmaceutical Co., Ltd. We entered into a license agreement in December 2000 with Ahn-Gook for marketing intranasal metoclopramide, to be marketed under the trade name Emitasol, in Korea. Ahn-Gook also signed an agreement with Crinos to obtain the intranasal metoclopramide finished product, under the trade name Pramidin. This product is sold as Pramidin in Italy. Under the terms of the agreement, Ahn-Gook will obtain government approval to market Emitasol. We received an up-front cash payment of $50,000, and are entitled to a milestone payment of $150,000 upon approval of the drug for distribution in Korea and royalties based on actual sales in Korea.

We do not currently manufacture any of our acquired products or our products in development. Our commercial products, Acthar, Ethamolin, Glofil-125, and Inulin are manufactured for us by approved contract manufacturers.

As part of our agreement with Aventis to acquire Acthar, Aventis agreed to manufacture the finished goods from existing inventory of the active pharmaceutical ingredient (the “API”) through July 2002. Subsequent to this, Aventis has agreed in principle as to the terms of the manufacturing agreement but the agreement has not yet been executed. Aventis has provided finished product to us under the proposed agreement. The production of Acthar requires the production of the API and the production of the finished product. The API is an extraction from porcine pituitary glands. Although the extraction process is well known by individuals within Aventis, the extraction may be difficult to reproduce at a new vendor. As part of the agreement to acquire Acthar, we obtained a sufficient supply of the API in order to meet our forecasted demand through 2002. We are required to find a new third party manufacturer to produce the API and for the production of the finished goods. We have identified potential third party manufacturers that could produce the API and the finished product but we have not yet entered into an agreement with any of these manufacturers. In addition, the production of the API and the finished product are subject to inspection and ultimate approval by the FDA. The Acthar site transfer process has numerous risks that could have a materially adverse impact on our financial results for us this year and in future years. Such risks include the ability to successfully identify and to enter into agreements with new independent third party contractors for the production of the API and the production of finished goods, or, if we are successful in identifying and entering into such agreements that the API and finished goods could be produced in sufficient quantities on a timely basis and at an acceptable cost, that the production facilities and the processes will be approved by the FDA and that the API and finished product will be similar in potency and efficacy as the API currently held by Aventis. Although we believe we have adequate time and resources to ensure that the site transfer of Acthar will occur timely and correctly with minimal impact on future revenues, there can be no assurance that the site transfer will occur timely and correctly and that the transfer will not have a materially adverse impact on the company in the future.

We presently obtain Ethamolin from Schering-Plough. Currently Schering-Plough manufactures Ethamolin for us on a purchase order basis. We have had great difficulty obtaining Ethamolin from Schering-Plough. During the fourth quarter of 2001, our inability to acquire Ethamolin caused a backorder situation which resulted in us being unable to fulfill orders for the product, resulting in lost revenues for us for the year ended December 31, 2001. We received a batch of approximately 2,500 10-packs of Ethamolin in January 2002 and were able to ship $408,000 of product that had been backordered as of December 31, 2001. We have requested that Schering-Plough manufacture one additional batch of Ethamolin (2,500 10-packs) which we hope to receive by April 30, 2002. At this time, we are in a backorder situation for Ethamolin. We have

identified a new third party manufacturer for Ethamolin who has agreed to produce Ethamolin for us. However, the transfer to this new manufacturer will require final approval from the FDA. The new manufacturer has produced initial batches of Ethamolin which we expect to commercialize by April 30, 2002. These initial batches are subject to quarantine pending the outcome of certain sterility and other validation tests. Once these initial batches pass these tests and the production facility has passed the FDA approval, we may be free to sell these batches. We have discussed a manufacturing contract with this new manufacturer but have not yet entered into a final agreement. The site transfer of Ethamolin has many risks including the failure to receive FDA approval, the failure to pass the sterility and other validation tests, the failure to enter into an agreement on acceptable terms, and the new manufacturer’s ability to produce an adequate supply of Ethamolin on a timely basis. We believe we have adequate resources to complete the transfer of Ethamolin without a materially adverse impact on us, but if we are unable to overcome some or all of these risks or any as of yet unidentified risks, it could have a material adverse impact on future revenues.

Our manufacturer of Glofil-125 was recently subject to an inspection by the FDA. As a result of this inspection, our manufacturer received notification that numerous items required attention in order to comply with FDA regulations. We were made aware of this situation and have undergone a review of the potential impact of this inspection on the manufacture of Glofil-125. Based on the information available, we believe that the manufacture of Glofil-125 will not be affected.

In the case of Inulin, we are responsible for obtaining the bulk drug from a third party and delivering it to the finished goods manufacturer.

There can be no assurance that any of our bulk or finished goods contract manufacturers will continue to meet our requirements for quality, quantity and timeliness or the FDA’s current good manufacturing practice (“GMP”) requirements. Also, there can be no assurance that we will be able to find a substitute bulk manufacturer for Inulin or Acthar or a substitute finished goods manufacturer for Acthar, Ethamolin, Glofil-125, Inulin, or for any of our other products, nor that all GMP requirements will be met, nor that lots will not have to be recalled with the attendant financial consequences to us.

In the case of VSL#3, we will obtain the product from VSL under our agreement. However, we have no experience with manufacturing VSL#3, and we are relying completely on VSL to supply us with the product. Due to our lack of experience with VSL#3 and our reliance on VSL, we can provide no assurances as to the timely manufacture of this product.

Our limited manufacturing experience and our dependence upon others for the manufacture of bulk or finished forms of our products may adversely affect the future profit margin on the sale of those products and our ability to develop and deliver products on a timely and competitive basis. We do not have substitute suppliers for any of our products. In the event we are unable to manufacture our products, either directly or indirectly through others, or on commercially acceptable terms at all, we may not be able to commercialize our products as planned.

As of December 31, 2001, we have hired, trained and deployed a total of twenty product specialists and marketing personnel to support the commercial sales of Acthar, Ethamolin, Glofil-125 and Inulin. The Product Specialists are promoting Ethamolin to hospital-based gastroenterologists, who treat patients with liver disease who develop bleeding esophageal varices, a potentially life threatening disorder. Ethamolin is an FDA approved product for the specific indication of esophageal varices that have recently bled. The promotion of Glofil-125 targets organ transplant centers and those patients who are at greatest risk of kidney failure. The promotion of Acthar to pediatric neurologists began during the third quarter of 2001 and focused on adequate stocking of wholesalers and hospitals. We currently distribute all of our products from our distribution location in Carlsbad, CA.

In the case of VSL#3, we plan to promote the product to gastroenterologists and directly to consumers. Since we have no experience with direct consumer marketing, sales and customer support there can be no assurance we will be successful in marketing VSL#3.

Acthar competes with newer agents, such as synthetic corticosteroids, immunosupressants, and anti-seizure medications (in the case of infantile spasms) and other types of anti-inflammatory products for various autoimmune conditions that have inflammation as a clinical aspect of the disease. Acthar is currently used in patients suffering from arthritis, multiple sclerosis, and infantile spasm.

Several companies offer sclerotherapy agents products that compete with Ethamolin. Ethamolin is an injectable drug used to treat patients with bleeding esophageal varices that have recently bled, to prevent bleeding. Other competitive agents include Scleromate^TM, Rubber Band Ligation methods such as the Multi-band Superview manufactured by Boston-Scientific, the Multi-band Six Shooter manufactured by Wilson-Cook, and the Multi-band Ligator by Bard and Octreotide® by Novartis. The competition to market FDA-approved active bleeding esophageal varices therapies is intense and no assurance can be given that our product will continue to be commercially successful.

A number of companies offer both clinical competition as well as research competition to Glofil-125. The clinical competition includes serum creatinine and creatinine clearance methods such as Tc-DTPA, which is manufactured by Mallinckrodt, Inc. as well as Omnipaque®, which is manufactured by Sanofi, a division of Sanofi-Synthelabo. Research competition includes Conray®-iothalamate (nonradiolabeled) meglumine, which is also manufactured by Mallinckrodt, Inc. and employed through the Mayo Clinic. The competition to market FDA-approved drugs to measure kidney function by evaluating GFR, is intense and no assurance can be given that our product will continue to be commercially successful.

We have identified Culturelle^TM by ConAgra, Probiotica by Johnson and Johnson, and LiveBac® by Nutraceutix as competitors to VSL#3.

Several large companies’ products will compete with Emitasol in the delayed onset emesis market, including Zofran® (ondansetron hydrochlordide) by Glaxo-Wellcome, Kytril® (granisetron hydrochloride) by SmithKline Beecham and Reglan® (metoclopramide) by A.H. Robins. These competitive products, however, are available in oral and intravenous delivery forms only. The competition to develop FDA-approved drugs for delayed onset emesis and diabetic gastroparesis is intense and no assurance can be given that our product candidate will be developed into commercially successful product.

We are unaware of any competitors at this time to Ceresine. The competition to market FDA-approved drugs to treat ischemic disorders is intense and no assurance can be given that our product candidates will be commercially successful products.

Most of our competitors are larger than us and have substantially greater financial, marketing and technical resources. In addition, many of these competitors have substantially greater experience than we do in developing, testing and obtaining FDA and other approvals of pharmaceuticals. Furthermore, if we commence commercial sales of the pharmaceuticals in our pipeline, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have limited experience. If any of the competitors develop new technologies that are superior to our technologies, our ability for us to expand into the pharmaceutical markets may be materially and adversely affected.

Competition among products will be based, among other things, on product efficacy, safety, reliability, availability, price and patent position. An important factor will be the timing of market introduction of our or our competitors’ products. Accordingly, the relative speed with which we can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market is expected to be an important competitive factor. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes and to secure sufficient capital resources for the often substantial period between technological conception and commercial sales.

All pharmaceutical firms, including manufacturers from whom we purchase products, are subject to regulation by the FDA. Any restrictions or prohibitions applicable to sales of products we market could materially and adversely affect our business.

We market prescription drug products that have been approved by the FDA. The FDA has the authority to revoke existing approvals, or to review the status of currently exempt pharmaceuticals and to require application and approval of prescription drugs if new information reveals that they are not safe or effective. The FDA also regulates the promotion, including advertisement, of prescription drugs.

Drug products must be manufactured, packaged, and labeled in accordance with their approvals and in conformity with GMP standards and other requirements. Drug manufacturing facilities must be registered with and approved by the FDA and must list with the FDA the drug products they intend to distribute. The manufacturer is subject to inspections by the FDA and periodic inspections by other regulatory agencies. The FDA has extensive enforcement powers over the activities of pharmaceutical manufacturers, including authority to seize and prohibit the sale of unapproved or non-complying products, and to halt manufacturing operations that are not in compliance with current GMPs. Also, the FDA regulates the distribution of drug samples. Both the FDA and the Drug Enforcement Agency (“DEA”) may impose criminal penalties arising from non-compliance with applicable regulations.

Our products in development are subject to extensive regulation by the U.S. principally under the Federal Food, Drug and Cosmetic Act (“FDCA”) and the Public Health Service Act, and foreign governmental authorities prior to commercialization. In particular, drugs and biological products are subject to rigorous preclinical and clinical testing and other approval requirements by the FDA, state and local authorities and comparable foreign regulatory authorities. The process for obtaining the required regulatory approvals from the FDA and other regulatory authorities takes many years and is very expensive. There can be no assurance that any product developed by us will prove to meet all of the applicable standards to receive marketing approval in the U.S. or abroad. There can be no assurance that these approvals will be granted on a timely basis, if at all. Delays and costs in obtaining these approvals and the subsequent compliance with applicable federal, state and local statutes and regulations could materially adversely affect our ability to commercialize our products and our ability to earn sales revenues.

The research activities required by the FDA before a drug can be approved for marketing begin with extensive preclinical animal and laboratory testing. The tests include laboratory evaluation of product chemistry and animal studies for the safety and efficacy of the drug. The results of these studies are submitted to the FDA as part of an IND which is reviewed by the FDA prior to beginning clinical trials, first in normal volunteers and then in patients with the disease.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or to patients, under the supervision of a qualified physician/ principal investigator. Clinical trials are conducted in accordance with governmental statutes, regulations and guidelines and under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be evaluated by an independent Institutional Review Board, referred to as the “IRB”, at the institution at which the study will be conducted. The IRB considers, among other things, ethical factors, the safety of human subjects and the possible liability of the institution, and approves the informed consent to be obtained from all subjects and patients in the clinical trials. We will have to monitor the conduct of clinical investigators in performing clinical trials and their compliance with FDA requirements.

Clinical trials are typically conducted in three sequential phases (Phase I, Phase II and Phase III), but these phases may overlap. There can be no assurance that Phase I, Phase II or Phase III testing will be completed successfully within any specified time period, if at all, with respect to any of our drugs.

The results of the pharmaceutical development, preclinical studies and clinical studies are submitted to the FDA in the form of a new drug application (“NDA”) or, in the case of a biological product, a Biologics License Application (“BLA”) for approval of the marketing and commercial shipment of the product. The testing and approval process is likely to require substantial time (frequently five to eight years or more) and expense, and there can be no assurance that any approval will be granted on a timely basis, if at all. The FDA may deny an NDA or BLA if applicable regulatory criteria are not satisfied, require additional testing or information, or require post-marketing testing and surveillance to monitor the safety of our drugs. Notwithstanding the submission of the NDA or BLA and any additional testing data or information, the FDA may ultimately decide that the application does not satisfy its regulatory criteria for approval. Finally, drug and biological product approvals may be withdrawn if compliance with labeling and current good manufacturing practices regulatory standards is not maintained or if unexpected safety or efficacy problems occur following initial marketing.

Among the conditions for clinical studies and NDA or BLA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to cGMP, which must be followed at all times. In complying with standards set forth in these regulations, manufacturers must continue to expend time, monies and effort in the area of production and quality control to ensure full technical compliance.

Also, companies that engage in pharmaceutical development, such as Questcor, are required to pay user fees of more than $300,000 upon submission of an NDA or BLA. No fee is required for the submission of an NDA or BLA for an orphan product and waivers of the user fee are also available under other circumstances. In addition to regulations enforced by the FDA, we are subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state or local regulations. For marketing outside the U.S., we are subject to foreign regulatory requirements governing human clinical trials and marketing approval for drugs. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country.

We intend to market VSL#3 as a dietary supplement. If we pursue FDA approval of VSL#3 as a biological product, we will be subject to the regulatory hurdles discussed above.

The manufacturing, distribution, and sale of dietary supplements and medical foods are subject to regulation by one or more federal agencies, principally the FDA and the Federal Trade Commission (the “FTC”). Our activities are also regulated by various governmental agencies for the states and localities in which VSL#3 is manufactured, distributed, and sold. Among other matters, the FDA and FTC are concerned with product safety and claims that refer to a product’s ability to provide dietary support for health-related conditions.

The regulation of dietary supplements is principally governed by the Dietary Supplement Health and Education Act (“DSHEA”), which were enacted in 1994, amending the FDCA. We believe DSHEA is generally favorable to the dietary supplement industry. DSHEA establishes a statutory class of “dietary supplements,” which includes vitamins, minerals, herbs, amino acids and other dietary ingredients for human use to supplement the diet. Dietary ingredients that were not on the market as of October 15, 1994 require the submission by the manufacturer or distributor to the FDA of evidence of a history of use or other evidence of safety establishing that the ingredient will reasonably be expected to be safe. Among other things, DSHEA prevents the further regulation of dietary ingredients as “food additives” and allows the use of statements of nutritional support on product labels. The FDA has issued proposed and final regulations in this area and indicates that further guidance and regulations are forthcoming.

The FDA has announced its intent to issue GMP regulations for the dietary supplement industry. The FDA has published an advance notice of proposed rulemaking, and publication of proposed regulations is expected soon.

In November 1998, the FTC Bureau of Consumer Protection announced its new advertising guidelines for the dietary supplement industry, which it labeled “Dietary Supplements: An Advertising Guide for Industry.” These guidelines reiterate many of the policies the FTC has announced over the years, including requirements for substantiation of claims made in advertising about dietary supplements.

The regulation of medical foods is principally governed by the FDCA and FDA regulations. A product qualifies as a medical food if it is specially formulated for the feeding of a patient, is intended for the dietary management of a patient who has special dietary needs, provides nutritional support for the management of the unique nutritional needs of the patient, and is intended to be used under active medical supervision. Moreover, an ingredient added to a food, including a medical food, must be approved by an FDA food additive petition unless it is generally recognized as safe (“GRAS”) for its particular intended use.

Our success may depend in large measure upon our ability to obtain patent protection for our products, maintain confidentiality and operate without infringing upon the proprietary rights of third parties. We have obtained patent coverage, either directly or through licenses from third parties, for some of our products. We currently own or have licensed a total of nineteen issued U.S. and foreign patents covering Hypnostat, four issued U.S. and foreign patents covering Emitasol, one issued U.S. patent covering GERI, and twelve issued U.S. and foreign patents covering our other technology.

We acquired intellectual property associated with our intranasal program, including: Emitasol for diabetic gastroparesis and delayed onset emesis associated with chemotherapy, Migrastat (intranasal propranolol) for migraine treatment, and intranasal benzodiazepines such as Hypnostat and Panistat for various conditions such as anxiety, seizures, panic attacks and sleep disorders. We have licensed rights to intranasal metoclopramide in, Italy, Chile, South Korea, Austria, the Russian Federation, and certain former Eastern European countries. The Italian licensee, Crinos, received approval to market intranasal metoclopramide (Pramidin) in Italy. We are currently earning small royalties on our sales of Pramidin. There can be no assurance that the foreign licensees will obtain the necessary regulatory approvals to market Emitasol, or that, in the event such approvals are obtained, Emitasol will achieve market acceptance in such countries, or that we will ever realize royalties on sales of Emitasol in such countries.

In addition to the patents issued and allowed as mentioned above, we have also filed several other patent applications in the U.S. and abroad on our various products and expect to file additional applications in the future. There can be no assurance that any of these patent applications will be approved, except where claims have already been examined and allowed, or that we will develop additional proprietary products that are patentable. Nor can there be any assurance that any patents issued to us or our licensors will provide us with any competitive advantages or will not be challenged by third parties or that patents issued to others will not have an adverse effect on the ability of us to conduct our business. Furthermore, because patent applications in the U.S. are maintained in secrecy until issue, and because publication of discoveries in the scientific and patent literature often lag behind actual discoveries, we cannot be certain that we were the first chronologically to make the inventions covered by each of our pending U.S. patent applications, or we were the first to file patent applications for such inventions. In the event that a third party has also filed a U.S. patent application for any of its inventions, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of the invention, which could result in substantial costs to us, even if the eventual outcome is favorable to us. In addition, there can be no assurance that our U.S. patents, including those of our licensors, would be held valid by a court of law of competent jurisdiction. If patents are issued to other companies that contain competitive or conflicting claims, which ultimately may be determined to be valid, there can be no assurance that we would be able to obtain a license to any of these patents.

Under Title 35 of the United States Code, as amended by the General Agreement on Tariffs and Trade implementing the Uruguay Round Agreement Act of 1994, commonly referred to as GATT, patents that issue

from patent applications filed prior to June 8, 1995 will enjoy a 17-year period of enforceability as measured from the date of patent issue while those that issue from applications filed on or after June 8, 1995 will enjoy a 20-year period of enforceability as measured from the date the patent application was filed or the first claimed priority date, whichever is earlier. Patents that issue from applications f


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Fiscal Year ended December 31, 2001

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


California		33-0476164
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3260 Whipple Road Union City, California		94587
(Address of principal executive offices)		(Zip Code)


PART I.
	Item 1. Business of Questcor
RISK FACTORS
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II.
	Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters
	Item 6.Selected Consolidated Financial Data
	Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
PART III.
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENT OF PREFERRED STOCK AND STOCKHOLDER’S EQUITY (DEFICIT)
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT INDEX
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 23.1


Company	Headquarters	Territory

Crinos Industria Farmacobiologica SpA	Como, Italy	Italy
CSC Pharmaceuticals Handels GmbH	Vienna, Austria	Austria, Poland, the Czech Republic, Bulgaria, Russia, Hungary, the Slovak Republic, Romania, and the remaining Community of Independent States
Ahn-Gook Pharmaceuticals	Seoul, South Korea	South Korea
Laboratorios Silesia S.A.	Santiago, Chile	Chile

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	*Acquisition of Approved Pharmaceutical Products for Promotion by Sales Force*


Company	Headquarters	Project

Dainippon Pharmaceuticals Co., Ltd.	Osaka, Japan	Antibacterial Drug Discovery
Tularik, Inc.	South San Francisco, CA	Antifungal Drug Discovery
Rigel Pharmaceuticals, Inc.	South San Francisco, CA	Antiviral Drug Discovery


	*The Fabre Kramer Pharmaceuticals Letter of Understanding*


	*Strategic Alliances and Corporate Partnering*


	*Neoflo*


	*Intranasal Drugs*


	Emitasol