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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended COMMISSION FILE NO. 0-11550
DECEMBER 31, 1996
PHARMOS CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
NEVADA 36-3207413
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(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
2 INNOVATION DRIVE
ALACHUA, FL 32615
- ----------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (904) 462-1210
Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.03 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock at March 3,
1997 held by those persons deemed to be non-affiliates was approximately
$46,500,000.
As of March 3, 1997, the Registrant had outstanding 31,095,510 shares of
its $.03 par value Common Stock.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Pharmos Corporation (the "Company") is an emerging pharmaceutical Company
engaged in the discovery, design, development and commercialization of
pharmaceuticals to meet significant therapeutic needs in major markets. The
Company is developing pharmaceuticals in various fields including: site specific
drugs for ophthalmic indications, neuroprotective agents with a novel mechanism
of action for the treatment of central nervous system (CNS) disorders, newly
designed molecules to treat cancer, and emulsion-based products for topical and
systemic applications. In February 1997, the Company submitted a New Drug
Application ("NDA") with the U.S. Food and Drug Administration ("FDA") for its
proprietary anti-inflammatory product (LE-A) for the treatment of ocular
allergies. In March 1997, the Company amended its previously filed Lotemax(TM)
(loteprednol etabonate 0.5% ophthalmic suspension) NDA with additional clinical
data aimed at supporting approval for the treatment of additional ocular
inflammatory indications. The Company has agreements with Bausch & Lomb
Pharmaceuticals ("Bausch & Lomb") to market these two products, as well as a
third product under joint development, in the United States, Europe, Canada and
other selected countries. Dexanabinol (HU-211), the Company's lead CNS product
aimed at treating stroke, head trauma and cardiac arrest is currently being
studied in a Phase II clinical trial for severe head trauma. The Company's
tamoxifen analog anti-cancer program is advancing in preclinical development.
STRATEGY
The Company's business is the design of novel drugs with superior safety
and efficacy profiles, initially targeted to ophthalmic and neurological
disorders. The Company seeks to enter into collaborative relationships with
established pharmaceutical companies to bring its products to market.
The Company is developing pharmaceuticals which are designed to address
unmet needs in certain markets and to exhibit superior efficacy and/or safety
profiles over competing products in other markets. For example, many current
anti-inflammatory ophthalmic drugs either have significant side effects, such as
the elevation of intraocular pressure ("IOP") by steroids, or are drugs which
are safer, but only moderately effective at reducing inflammation, such as non-
steroidal anti-inflammatory drugs (NSAIDs). For many neurological indications,
such as head trauma, there are no effective drug therapies available. In the
case of cancer treatment, potential side effects make current therapies less
desirable.
The Company is applying its experience in drug design and its novel drug
delivery technology in developing products directed at several fields including:
Site specific drugs for ophthalmic indications, neuroprotective compounds
targeted at specific CNS biochemical pathways associated with neurological
indications and systemic drugs designed to avoid CNS side effects and to have an
excellent peripheral safety profile. The Company is also using proprietary
lipid-based technologies, primarily submicron emulsions, to achieve better
delivery routes.
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PRODUCTS
LOTEPREDNOL ETABONATE
---------------------
Lotemax(TM) is the trade name of a drug product in a form of eye drop
suspension in which the active compound is loteprednol etabonate ("LE"). The
product is a unique steroid, designed to act in the eye and cure inflammatory
and allergic conditions, and then, be deactivated to a predictable inactive
metabolite once it reaches the inner eye or the systemic circulation. This
pharmacological profile results in improved safety by avoiding the side effects
related to exposure to most ocular steroids. In the eye, the most unwanted side
effect of steroids is the elevation of IOP which is sight-threatening. While
glucocorticoids, for lack of an alternative, are regularly used for severe
inflammatory conditions of the eye; milder conditions, such as allergies, are
preferentially treated with less potent non-steroidal agents. The Company
believes that Lotemax(TM) and LE-A have demonstrated attractive safety and
efficacy profiles in the treatment of ocular inflammatory and allergic
conditions.
An NDA for Lotemax(TM) (loteprednol etabonate ophthalmic suspension, 0.5%)
for general ocular inflammatory indications was submitted to the FDA in March
1995. Additional data relating to Phase III clinical trials of Lotemax for the
treatment of uveitis and post operative eye inflammation was submitted to the
FDA in March, 1997. In February of 1997, the Company filed a separate NDA for
LE-A (loteprednol etabonate ophthalmic suspension, 0.2%) for the treatment of
seasonal allergic conjunctivitis. A combination of LE with the antibiotic
tobramycin ("LE-T") for the treatment of inflammatory and infectious indications
is in the preclinical development stage.
On June 30, 1995, the Company entered into an agreement with Bausch &
Lomb to market Lotemax(TM), LE-A and LE-T in the U.S. A second agreement,
covering Europe, Canada and other selected countries, was signed on December 12,
1996 . Both agreements give Bausch & Lomb the right to purchase the "drug
substance" from the Company, to manufacture the "drug product" and to assist the
Company in developing the products. In 1995, the Company also signed an
agreement with SIPSY Chemical Corporation for exclusive manufacturing of LE for
sale to the Company.
DEXANABINOL (HU-211)
--------------------
Dexanabinol (HU-211) is the Company's lead synthetic cannabinoid compound
in a family of neuroprotective molecules originally designed to avoid the
psychotropic and sedative spectrum of cannabinimetic agents, while retaining
their beneficial properties as anti-emetics, analgesics and anti-glaucoma
agents.
It is now well established that the psychotropic effects of cannabinoids
are mediated via stereo selective (-) preferring receptors. Dexanabinol is a
(+) optical isomer and does not interact with cannabinoid receptors. It does,
nevertheless, retain anti-emetic and anti-glaucoma properties. More importantly,
it is also a stereo selective, non-competitive antagonist of the glutamate NMDA
receptor channel with a unique safety profile, activation of which is believed
to play a key role in secondary neuronal damage due to head trauma, stroke and
cardiac arrest. The molecule also has free radical scavenging properties, and
anti-inflammatory properties (involving inhibition of
3
TNF-[alpha] production). Both of these latter mechanisms are important for
neuroprotection. Therefore, dexanabinol emerges as a unique modality to
neuroprotection, combining three relevant mechanisms of action in a single
molecule which act at different steps of the neurotoxic process in stroke, head
trauma and potentially other indications.
While head trauma and stroke are the highest priority indications for
dexanabinol, its spectrum of activities has potential as a chronic
neuroprotectant in other diseases such as glaucoma, Parkinson's and Alzheimer's
diseases, as well as various other inflammatory conditions. Development of
dexanabinol for these chronic indications is being explored at the preclinical
level.
In several animal models ( including closed head injury, focal and global
forebrain ischemia and optic nerve crush), the drug has demonstrated significant
neuroprotective activity. In these studies, a single injection of dexanabinol
given after the insult suggests significant long term functional improvement and
an increase in neuronal survival.
In early 1996, a Phase I study of rising dose tolerance in healthy
volunteers (30 subjects) showed dexanabinol to be safe and well tolerated at
doses up to and including the expected therapeutic doses. Specifically, there
were no hallucinations, sedation or blood pressure changes of the type reported
with other glutamate antagonists. In late 1996, the Company started a Phase II
study of head injured patients, which is targeted for completion in late 1997.
This study, which is conducted at six medical centers in Israel in patients with
moderate to severe head injury, has been reviewed and approved by the American
Brain Institute Consortium (ABIC) and the European Brain Institute Consortium
(EBIC). As of March, 1997, there were 20 patients enrolled in the study which
is expected to have a total enrollment of 40-60 patients.
TAMOXIFEN ANALOGS
-----------------
Several diseases are currently treated with drugs that produce mild to
dose-limiting CNS side effects. For instance, tamoxifen, which is used to treat
breast cancer patients and has been suggested for use as a prophylactic agent in
healthy women at risk of developing the disease, causes hot flashes and may be
associated with cognitive and affective deficits as well. Additionally,
corticosteroids, used to treat chronic inflammatory and auto-immune diseases,
cause psychotic reactions in some patients and have been shown to cause
selective neuronal death in animals. Neuropathic pain could be treated by
certain systemic anesthetics, but the resulting CNS side effects make such
therapy unsafe. These side effects could be addressed by designing drugs with
limited passage to the brain through the blood brain barrier (BBB).
In the light of this concept, several analogs of tamoxifen and lidocaine
with poor CNS uptake have been synthesized and tested in several animal models.
Tamoxifen methiodide, a permanently charged tamoxifen derivative, was tested in
animals (nude mice) inoculated with human breast cancer cells. Treatment
resulted in rapid arrest of growth followed by tumor regression. Growth arrest
was also observed in estrogen-independent tumors. The rate and magnitude of
response was higher than that seen with tamoxifen itself. The compound retains
the anti-osteoporotic effects of tamoxifen in bone but is considerably less
active than tamoxifen as a utero trophic agent, demonstrating an improved
therapeutic profile as compared to the parent
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compound. Permanently charged lidocaine analogs suppress electrophysiological
activities typical to neuropathic pain in vivo, similar to that achieved with
the parent compound.
Further preclinical pharmacology is underway to identify additional analogs
of tamoxifen and to gain a fuller understanding of the mechanism of action anti-
angiogenesis profile.
PILOCARPINE-SME
---------------
Pilocarpine-SME is an eye drop formulation of generic Pilocarpine in a
submicron emulsion ("SME") for the treatment of glaucoma. The Company's SME
technology, consisting of oily droplets in an aqueous medium, has demonstrated
advantages over standard formulations in terms of reduced irritation and
increased bioavailability in animal models as well as safety and efficacy in
Phase I and certain Phase II clinical trials. Licensing arrangements are being
sought to support development of this product.
ADAPROLOL MALEATE
-----------------
The Company is seeking a licensing arrangement for continued development of
Adaprolol Maleate, a beta blocker for the treatment of glaucoma with a
predictable metabolic disposition in the systemic circulation. Systemic side
effects of beta blockers limit the use of beta blockers in the elderly, cardiac
patients and asthmatics.
In 1994, the Company completed a Phase II clinical trial of Adaprolol
Maleate with a control group treated with the standard beta blocker, Timolol,
has shown an average of 18% reduction in IOP without the deleterious effect on
mean arterial blood pressure experienced by the Timolol treated patients.
COMPETITION
The pharmaceutical industry is highly competitive, and research relating to
drug delivery and formulation technologies is developing rapidly. The Company
competes with a number of pharmaceutical companies which have financial,
technical and marketing resources significantly greater than those of the
Company. Some companies with established positions in the pharmaceutical
industry may be better equipped than the Company to develop and market products
in the markets the Company is seeking to enter. A significant amount of
pharmaceutical research is also being carried out at universities and other not-
for-profit research organizations. These institutions are becoming increasingly
aware of the commercial value of their findings and are becoming more active in
seeking patent protection and licensing arrangements to collect royalties for
the use of technology they have developed. These institutions may also market
competitive commercial products on their own or through joint ventures and will
compete with the Company in recruiting highly qualified scientific personnel.
The Company is pursuing areas of product development in which there is a
potential for extensive technological innovation. The Company's competitors may
succeed in developing products that are more effective than those of the
Company. Rapid technological change or developments by others may result in the
Company's potential products becoming obsolete or non-competitive.
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COLLABORATIVE RELATIONSHIPS
The Company's commercial strategy is to develop products independently and,
where appropriate, in collaboration with established pharmaceutical companies
and institutions. Collaborative partners may provide financial resources,
research and manufacturing capabilities and marketing infrastructure to aid in
the commercialization of the Company's products in development and potential
future products. Depending on the availability of financial, marketing and
scientific resources, among other factors, the Company may license its
technology or products to others and retain profit sharing, royalty,
manufacturing, co-marketing, co-promotion or similar rights. Any such
arrangements could limit the Company's flexibility in pursuing alternatives for
the commercialization of its products. There can be no assurance that the
Company will establish any additional collaborative arrangements or that, it
established, any such relationships will be successful.
BAUSCH & LOMB. On June 30, 1995, the Company signed a definitive agreement
-------------
with Bausch & Lomb to manufacture and market Lotemax/TM/, the Company's lead
product, in the United States upon receipt of FDA approval. The agreement
includes two other loteprednol etabonate-based products (LE-A and LE-T)
currently being developed by the Company. A second agreement signed December
12, 1996, extends Bausch & Lomb's rights to manufacture and market these
products in Europe, Canada and other selected countries pending regulatory
approval.
Under the agreements, Bausch & Lomb will purchase the active drug substance
from the Company and, as of March 1, 1997, has provided the Company with a total
of $5 million in cash advances against future sales to Bausch & Lomb, with
another $1 million due subject to receiving regulatory approval for LE-T in the
United States. An additional $1.6 million in advances against future sales of
Bausch & Lomb will be due to the Company following receipt of regulatory
clearance in certain markets outside of the United States. Bausch & Lomb
collaborates in the development of these products by making available amounts up
to 50% of their Phase III clinical trial costs. The Company retains certain
conditional co-marketing rights in the U.S. to all of the products covered by
the marketing agreement.
In a separate agreement completed in December 1996, Bausch & Lomb made a $2
million investment in the common stock of the Company.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
PATENTS AND PROPRIETARY RIGHTS
------------------------------
Proprietary protection generally has been important in the pharmaceutical
industry, and the commercial success of products incorporating the Company's
technologies may depend, in part, upon the ability to obtain strong patent
protection.
Some of the technologies underlying the Company's potential products were
invented or are owned by various third parties, including the University of
Florida, Dr. Nicholas Bodor, and the Hebrew University of Jerusalem ("Hebrew
University"). The Company is the licensee of these
6
technologies under patents held by the applicable owner through licenses which
generally remain in effect for the life of the applicable patent. The Company
generally maintains, at its expense, U.S. and foreign patent rights with respect
to both the licensed and its own technology and files and/or prosecutes the
relevant patent applications in the U.S. and foreign countries. The Company also
relies upon trade secrets, know-how, continuing technological innovations and
licensing opportunities to develop its competitive position. The Company's
policy is to protect its technology by, among other things, filing, or requiring
the applicable licensor to file, patent applications for technology that it
considers important to the development of its business. The Company intends to
file additional patent applications, when appropriate, relating to its
technology, improvements to its technology and to specific products it develops.
There can be no assurance that any additional patents will be issued, or if
issued, that they will be of commercial benefit to the Company. In addition, it
is impossible to anticipate the breadth or degree of protection that any such
patents will afford.
The patent positions of pharmaceutical firms, including the Company, are
uncertain and involve complex factual questions. In addition, the coverage
claimed in a patent application can be significantly reduced before or after the
patent is issued. Consequently, the Company does not know whether any of the
pending patent applications underlying the licensed technology will result in
the issuance of patents or, if any patents are issued, whether they will provide
significant proprietary protection or will be circumvented or invalidated.
Since patent applications in the U.S. are maintained in secrecy until patents
issue and since publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, the Company cannot be certain
that it or its licensors, as the case may be, were the first creators of
inventions covered by pending and issued patents or that it or its licensors, as
the case may be, were the first to file patent applications for such inventions.
Moreover, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. There can be no assurance that the
patents relating to the licensed technology, if issued, will be upheld by a
court of competent jurisdiction or that a competitor's product will be found to
infringe such patents.
Other pharmaceutical and drug delivery companies and research and academic
institutions may have filed patent applications or received patents in the
Company's fields. If patents are issued to other companies that contain
competitive or conflicting claims and such claims are ultimately determined to
be valid, there can be no assurance that the Company would be able to obtain
licenses to these patents at a reasonable cost or be able to develop or obtain
alternative technology.
The Company also relies upon trade secret protection for its confidential
and proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets.
It is the Company's policy to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commitment of employment or consulting or
advisory relationships with the Company. These agreements generally provide that
all confidential information developed or made known
7
to the individual during the course of the individual's relationship with the
Company is to be kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees and certain consultants, the
agreements provide that all inventions conceived by the individual in the course
of their employment or consulting relationship shall be the exclusive property
of the Company. There can be no assurance, however, that these agreements will
provide meaningful protection or adequate remedies for the Company's trade
secrets in the event of unauthorized use or disclosure of such information. The
Company's patents and licenses underlying its potential products described
herein are summarized below.
SITE-SPECIFIC DRUGS. In the general category of site-specific drugs
-------------------
which are active mainly in the eye and have limited systemic side effects, the
Company has licensed several patents from Dr. Nicholas Bodor. The earliest
patents date from 1984 and the most recent from 1996. Some of these patents
cover loteprednol etabonate-based products and adaprolol maleate.
NEUROPROTECTIVE AGENTS. The Company has licensed from the Hebrew
----------------------
University, which is the academic affiliation of the inventor, Dr. Raphael
Mechoulam, patents covering novel compounds which have demonstrated certain
beneficial neuropharmacological activity while appearing to be devoid of most of
the deleterious effects usually associated with this class of compounds. This
group of patents has been designed to protect this family of compounds and their
uses devised by the Company and the inventors. The earliest patent applications
resulted in patents issued in 1989, and the most recent patents date from 1997.
These patents cover Dexanabinol, which is under development for the treatment of
head trauma, stroke, and glaucoma. The Company has received notice of allowance
for another of its U.S. patent applications relating to certain uses of analogs
of this compound. Three additional U.S. patent applications are pending.
TAMOXIFEN ANALOGS. The Company has filed patent applications in the U.S.
-----------------
and Israel, and has an international application, to protect pharmaceutical
compositions of Tamoxifen Analogs and Tamoxifen Methiodide. In November 1996,
the Company received a Notice of Allowance from the U.S. Patent and Trademark
Office for a new patent with claims covering the use of permanently ionic
derivatives of steroid hormones and their antagonists known as Tamoxifen
Analogs. The patent also claims novel analogs of tamoxifen and other steroid
hormones and their antagonists. The Company believes that these charged
derivatives are superior to the parent compounds in that they are devoid of CNS
side effects and show an overall improved pharmacological profile.
EMULSION-BASED DRUG DELIVERY SYSTEMS. In the general category of SubMicron
------------------------------------
Emulsion (SME) technology, the Company licensed two patents from the Hebrew
University of Jerusalem ("Hebrew University") and has separately filed ten
patent applications which are at different stages of prosecution. These patents
and patent applications have been devised to protect a group of formulation
technologies devised by the Company and the inventors as they relate to
pharmaceutical and medicinal products. The earliest patent filings for SME
technology date from 1986 and the most recent, from 1996. These patents cover
Pilocarpine-SME, which is an improved formulation to treat glaucoma.
8
LICENSES
--------
The Company's license agreements generally require the Company, as
licensee, to pay royalties on sale of products developed from the licensed
technologies, and fees on revenues the Company receives for sublicenses, where
applicable. The royalty rates defined in the licenses are customary and usual
in the pharmaceuticals industry. The royalties will be payable for periods up
to fifteen years from the date of certain specified events, including the date
of the first sale of such products, or the date from which the first registered
patent from the developed technologies is in force, or the year following the
date in which FDA approval has been received for a developed product. Certain
of the license agreements also require annual payments.
GOVERNMENT REGULATION
The Company's activities and products are significantly regulated by a
number of governmental entities, especially the FDA, in the U.S. and by
comparable authorities in other countries. These entities regulate, among other
things, research and development activities and the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising,
promotion, distribution and sale of the Company's potential products. Product
development and approval within this regulatory framework takes a number of
years and involves the expenditure of substantial resources. Many products that
appear promising initially ultimately do not reach the market because they are
found to be unsafe (perhaps too toxic) or to lack effectiveness, as demonstrated
by testing required by government regulation during the development process. In
addition, there can be no assurance that this regulatory framework will not
change or that additional regulation will not arise at any stage of the
Company's product development that may preclude or otherwise adversely affect
approval, delay an application or require additional expenditures by the
Company. Moreover, even if approval is obtained, failure to comply with present
or future regulatory requirements, or new information adversely reflecting on
the safety or effectiveness of the approved drug, can lead to FDA withdrawal of
approval to market the product.
The regulatory process required to be completed by the FDA before a new
drug delivery system may be marketed in the U.S. depends significantly on
whether the drug (which will be delivered by the drug delivery system in
question) has existing approval for use and in what dosage form. If the drug is
a new chemical entity that has not been approved, then the process includes (i)
preclinical laboratory and animal tests, (ii) an IND application which has
become effective, (iii) adequate and well-controlled human clinical trials to
establish the safety and effectiveness of the drug for its intended indication
and (iv) FDA approval of a pertinent NDA. If the drug has been previously
approved, then the approval process is similar, except that certain toxicity
tests normally required for the IND application may not be necessary. Even with
previously approved drugs, additional toxicity testing may be required when the
delivery form is substantially changed, or when a company does not have access
to the raw data from the prior preclinical studies.
The activities required before a pharmaceutical product may be marketed in
the U.S. begin with preclinical testing. Preclinical tests include laboratory
evaluation of product chemistry and other end points and animal studies to
assess the potential safety and efficacy of the product as formulated. The
conduct of preclinical studies is regulated by the FDA under a series of
9
regulations called the Good Laboratory Practice regulations. Violations of these
regulations can, in some cases, lead to invalidation of the data from these
studies, requiring such studies to be replicated.
The entire body of preclinical development work necessary to administer
investigational drugs to volunteers or patients is summarized in an
Investigative New Drug ("IND") application to the FDA. FDA regulations provide
that human clinical trials may begin thirty days following the submission and
receipt of an IND application, unless the FDA advises otherwise or requests
additional information, clarification or additional time to review the IND
application; it is generally considered good practice to obtain affirmative FDA
response before commencing trials. There is no assurance that the submission of
an IND application will eventually allow a company to commence clinical trials.
Once trials have commenced, the FDA may stop the trials, or particular types or
parts of trials, by placing a "clinical hold" on such trials because of concerns
about, for example, safety of the product being tested or the adequacy of the
trial design. Such holds can cause substantial delay and in some cases may
require abandonment of a product.
Clinical testing involves the administration of the drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator, usually a physician pursuant to an FDA-reviewed protocol. Each
clinical study is conducted under the auspices of independent Institutional
Review Boards ("IRBs") at the institutions at which the study will be conducted.
An IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.
Phase I clinical studies are commonly performed in 20 to 40 healthy human
subjects or, more rarely, in selected patients with the targeted disease or
disorder. Their goal is to establish initial data about tolerance and safety of
the drug in humans. Also, the first data regarding the absorption, distribution,
metabolism, and excretion of the drug in humans are established.
In Phase II human clinical studies, preliminary evidence is sought
regarding the pharmacological effects of the drug and the desired therapeutic
efficacy in limited studies with small numbers of selected patients (50 to 200).
Efforts are made to evaluate the effects of various dosages and to establish an
optimal dosage level schedule and validate clinical efficacy endpoints to be
used in Phase III trials. Additional safety data are also gathered from these
studies.
Phase III clinical studies consist of expanded, large scale studies of
patients (200 to several thousand) with the target disease or disorder, to
obtain definitive statistical evidence of the effectiveness and safety of the
proposed product and dosing regimen. These studies may also include separate
investigations of the effects in subpopulations of patients, such as the
elderly.
At the same time that the human clinical program is being performed,
additional non-clinical (i.e., animal) studies are also being conducted.
Expensive, long duration (12-18 months) toxicity and carcinogenicity studies are
done to demonstrate the safety of drug administration for the extended period of
time required for effective therapy. Also, a variety of laboratory, animal, and
initial human studies may be performed to establish manufacturing methods for
the drug, as well as stable, effective dosage forms.
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The results of product development, preclinical studies and clinical
studies and other information are submitted to the FDA in an NDA to seek
approval for the marketing and interstate commercial shipment of the drug. With
the NDA, a company must pay the FDA a user fee in excess of $200,000. Companies
with less than 500 employees and no revenues from products may be eligible for
an exception. This exception was granted to the Company in connection with the
NDA for Lotemax/TM/ and reduces the fee by 50%, which is payable 12 months after
the NDA is filed by the FDA. The FDA may refuse to file or deny an NDA if
applicable regulatory requirements, such as compliance with Current Good
Clinical Practice ("cGCP") requirements, are not satisfied or may require
additional clinical testing. Even if such data are submitted, the FDA may
ultimately decide that the NDA does not satisfy the requirements for approval.
If the FDA does ultimately approve the product, it may require, among other
things, post-marketing testing, including potentially expensive Phase IV
studies, and surveillance to monitor the safety and effectiveness of the drug.
In addition, the FDA may in some circumstances impose restrictions on the use of
the drug that may be difficult and expensive to administer, and almost always
seeks to require prior approval of promotional materials. Product approvals may
be withdrawn if compliance with regulatory requirements is not maintained or if
problems occur after the product reaches the market. After a product is filed
for a given indication in an NDA, subsequent new indications or dosages for the
same product are reviewed by the FDA via the filing and upon receipt of a
Supplemental NDA ("sNDA") submission as well as payment of a separate user fee.
The sNDA is more focused than the NDA and deals primarily with safety and
effectiveness data related to the new indication or dosage, and labeling
information for the sNDA indication or dosage. Finally, the FDA requires
reporting of certain information, e.g., adverse experience reports, that becomes
known to a manufacturer of an approved drug.
Each domestic drug product manufacturing establishment must be registered
with, and approved by, the FDA and must pay the FDA a registration fee and
annual fee. In addition, each such establishment must inform the FDA of every
drug product it has in commercial distribution and keep such list updated.
Establishments handling controlled substances must be licensed and are inspected
by the U.S. Drug Enforcement Agency ("DEA"). The Company has a current DEA
license appropriate for handling the substances it uses in its facilities.
Domestic establishments are also subject to inspection by the FDA for compliance
with cGMP regulations after an NDA has been filed and thereafter, at least
biennially. The labeling, advertising and promotion of drug products also must
be in compliance with pertinent FDA regulatory requirements. Failure to comply
with applicable requirements relating to production, distribution or promotion
of a drug product can lead to FDA demands that production and shipment cease,
and, in some cases, that product be recalled, or to enforcement actions that can
include seizures, injunctions and criminal prosecution.
To develop and market its potential products abroad, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented by
foreign health authorities, governing, among other things, the design and
conduct of human clinical trials, pricing and marketing. The approval procedure
varies among countries and can involve additional testing, and the time required
to obtain approval may differ from that required to obtain FDA approval. At
present, foreign marketing authorizations are applied for at a national level,
although within the European Union ("EU") certain registration procedures are
available to companies wishing to market a product in more than one EU member
country. If a regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, marketing authorization is
11
almost always granted. The foreign regulatory approval process includes all of
the risks associated with obtaining FDA approval set forth above. Approval by
the FDA does not ensure approval by other countries.
Various aspects of the Company's business and operations are also regulated
by a number of other governmental agencies including the DEA, U.S. Department of
Agriculture, Environmental Protection Agency and Occupational Safety and Health
Administration as well as by other federal, state and local authorities. In
addition, any future international sales would be regulated by numerous foreign
authorities.
There continue to be a number of legislative and regulatory proposals aimed
at changing the health care system. It is uncertain what, if any, legislative
proposals will be adopted or what actions federal or state agencies, or third
party payors may take in response to any health care reform proposals or
legislation. Although the Company cannot predict whether any such legislative
or regulatory proposals will be adopted or the effect such proposals may have on
its business, the uncertainty surrounding such proposals could have a material
adverse effect on the Company. Furthermore, the Company's ability to
commercialize its potential product portfolio may be adversely affected to the
extent that such proposals have a material adverse effect on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of the Company's potential products.
The Company's ability to commercialize its products successfully may depend
in part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health insurers and other organizations. Third-party payors
are increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available to enable the Company or any of its future licensees
to maintain price levels sufficient to realize an appropriate return on its
investment in product development.
CORPORATE HISTORY
Pharmos Corporation (the "Company"), a Nevada corporation, formerly
known as Pharmatec, Inc., was incorporated under the laws of the State of Nevada
on December 20, 1982. On October 29, 1992, the Company completed a merger (the
"Merger") with Pharmos Corporation, a privately held New York corporation ("Old
Pharmos"), and on October 30, 1992 exercised an option to acquire all of the
outstanding shares of Xenon Vision, Inc., a privately held Delaware corporation
("Xenon"). Prior to the Merger, Old Pharmos was a biopharmaceutical company with
proprietary drug delivery and formulation technologies, one of which involved an
initial application of ophthalmic drugs, and another of which involved research
pharmaceuticals with neuroprotective properties being developed for applications
such as stroke and head trauma. Prior to the Merger, the Company was a publicly-
held company primarily engaged in the development and testing of a chemical
delivery system which has been shown in animal studies to permit the passage of
drugs across the blood-brain barrier. Prior to its acquisition, Xenon was a
research-based pharmaceutical company developing several patented products for
the ophthalmic field. In April 1995, the Company acquired Oculon Corporation
("Oculon") a privately-held development stage company with anti-cataract
technologies and net assets of approximately $3.5 million, consisting
substantially of cash and cash equivalents.
12
HUMAN RESOURCES
As of March 1, 1997, the Company had 49 full time employees, 17 in the
U.S. and 32 in Israel, of whom approximately 15 hold doctorate or medical
degrees.
The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced employment-related work stoppages
and considers its employee relations to be excellent.
PUBLIC FUNDING AND GRANTS
The Company's subsidiary, Pharmos Ltd., has received certain funding
from the Chief Scientist of the Israel Ministry of Industry and Trade (the
"Chief Scientist") for research and development of SME technology for injection
and nutrition as well as for research relating to pilocarpine, dexamethasone and
ophthalmic formulations for dry eyes. The Company has received approximately
$1,600,000 under such agreements through December 31, 1996. Funding is repayable
on the basis of royalties from the sale of products developed as a result of the
research activities conducted with such funds. The obligation to pay royalties
is limited to the amount of such funding received, linked to the exchange rate
of the U.S. dollar and the New Israeli Shekel. Additionally, funding by the
Chief Scientist places certain legal restrictions on the transfer of know-how
and the manufacture of resulting products outside of Israel. See "Conditions in
Israel."
The Company has received certain funding of approximately $810,000 from the
Israel-U.S. Binational Industrial Research and Development Foundation to develop
Lotemax/TM/ and LE-T. Funding is repayable on the basis of royalties from the
sale of products developed as a result of the research activities conducted with
such funds. The obligation to pay royalties is limited to 150% of the amount of
such funding received, linked to the exchange rate of the U.S. dollar and the
New Israeli Shekel.
CONDITIONS IN ISRAEL
The Company conducts significant operations in Israel through its
subsidiary, Pharmos Ltd., and therefore is affected by the political, economic
and military conditions to which that country is subject.
Pharmos Ltd. has received certain funding from the Chief Scientist
with respect to its SubMicron Emulsion Technology and with respect to its new
chemical entity, Dexanabinol. The proclaimed purpose of the legislation under
which such funding is provided is to develop local industry, improve the state
balance of trade and to create new jobs in Israel. Such funding prohibits the
transfer or license of know-how and the manufacture of resulting products
outside of Israel, without the permission of the Chief Scientist. Although it is
the Company's belief that the Chief Scientist does not unreasonably withhold
this permission if the request is based upon commercially justified
circumstances and any royalty obligations to the Chief Scientist are
sufficiently assured, there can be no assurance that such consent, if requested,
would be granted upon terms satisfactory to the Company or granted at all.
13
ITEM 2. PROPERTIES
The Company is headquartered in Alachua, Florida and leases facilities used
in the operation of its research, development, pilot manufacturing and
administrative activities in Alachua, Florida and Rehovot, Israel. These
facilities have been improved to meet the special requirements necessary for the
operation of the Company's research and development activities. In the opinion
of the management these facilities are sufficient to meet the current and
anticipated future requirements of the Company. In addition management believes
that it has sufficient ability to renew its present leases related to these
facilities or obtain suitable replacement facilities.
ITEM 3. LEGAL PROCEEDINGS
In April 1996, the Company reached a settlement with a former director of
the Company regarding its licensing of LE. In October 1995, the Company
commenced an action in Supreme Court, New York County, against this former
director of the Company, seeking to enjoin him from taking any steps to
terminate or interfere with the Company's rights under its License Agreement
with him relating to LE. Pursuant to a Court-referenced mediation, the Company
and the former director agreed to discontinue with prejudice all pending actions
in New York and Florida. The settlement involved a lump sum advance payment to
the former director, based on advances received by the Company from Bausch &
Lomb Pharmaceuticals, Inc., with whom it has a marketing agreement for LE and
line extension products, as well as additional advances based on future advances
and other non-royalty payments from Bausch and Lomb or other parties with whom
the Company enters into marketing or similar arrangements. The advances will be
offset against agreed-upon royalty payments to be made to the former director
based on the net selling price of Bausch & Lomb or other marketing partners.
In June 1996, the United States District Court, Southern District of New
York granted the Company's motion to be dismissed from a class action suit
against David Blech, D. Blech & Co., Bear Stearns & Co., Inc. and certain other
defendants, including the Company and ten other publicly traded biotechnology
companies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting held on December 18, 1996, the stockholders of
the Company elected the following persons as directors of the Company to hold
office until the next annual meeting of the stockholders or until their
successors are duly elected and qualified: Haim Aviv (20,774,054 votes for and
1,981,630 votes against), Stephen C. Knight (22,664,456 votes for and 91,228
against), David Schlachet (22,665,956 votes for and 89,728 votes against),
Marvin P. Loeb (22,662,631 votes for and 93,053 votes against), E. Andrews
Grinstead, III (22,664,931 votes for and 90,753 votes against) and Fredric D.
Price (22,666,431 votes for and 89,253 votes against). The stockholders of the
Company also voted to reject a resolution to adopt the Company's 1996 Incentive
and Non-Qualified Stock Option Plan as the resolution did not receive votes
constituting a majority of the shares of Common Stock present and entitled to
vote at the Annual Meeting (7,898,484 voted in favor, 2,713,302 voted against
and the remainder abstained or were withheld).
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From October 20, 1993 until January 26, 1995, the Company's Common Stock
was traded on the NASDAQ National Market System under the symbol "PARS", and
prior thereto was traded on the Nasdaq SmallCap Market. Prior to the Merger,
the Common Stock was quoted under the symbol "PHTC". The Company's Common Stock
was moved to the Nasdaq SmallCap Market, effective January 27, 1995, as a result
of the Company's non-compliance with certain Nasdaq corporate governance
requirements. The following table sets forth the range of high and low bid
prices for the Common Stock as reported on the NASDAQ National Market System and
the Nasdaq SmallCap Market during the periods indicated.
Year ended December 31, 1996 HIGH LOW
- --------------------------------- ----- -----
1st Quarter................... $2.50 $1.38
2nd Quarter................... 2.88 1.69
3rd Quarter................... 2.00 1.22
4th Quarter................... 1.78 1.16
Year ended December 31, 1995 HIGH LOW
- --------------------------------- ----- -----
1st Quarter................... $1.37 $ .50
2nd Quarter................... 2.75 .62
3rd Quarter................... 3.19 1.50
4th Quarter................... 2.56 1.22
The foregoing represent inter-dealer prices, without retail mark-up, mark-
down or commission, and may not necessarily represent actual transactions.
On March 17, 1997, there were 322 record holders of the Common Stock of the
Company and approximately 5,523 beneficial owners of the Common Stock of the
Company, based upon the number of shares of Common Stock held in "street name".
The Company has paid no dividends on its Common Stock and does not expect
to pay cash dividends in the foreseeable future. The Company is not under any
contractual restriction as to its present or future ability to pay dividends.
The Company currently intends to retain any future earnings to finance the
growth and development of its business.
15
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- -------------- ------------- --------------
Revenues, net $ $ 75,000 $ 7,815 $ 81,900 $ 395,093
Operating expenses, net (8,077,210) (8,171,085) (12,963,114) (9,480,595) (6,454,670)
Acquired research and - - - - (6,284,136)
development
Merger and related - - - - (1,579,256)
expenses ------------ ------------ ------------- ------------ -------------
Net loss ($8,077,210) ($8,096,085) ($12,955,299) ($9,398,695) ($13,922,969)
============ ============ ============= ============ =============
Net loss per share ($0.28) ($0.37) ($1.19) ($1.24) ($2.26)
============ ============ ============= ============ =============
Total assets $ 7,468,293 $ 9,461,654 $ 4,289,416 $ 10,608,458 $ 10,197,057
============ ============ ============= ============ =============
Long term obligations $ 4,201,156 $ 2,294,268 $ 91,318 $ 129,240 -
============ ============ ============= ============ =============
Cash dividends declared - - - - -
============ ============ ============= ============ =============
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has generated limited revenues from product sales and is
dependent upon external financing, interest income, and research and development
contracts to pursue its intended business activities. The Company has not been
profitable since inception and has incurred a cumulative net loss of $62,101,952
through December 31, 1996. Losses have resulted principally from costs incurred
in research activities aimed at identifying and developing the Company's product
candidates, clinical research studies, merger and acquisition costs, the write-
off of purchased research and development, and general and administrative
expenses. The Company expects to incur additional operating losses over the
next several years as the Company's research and development and clinical trials
programs continue. The Company's ability to achieve profitability is dependent
on its ability to develop and obtain regulatory approvals for its products, to
enter into agreements for product development and commercialization with
strategic corporate partners and to develop the capacity to manufacture and sell
its products, and to secure additional financing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenues decreased by $75,000 from 1995. Revenues in 1995 related to
fees the Company received as a result of sublicensing certain technologies which
were not being actively developed by the Company.
Total operating expenses increased by $101,325, or 1%, from $8,253,666 in
1995 to $8,354,991 in 1996 due to increased research and development spending
partially offset by lower general, administrative and other expenses.
Research and development expenses increased by $936,563, or 19%, primarily
due to significant spending on clinical trails in 1996. During the past year,
the company initiated and completed Phase III clinical trials of Lotemax(TM) for
the treatment of uveitis and post cataract surgery as well as Phase III clinical
trials of LE-A for the treatment of seasonal ocular allergies. In October of
1996, the Company commenced a Phase II study of HU-211 for severe head injury.
In February 1997, the Company submitted an NDA for LE-A and in March 1997, the
Company amended and supplemented the previously filed NDA for Lotemax with the
results of the 1996 clinical trials. The increased clinical trial expenses were
partially offset by cost saving measures taken by the Company in early 1995 that
focused research and development activities on products which were closest to
commercialization. Bausch & Lomb net reimbursements for clinical trials totaled
$1.2 million during 1996, thereby reducing research and development expenses by
this amount.
Patent expense decreased by $199,447, or 41%, in 1996. The company was
able to reduce patent maintenance costs by returning to an original patent
holder several patents covering technologies which are no longer being pursued.
Further, the Company's in-house patent counsel now executes work previously
undertaken by external patent attorneys.
17
General and administrative costs decreased by $445,376, or 20%, in 1996.
This reduction resulted primarily from the 1995 relocation of corporate
headquarters from New York to the Company's existing facility in Alachua,
Florida.
Depreciation and amortization expenses decreased by $190,415, or 35%, in
1996 due to the absence in 1996 of depreciation of New York facilities following
the 1995 closing, a write-off of certain leasehold improvements, as well as
reduced depreciation relating to the Florida operation.
Net interest income increased by $195,200 in 1996, reflecting the higher
level of investable funds in 1996. In addition, the Company had higher interest
expense in 1995 relating to interest on the convertible debentures issued by the
Company in February 1995 , and converted into Common Stock by July 1995, and a
note that was paid in full.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenues increased by $67,185 from $7,815 in 1994 to $75,000 in 1995.
This increase resulted from a fee the Company received as a result of
sublicensing certain technologies which were not being actively developed by the
Company. Revenues in 1994 related to sales of fine chemicals. The Company
phased out the selling of speciality chemicals and no such revenues were
received in 1995.
Total operating expenses decreased by $4,782,795, or 37%, from $13,036,461
in 1994 to $8,253,666 in 1995 primarily due to decreases in research and
development expenses, patent expenses and general and administrative expenses.
Research and development expenses decreased by $2,931,323, or 37%,
primarily due to certain clinical trials of the Company's lead product
Lotemax(TM) being substantially completed in 1994; the Company submitted a New
Drug Application ("NDA") for this product with the Federal Drug Administration
("FDA") in March 1995. Late in 1995, the Company began clinical trial testing on
one of its Lotemax line extension products.
Patent expenses decreased by $461,596, or 49%, in 1995. This decrease
reflects a return to more normalized levels of patent expenses as 1994 was
impacted by costs of defending patent challenges related to technologies
licensed by the Company. In addition patent expenses in 1994 were impacted by
costs associated with improving the Company's patent coverage for its lead
product Lotemax(TM) and its Dexanabinol and Tamoxifen Methiodide compounds.
General and administrative expenses decreased by $1,503,343, or 41%, in
1995 primarily reflecting the impact of the cost savings which resulted from the
Company's decisions in late 1994 and early 1995 to eliminate staff and relocate
its corporate headquarters from New York to Alachua, Florida. In 1994 the
Company recognized costs of approximately $360,000 related to this restructuring
primarily for severance and relocation expenses.
Net interest income in 1995 of $82,581 represented an increase of 13%
compared to 1994, and was comprised of interest income of $209,584 offset by
interest expense of $127,003. Interest income in 1995 increased by $62,654, or
42%, compared to 1994 and resulted from the Company's higher level of
investible funds in 1995. Interest expense in 1995 increased by $53,270, or 72%
compared to 1994 and
18
resulted from interest expense on the convertible debentures issued by the
Company in February 1995 and converted into Common Stock by July 1995.
The net loss for 1995 of $8,096,085 reflected a decrease of $4,859,214, or
38%, from the net loss of $12,955,299 for 1994. The decrease in operating
expenses described above accounted for substantially all of this decrease.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no sources of recurring revenues and has incurred
operating losses since its inception and has financed its operations with public
and private offerings of securities, advances and other funding pursuant to a
marketing agreement with Bausch & Lomb, research contracts, license fees,
royalties and sales, and interest income.
The Company had working capital of $4.0 million, including cash and cash
equivalents of $5.1 million, as of December 31, 1996. In March 1997, the
Company received an additional $1 million cash advance from Bausch & Lomb
following the NDA submission for LE-A, $143,333 of which was subsequently
advanced to the license holder. On March 31, 1997 the Company completed a $6
million private placement of convertible preferred stock and warrants.
Management believes that existing cash and cash equivalents combined with
additional cash inflows from investment income and grants will be sufficient to
support operations into the first quarter of 1998. Management believes that
additional funding will be required to fund operations until, if ever,
profitable operations can be achieved. Therefore, the Company is continuing to
actively pursue various funding options, including additional equity offerings,
strategic corporate alliances, business combinations and the establishment of
product related research and development limited partnerships, to obtain the
additional financing that would be required to continue the the development of
its products and bring them to commercial markets.
During 1996, the Company raised additional equity of $3.9 million through
the issuance of common stock, convertible preferred stock and warrants. All net
proceeds were available to fund the Company's operations. In addition, during
1996, the Company signed an international marketing agreement with Bausch & Lomb
to market, upon regulatory approval, the Company's three leading ophthalmic
products (including Lotemax(TM)) in Europe, Canada and other selected countries.
Under this agreement, Bausch & Lomb will provide the Company with $1.6 million
in cash advances upon receipt of regulatory approvals in these markets.
Pursuant to the U.S. Marketing Agreement with Bausch & Lomb, as of March
31, 1997, the Company has received $5 million ($4 million as of December 31,
1996) in advances against future sales of the active drug substance (needed to
manufacture the drug). Bausch & Lomb will be entitled to credits against such
future purchases of the drug substance until the advances have been recouped.
The Company may be obligated to repay such advances if it is unable to supply
Bausch & Lomb with certain specified quantities of the active drug substance.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is included following the "Index
to Financial Statements" contained in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, officers and key employees of the Company are as
follows:
Name Age Position
- -------------------------- --- ----------------------------------------
Haim Aviv, Ph.D. 56 Chairman, Chief Executive Officer, Chief
Scientist and Director
Gad Riesenfeld, Ph.D. 53 President, Chief Operating Officer and
Acting Secretary
Alan M. Mark 37 Acting Chief Financial Officer and
Acting Treasurer
Anat Biegon, Ph.D. 43 Vice President/Research and Development
Marvin P. Loeb 70 Director
E. Andrews Grinstead III 52 Director
Stephen C. Knight, M.D. 37 Director
David Schlachet 51 Director
Fredric D. Price 51 Director
Haim Aviv, Ph.D., is Chairman, Chief Executive Officer, Chief Scientist and
a Director of the Company and co-founded in 1990, Pharmos Corporation, a New
York corporation ("Old Pharmos"), which merged into the Company on October 29,
1992 (the "Merger"). Dr. Aviv also served as Chairman, Chief Executive Officer,
Chief Scientist and a Director of Old Pharmos prior to the Merger. Dr. Aviv was
the co-founder in 1980 of Bio-Technology General Corp. ("BTG"), a publicly-
traded company engaged in the development of products using recombinant DNA, its
General Manager and Chief Scientist from 1980 to 1985, and a Director and Senior
Scientific Consultant until August 1993. Prior to that time, Dr. Aviv was a
professor of molecular biology at the Weizmann Institute of Science. Dr. Aviv
is the principal stockholder of Avitek Ltd., a stockholder of the Company. Dr.
Aviv is also an officer and/or significant stockholder of several privately-held
Israeli pharmaceutical and venture capital companies and was recently appointed
Chairman of the Israel National Committee for Biotechnology .
21
Gad Riesenfeld, Ph.D., was named President and Acting Secretary in February
1997, and has served as Chief Operating Officer since March 1995. He served as
Executive Vice President from December 1994 to February 1997, Vice President of
Corporate Development and General Manager of Florida Operations from October
1992 to December 1994, and was employed by Pharmos Ltd. from March 1992 until
the Merger. Prior thereto, he was engaged in free-lance consulting relating to
the commercialization of intellectual property, primarily in the pharmaceutical
and medical fields. From March 1990 through May 1991 Dr. Riesenfeld was a
Managing Director of Kamapharm Ltd., a private company specializing in human
blood products. Prior thereto, from May 1986, he was Managing Director of
Galisar Ltd., a private company involved in extracorporeal blood therapy.
Alan M. Mark became Acting Chief Financial Officer and Acting Treasurer of
the Company in July 1996. Prior to joining the Company, Mr. Mark served as
financial and strategic advisor to growing companies from 1995 to 1996. From
1991 to 1995, Mr. Mark was an investment banker at NatWest Markets in New York,
serving most recently as Managing Director. From 1986 to 1990, Mr. Mark was a
member of the corporate finance group at Drexel Burnham Lambert, serving most
recently as Vice President. Mr. Mark received a BS from the Wharton School of
the University of Pennsylvania and an MBA from Harvard Business School.
Anat Biegon, Ph.D., has served as Vice President of Research and
Development since December 1994. Dr. Biegon became head of Research and
Development for the Company in 1994. From 1992 to 1994, Dr. Biegon was a
director in Pharmos Ltd.'s Department of Pharmacology. From 1991 to 1992, she
was a Staff Physiologist at the University of California at Berkeley's Lawrence
Berkeley Laboratory, Division of Research Medicine and Radiation Biophysics.
From 1990 to 1991, Dr. Biegon was a Research Associate Professor in the
Department of Psychiatry at New York University Medical Center. From 1988 to
1990, she was an Associate Professor in the Department of Neurobiology at the
Weizmann Institute of Science.
Marvin P. Loeb, a Director, was Chairman of the Board of the Company (then
known as Pharmatec, Inc.) from December 1982 through October 1992. He has been
Chairman of Trimedyne, Inc. (and its subsidiaries), a publicly-held company
engaged in the manufacture of lasers, optical fibers and laser delivery systems,
since April 1981; a Director of Gynex Pharmaceuticals, Inc., from April 1986
until its merger with and into Biotechnology General Corporation in 1993, a
publicly-held company engaged in the development and commercialization of
pharmaceutical products; a Director of Petrogen, Inc., a privately-held company
engaged in the genetic engineering of bacteria for cleanup of oil waste and
toxic waste, from April 1987 to April 1992 (Chairman from November 1980 to
December 1982 and from July 1983 to April 1987); Chairman of Automedix Sciences,
Inc., an inactive, publicly-held company engaged in the development of products
for treating cancer and other diseases, since September 1980; Chairman of
Cardiomedics, Inc., a privately-held, development stage company engaged in the
development of heart assist devices, from May 1986; Chairman of Xtramedics,
Inc., a publicly-held company developing a feminine hygiene product, from
November 1986 to February 1994 and a Director of Xtramedics from November 1986
until May 1994; Chairman of Ultramedics, Inc., an inactive, privately-held
company developing blood treatment products, since November 1988; and President
and Director of Marvin P. Loeb & Co. since 1965, and Master Health Services,
Inc. since 1972, both of which are family-held companies engaged in licensing of
inventions and financial consulting.
E. Andrews Grinstead, III, a Director of the Company since 1991, is
Chairman and Chief Executive Officer of Hybridon, Inc., a privately-held
biotechnology company. Mr. Grinstead joined Hybridon in 1991. From 1987 to
October 1990, he was Managing Director and group head of the life sciences group
22
at PaineWebber, Inc. From 1986 to 1987, Mr. Grinstead was Managing Director
and group head of the life sciences group at Drexel Burnham Lambert. From 1984
to 1986, he was a Vice President at Kidder, Peabody & Co., Inc., where he
developed the life sciences corporate finance specialty group. Prior to his
seven years on Wall Street, Mr. Grinstead served in a variety of operational and
executive positions with Eli Lilly & Company, most recently as general manager
of Venezuelan Pharmaceutical, Animal Health and Agricultural Chemical
Operations. Since 1991, Mr. Grinstead has served as a Director of EcoScience
Corporation, a development-stage company engaged in the development of
biopesticides. Since 1994, Mr. Grinstead has served as a member of the Board of
Trustees for the Albert B. Sabine Vaccine Foundation, a 501(c)(3) charitable
foundation dedicated to disease prevention. Mr. Grinstead was appointed to the
President's Council of the National Academy of Sciences and the Institute of
Medicine in 1992.
Stephen C. Knight, M.D., a Director of the Company since November 10, 1994,
is Vice President, Corporate Development and Strategic Planning, of Epix
Medical, Inc. Prior to joining Epix Medical in July 1996, Dr. Knight was a
Senior Consultant in the Process Industries section of the North American
Management Consulting Directorate at Arthur D. Little, Inc. While working for
Arthur D. Little, Dr. Knight went on a two-year assignment in the Arthur D.
Little office in Brussels, Belgium. During the past five years, he has been
involved in a variety of corporate and research and development strategic
planning, technology assessment, and merger and acquisition studies in the
pharmaceutical, biotechnology, health care information, medical equipment and
diagnostic industries. Prior to joining Arthur D. Little, Dr. Knight worked as
a consultant at APM, Inc. Dr. Knight has performed medical research at the
National Institutes of Health, AT&T Bell Laboratories, and Yale and Columbia
Universities.
David Schlachet, a Director of the Company since December 15, 1994, is
Chief Executive Officer at Strauss Holdings Ltd. and Vice President at Strauss
Dairies Ltd. The Strauss Group is Israel's largest privately owned food
manufacturer. Mr. Schlachet was Vice President of Finance and Administration at
the Weizmann Institute of Science in Rehovot, Israel from 1990 to December,
1995. Mr. Schlachet was responsible for the Institute's administration and
financial activities, including personnel, budget and finance, funding,
investments, acquisitions and collaboration with the industrial and business
communities. From 1989 to 1990, Mr. Schlachet was President and Chief Executive
Officer of YEDA Research and Development Co. Ltd., a marketing and licensing
company at the Weizmann Institute of Science. Mr. Schlachet is a Director of
Taya Investment Company Ltd., an Israeli publicly-held investment company.
Fredric D. Price, a Director of the Company since August 1996, is Chief
Executive Officer and member of the Board of Directors of Applied Microbiology,
Inc., a publicly-traded health care company engaged in the development of food
ingredients, special dietary foods, and therapeutic agents that may be useful
against infectious diseases. He is also a member of the Executive Committee
(and Secretary) of the Board of Directors of the New York Biotechnology
Association. From July 1991 to September 1994, he was Vice President Finance &
Administration and Chief Financial Officer of Regeneron Pharmaceuticals, Inc.
For the five years prior to joining Regeneron, Fred was the President of FxFDP,
a consulting practice that provided strategic planning, market development, and
new product introduction services to pharmaceutical and other health care
businesses. From 1973 to 1986, he worked for Pfizer Pharmaceuticals, where he
was Vice President, responsible for both the Pfipharmecs Division and the
Controllers's Department for all of Pfizer Pharmaceuticals. Fred received a BA
from Dartmouth College in 1967 and an MBA in 1969 from the Wharton School of the
University of Pennsylvania.
23
SECTION 16 FILINGS
No person who, during the fiscal year ended December 31, 1996, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock [which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the "Act")], a
"Reporting Person" failed to file on a timely basis, reports required by Section
16 of the Act during the most recent fiscal year. The foregoing is based solely
upon a review by the Company of Forms 3 and 4 during the most recent fiscal year
as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and any representation received by the Company from any reporting
person that no Form 5 is required.
24
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the Chief
Executive Officer of the Company for 1996 and the two previous years, as well as
all other executive officers of the Company who received compensation in excess
of $100,000 for 1996. Stock options have been adjusted for the Reverse Share
Split.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Restricted Stock
Name/ ----------------------------------------------------- Stock Underlying
Principal Position Year Salary Bonus Other Awards($) Options
- ------------------ ----------------------------------------------------- ---------- ----------
Haim Aviv, Ph.D.
Chairman, Chief 1996 $236,453 $ 27,435 (1)
Executive Officer, 1995 200,230 20,551 (1) 324,376
Acting President, and 1994 195,476 $25,750 (4) 225,000
Chief Scientist
Gad Riesenfeld, Ph.D.
President and 1996 150,000 43,798 (2)
Chief Operating Officer 1995 136,664 34,481 (2) 79,333
1994 110,000 40,828 (2) 29,333
Alan M. Mark
Acting Chief 1996 150,000 (3) 75,000 (5)
Financial Officer (6)
Anat Biegon, Ph.D.
Vice President of 1996 85,516 26,565 (1)
Research and
Development
S. Colin Neill (6)
Acting Vice 1996 119,000 (3)
President/Finance 1995 109,375 (3) 10,000 (5)
and Administration,
Chief Financial Officer
- --------------
1) Consists of contributions to insurance premiums, car allowance and car
expenses.
2) Consists of housing allowance, contributions to insurance premiums, and car
allowance.
3) Consists of non-employee compensation.
4) These amounts represent the value of 94,115 shares of Old Pharmos common
stock (equal to 18,000 shares of Common Stock, as adjusted) issued in 1990,
subject to forfeiture in the amount of 75%, 50%, 25% and 0%, respectively,
on each anniversary of grant until four years after grant. ( No dividends
have been paid to date on these shares). The market value of these 18,000
equivalent shares as of December 31, 1995 was $26,438.
5) Consists of warrants to purchase common stock.
6) Appointed Acting Chief Financial Officer as of July 1996, replacing Mr. S.
Colin Neill who provided consulting services to the Company through
September 1996.
25
The following tables set forth information with respect to the named
executive officers concerning the grant, repricing and exercise of options
during the last fiscal year and unexercised options held as of the end of the
fiscal year.
OPTION GRANTS FOR THE YEAR
ENDED DECEMBER 31, 1996:
None (1)
(1) On February 12, 1997, the Company issued warrants to purchase an
aggregate of 1,055,000 shares of common stock at an exercise price of
$1.59 per share to 17 employees of the Company. Of such warrants,
250,000 were issued to Dr. Aviv, 175,000 were issued to Dr. Riesenfeld
and 125,000 were issued to Dr. Biegon. Such warrants become exercisable
in increments of 25% each on February 12, 1998, February 12, 1999,
February 12, 2000 and February 12, 2001. All of such warrants expire on
February 12, 2007.
AGGREGATED OPTION EXERCISES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND OPTION VALUES AS OF DECEMBER 31, 1996:
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Shares Options at December 31, 1996 December 31, 1996 (1)
Acquired on Value ------------------------------ ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
Haim Aviv,
Ph.D. 0 0 198,376 126,000 $ -0- $ -0-
Gad Riesenfeld, 0 0 43,600 35,733 -0- -0-
Ph.D.
Anat Biegon, 0 0 24,320 26,213 -0- -0-
Ph.D.
Alan Mark 0 0 0 75,000 (2) -0- 64,500
(1) Based upon closing price on December 31, 1996 as reported on the Nasdaq
SmallCap Market and the exercise price per option.
(2) Consists of warrants to purchase common stock.
STOCK OPTION PLANS
It is currently the Company's policy that all full time key employees be
considered annually for the possible grant of stock options, depending upon
employee performance. The criteria for the awards are experience, uniqueness of
contribution to the Company and level of performance shown during the year.
Stock options are intended to improve loyalty to the Company and help make each
employee aware of the importance of the business success of the Company. The
amount and exercise price of all options discussed
26
herein have been adjusted for the Reverse Share Split.
As of December 31, 1996, the Company has 945,435 options to purchase shares
of the Company's Common Stock outstanding under various option plans, 272,626 of
which were issued under no established plan. During 1996, the Company granted
options to purchase 4,000 shares of its Common Stock to employees under a plan
established in 1992. A summary of the various established stock option plans is
as follows:
1983, 1984, 1986, 1988 Plans. The Company (then known as Pharmatec, Inc.)
----------------------------
established Incentive Stock Option Plans in 1983, 1984, 1986 and 1988 for
officers and employees. There are currently no options outstanding under these
plans and it is anticipated that future grants of stock options will not be made
from these plans.
1991 Plan. Old Pharmos established a stock option plan in 1991. There are
---------
currently 11,476 options outstanding under this plan and it is anticipated that
future grants of stock options will not be made from this plan.
1992 Plan. The 1992 Plan is administered by a committee appointed by the
---------
Board of Directors (the "Committee"), consisting of Messrs. Marvin P. Loeb and
E. Andrews Grinstead, III. The Committee will designate the persons to receive
options, the number of shares subject to the options and the terms of the
options, including the option price and the duration of each option, subject to
certain limitations.
The maximum number of shares of the Company's Common Stock available for
issuance under the 1992 Plan is 750,000 shares, subject to adjustment in the
event of stock splits, stock dividends, mergers, consolidations and the like.
Common Stock subject to options granted under the 1992 Plan that expire or
terminate will again be available for options to be issued under the 1992 Plan.
As of December 31, 1996, there were options to purchase 661,333 shares of the
Company's Common Stock outstanding under this plan. Each option granted
outstanding under the 1992 plan as of December 31, 1996 expires on October 31,
2005.
The price at which shares of the Company's Common Stock may be purchased
upon exercise of an incentive stock option must be at least 100% of the fair
market value of the Company's Common Stock on the date the option is granted (or
at least 110% of fair market value in the case of a 10% Holder).
The aggregate fair market value (determined at the time the option is
granted) of the Company's Common Stock with respect to which incentive stock
options are exercisable for the first time in any calendar year by an optionee
under the 1992 Plan, or any other plan of the Company or a subsidiary, shall not
exceed $100,000. The Committee will fix the time or times when, and the extent
to which, an option is exercisable, provided that no option will be exercisable
earlier than one year or later than ten years after the date of grant (or five
years in the case of a 10% Holder). The option price is payable in cash or by
check. However, the Board of Directors may grant a loan to an employee,
pursuant to the loan provision of the 1992 Plan, for the purpose of exercising
an option or may permit the option price to be paid in shares of the Company's
Common Stock at the then current fair market value, as defined in the 1992 Plan.
No option may be exercised unless the holder has been an employee or
consultant of the Company or a subsidiary for six months from the date of grant.
Upon termination of an optionee's employment or consultancy, all options held by
such optionee will terminate, except that any option that was exercisable on the
date employment or consultancy terminated may, to the extent then exercisable,
be exercised within
27
three months thereafter (or one year thereafter if the termination is the result
of permanent and total disability of the holder). If an optionee dies while he
or she is an employee or a consultant or during such three month period, the
option may be exercised within one year after death by the decedent's estate or
his legatees or distributees, but only to the extent exercisable at the time of
death.
The Board of Directors may amend, suspend or discontinue the 1992 Plan, but
it must obtain stockholder approval to (i) increase the number of shares subject
to the 1992 Plan, (ii) change the designation of the class of persons eligible
to receive options, (iii) decrease the price at which options may be granted,
except that the Board may, without stockholder approval, accept the surrender of
outstanding options and authorize the granting of new options in substitution
therefor specifying a lower exercise price that is not less than the fair market
value of the Company's Common Stock on the date the new option is granted, (iv)
remove the administration of the 1992 Plan from the Committee, (v) render any
member of the Committee eligible to receive an option, other than options
granted pursuant to formula, under the 1992 Plan while serving thereon, or (vi)
amend the 1992 Plan in such a manner that options issued under it intended to be
incentive stock options fail to meet the requirements of Incentive Stock Options
as defined in Section 422 of the Code.
EMPLOYMENT/CONSULTING CONTRACTS/DIRECTORS' COMPENSATION
Haim Aviv, Ph.D. In addition to serving as Chairman of the Board and Chief
----------------
Executive Officer of the Company, Dr. Aviv has provided consulting services
under a consulting agreement with an initial three-year term ended May 3, 1993.
The term automatically renews for additional one-year periods unless either the
Company or Dr. Aviv terminates the agreement at least 90 days prior to a
scheduled expiration date. The agreement has been renewed on an annual basis
and presently expires on May 3, 1998. Dr. Aviv is entitled to severance pay
equal to 25% of his salary in the event of termination or non-renewal without
cause. Under the agreement, Dr. Aviv is required to render certain consulting
services to the Company and in consideration therefore, Dr. Aviv is entitled to
receive $170,000 per year, subject to yearly increases and review.
The Company's subsidiary, Pharmos Ltd., employs Dr. Aviv as its Chief
Executive Officer under an employment agreement with Dr. Aviv pursuant to which
Dr. Aviv receives $50,000 per year, subject to yearly increases and review. Dr.
Aviv is required to devote at least 50% of his business time and attention to
the business of Pharmos, Ltd. and to serve on its Board of Directors.
Gad Riesenfeld, Ph.D. In October 1992, Old Pharmos entered into a one-
---------------------
year employment agreement with Dr. Riesenfeld, which is automatically renewable
for successive one-year terms unless either party gives three months prior
notice of non-renewal. Under the Agreement, Dr. Riesenfeld devotes his full
time to serving as President of the Company. Dr. Riesenfeld's annual gross
salary is $150,000.
Directors' Compensation. In 1996, Directors did not receive any
-----------------------
compensation for service on the Board or for attending Board meetings.
28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 1, 1997, by (i)
each person who was known by the Company to own beneficially more than 5% of any
class of the Company's Common Stock, (ii) each of the Company's Directors, and
(iii) all current Directors and executive officers of the Company as a group.
Except as otherwise noted, each person listed below has sole voting and
dispositive power with respect to the shares listed next to such person's name.
Amount
Name and Address of of Beneficial Percentage
Beneficial Ownership Ownership of Total /(1)/
- -------------------------------- ------------- ---------------
Grace Brothers Ltd. 1,887,077 6.0%
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
Haim Aviv, Ph.D./(2)/ 1,047,805 3.3%
c/o Pharmos Ltd.
Kiryat Weitzman
Rehovot, Israel
Marvin P. Loeb/(3)/ 282,323 *
Trimedyne, Inc.
2810 Barranca Road
Irvine, CA 92714
E. Andrews Grinstead III/(4)/ 86,667 *
Hybridon, Inc.
One Innovation Drive
Worcester, MA 01605
Stephen C. Knight, M.D./(4)/ 3,333 *
Epix Medical, Inc.
71 Rogers Street
Cambridge, MA 02142
David Schlachet/(4)/ 3,333 *
Straus Ltd.
16 Bazel Street
Petach-Tikva, Israel 49510
29
Fredric D. Price 1,750 *
Applied Microbiology, Inc.
771 Old Saw Mill River Road
Tarrytown, NY 10591
All Directors and 1,493,131 4.7%
Executive Officers
as a group
(9 persons)/(5)/
____________________________
* Indicates ownership of less than 1%.
(1) Based on 31,095,510 shares of Common Stock outstanding, plus each
individual's currently exercisable warrants and/or options. Assumes that no
other individual will exercise any warrants and/or options.
(2) Includes 276,153 shares of Common Stock held in the name of Avitek Ltd., of
which Dr. Aviv is the Chairman of the Board of Directors and the principal
stockholder, and, as such, shares the right to vote and dispose of such
shares. Also includes currently exercisable options to purchase 198,376
shares of Common Stock.
(3) Held jointly with his wife. Also includes currently exercisable options to
purchase 36,667 shares of Common Stock. Does not include shares held by his
adult children, his grandchildren or a trust for the benefit of his
grandchildren.
(4) Consists of currently exercisable options to purchase Common Stock.
(5) Based on the number of shares of Common Stock outstanding, plus all
currently exercisable warrants and/or options of the Directors and executive
officers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS
--------------------
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
All financial statement schedules are omitted because they
are not applicable or the required information is shown in
the financial statements or note thereto.
(3) EXHIBITS; EXECUTIVE COMPENSATION PLANS
--------------------------------------
EXHIBITS
2 PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
2(a) Agreement and Plan of Merger dated as of March 28, 1995 between
Pharmos Corporation, PMC Merger Corporation and Oculon
Corporation (Incorporated by reference to the Company's Current
Report on Form 8-K, dated April 11, 1995, as amended).
3 ARTICLES OF INCORPORATION AND BY-LAWS
3(a) Restated Articles of Incorporation (Incorporated by reference to
Appendix E to the Joint Proxy Statement/Prospectus included in the
Form S-4 Registration Statement of the Company dated September 28,
1992 (No. 33-52398) (the "Joint Proxy Statement/Prospectus").
31
3(b) Certificate of Amendment of Restated Articles of Incorporation
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1994).
3(c) Amended and Restated By-Laws (Incorporated by reference to Form S-
1 Registration Statement of the Company dated June 30, 1994 (No.
33-80916)).
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4(a) 1983 Incentive Stock Option Plan (The Company's 1984 and 1986
Plans are identical in all respects except as to the number of
shares subject to option) (Incorporated by reference to Form S-18
Registration Statement of the Company dated June 7, 1983 (2-84298-
C)).
4(b) Amendment of 1983, 1984 and 1986 Incentive Stock Option Plans
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1988).
4(c) 1988 Incentive Stock Option Plan (Incorporated by reference to
Annual Report on Form 10-K for the year ended December 31, 1988).
4(d) Pharmos Corporation 1991 Incentive Stock Option Plan
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1992).
4(e) 1992 Incentive and Non-Qualified Stock Option Plan (Annexed as
Appendix F to the Joint Proxy Statement/Prospectus).
4(f) Form of Class A Warrant to purchase (x) shares of Common Stock
and (y) Class B Warrants (Incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1991).
4(g) Form of Class B Warrant to purchase shares of Common Stock
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1991).
4(h) Unit Purchase Option Agreement dated February 18, 1992 between
the Company and David Blech (Incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1991).
4(i) Form of Warrant to purchase Common Stock at an exercise price of
$1.31 per share (pre-reverse split) (Incorporated by reference to
Form S-3 Registration Statement of the Company dated September
14, 1993 (33-68762)).
4(j) Form of Placement Agent's Warrant Agreement, dated August 13,
1993, to purchase shares of Common Stock (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
September 14, 1993 (33-68762)).
32
4(k) Registration Agreement dated as of January 18, 1994 by and among
the Company, David Blech and Lake Charitable Remainder Trust
(Incorporated by reference to Form S-3 Registration Statement of
the Company dated January 28, 1993 (33-74638)).
4(l) Form of Stock Purchase Agreement dated as of September 2, 1994
between the Company and the Purchaser (Incorporated by reference
to Form S-1 Registration Statement of the Company dated June 30,
1994 [No. 33-80916], Amendment No. 2).
4(m) Form of Warrant Agreement dated September 2, 1994 to purchase
42,000 shares of Common Stock (Incorporated by reference to Form
S-1 Registration Statement of the Company dated June 30, 1994
[No. 33-80916], Amendment No. 2).
4(n) Form of Common Stock Purchase Agreement dated as of October 4,
1994 between the Company and the Purchasers (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
November 25, 1994 [No. 33-86720]).
4(o) Warrant Agreement dated October 4, 1994 between the Company and
Judson Cooper (Incorporated by reference to Form S-3 Registration
Statement of the Company dated November 25, 1994 [No. 33-86720]).
4(p) Form of Convertible Debenture Purchase Agreement dated as of
February 7, 1995 between the Company and the Investors
(Incorporated by reference to Annual Report on Form 10-K for the
year ended December 31, 1994).
4(q) Warrant Agreement dated February 7, 1995 between the Company and
Judson Cooper (Incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1994).
4(r) Form of Employee Warrant Agreement, dated April 11, 1995, between
the Company and Oculon Corporation (Incorporated by reference to
the Company's Current Report on Form 8-K, dated April 11, 1995,
as amended).
4(s) Form of Penalty Warrant Agreement, dated April 11, 1995, between
the Company and Oculon Corporation (Incorporated by reference to
the Company's Current Report on Form 8-K, dated April 11, 1995,
as amended).
4(t) Form of Unit Purchase Agreement dated as of September 14, 1995
between the Company and the Investors (Incorporated by reference
to the Company's Current Report on Form 8-K, dated September 14,
1995).
4(u) Form of Warrant Agreement dated as of September 14, 1995 between
the Company and the Investors (Incorporated by reference to the
Company's Current Report on Form 8-K, dated September 14, 1995).
4(v) Form of Warrant Agreement dated as of April 30, 1995 between the
Company and Charles Stolper (Incorporated by reference to Form S-
3 Registration Statement of the Company dated November 14, 1995,
as amended [No. 33-64289]).
33
4(w) Form of Warrant Agreement dated as of April 30, 1995 between the
Company and Janssen/Meyers Associates, L.P. (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
November 14, 1995, as amended [No. 33-64289]).
4(x) Form of Warrant Agreement dated as of October 31, 1995 between
the Company and S. Colin Neill (Incorporated by reference to Form
S-3 Registration Statement of the Company dated November 14,
1995, as amended [No. 33-64289]).
4(y) Certificate of Designation, Rights, Preferences and Privileges
of Series A Preferred Stock of the Company (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
December 20, 1996, as amended [No. 333-15165])
4(z) Form of 5% Preferred Stock Securities Purchase Agreement dated as
of September 30, 1996 between the Company and the Investors
(Incorporated by reference to Form S-3 Registration Statement of
the Company dated December 20, 1996, as amended [No. 333-15165])
4(a)(a) Form of Stock Purchase Warrant dated as of September 30, 1996
between the Company and the Investors (Incorporated by reference
to Form S-3 Registration Statement of the Company dated December
20, 1996, as amended [No. 333-15165])
4(a)(b)* Stock Purchase Agreement, dated December 12, 1996, between
the Company and Bausch & Lomb Pharmaceuticals, Inc.
10 MATERIAL CONTRACTS
10(a) License Agreement dated as of March 14, 1989 between National
Technical Information Service (NTIS), U.S. Department of Commerce
and the Company (Incorporated by reference to Annual Report on
Form 10-K for year ended December 31, 1989).
10(b) Common Stock and Warrant Purchase Agreement, dated November 5,
1991, between the Company and David Blech (Incorporated by
reference to Annual Report on Form 10-K for year ended December
31, 1991).
10(c) Private Placement Agreement, dated November 5, 1991, between the
Company and David Blech and D. Blech & Company, Incorporated
(Incorporated by reference to Annual Report on Form 10-K for year
ended December 31, 1991).
10(d) Stock Option Agreement, dated March 20, 1992, between the
Company, Pharmos Corporation, Xenon Vision, Inc. and the security
holders of Xenon Vision, Inc. (Incorporated by reference to
Annual Report on Form 10-K for year ended December 31, 1991).
10(e) Agreement and Plan of Merger, dated May 13, 1992, as amended, by
and among the Company, Pharmatec Merger Corporation and Pharmos
Corporation (composite copy as amended to date) (Incorporated by
reference to the Joint Proxy Statement/Registration Statement).
10(f) Registration Rights Agreement dated October 30, 1992 between the
Company and the security holders of Xenon Vision, Inc.
(Incorporated by reference to the Joint Proxy Statement/
Registration Statement).
10(g) Agreement between Avitek Ltd. ("Avitek") and Yissum Research
Development Company of the Hebrew University of Jerusalem
("Yissum") dated November 20, 1986 (Incorporated by reference to
Annual Report on Form 10-K, as amended by Form 10-K/A, for year
ended December 31, 1992).(1)
34
10(g)(1) Supplement to Agreement (Incorporated by reference to Annual
Report on Form 10-K, as amended by Form 10-K/A, for year ended
December 31, 1992). (1)
10(g)(2) Hebrew language original executed version of Agreement
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992). (1)
10(h) Agreement between Avitek and Yissum dated January 25, 1987
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992). (1)
10(h)(1) Schedules and Appendixes to Agreement (Incorporated by reference
to Annual Report on Form 10-K, as amended by Form 10-K/A, for
year ended December 31, 1992). (1)
10(h)(2) Hebrew language original executed version of Agreement
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992). (1)
10(i) Research, Development and License Agreement between Pharmos Ltd.,
Pharmos Corporation ("Old Pharmos") and Yissum dated February 5,
1991 (Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992). (1)
(10)(i)(1) Schedules and Appendixes to Agreement (Incorporated by reference
to Annual Report on Form 10-K, as amended by Form 10-K/A, for
year ended December 31, 1992). (1)
10(j) Pharmos Ltd. Employment Agreement with Haim Aviv ("Aviv") dated
as of May 2, 1990 and Old Pharmos Consulting Agreement with Aviv
dated as of May 2, 1990, as amended by letter from Old Pharmos to
Aviv dated June 27, 1990 and Unanimous Written Consent of the
Board of Directors of Old Pharmos dated March 17, 1992
(Incorporated by reference to Annual Report on Form 10-K, as
amended by Form 10-K/A, for year ended December 31, 1992).
10(k) Letter from Old Pharmos to D. Blech & Co. Incorporated ("D. Blech
& Co.") dated June 27, 1991 re: consulting services (Incorporated
by reference to Annual Report on Form 10-K, as amended by Form
10-K/A, for year ended December 31, 1992).
10(l) Old Pharmos Employment Agreement with Stephen Streber dated as of
July 1, 1992 (Incorporated by reference to Annual Report on Form
10-K, as amended by Form 10-K/A, for year ended December 31,
1992).
10(m) Letter dated July 27, 1992 from Old Pharmos to Henry Dachowitz re
employment (Incorporated by reference to Annual Report on Form
10-K, as amended by Form 10-K/A, for year ended December 31,
1992).
35
10(n) Personal Employment Agreement dated October 1, 1992 between Old
Pharmos and Gad Riesenfeld (Incorporated by reference to Annual
Report on Form 10-K, as amended by Form 10-K/A, for year ended
December 31, 1992).
10(o) Lease Agreement dated as of November 1, 1992 between Talquin
Development Company and the Company (Incorporated by reference to
Annual Report on Form 10-K, as amended by Form 10-K/A, for year
ended December 31, 1992).
10(p) Form of Purchase Agreement dated as of August 13, 1993 by and
among the Registrant and the Investors listed on Exhibit A
thereto (Incorporated by reference to Form S-3 Registration
Statement of the Company dated September 29, 1993 [33-68762]).
10(q) Amended and Restated License Agreement with Research Component
dated July 1, 1993 between University of Florida Research
Foundation, Inc. and the Company (Incorporated by reference to
Annual Report on Form 10-K, as amended by Form 10-K/A, for year
ended December 31, 1993). (1)
10(r) License Agreement dated as of April 2, 1993 between the Company
and Dr. Nicholas Bodor (Incorporated by reference to Annual
Report on Form 10-K, as amended by Form 10-K/A, for year ended
December 31, 1993). (1)
10(s) Consulting Agreement dated as of January 1, 1993 between the
Company and Dr. Nicholas Bodor (Incorporated by reference to
Annual Report on Form 10-K, as amended by Form 10-K/A, for year
ended December 31, 1993). (1)
10(t) Product Development and Clinical Manufacturing Services Agreement
dated as of October 21, 1994 between the Company and Bausch &
Lomb Pharmaceuticals, Inc. (Incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1994).
10(u) Agreement and Release dated as of November 11, 1994 between the
Company and Stephen R. Streber (Incorporated by reference to
Annual Report on Form 10-K for the year ended December 31, 1994).
10(v) Employment Agreement dated as of November 11, 1994 between the
Company and Henry M. Dachowitz (Incorporated by reference to
Annual Report on Form 10-K for the year ended December 31, 1994).
10(w) Marketing Agreement, dated as of June 30, 1995, between the
Company and Bausch & Lomb Pharmaceuticals, Inc. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1995). (1)
10(x) Processing Agreement, dated as of June 30, 1995, between the
Company and Bausch & Lomb Pharmaceuticals, Inc. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1995). (1)
36
10(y)* Marketing Agreement, dated as of December 12, 1996, between the
Company and Bausch & Lomb Pharmaceuticals, Inc. (1)
10(z)* Consulting Agreement, dated November 11, 1996, between the
Company and Alan Mark.
10(a)(a) Form of Stock Purchase Warrant dated as of September 30, 1996
between the Company and Alan M. Mark (Incorporated by reference
to Form S-3 Registration Statement of the Company dated December
20, 1996, as amended [No. 333-15165])
10(a)(b) Form of Warrant Agreeement dated as of March 15, 1996 between the
Company and Michael E. Lewis, Ph.D. (Incorporated by reference to
Form S-3 Registration Statement of the Company dated December 20,
1996, as amended [No. 333-15165])
21 SUBSIDIARIES OF THE REGISTRANT
21(a) Subsidiaries of the Registrant (Incorporated by reference to
Annual Report on Form 10-K, as amended by Form 10-K/A, for year
ended December 31, 1992).
____________________
* Filed herewith.
1 Confidential information is omitted and identified by a * and filed
separately with the SEC.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
1983 Incentive Stock Option Plan (The Company's 1984 and 1986 Plans are
identical in all respects except as to the number of shares subject to
option) (Incorporated by reference to Exhibit 4(a) to Annual Report on Form
10-K for the year ended December 31, 1988).
Amendment of 1983, 1984 and 1986 Incentive Stock Option Plans (Incorporated
by reference to Exhibit 4(b) to Annual Report on Form 10-K for the year
ended December 31, 1988).
1988 Incentive Stock Option Plan (Incorporated by reference to Exhibit 4(c)
to Annual Report on Form 10-K for the year ended December 31, 1988).
Pharmos Corporation 1991 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 4(e) to Annual Report on Form 10-K for the year ended
December 31, 1992).
1992 Incentive and Non-Qualified Stock Option Plan (Annexed as Appendix F to
the Joint Proxy Statement/Prospectus).
Pharmos Ltd. Employment Agreement with Haim Aviv ("Aviv") dated as of May 2,
1990 and Old Pharmos Consulting Agreement with Aviv dated as of May 2, 1990,
as amended by letter from Old Pharmos to Aviv dated June 27, 1990 and
Unanimous Written Consent of the Board of Directors of Old Pharmos dated
March 17, 1992 (Incorporated by reference to Exhibit 10(t) to Annual Report
on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).
Old Pharmos Employment Agreement with Stephen Streber dated as of July 1,
1992 (Incorporated by reference to Exhibit 10(x) to Annual Report on Form
10-K, as amended by Form 10-K/A, for year ended December 31, 1992).
Letter dated July 27, 1992 from Old Pharmos to Henry Dachowitz re employment
(Incorporated by reference to Exhibit 10(y) to Annual Report on Form 10-K,
as amended by Form 10-K/A, for year ended December 31, 1992).
37
Personal Employment Agreement dated October 1, 1992 between Old Pharmos and
Gad Riesenfeld (Incorporated by reference to Exhibit 10(z) to Annual Report
on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).
Agreement and Release dated as of November 11, 1994 between the Company and
Stephen R. Streber (Exhibit 10(u) hereto).
Employment Agreement dated as of November 11, 1994 between the Company and
Henry M. Dachowitz (Exhibit 10(t) hereto).
(B) REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K since October 1,
1996.
(C) EXHIBITS
See Item 14(a)(3) above
(D) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above
38
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHARMOS CORPORATION
By:/s/ HAIM AVIV
----------------------------------
Dr. Haim Aviv, Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ ALAN MARK Acting Chief March 31, 1997
- -------------
Alan Mark Financial Officer
and Acting Treasurer
(Principal Financial
and Accounting Officer)
/s/ MARVIN P. LOEB Director March 31, 1997
- ----------------------
Marvin P. Loeb
/s/ E. ANDREWS GRINSTEAD III Director March 31, 1997
- ----------------------------
E. Andrews Grinstead III
/s/ STEPHEN C. KNIGHT Director March 31, 1997
- -----------------------
Stephen C. Knight
/s/ DAVID SCHLACHET Director March 31, 1997
- -----------------------
David Schlachet
/s/ FREDRIC D. PRICE Director March 31, 1997
- -----------------------
Fredric D. Price
39
[LETTERHEAD OF PRICE WATERHOUSE LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
March 31, 1997
To the Board of Directors and
Shareholders of Pharrnos Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Pharmos
Corporation and its subsidiaries at December 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these statements
based on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concem. The Company has suffered recurring
losses from operations and, at December 31, 1996, has an accumulated deficit of
$62,101,952 that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ PRICE WATERHOUSE LLP
F-1
PHARMOS CORPORATION
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
ASSETS
Cash and cash equivalents $ 5,132,906 $ 7,442,791
R & D reimbursements receivable 359,019 104,261
Prepaid expenses and other current assets 247,363 373,132
---------------- ------------
TOTAL CURRENT ASSETS 5,739,288 7,920,184
Fixed assets, net