1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 0-3390
UNIMED PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
22-1685346
(I.R.S. Employer
Identification Number)
2150 E. LAKE COOK RD.,
BUFFALO GROVE, ILLINOIS
(Address of principal executive offices)
60089
(Zip Code)
Registrant's telephone number, including area code: (847) 541-2525
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS ON WHICH REGISTERED NAME OF EACH EXCHANGE
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None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.25 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 NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, AS OF
MARCH 8, 1996 -- 8,570,886.
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT, BASED UPON THE CLOSING PRICE ON MARCH 8, 1996,
WAS $61,067,563.
DOCUMENTS INCORPORATED BY REFERENCE
THE DEFINITIVE PROXY STATEMENT (TO BE FILED PURSUANT TO REGULATION 14A) FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 2, 1996, IS INCORPORATED BY
REFERENCE IN PART III.
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PART I
ITEM 1. BUSINESS.
Unimed Pharmaceuticals, Inc. and its consolidated subsidiaries (the
Company) develops and markets prescription pharmaceutical products. Currently
the Company promotes one approved drug and is developing others targeted for the
HIV/AIDS, endocrinology, and urology markets. The Company developed and promotes
Marinol(R) through a specialty sales force in the U.S. to AIDS-treating
physicians. Marinol is sold in international markets through the Company's
foreign licensees. The Company is a Delaware corporation and is successor to a
firm incorporated in 1948.
The Company's business strategy is to in-license and develop drugs that
have, at a minimum, successfully completed milestones required to begin human
clinical testing. The Company expects to acquire a diversified portfolio of
late-stage development products in several therapeutic classes. During 1995, the
Company licensed development and marketing rights to an anti-parasitic drug and
two hormone replacement drugs that meet these criteria.
The Company expects to actively pursue new late-stage development
in-licensing opportunities in the foreseeable future. In addition, the Company
intends to acquire approved products that are or can be marketed in the U.S.
After the close of 1995, the Company completed a private placement of its common
stock, generating funds to be used primarily to accelerate product acquisition
activities.
The Company believes that its focus on serving "niche" markets in which
relatively few physicians treat affected patients, allows a small specialty
sales force to reach the targeted physicians. The Company expects to expand its
sales force as products are approved and new business opportunities arise.
The Company's products and clinical development supplies are manufactured
through contractors, using specialized equipment, which in one case is owned
by the Company. The Company believes that well qualified contract manufacturers
are available to produce both currently marketed drugs and those now under
development. Consequently, the Company expects to continue to utilize contract
manufacturing in the foreseeable future.
In 1994, a new President and Chief Executive Officer was hired and a new
business strategy was developed. In 1995, the Company stopped distributing
several over-the-counter (OTC) nutritional and palliative care products, in
order to concentrate on the prescription pharmaceutical market. For the same
reason, the Company also converted its equity interest in Medisperse L.P. into a
product royalty agreement.
In connection with the Company's in-licensing program, it entered into
agreements in which the licensors provided the Company with non-refundable
research and development payments.
MARINOL (DRONABINOL)
Marinol was first approved for marketing by the Food and Drug
Administration (FDA) in 1985 for treating nausea and vomiting associated with
cancer chemotherapy in patients failing to respond adequately to conventional
antiemetic treatments. In 1992, the FDA approved for marketing a second
indication for Marinol: treating anorexia associated with weight-loss in
patients with AIDS.
Marinol is given orally in a round soft gelatin capsule. The active
ingredient, dronabinol, is a naturally occurring chemical found in Cannabis
Sativa L. (marijuana). However, Marinol is chemically synthesized to maximize
purity and consistency. Cannabinoid plants were among the first medicinals used
by man, believed to be used over the last 5,000 years as stimulants,
antidepressants and analgesics. Cannabinoids have been used as muscle relaxants
to counter spasms, convulsions and insomnia. The Company began systematic study
of the therapeutic properties of Marinol in the 1980s.
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Use of Marinol in Cancer
Marinol has been shown to be an effective oral anti-emetic (relieving
drug-induced nausea and vomiting) in numerous clinical studies involving large
patient populations. The drug is believed to exert psychoactive effects through
binding with cannabinol neural receptor sites in the brain. Marinol has been
shown effective when used as a single agent or in combination with other
anti-emetic therapies.
Use of Marinol in AIDS
A number of pharmaceuticals are being used to improve the nutritional
status of the HIV-infected patient. Use of appetite stimulants to manage
anorexia has expanded. Two pharmacologic agents are approved for marketing in
this indication, Marinol and the progestational agent, Megace(R) Oral
Suspension.
Infection from the human immunodeficiency virus (HIV) has a largely
irreversible and progressive effect on the nutritional status of the patient.
Eventually the compromised status of the patient leads to profound weight-loss,
known as HIV wasting syndrome. Studies of people with AIDS have shown a high
correlation between weight-loss and death. Patients who have lost more than 34%
of normal body mass have a high probability of death. Other studies have shown
that malnutrition can impair T-cell immune function, gastrointestinal absorption
and the body's response to infection. AIDS-treating physicians are becoming
increasingly aware of the importance of monitoring and treating nutritional
deficiencies.
Weight-loss observed in AIDS is due to one or more of four known
mechanisms: poor intestinal absorption, abnormal cellular utilization, increased
energy requirements due to HIV and opportunistic infections, and inadequate
dietary intake. In addition, recent studies suggest a high correlation between
endocrine dysfunction (low testosterone serum levels) and weight-loss.
Low serum levels of testosterone, known as hypogonadism, is the most common
endocrine abnormality found in AIDS, affecting approximately 50% of male
patients. This condition is believed to be associated with reduced protein
biosynthesis or a slowdown in the body's replacement of muscle mass.
Malnutrition is caused by inadequate caloric intake and affects as many as
80% of AIDS patients. It is observed clinically in response to anorexia (loss of
appetite), intestinal malabsorption and starvation. The patient's metabolic rate
also is reduced as a result of insufficient caloric intake. Usually, fat
reserves and extracellular water are expended by the body before the loss of LBM
(lean body mass). However, HIV infection, secondary infections and drug
interactions deplete the body's reserves in AIDS patients. Abnormally low
protein synthesis and cytokine production occur and immune parameters also are
suppressed in malnourished individuals.
In 1987, the Company initiated clinical development of Marinol in treatment
of weight-loss in cancer patients. The emerging AIDS pandemic led the Company to
expand the clinical program and then concentrate on an AIDS application. A
subsequent Phase III multi-center double-blind, placebo-controlled trial in AIDS
patients with anorexia and weight-loss of at least five pounds demonstrated
statistically significant improvement in patient's appetite by the fourth week
of therapy. Patients in the study were permitted to continue treatment in an
open-label study, in which there was sustained improvement in appetite.
Treatment was well tolerated by most patients. The incidence of side-effects was
decreased by dose reduction. This pivotal study also demonstrated clinical
trends toward improvement in the patients' weight, mood and reduced nausea. The
Company completed the multi-center Phase III clinical trial in early 1992, filed
a New Drug Application in August 1992, and received approval to market from the
FDA in December 1992.
In 1993, Megace Oral Suspension (megestrol acetate), a synthetic,
antineoplastic and progestational drug, first used to treat advanced carcinoma
of the breast, was approved for marketing as an appetite stimulant. Recently,
recombinant human growth hormone has been tested as an agent to increase LBM.
Thalidomide also is being tested in HIV wasting, due to its anti-TNF activity.
TNF (tumor necrosis factor) may play a role in the pathogenesis of AIDS wasting.
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With a growing potential arsenal of pharmacologic agents, AIDS-treating
physicians increasingly monitor and treat patients with nutritional and hormonal
imbalances. The patient's caloric intake has an impact on the effectiveness of
anabolic agents used to treat endocrine dysfunction and HIV wasting syndrome.
The Company believes that Marinol may be used successfully in combination with
these agents. Combination clinical trials are planned.
PRODUCT DEVELOPMENT
NITAZOXANIDE
In June 1995, the Company entered into a licensing agreement with Romark
Laboratories, L.C. (Romark), for the rights to Romark's know-how and patent
rights covering certain products containing an anti-parasitic drug,
Nitazoxanide, in the U.S., Canada, Australia and New Zealand (NTZ). The
agreement with Romark provides for rights to oral and intravenous routes of
administration for treatment of cryptosporidiosis. In addition, the Company has
marketing rights to oral uses of NTZ for all indications and is investigating
other therapeutic applications of the drug.
Preliminary human clinical trials conducted outside the United States and
sponsored by Romark demonstrated that NTZ showed effectiveness in treating
patients with cryptosporidiosis. A Phase III clinical trial sponsored by a
Romark licensee is under way in Mexico.
It is estimated that 15-20% of people with AIDS in the United States are
infected with a single cell microscopic parasite, Cryptosporidium parvum (C.
parvum). This protozoan inhabits the respiratory and gastrointestinal tracts of
animals and, increasingly, humans. The first case in the U.S. was not reported
in humans until 1976. In 1982, according to the Centers for Disease Control
(CDC), the number of cases of C. parvum began to increase dramatically as part
of the AIDS epidemic. The parasite is highly contagious through contact with
infected humans. C. parvum has been found in the public water supply throughout
the U.S., further exposing at-risk individuals.
Symptoms of cryptosporidiosis include diarrhea, nausea, vomiting and
weight-loss. The severity of symptoms varies with the degree of
immunosuppression. In healthy people, the infection is self-limiting, lasting
for a few days to four or more weeks. Patients with AIDS can be affected for
months or even years. Currently there is no FDA approved drug to treat
cryptosporidiosis.
A Company-sponsored Phase II clinical trial is underway at Cornell Medical
Center, in New York City, investigating the use of NTZ to treat
cryptosporidiosis in 28 patients with AIDS. The purpose of the trial is to
demonstrate safety and efficacy and identify the optimal dose. Enrollment is
dependent upon patients meeting clinical entry criteria. These criteria include
clinically defined AIDS, cryptosporidiosis and the absence of other
gastrointestinal infections. Assuming safety and efficacy are demonstrated in
the Phase II trial, the Company will initiate a multi-center Phase III clinical
trial.
The FDA initially approved NTZ for Compassionate Use in up to 30 AIDS
patients not meeting the clinical entry criteria for the Cornell Study, or not
in geographical proximity to participate in the trial. The full 30 patient
enrollment of the Compassionate Use program was completed and FDA subsequently
authorized expanding enrollment to 100 patients.
ANDROGEL(TM) AND ANDROGEL(TM)-DHT
During 1995, the Company acquired exclusive rights in the U.S., Canada and
Mexico to develop and market topical gel formulations of testosterone and
dihydrotestosterone (DHT), the principal active metabolite of testosterone in
the human body. The gel formulations are applied to the arms or abdomen and
absorbed through the skin into the blood stream. One of these drugs, DHT, is
currently marketed in France and Belgium as treatment for low levels of
testosterone (hypogonadism). This deficiency has been associated with
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a variety of adverse effects, such as: impotence, lack of sex drive, muscle
weakness, low bone density and HIV wasting syndrome (in AIDS patients).
Hypogonadism can be caused by a number of factors. They include: congenital
abnormalities (e.g., Klinefelter's syndrome -- a condition in male newborns
having an extra X chromosome); disease or injuries affecting the pituitary
gland, hypothalamus, or testes; chronic illnesses (e.g., diabetes, kidney
failure, AIDS); or declining testosterone production associated with aging
(geriatric hypogonadism).
While not as abrupt as the decline in estrogen levels women experience
during menopause, studies suggest that testosterone levels may decline 30-40% in
men from their late 40s to their early 70s. This hormonal change correlates with
physical changes commonly observed in middle-aged men -- decreased bone and
muscle mass; an increase in body fat; diminished energy, virility, fertility;
and decreased sexual function.
The Company intends to initially focus clinical development on geriatric
hypogonadal men and in AIDS patients with HIV wasting syndrome. The Company has
begun this program in 1996.
SERC(R)
SERC (betahistine HCl) was developed by the Company in the 1960s. It is
widely used around the world and supplied by several manufacturers. SERC
generates an estimated $80 million in sales by these manufacturers. The majority
of international sales come from Solvay-Duphar of the Netherlands. Through
December 1995, the Company also generated sales of SERC through distributors in
Canada, Australia and South Africa. SERC is not approved for sale in the United
States.
Subsequent to year-end 1995, the Company agreed to sell the SERC trademark
in Canada, Australia and South Africa and to assign the Company's Canadian Serc
approval and all of the Company's international distribution agreements to
Solvay-Duphar. In return, the Company received a cash payment and access to
certain clinical data, technical information and know-how that may be useful in
obtaining marketing approval from FDA in the United States.
SERC is a histamine analogue, given orally. It has two principal effects in
the body: increasing blood supply to the brain and inner ear and a neurological
effect in the brain. Animal studies have shown that capillary size increases
three-fold and the speed of blood flow increases by 50% with use of the drug.
Neurological research has demonstrated that SERC stops histamine binding to H3
receptors in pre-synaptic nerves, stimulating production of H1 receptors. This
process is believed to regulate vasodilation (widening of blood vessels) and to
increase permeability of minute capillaries in the inner ear.
The vascular and neural effects produced by SERC have been shown to reduce
symptoms in vertigo. Vertigo is an unpleasant sensation of imbalance, spinning
and disorientation. Nausea and vomiting are common and, during an acute attack,
people experience feelings of panic and are emotionally traumatized. Patients
may experience visual disorientation, ringing in the ears or hearing loss (which
can be progressive).
Acute recurrent vertigo can be caused by migraine, hypoglycemia (an
abnormal decrease of sugar in the blood), head injuries, tumors and surgical
trauma, but is more common in Meniere's disease, a degenerative nerve disorder
of the inner ear. Vertigo also is associated with dizziness or giddiness,
feelings of faintness, light-headedness or being unsteady on the feet.
Approximately 44 million patients have used SERC outside the United States
since 1976. Less than 200 cases of adverse events have been reported during this
time, indicating SERC's excellent safety profile. The Company estimates that
approximately three million people suffer from vertigo in the United States. In
the U.S., vertigo and Meniere's disease are treated with vasodilators,
anti-emetics and various sedatives. The Company believes there is a significant
unmet need for a better therapeutic agent in this market.
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The Company intends to use clinical data and expertise available from
Solvay-Duphar to develop SERC in the United States. Solvay-Duphar has provided
research and development funds to assist in the U.S. development program.
MEDISPERSE
In November 1995, the Company exchanged its equity ownership in Medisperse,
L.P. for rights to receive royalties on compounds developed using the
proprietary Medisperse drug delivery technology in an amount at least as
attractive as if Unimed remained in the partnership. The Company entered into
the Medisperse limited partnership in 1988 with Sterilization Technical Services
(STS) to commercialize a novel drug formulation and delivery technology that may
allow for drug compounds with low solubility. The Company will make no further
equity contributions. The Company is aiding in the search for licensees for
further development of the Medisperse technology.
MARKETING AND DISTRIBUTION
The Company's sales force details Marinol to AIDS-treating physicians in
the United States, subject to the terms of a co-promotional agreement with
Roxane Laboratories, Inc. (Roxane), a member of the Boehringer Ingelheim group
of companies. Salespeople are located in territories throughout the U.S. with a
high incidence of AIDS.
The Company's business strategy is to develop drugs for niche markets --
therapeutic areas such as HIV/AIDS and endocrinology where fewer than 10,000
physicians manage the majority of patients. The Company hopes to leverage its
presence in the HIV/AIDS medical market with new FDA approvals from current
clinical development programs. The Company intends to expand its sales and
marketing resources as new products and new indications for current products
become available. The Company plans to focus sales and marketing resources on
U.S. markets and to pursue partnerships and corporate alliances to market its
products abroad.
MANUFACTURING
Manufacture of the Company's marketed product and drugs under development
is done on a contract basis by third parties.
The NORAC Company, Inc. (NORAC) supplies Delta-9 tetrahydrocannabinol, the
active ingredient in Marinol, to the Company. The Company owns the principal
equipment used by NORAC to manufacture Delta-9. Delta-9 is synthesized and
purified through a complex and time-consuming process. The loss of NORAC as a
supplier could have a material adverse effect on the Company. Currently, the
Company maintains a three-year supply of Delta-9.
The Company has supply agreements with Romark for NTZ, Besins for Androgel
and Androgel-DHT, and Solvay-Duphar for SERC. Under these agreements, the
Company purchases clinical supplies, and after approval by the FDA, finished
drug products in accordance with the Company's specifications.
COMPETITION
There are many companies, both public and private, including well-known
pharmaceutical companies, chemical companies and specialized genetic engineering
companies, engaged in developing pharmaceuticals and biotechnology compounds for
human therapeutic applications. Many of these companies have substantially
greater financial, research and development, manufacturing, marketing and human
resources than the Company, and represent significant competition. Such
companies may succeed in developing products that are more effective or less
costly than any developed by the Company and may also prove to be more
successful in
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manufacturing and marketing. The Company does not have a significant position in
the pharmaceutical market.
GOVERNMENT REGULATION
The FDA and comparable agencies in other countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing procedures and other costly
and time-consuming procedures. Satisfaction of these requirements typically
takes a number of years and varies substantially based upon the type, complexity
and novelty of the product. In general, the FDA approval process for
pharmaceuticals involves the submission of an Investigational New Drug (IND)
application following preclinical studies, clinical trials in humans to
demonstrate the safety and efficacy of the product under the protocols set forth
in the IND, and submission of preclinical and clinical data as well as other
information to the FDA in an New Drug Application (NDA). The conduct of clinical
trials requires substantial time and expense, and there is no assurance that the
results of the trials will be sufficient to support the submission or the
approval of an NDA. The failure of Unimed to receive FDA approval for its
products under development would preclude the Company from marketing and selling
newly developed products in the United States.
Pharmaceutical manufacturers are subject to extensive regulation by federal
and state regulatory agencies. The Federal Food, Drug and Cosmetic Act, the
Controlled Substance Act, and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record-keeping,
approval, advertising and promotion of pharmaceutical products. Noncompliance
with applicable requirements can result in fines, recall and seizure of
products, total or partial suspension of production, and governmental refusal to
approve new products or indications. The manufacture and sale of Marinol also is
regulated by the Drug Enforcement Agency (DEA) and by statutes and regulations
promulgated by a number of states and foreign countries.
PATENTS AND PROPRIETARY RIGHTS
In 1991, Marinol was designated as an Orphan Drug by the FDA for use as an
appetite stimulant in patients with AIDS. Under the Orphan Drug Act of 1983, the
Company has seven years of marketing exclusivity for this use in the U.S. The
seven-year period began with receipt of marketing approval from the FDA in
December 1992.
Nitazoxanide, when combined with a wetting agent, and optionally, a starch
derivative, in an oral composition, is the subject of a patent and patent
application. Unimed has certain rights with respect to those patents under its
license agreement; however, Unimed does not now hold any patents directly, nor
is there any other patent protection available for Unimed's other products. The
Company has obtained an Orphan Drug Designation for the use of NTZ in the
treatment of cryptosporidiosis in patients with AIDS.
The Company owns the Marinol and SERC trademarks in the U.S.
EMPLOYEES
The Company has 16 full-time employees and one part-time employee. Unimed
expects to add technical, sales and marketing, and administration staff to
support development of the business. The Company believes employee relations are
satisfactory and that it will be able to attract additional personnel as needed.
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ITEM 2. PROPERTIES.
The Company leases approximately 5,000 square feet of executive office
space in Buffalo Grove, Illinois, at an annualized cost of approximately
$165,000, under a lease that expires in 1998. The Company also leased
approximately 1,900 square feet of laboratory space in Mundelein, Illinois, at
an annualized cost of $18,000 under a lease that expired December 31, 1995.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the over-the-counter market. Its
Common Stock is quoted on the NASDAQ National Market System (NMS) under the
symbol UMED. The following table lists the high and low closing prices of the
Common Stock for the two most recent fiscal years.
HIGH LOW
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1994 (January 1 -- December 31)
First Quarter.................................................................. 5 1/4 2 1/4
Second Quarter................................................................. 3 1/4 2 1/4
Third Quarter.................................................................. 3 3/4 2
Fourth Quarter................................................................. 3 7/8 2 1/8
1995 (January 1 -- December 31)
First Quarter.................................................................. 4 3/8 2 3/8
Second Quarter................................................................. 6 3 1/2
Third Quarter.................................................................. 6 3/4 4 3/4
Fourth Quarter................................................................. 7 5/8 5 1/8
The Company had approximately 1,225 holders of record of Common Stock on
March 8, 1996. Unimed's Board of Directors anticipates the retention of all
available earnings to support expected growth and does not anticipate payment of
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED
----------------------------------------------------------------------
12/31/95 12/31/94 12/31/93 9/30/92 9/30/91
----------- ----------- ----------- ----------- ----------
RESULTS OF OPERATIONS:
Gross sales.................... $ 9,723,720 $ 8,647,041 $ 8,059,119 $ 4,126,408 $2,678,668
Rebates and allowances......... 2,403,668 1,259,181 1,183,441 511,027 241,681
Net sales...................... 7,320,052 7,387,860 6,875,678 3,615,381 2,436,987
Income (Loss) from continuing
operations................... 312,664 40,708 (852,294) (3,829,177) (556,646)
(Loss) Income from discontinued
operations................... -- -- -- (380,634) 39,487
Net income (loss).............. 625,062 40,708 (852,294) (4,209,811) (517,159)
Total assets................... 16,305,181 11,804,781 11,662,035 12,174,796 7,188,990
Long-term debt, excluding
current installments......... -- -- -- -- 357,549
----------- ----------- ----------- ----------- ----------
PER SHARE COMMON STOCK DATA:
Income (Loss) from continuing
operations................... $.09 $.01 $(0.14) $(0.72) $(0.14)
Net income (loss).............. $.09 $.01 $(0.14) $(0.79) $(0.13)
Dividends paid................. $ -- $ -- $ -- $ -- $ --
Selected financial data for all periods prior to December 31, 1995, have
been restated to conform to the 1995 presentation. These restatements had no
effect on net income (loss).
Results for the fiscal year ended September 30, 1992, include a $2.5
million restructuring charge.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
In late 1994, a new President and Chief Executive Officer was hired and a
new business strategy was developed. Fiscal 1995 marks the first full year of
Unimed operations under this strategy. The strategy includes increasing sales of
Unimed's principal product, Marinol(R), implementation of cost control programs,
and using the resulting positive cash flow as a foundation to purchase or
acquire rights to additional pharmaceutical products under late-stage
development or already on the market. In 1995, Unimed's gross sales increased to
$9.7 million, a 12% increase over 1994 gross sales of $8.6 million. In addition,
in 1995 the Company increased Marinol(R) gross sales by 19% over 1994, decreased
total operating expenses 18% compared with 1994, and acquired rights to three
late-stage development products.
The Company reported net income of $.09 per share in 1995 compared to net
income of $.01 per share in 1994 and a net loss of $.14 per share in 1993.
The Company generated cash flow from operations of $1,640,000 and reported
year-end cash, cash equivalents and short-term investments of $8,401,000. In
1996, the Company expects to concentrate on further commercializing Marinol(R)
and to continue implementation of the Company's new business strategy, focusing
on acquiring and developing new products that enhance the Company's total
product portfolio.
REVENUES
Fiscal 1995 Marinol(R) gross sales, marketed during the year as a
refractory antiemetic in cancer chemotherapy and as an appetite stimulant in
anorexia associated with weight loss in AIDS, increased 19% over 1994 levels,
ending the year at $8,395,000. This compares with a 13% increase in sales growth
for 1994 to $7,054,000. For the year ended December 31, 1995 and for all periods
presented, the Company reclassified, for financial reporting purposes, a
normally recurring provision for estimated Medicaid rebates on Marinol(R) sales.
This provision for Medicaid rebates, previously reported as a cost of sales, has
been reclassified as a reduction to gross sales. This change had no effect on
gross profit or net income. Marinol(R) is marketed by the Company's licensee,
Roxane Laboratories, Inc. Roxane maintains an approximately 55-person sales
force engaged in both multi-source product distribution and ethical detailing
activities. The Company maintains an eight-person specialty sales force
detailing Marinol(R) only to AIDS-treating physicians. The Company reports the
royalty income it receives from Roxane as revenues from Marinol(R) sales. Unimed
continues to pursue opportunities to form international alliances to sell
Marinol(R) outside of the U.S. During 1994, Marinol(R) was re-introduced in
Canada for use as an antiemetic. Marinol(R) is currently under regulatory review
in South Africa for use as an appetite stimulant and as an anti-emetic. Other
regulatory submissions are expected in 1996. During 1995, Marinol(R) sales to
countries outside the United States totaled approximately $134,000.
Serc(R) is marketed by others in Canada and other international markets to
treat recurrent vertigo. In early 1993, the Company entered into a new
distribution agreement with Sanofi Winthrop Canada (Sanofi). In addition to
Serc(R), the agreement provides for distribution of Marinol(R), as an
antiemetic, and for registration of Marinol(R) as an appetite stimulant in
patients with AIDS with the Health Protection Branch (Canadian equivalent of the
FDA) and post-approval marketing rights in Canada. During 1995, Serc(R) sales
decreased slightly to $1,049,000 from $1,060,000 in 1994. The Company believes
Serc(R) to be a mature product in Canada. In January 1996, Unimed entered into
an agreement with Solvay Duphar whereby Unimed licensed the rights to
proprietary know-how and manufacturing for the drug SERC(R) in the U.S. As part
of the agreement, the Company received a $1.4 million payment to help fund
product development and for Unimed's product and trademark rights to SERC(R) in
Canada, Australia and South Africa.
During 1994, after analyzing market research results that suggested
significant new resources would be required to build market share in the
over-the-counter (OTC) business, the Company concluded that better opportunities
exist in proprietary prescription drug development and marketing. Unimed ended
active promotion of these products and stopped taking orders for these products
in late December 1995. The OTC products, consisting of ONDROX and the MouthKote
product line, generated gross sales of $279,000 during 1995. 1994 sales were
$579,000.
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Other income (net of other expenses) increased 28% in 1995 because of
growth in interest income. Interest income increased 70% to $430,000 due to
higher cash balances and higher interest rates on short-term holdings. Other
income increased 7% during fiscal 1994 relative to 1993, largely due to a slight
growth in interest income. To reflect conversion of the Company's equity
interest in the Medisperse partnership into the right to receive royalties on
products developed using the Medisperse technologies, the Company reduced the
Medisperse investment by $106,000. This was a noncash transaction.
COSTS AND EXPENSES
Cost of sales increased 8% from $2,958,000 in 1994 to $3,201,000 in 1995.
The higher cost of sales was due to revenue growth from the Company's
pharmaceutical products. 1994 cost of sales was slightly lower than 1993 cost of
sales due to changes in product mix.
Total expenses in 1995 were $3.8 million, representing an 18% decrease from
1994 total expenses of $4.6 million. This was due primarily to a 50% reduction
in sales and marketing expenses. Sales and marketing expenses also decreased
between 1994 and 1993, lowering total expenses by 6%. Marinol promotional
programs were unaffected by these reductions.
Operating and administrative expenses for 1995 were approximately
$2,129,000, a decrease of 3% from 1994. This decrease resulted in part from
strong cost control programs introduced by management in late 1994, but also
from the termination of active promotion of the OTC portfolio. Operating and
administrative expenses were 17% higher in 1994 than in 1993. Part of the
increase reflected having a full-time Chief Executive Officer in 1994 compared
with 1993, when the Company's Chairman of the Board served as CEO without
receiving cash compensation. Operating and administrative expenses as a percent
of net sales were 29% in 1995 compared with 30% in 1994.
Sales and marketing expenses were $1,059,000 in 1995, compared to
$2,113,000 in 1994. This decline in spending was primarily the result of ending
aggressive promotion of the OTC product line and reducing the number of Unimed
sales representatives.
Net research and development expenses increased from $328,000 in 1994 to
$618,000 in 1995. The increase was due to further development activities of
Marinol(R) and new pharmaceutical development programs, including hiring
additional personnel to manage these programs. This expense category increased
by $35,000 from 1993 to 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash, cash equivalents and short-term
investments of $8,401,000, compared with $6,612,000 at December 31, 1994. During
1995, Unimed generated cash from operations of $1,640,000. The Company's working
capital remained essentially unchanged from 1994. The Company expects to
increase research and development expenditures in 1996, partially offsetting
this increase with licensor's research and development payments.
During 1995, the Company obtained approximately $250,000 from the exercise
of stock options. In addition, in 1995 Unimed invested $600,000 for a 6% equity
interest in Romark Laboratories, L.C.(Romark). Romark is the licensor of NTZ,
used in the treatment of a broad spectrum of parasitic infections,
including a potentially life-threatening infection in AIDS patients.
Inventories increased by $894,000, which includes $81,000 of inventory
depreciation, at December 31, 1995 over 1994 levels, as the Company accepted
annual delivery of Delta-9 tetrahydrocannabinol, the active component in
Marinol(R), from its contract manufacturer. Marinol(R) inventories normally are
depleted throughout the year until the delivery of the new annual production
lot. The Company's distributor, Roxane, advances funds to Unimed required to
maintain Marinol(R) inventories. The current liability, due to Roxane, is
relieved on a quarterly basis from royalties remitted to the Company. The
reduction in the quarter's royalty payment corresponds to the cost of Marinol(R)
inventory sold during the quarter.
On February 29, 1996, the Company completed a private placement of 1.4
million unregistered shares of Common Stock at $6 per share, for $8.4 million.
The Company anticipates that all of the net proceeds of
19
12
approximately $7.5 million will be used to acquire currently marketed niche
pharmaceutical products and acquire and further develop pharmaceutical products
in late stages of clinical development.
In February 1996, The John N. Kapoor Trust exercised warrants to purchase
800,000 shares of the Company's Common Stock at an exercise price of $2.125,
yielding $1.7 million to the Company.
The Company maintains adequate cash reserves and short-term investments to
meet anticipated working capital, capital expenditure and business investment
requirements.
BACKLOG, SEASONALITY AND IMPACT OF INFLATION
Sales orders are typically filled shortly after receipt and, normally, do
not result in a backlog. In general, the Company's products experience minor
seasonal fluctuations. While raw material inputs to certain products are subject
to price escalation, due to a limited number of suppliers, the complexity of
manufacturing processes and regulatory procedures, the Company does not
attribute this to inflation and does not anticipate inflation to have a
significant impact on costs in the near future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data are listed
under Item 14 in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
20
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
TERM OF
NAME AGE POSITION OFFICE BUSINESS EXPERIENCE
- ---------------------------- ---- ------------------- ------- --------------------------------
John N. Kapoor Ph.D......... 52 Chairman 1997 Chairman of the Board of Unimed
Pharmaceuticals, Inc. since May
1992; Chairman since October
1990 and Chief Executive Officer
since August 1993 of Option
Care, Inc., a franchisor of home
infusion therapy businesses;
President of EJ Financial
Enterprises, Inc., a consulting
and private investment firm,
since 1990; Chairman of
Lyphomed, Inc., a phar-
maceutical company, from 1983 to
1990; Director of Lunar Corp., a
manufacturer and marketer of
X-ray and ultrasound systems;
Director of Akorn, Inc., an
ophthalmic company and NeoPharm,
Inc., an oncology company.
Stephen M. Simes............ 44 President, CEO, 1996 President and CEO of Unimed
Director Pharmaceuticals, Inc. since
October 1994; Director from
August 1993 to June 1995 and
Senior Vice President of
Bio-Technology General Corp., a
biotechnology company, from
August 1993 through October
1994; Chairman of the Board from
1992 through August 1993 and
President, Chief Executive
Officer and Director of Gynex
Pharmaceuticals, Inc., a
pharmaceutical company, from May
1989 through August 1993.
Fred Holubow................ 57 Director 1998 Founder and Vice-President of
Pegasus Associates, investment
advisors, since 1982; Director
of Jefferson State Bank, an
Illinois State Bank; Director of
ThermoRemediation, an
environmental remediation
company; Director of
Bio-Technology General Corp., a
biotechnology company, from 1993
through 1996.
Robert D. Hunter............ 71 Director 1997 Founding and Executive Partner
of R.D. Hunter & Company,
Certified Public Accountants,
since 1956. Mr. Hunter has
announced his retirement from
the Unimed board effective at
the May 2, 1996 annual meeting.
21
14
TERM OF
NAME AGE POSITION OFFICE BUSINESS EXPERIENCE
- ---------------------------- ---- ------------------- ------- --------------------------------
James J. Lempenau........... 66 Director 1998 Chartered Financial Analyst;
President and Director since
1981 of The Income Builder,
Inc., investment advisors.
Roland Weiser............... 65 Director 1996 President of Intervista, an
international pharmaceutical
consulting group, since 1985;
Senior Vice President of
Schering-Plough Corp. (In-
ternational) from 1980 to 1984;
Director, Gam Funds Inc., a
diversified open end management
investment company.
Robert E. Dudley Ph.D....... 41 Vice President 1996 Vice President of Clinical and
Clinical and Regulatory Affairs of Unimed
Regulatory Affairs Pharmaceuticals, Inc. since
December 1994; Vice President of
Clinical Development of
Bio-Technology General Corp., a
biotechnology company, from
August 1993 through November
1994; Vice President of Research
and Development of Gynex
Pharmaceuticals, Inc., a
pharmaceutical company, from May
1989 through August 1993.
David E. Riggs.............. 44 Senior Vice 1996 Senior Vice President since
President, CFO, October 1994 and Vice President,
Secretary, CFO, Secretary and Treasurer of
Treasurer Unimed Pharmaceuticals, Inc.
since May 1992; CFO of NeoPharm,
Inc. since October 1995; CFO and
Secretary of VideoCart, Inc., a
micro-marketing media company,
from 1990 through 1991;
Treasurer and Director of Fi-
nancial Planning for Lyphomed,
Inc., a pharmaceutical company,
from 1986 through 1990.
22
15
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation for services to the Company
for the fiscal year ended December 31, 1995, by the Chief Executive Officer and
two highly compensated senior executive officers.
LONG-TERM COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS
-------------------------------- ----------
OTHER SECURITIES PAYOUTS
ANNUAL RESTRICTED UNDERLYING ---------- ALL OTHER
NAME AND COMPENSA- STOCK OPTIONS LTIP COMPENSA-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) TION($)(4) AWARDS($) SARS(#) PAYOUTS(#) TION($)(5)
- -------------------------- ---- --------- -------- --------- --------- ---------- ---------- ---------
Stephen M. Simes(1)....... 1995 200,000 80,000 9,890 0 360,000 0 10,570
President and Chief 1994 37,712 0 1,700 0 300,000 0 0
Executive Officer
David E. Riggs(2)......... 1995 114,583 42,917 6,600 0 90,000 0 4,620
Senior Vice President, 1994 112,984 0 7,200 0 80,000 0 0
CFO, Secretary and 1993 105,333 13,333 7,200 0 0 0 0
Treasurer
Robert E. Dudley(3)....... 1995 140,000 42,000 7,200 0 100,000 0 51,765
Vice President of 1994 8,227 0 300 0 0 0 0
Clinical and Regulatory
Affairs
- -------------------------
(1) Mr. Simes joined the Company on October 25, 1994. The 360,000 option shares
granted in 1995 represents a new grant of 60,000 options on September 22,
1995, and a repricing of the 300,000 options granted in 1994. An employment
agreement entered into between Mr. Simes and the Company provides for
severance payments, upon termination, equal to his annual salary.
(2) Mr. Riggs joined the Company on May 1, 1992. Effective November 1, 1995, Mr.
Riggs began devoting 50% of his time to the Company. The 90,000 option
shares granted in 1995 represents a new grant of 10,000 options on September
22, 1995, and a repricing of the 80,000 options granted in 1994.
(3) Dr. Dudley joined the Company on December 12, 1994. An employment agreement
entered into between Dr. Dudley and the Company provides for severance
payments, upon termination, equal to 75% of his annual salary.
(4) Represents the compensation portion of car allowances advanced to the
executive officers listed above.
(5) Represents the matching contribution ($4,620 per officer) made by the
Company to the Unimed Pharmaceuticals, Inc. 401(k) Plan for each of the
executive officers listed above. In addition to the Company 401(k) matching
contribution, for Mr. Simes this amount represents insurance premiums paid
($4,018) by the Company for Mr. Simes, and the taxes ($1,932) associated
with these premiums. For Dr. Dudley, this number represents the Company
401(k) matching contribution, expenses paid by the Company related to Dr.
Dudley's relocation ($35,469), and the taxes associated with these
relocation expenses ($11,676).
23
16
The following table sets forth information with respect to grants of
options to purchase Common Stock granted to the Named Executive Officers during
the fiscal year ended December 31, 1995:
INDIVIDUAL GRANTS
------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK
TOTAL PRICE APPRECIATION
OPTIONS FOR
GRANTED TO OPTION TERM
EMPLOYEES EXERCISE --------------------
OPTIONS IN FISCAL PRICE EXPIRATION 5% 10%
NAME GRANTED YEAR $/SHARE DATE $ $
- ------------------------------------ ------- ---------- -------- ---------- ------- ---------
Stephen M. Simes.................... 300,000 38.03 2.75 1/19/05 518,838 1,314,838
60,000 7.61 5.25 9/22/05 348,102 652,029
David E. Riggs...................... 80,000 10.14 2.75 1/19/05 138,357 350,623
10,000 1.27 5.25 9/22/05 58,017 108,671
Robert E. Dudley.................... 60,000 7.61 2.75 1/19/05 103,768 262,968
40,000 5.07 5.25 9/22/05 232,068 434,686
The following table sets forth information with respect to stock options
exercised during the fiscal year ended December 31, 1995 and the value at
December 31, 1995 of unexercised stock options held by the Named Executive
Officers:
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS
OPTIONS IN-THE-MONEY
AT FISCAL AT FISCAL
SHARES YEAR-END YEAR-END*
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE RECEIVED UNEXERCISABLE UNEXERCISABLE
NAME # $ # $
- ---------------------------------------- ----------- -------- --------------- ---------------
Stephen M. Simes........................ 0 0 112,500/247,500 435,938/809,063
David E. Riggs.......................... 0 0 45,000/ 45,000 174,375/149,375
Robert E. Dudley........................ 0 0 0/100,000 0/287,500
- -------------------------
* Represents the fair market value at December 31, 1995, of the Common Stock
underlying the options minus the exercise price.
The following table shows stock options granted to the Named Executive
Officers where the exercise price was adjusted (repriced) during the fiscal year
ended December 31, 1995:
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT NEW REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE
NAME DATE REPRICED(#) REPRICE($) REPRICE($) PRICE($) OF REPRICING
- --------------------------------- ------- ----------- ---------- ---------- -------- ------------
Stephen M. Simes................. 1/19/95 300,000 2.75 3.38 2.75 9.75 Years
David E. Riggs................... 1/19/95 80,000 2.75 3.38 2.75 9.75 Years
Directors who are not officers of the Company receive an annual stipend of
$6,000 for serving on the Board and its committees, and additional $1,000 for
each directors meeting they attend (excluding meetings held by telephone), $500
for each committee meeting they attend (excluding meetings held by telephone),
and reimbursement of out-of-pocket expenses in connection with their attendance
at directors meetings. The 1991 Stock Option Plan provides for a grant of
options to purchase 10,000 shares of Common Stock to each new director who is
not an officer on the date this person first becomes a director. The 1991 Stock
Option Plan also provides for annual option grants of 7,500 shares of Common
Stock to directors who are not officers.
24
17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ------------------------------------------------------- ---------- --------
Common John N. Kapoor Ph.D.................................... 2,332,429 (1)(2) 25.7%
Common Stephen M. Simes....................................... 112,500 (1) --
Common James J. Lempenau...................................... 57,328 (1) --
Common Robert D. Hunter....................................... 47,528 (1)(3) --
Common Roland Weiser.......................................... 45,950 (1) --
Common David E. Riggs......................................... 45,000 (1) --
Common Fred Holubow........................................... 27,500 (1) --
Common Robert E. Dudley....................................... 15,000 (1) --
All Directors and Officers as a group (8
Common individuals)........................................... 2,683,235 (4) 29.5%
- -------------------------
(1) Includes incentive stock options and non-qualified stock options exercisable
within 60 days to purchase 160,000, 112,500, 42,328, 42,328, 41,170, 45,000,
17,500, and 15,000 shares of Common Stock held by Kapoor, Simes, Lempenau,
Hunter, Weiser, Riggs, Holubow, and Dudley, respectively.
(2) Includes 1,667,429 shares of Common Stock beneficially owned by the John N.
Kapoor Trust, an "affiliate" of Dr. Kapoor. Includes 505,000 shares of
Common Stock held by a limited partnership created for the benefit of Dr.
Kapoor's family members, of which Dr. Kapoor is the General Partner.
(3) Includes 2,100 shares of Common Stock owned of record by Mr. Hunter's wife.
(4) See Footnotes 1 through 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See "Note 13 -- Related Parties" in the Notes to Consolidated Financial
Statements included herein.
25
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) and (d) Financial Statements
See Index to Consolidated Financial Statements and Schedules on page 28.
(b) Reports on Form 8-K
None
(c) Exhibits
3-A -- Certificate of Incorporation of the Registrant, as amended (filed by reference
to Exhibits 3[a] through 3[c] to Registration Statement No. 2-19352, Exhibit
3[c][i] to Registration Statement No. 2-21680, Exhibit 3[a][i] to Registration
Statement No. 2-42398, Exhibit 3[a] to Current Report on Form 8-K, dated
January 27, 1981, Exhibit 3-A[ii] to Annual Report on Form 10-K for the fiscal
year ended September 30, 1985 and Exhibit 3.1 to Registration Statement No.
33-10975).
3-B(i) -- Amendment to Certificate of Incorporation, dated March 27, 1991 (filed by
reference to Exhibit 3-B to Post-Effective Amendment No. 3 to Registration
Statement No. 33-10975).
3-B(ii) -- Amendment to Certificate of Incorporation, adopted by stockholders on May 2,
1994 (filed by reference to Exhibit 3-B[ii] to Annual Report on Form 10-K for
the fiscal year ended December 31, 1994).
3-C -- By-laws of the Registrant, as amended (filed by reference to Exhibit 3-B to
Annual Report on Form 10-K for fiscal year ended September 30, 1989).
3-D -- Amendment to the By-laws of the Company, dated May 5, 1991 (filed by reference
to Exhibit 3-D to the Post-Effective Amendment No. 3 to Registration Statement
No. 33-10975).
4-A -- Specimen Common Stock Certificates (filed by reference to Exhibit 4 to the
Annual Report on Form 10-K for the fiscal year ended September 30, 1991).
4-B -- Stock Purchase Agreement, dated February 15, 1991, between the John N. Kapoor
Trust and the Company (filed by reference to Exhibit 4-D to Post-Effective
Amendment No. 3 to Registration Statement No. 33-10975).
4-C -- Stock Registration Rights Agreement, dated March 27, 1991, between the John N.
Kapoor Trust and the Company (filed by reference to Post-Effective Amendment
No. 3 to Registration Statement No. 33-10975).
*4-D -- Stock and Warrant Agreement, dated as of August 11, 1995, between the Company
and Laboratoires Besins Iscovesco S.A.
*4-E -- Warrant, dated August 11, 1995, for 72,550 shares of Common Stock, issued to
Laboratoires Besins Iscovesco S.A.
*4-F -- Registration Rights Agreement, dated August 11, 1995, between the Company and
Laboratoires Besins Iscovesco S.A.
*4-G -- Warrant, dated February 29, 1996, for 140,000 shares of Common Stock, issued to
Sunrise Securities Corp.
*4-H -- Registration Rights Agreement, dated February 29, 1996, between the Company and
certain holders of Common Stock.
10-B(i) -- Agreement between Roxane Laboratories, Inc. and the Company, dated February 12,
1986 (filed as Exhibit 10 to the Company's Current Report on Form 8-K dated
February 12, 1986).
10-B(ii) -- Agreement between Roxane Laboratories, Inc. and the Company, dated April 1,
1987 (filed as Exhibit 28.1 to the Company's Current Report on Form 8-K dated
April 28, 1987).
26
19
*10-B(iii) -- Agreement between Roxane Laboratories, Inc. and the Company, dated January 20,
1995 and letter amendment, dated November 22, 1995.
10-D(i) -- Forms of Graduated Vesting Non-qualified Stock Option Agreement (filed by
reference to Exhibit 10-G[iv] to Registration Statement No. 33-43838).
10-D(ii) -- Form of Immediate Vesting Non-qualified Stock Option Agreement (filed by
reference to Exhibit 10-G[v] to Registration Statement No. 33-43838).
10-D(iii) -- Form of Incentive Stock Option Agreement (filed by reference to Exhibit
10-G[vi] to Registration Statement No. 33-43838).
*10-K -- Unimed Pharmaceuticals, Inc. 1991 Stock Option Plan, as amended through March 29,
1996.
10-L -- Agreement for Manufacture and Sale of THC, dated September 9, 1992, by and
between The NORAC Company, Inc. and the Company (filed as Exhibit [c] 1 to the
Company's Current Report on Form 8-K dated September 9, 1992).
*10-M -- Employment Agreement, dated as of October 11, 1994, between the Company and
Stephen M. Simes.
*10-N -- Employment Agreement, dated as of November 3, 1994, between the Company and
Robert E. Dudley.
*10-Q -- Sales Agency Agreement, dated January 22, 1996, between Sunrise Securities
Corp. and the Company.
*11 -- Computation of Income (Loss) per Share
*24(a) -- Consent of Coopers & Lybrand L.L.P.
- -------------------------
* Filed herewith.
27
20
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Report of Independent Accountants.................................................... 29
Financial Statements:
Consolidated Statements of Operations for the years ended December 31, 1995, 1994
and 1993........................................................................ 30
Consolidated Balance Sheets at December 31, 1995 and December 31, 1994............. 31
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1994 and 1993............................................................. 32
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994
and 1993........................................................................ 33
Notes to Consolidated Financial Statements......................................... 34
Report of Independent Accountants on Financial Statement Schedule.................... 44
Financial Statement Schedule:
Valuation and Qualifying Accounts (Schedule II).................................... 45
28
21
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Unimed Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Unimed
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unimed
Pharmaceuticals, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations, stockholders' equity and cash flows
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 13, 1996, except for Note 14, as to which the date is February 29, 1996
29
22
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---------- ---------- ----------
Gross sales.............................................. $9,723,720 $8,647,041 $8,059,119
Rebates and allowances................................... 2,403,668 1,259,181 1,183,441
---------- ---------- ----------
Net sales................................................ 7,320,052 7,387,860 6,875,678
Cost of sales............................................ 3,201,014 2,957,602 3,007,855
---------- ---------- ----------
Gross profit............................................. 4,119,038 4,430,258 3,867,823
---------- ---------- ----------
Operating and administrative............................. 2,129,140 2,195,829 1,879,966
Sales and marketing...................................... 1,059,215 2,112,826 2,780,289
Research and development, net............................ 618,019 328,367 292,724
---------- ---------- ----------
Total expenses........................................... 3,806,374 4,637,022 4,952,979
---------- ---------- ----------
Income (Loss) from operations............................ 312,664 (206,764) (1,085,156)
Interest income.......................................... 430,098 253,624 222,462
Other, net............................................... (106,000) -- 15,000
---------- ---------- ----------
Income (Loss) before income taxes........................ 636,762 46,860 (847,694)
Income tax provision..................................... 11,700 6,152 4,600
---------- ---------- ----------
Net income (loss)........................................ $ 625,062 $ 40,708 $ (852,294)
========== ========== ==========
Net Income (loss) per share:
Primary................................................ $ .09 $ .01 $ (.14)
========== ========== ==========
Fully diluted.......................................... $ .09 $ -- $ --
========== ========== ==========
Weighted average number of common and common equivalent
shares outstanding:
Primary................................................ 7,030,553 6,401,066 6,040,606
========== ========== ==========
Fully Diluted.......................................... 7,300,921 -- --
========== ========== ==========
See accompanying notes to consolidated financial statements
30
23
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND DECEMBER 31, 1994
1995 1994
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 7,011,843 $ 6,101,093
Short-term investments............................................. 1,388,756 511,363
Receivables:
Trade, less allowances of $43,000 in 1995 and $28,000 in 1994...... 1,548,148 1,086,298
Other.............................................................. 535,104 61,947
----------- -----------
Total receivables........................................... 2,083,252 1,148,245
Inventories........................................................ 3,327,939 2,433,561
Prepaid expenses................................................... 276,043 338,412
----------- -----------
Total current assets........................................ 14,087,833 10,532,674
----------- -----------
Leasehold improvements and equipment, at cost...................... 1,922,006 2,032,546
Less accumulated depreciation and amortization................ 1,050,866 934,916
----------- -----------
Net........................................................... 871,140 1,097,630
----------- -----------
Investment, at cost................................................ 600,000 --
Other assets....................................................... 746,208 174,477
----------- -----------
Total assets................................................ $16,305,181 $11,804,781
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 416,705 $ 90,107
Accrued liabilities................................................ 511,446 352,234
Income taxes payable............................................... 20,000 9,963
Due to Roxane...................................................... 3,716,633 1,881,916
Deferred research and development revenues......................... 1,000,000 --
----------- -----------
Total current liabilities..................................... 5,664,784 2,334,220
----------- -----------
Commitments and contingencies (Notes 11 and 12)
Stockholders' equity:
Common stock, $.25 par value; authorized 12,000,000 shares; issued
and outstanding: 6,270,886 and 6,127,161......................... 1,567,722 1,531,790
Additional paid-in capital......................................... 17,559,861 17,052,661
Accumulated deficit................................................ (8,527,869) (9,152,931)
Accumulated foreign currency translation adjustment................ 40,683 39,041
----------- -----------
Total stockholders' equity.................................. 10,640,397 9,470,561
----------- -----------
Total liabilities and stockholders' equity.................. $16,305,181 $11,804,781
=========== ===========
See accompanying notes to consolidated financial statements
31
24
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
--------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 1992....... 5,891,316 $1,472,829 $16,399,644 $(8,341,345) $38,579 $ 9,569,707
Net loss........................... -- -- -- (852,294) -- (852,294)
Exercise of common stock options... 235,845 58,961 625,957 -- -- 684,918
Amortization of restricted stock
options.......................... -- -- 27,060 -- -- 27,060
Foreign currency translation
gain............................. -- -- -- -- 16 16
--------- ---------- ----------- ----------- ------- -----------
Balance at December 31, 1993....... 6,127,161 1,531,790 17,052,661 (9,193,639) 38,595 9,429,407
Net income......................... -- -- -- 40,708 -- 40,708
Foreign currency translation
gain............................. -- -- -- -- 446 446
--------- ---------- ----------- ----------- ------- -----------
Balance at December 31, 1994....... 6,127,161 1,531,790 17,052,661 (9,152,931) 39,041 9,470,561
Net income......................... -- -- -- 625,062 -- 625,062
Exercise of common stock options... 71,125 17,782 232,681 -- -- 250,463
Issuance of common stock for
product licenses................. 72,600 18,150 274,519 -- -- 292,669
Foreign currency translation
gain............................. -- -- -- -- 1,642 1,642
--------- ---------- ----------- ----------- ------- -----------
Balance at December 31, 1995....... 6,270,886 $1,567,722 $17,559,861 $(8,527,869) $40,683 $10,640,397
========= ========== =========== =========== ======= ===========
See accompanying notes to consolidated financial statements
32
25
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------- ---------- -----------
Cash flows provided by (used in) operations:
Net income (loss)...................................... $ 625,062 $ 40,708 $ (852,294)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation and amortization........................ 108,012 105,537 161,814
Compensation related to restricted stock and stock
options........................................... -- -- 27,060
Writedown of other assets............................ 106,000 -- --
Other................................................ 1,601 366 38
(Increase) Decrease in receivables................... (435,007) (85,392) 12,693
Decrease in notes receivable......................... -- 35,032 39,968
(Increase) Decrease in inventories................... (812,994) 220,769 (605,270)
Decrease (Increase) in prepaid expenses and other
assets............................................ 9,028 175,334 (107,916)
Increase (Decrease) in accounts payable and accrued
liabilities....................................... 203,582 126,779 (61,321)
(Decrease) in accrued restructuring costs............ -- -- (1,079,680)
Increase (Decrease) in due to Roxane................. 1,834,717 (25,187) 274,972
---------- ---------- ----------
Net cash flows provided by (used in) operating
activities................................... 1,640,001 593,946 (2,189,936)
Cash flows (used in) provided by investing activities:
Proceeds on disposition of equipment................. 63,063 -- --
Purchases of equipment............................... (25,969) (36,409) (395,050)
Net (purchase) sale of short-term investments........ (877,393) 256,258 (567,333)
Investment in Medisperse............................. (39,456) (40,927) 48,001
Investment in Romark Laboratories, L.C............... (600,000) -- --
---------- ---------- ----------
Net cash (used in) provided by investing
activities................................... (1,479,755) 178,922 (914,382)
Cash flows provided by financing activities:
Proceeds from exercise of stock options.............. 250,463 -- 684,918
Deferred research and development revenues-net....... 500,000 -- --
---------- ---------- ----------
Net cash flows provided by financing
activities................................... 750,463 -- 684,918
Effect of exchange rate changes on cash.............. 41 80 33
---------- ---------- ----------
Net change in cash and cash equivalents................ 910,750 772,948 (2,419,367)
Cash and cash equivalents at beginning of year......... 6,101,093 5,328,145 7,747,512
---------- ---------- ----------
Cash and cash equivalents at end of year............... $ 7,011,843 $6,101,093 $ 5,328,145
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes......................................... $ 1,663 $ 1,605 $ 1,600
Supplemental disclosures of non-cash financing and
investing activities:
In 1995, the Company entered into an agreement to exchange 145,100 shares of the Company's
Common Stock for licensing rights to two products. The fair value of the licensing rights
was determined to be approximately $585,000 based on the market value of the Company's
Common Stock on the date the agreement was entered into.
See accompanying notes to consolidated financial statements
33
26
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unimed Pharmaceuticals, Inc. (the Company) and its subsidiaries develop and
market proprietary ethical pharmaceutical products in niche medical markets.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of intercompany balances and
transactions.
(B) TRANSLATION OF FOREIGN CURRENCY AND RELATED MATTERS
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars. Assets and liabilities of the subsidiaries have
been translated using exchange rates in effect at the balance sheet date. The
statements of operations have been translated using the average rates of
exchange for the year. Adjustments resulting from the translations are
accumulated in the stockholders' equity section of the consolidated balance
sheets. Exchange gains or losses arising from the settlement of foreign currency
transactions during the year are reflected in the consolidated statements of
operations.
(C) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include liquid instruments purchased with
original maturities of 90 or fewer days.
The Company has investments in short-term debt securities that have been
classified under the provisions of SFAS No. 115 as held-to-maturity.
Accordingly, these investments are measured at amortized cost and temporary
unrealized gains or losses are not recognized.
(D) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(E) LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Depreciation is provided on a straight-line basis over the estimated useful
lives of the applicable assets. Amortization of leasehold improvements is
provided on a straight-line basis over the lesser of the estimated useful lives
of improvements or the terms of the related leases. Expenditures for repairs and
maintenance are charged to operations; replacements, renewals and betterments
are capitalized. The cost and accumulated depreciation of assets retired or
otherwise disposed of are eliminated from the accounts and any gains or losses
on such dispositions are reflected in operations.
34
27
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(F) INCOME TAXES
Deferred tax liabilities and assets at the end of each period are
determined using the tax rate expected to be in effect when taxes actually are
paid or recovered. Accordingly, income tax expense will increase or decrease in
the same period in which a change in the tax rates is enacted.
(G) REVENUE RECOGNITION
Revenues are recognized as earned in accordance with specific terms of each
distribution, royalty and licensing agreement.
(H) INCOME (LOSS) PER SHARE
Primary net income per share is computed by dividing net income by the
weighted average number of common stock and common stock equivalents (when
dilutive). Common stock equivalents include unexercised stock options and
warrants. Fully diluted net income per share is computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, as if the common stock equivalents were converted
into common stock at the beginning of the period.
(I) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
(J) ACCOUNTING FOR STOCK OPTIONS
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", for its stock-based
compensation program, and does not intend to adopt the fair value accounting
rules as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation"(SFAS 123) which becomes effective for
1996. The Company intends to adopt the disclosure provision of SFAS 123
beginning in 1996.
(K) RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to the 1995
presentation. These reclassifications had no effect on gross profit or net
income (loss) for such periods.
(2) INVENTORIES
A summary of inventory components at December 31 follows:
1995 1994
---------- ----------
Finished products..................................... $ 368,636 $ 844,778
Raw materials......................................... 2,959,303 1,588,783
---------- ----------
$3,327,939 $2,433,561
========== ==========
35
28
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LEASEHOLD IMPROVEMENTS AND EQUIPMENT
A summary of leasehold improvements and equipment at December 31 follows:
ESTIMATED
1995 1994 USEFUL LIFE
---------- ---------- -----------
Equipment, furniture and fixtures.......... $1,884,087 $2,001,647 5-10 years
Leasehold improvements..................... 37,919 30,899 10 years
---------- ----------
$1,922,006 $2,032,546
========== ==========
The Company has purchased and retains title to the majority of the
equipment used by The NORAC Company, Inc. (NORAC) to manufacture Marinol
(dronabinol). As of December 31, 1995 and 1994, the equipment had a net book
value of $490,285 and $571,668, respectively.
(4) PRODUCT DEVELOPMENT AND LICENSING AGREEMENTS
Romark Laboratories, L.C.
In June 1995, the Company entered into a license agreement with Romark for
the rights to develop and market NTZ, which treats a broad spectrum of parasitic
infections, including a potentially life-threatening infection in AIDS patients.
The agreement grants Unimed exclusive marketing rights to NTZ for all
therapeutic indications for oral use in the United States, Canada, Australia and
New Zealand. The Company also received rights to the IV formulations for use in
treating cryptosporidiosos. In exchange for these exclusive marketing rights,
Unimed will pay Romark royalties if Unimed receives regulatory approval to
market NTZ. Romark will manufacture NTZ exclusively for Unimed in Unimed
countries. To date, Unimed has invested $600,000 in Romark in exchange for a 6%
equity interest in Romark. The Company will invest another $400,000 for an
additional 4% equity interest in Romark as certain development milestones are
met.
Besins Iscovesco
In August 1995, Unimed entered into a licensing agreement with Besins
Iscovesco (Besins) of Paris, France, for two products to treat testosterone
deficiency in men. The products are gel formulations of testosterone, the
natural male hormone, and dihydrotestosterone (DHT), which is the active
metabolite of testosterone in the human body. Unimed acquired exclusive
marketing rights to the testosterone products for all therapeutic indications in
the United States, Canada and Mexico. In exchange for the license to the two
testosterone products, Unimed issued Besins 72,600 Common shares and warrants to
purchase 72,550 shares of Unimed Common Stock at $8.00 per share in 1995 and
will issue Besins 72,500 Common shares in 1996. These rights have been included
in other assets and will be amortized over 10 years after the products become
available in the market. Besins will manufacture the products for Unimed, which
will pay royalties to Besins if the products are approved for marketing. Besins
was required to make two $500,000 payments to Unimed, to be applied to product
development classified as deferred revenues as of December 31, 1995.
Simultaneous to the signing of the Besins agreement, the Company recognized
an other asset of approximately $585,000 in marketing/property rights, which
included a $280,000 payable that was paid through the issuance of the Company's
Common Stock in January 1996.
36
29
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Medisperse Restructure Agreement
In November 1995, Unimed entered into a restructuring and royalty agreement
relative to the Medisperse partnership. While Unimed withdrew (through its
wholly owned subsidiary) as a general partner and also transferred its limited
partnership interest, its financial investment in the partnership remains
protected. It will receive royalties on any products that result from the
Medisperse partnership in an amount at least as attractive as if Unimed remained
in the partnership. The Company is aiding in the search for a licensee for
further development of the Medisperse technology. Unimed has no future funding
obligations associated with the partnership. As of December 31, 1995, the
Company's investment in Medisperse was reduced by $106,000 to its net realizable
value.
(5) SHORT-TERM INVESTMENTS
Short-term investments in debt securities, were as follows:
SHORT-TERM INVESTMENTS
HELD-TO-MATURITY
-----------------------
1995 1994
---------- --------
Obligations of corporations............................ $1,138,756 $261,363
Obligations of U.S. government agencies................ 250,000 250,000
---------- --------
$1,388,756 $511,363
========= ========
(6) INCOME TAXES
The provision for income taxes is comprised of the following:
CURRENT 1995 1994 1993
-------------------------------------------------- ------- ------ ------
Federal........................................... $ -- $ -- $ --
State............................................. 11,700 6,152 4,600
Foreign........................................... -- -- --
------- ------ ------
Total...................................... $11,700 $6,152 $4,600
======= ====== ======
Income tax provisions from continuing operations differed from the taxes
calculated at the statutory federal rate as follows:
1995 1994 1993
--------- -------- ---------
Taxes at the statutory rate................... $ 216,500 $ 16,400 $(296,700)
Utilization of tax loss carryforward.......... (217,100) (17,000) --
State income taxes............................ 11,700 6,152 4,600
Foreign loss.................................. 600 600 --
Valuation allowance........................... -- -- 296,700
--------- -------- ---------
Totals................................... $ 11,700 $ 6,152 $ 4,600
========= ======== =========
At December 31, 1995, the Company has a tax loss carryforward of
approximately $10,033,000 for federal income tax purposes, which expires in the
years 2001 through 2010. The Company had a capital loss carryforward of
approximately $380,000 that expired in 1995. The Company has available a
research and development credit carryforward at December 31, 1995, of
approximately $430,000, which expires in the years 2003 through 2010. Management
has recorded a 100% valuation allowance against deferred tax assets as a result
of unexpected future taxable income.
37
30
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the components of net deferred taxes are as follows:
1995 1994
----------- -----------
Deferred tax assets:
Net operating loss carryforward................... $ 4,013,000 $ 4,104,400
Research tax credit carryforward.................. 430,000 420,000
Capital loss carryforward......................... -- 152,000
Sales returns and allowances...................... 16,000 10,000
Inventory......................................... 22,000 100,000
Accrued liabilities............................... 32,000 72,500
Other............................................. 1,000 1,200
Valuation allowance............................... (4,342,000) (4,715,300)
----------- -----------
Total.......................................... $ 172,000 $ 144,800
----------- -----------
Deferred tax liabilities:
Depreciation...................................... 172,000 144,800
----------- -----------
Net............................................ $ 0 $ 0
=========== ===========
(7) DISTRIBUTION, RESEARCH, ROYALTY AND LICENSING AGREEMENTS
In February 1986, the Company entered into a distribution agreement with
Roxane, making Roxane the Company's exclusive distributor of Marinol in the
United States. The Company and Roxane subsequently agreed that Puerto Rico is
not part of the United States territory. Roxane distribution of Marinol began in
July 1986 in the United States. From October 1991 through March 1993, Boehringer
Ingelheim distributed Marinol in Canada. In March 1993, Sanofi Winthrop started
to distribute Marinol in Canada under a separate agreement. The Roxane Marinol
agreement sets forth a formula for the royalties paid on net sales of Marinol on
an equal basis. The Sanofi agreement pays a royalty-based commission on net
sales of 55% to Sanofi Winthrop and 45% to Unimed. Marinol gross sales were
$8,395,292 (1995), $7,054,417 (1994) and $6,229,202 (1993). As of December 31,
1995 and 1994, trade receivables included $1,468,040 and $969,278, respectively,
due from Roxane. Under a separate contract, Roxane has agreed to reimburse the
Company for half of the external research costs incurred in further clinical
development of Marinol. Roxane and Unimed have agreed to fund additional Marinol
clinical trials for which budgeted costs have been mutually agreed upon. Such
reimbursements shall not exceed $3 million without prior written approval by the
parties. Roxane paid $92,334 (1995), $33,889 (1994) and $48,990 (1993) of these
costs, which is netted against research and development expenses.
In November 1990, the Company entered into an inventory agreement with
Roxane, under which Roxane will advance funds at no interest to the Company for
the purpose of producing and maintaining a three-year raw material inventory of
Marinol. Roxane advances funds to the Company for the Marinol encapsulation
process as capsules are produced. Advances are offset as inventory is sold by
Roxane.
The Company has various other licensing, marketing and distribution
agreements typical to its business.
(8) WARRANTS
In March 1991, The John N. Kapoor Trust (the Trust) purchased for $1.5
million, 1.2 million shares of the Company's Common Stock and warrants to
purchase 800,000 shares of the Company's Common Stock at an exercise price of
$2.125. These warrants, which would have expired March 31, 1996, contained
certain antidilution provisions for adjustment of the exercise price and the
number of warrants. If the Company were
38
31
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to issue Common Stock or securities convertible into Common Stock, the Trust,
with certain specified exceptions, would have had the right to maintain its
percentage ownership of the Common Stock of the Company and/or a right of first
refusal on all or any portion of the Common Stock proposed to be sold. These
rights could not be exercised if this would cause the Trust and its affiliates
to own more than 38% of Unimed's Common Stock, assuming exercise of the Trust
Warrant. As of December 31, 1995, the 800,000 share warrant had not been
exercised. The Trust had an option expiring February 24, 1993, to purchase
153,529 shares of Common Stock at a purchase price of $2.35 in satisfaction of
its right to maintain ownership. The Trust exercised this option and shares were
issued in April 1993. See "Note 14 -- Subsequent Events" in Notes to
Consolidated Financial Statements.
In April 1992, the Company granted to LifeScience Corporation warrants to
purchase 50,000 shares of Common Stock at an exercise price of $8.375 per share,
with an expiration date of April 1, 1997. As of December 31, 1995, the 50,000
share warrant had not been exercised.
(9) STOCK OPTIONS
(A) INCENTIVE STOCK OPTION PLAN
The following summarizes transactions under the 1981 Incentive Stock Option
Plan for the periods ended December 31, 1993, 1994 and 1995:
NUMBER OF SHARES
----------------
Outstanding at December 31, 1992.............................. 60,125
Exercised................................................... (33,750)
Canceled.................................................... (13,875)
-------
Outstanding at December 31, 1993.............................. 12,500
Canceled.................................................... (3,750)
-------
Outstanding at December 31, 1994.............................. 8,750
Canceled.................................................... (8,750)
-------
Outstanding at December 31, 1995.............................. --
=======
As of December 31, 1995, there were no stock options exercisable under the
Plan.
(B) 1991 STOCK OPTION PLAN
Under the 1991 Stock Option Plan (the Plan), 1,000,000 shares of the
Company's Common Stock were reserved for granting stock options to directors,
officers, and key employees and consultants of the Company and its subsidiaries.
The holder of the option must remain in the continuous employ of the Company for
at least one year from the date the option is granted before exercising any part
of the option. Options expire 10 years from the date of grant or 90 days after
termination of employment.
39
32
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes transactions under the Plan for the three years
ended December 31, 1995:
NUMBER OF SHARES
----------------
Outstanding at December 31, 1992.............................. 186,250
Granted..................................................... 391,750
Canceled.................................................... (78,312)
--------
Outstanding at December 31, 1993.............................. 499,688
Granted..................................................... 440,500
Canceled.................................................... (420,438)
--------
Outstanding at December 31, 1994.............................. 519,750
Granted..................................................... 854,754
Exercised................................................... (12,125)
Canceled.................................................... (457,875)
--------
Outstanding at December 31, 1995.............................. 904,504
========
Through December 31, 1995, options issued had an exercise price ranging
from $2.75 to $9.25 per share, and as of December 31, 1995, there were 309,504
stock options exercisable. The Company repriced certain options to current
market levels in 1994 and 1995.
(C) OTHER STOCK OPTIONS
In November 1986, reflecting employment contracts with certain executives,
the Company granted to these executives nonqualified options to purchase 220,000
shares of Common Stock through March 1999 at $15.00 per share as adjusted and
amended. In January 1988, the exercise price of these options was changed to
$5.38. In March 1991, the exercise price of those options was changed to $4.36,
and the number of options was adjusted to 271,216 shares of Common Stock
pursuant to certain antidilution provisions discussed below. In addition during
March 1991, the Board of Directors extended the expiration date of the
outstanding options to March 1999. Through December 31, 1995, 29,500 options had
been exercised, none had been canceled, and 241,716 options were outstanding.
In March 1987, the Company granted to non-officer members of the Board of
Directors nonqualified options to purchase an aggregate of 50,000 shares of
Common Stock at $8.50 per share. In January 1988, the exercise price of these
options was changed to $5.38. During fiscal 1991 and fiscal 1990, the options to
purchase 10,000 and 20,000 of these shares, respectively, were canceled. In
March 1991, the exercise price of those options remaining was changed to $4.36
and the number of options was adjusted to 24,656 shares of Common Stock,
reflecting certain antidilution provisions discussed below. In addition, during
March 1991, the Board of Directors extended the expiration date of the
outstanding options to March 1999. There were no exercises or cancellations
during 1993, 1994, or 1995.
In November 1989, additional nonqualified options to purchase 20,000 shares
of Common Stock at $2.63 per share were granted to non-officer members of the
Board. During fiscal 1991, the option to purchase 10,000 of these shares was
canceled. In March 1991, the exercise price of the remaining options was changed
to $2.35 and the number of options remaining was adjusted to 11,170 shares of
Common Stock pursuant to certain antidilution provisions discussed below. In
addition, during March 1991, the Board extended the expiration date of the
outstanding options to March 1999. There were no exercises or cancellations
during 1993, 1994, or 1995.
40
33
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1991, the Company granted to employees nonqualified options to
purchase 120,000 shares of Common Stock at $3.00 per share. A majority of these
options vest over four years. The option price was below the market price at the
date of grant, and the Company has recognized the pro rata compensation expense
representing the difference between the option price and fair market value at
the date of grant of approximately $27,000 in 1993. As of December 31, 1995,
60,000 options had been exercised, 51,500 had been canceled and 8,500 options
were outstanding.
In March 1991, the Company granted to past and present members of the Board
nonqualified options to purchase 20,000 shares of Common Stock at $3.00 per
share for prior years of service. The grant price was below the market price.
The Company recognized a compensation expense at the date of grant of $35,000.
There were no exercises or cancellations during 1993, 1994, or 1995.
In March 1991, the Company granted to non-officer members of the Board
nonqualified options to purchase 20,000 shares of Common Stock at $4.75 per
share. There were no exercises or cancellations during 1993, 1994, or 1995.
In addition during April, May and October 1991, the Company granted to
employees nonqualified options to purchase 26,000 shares of Common Stock with
exercise prices ranging from $4.25 to $7.75. As of December 31, 1995, 8,750
options had been exercised, 15,000 had been canceled and 2,250 options were
outstanding.
In August 1992, the Company granted to John Kapoor, Chairman of the Board,
nonqualified options to purchase 200,000 shares of Common Stock at $7.75 per
share. There were no exercises or cancellations during 1993, 1994, or 1995.
The exercise price and number of shares of Common Stock which can be
purchased upon the exercise of the nonqualified stock options are adjusted in
the event of stock dividends, split-ups, combinations or exchanges of shares by
recapitalization or reclassification. The exercise price and number of shares of
Common Stock purchasable upon the exercise of certain nonqualified stock options
also are adjusted in the case of the issuance of Common Stock by the Company
(other than pursuant to the grant of stock options and restricted stock grants)
below the then existing exercise price.
There are 528,292 shares of the Company's Common Stock reserved for these
arrangements as of December 31, 1995.
(10) RETIREMENT PLAN
The Company offers a discretionary 401(k)Plan (the Plan) to its employees.
Under the Plan, employees may defer income on a tax exempt basis, subject to IRS
limitation. All employees are eligible to participate in the Plan. Under the
Plan, the Company may make discretionary matching contributions. Company
contributions paid and expensed in 1995 totaled $42,901. There were no Company
contributions to the Plan in 1994 or 1993.
(11) COMMITMENTS
The Company is obligated for rental expense under a noncancellable
operating lease relating to an office facility. Real estate taxes, insurance and
maintenance expenses generally are Company obligations. Rental
41
34
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenses charged to operations were approximately $193,000 in 1995, $225,000 in
1994, and $155,000 in 1993. At December 31, 1995, approximate amounts committed
for future fiscal years are as follows:
1996............................................................... $140,000
1997............................................................... 145,000
1998............................................................... 61,000
Management expects that in the normal course of business, leases that
expire will be renewed or replaced by other leases.
The Company has an agreement with NORAC to purchase Delta-9, the raw
material in Marinol. The Company has come to terms on a five-year extension to
the agreement to December 31, 1999. Delta-9 is synthesized and purified through
a complex and time-consuming process. NORAC is the Company's sole supplier of
Delta-9. Currently, the Company maintains a three-year supply of Delta-9.
(12) CONTINGENCIES
The pharmaceutical industry has traditionally experienced difficulty in
maintaining product liability insurance coverage at desired levels. To date, no
significant product liability suit has ever been filed against the Company.
However, if a suit were filed and a judgment entered against the Company that
significantly exceeded the policy limits, it could have a material adverse
effect upon the Company's operations and financial condition.
(13) RELATED PARTIES
EJ Financial Enterprises, Inc. (EJ) is a healthcare investment and
consulting company owned by the Company's chairman, an indirect majority
stockholder. In addition to the distribution, research, royalty and licensing
agreements discussed in Note 7 which were terminated, the Company and EJ
currently have a consulting agreement, ending in 1996, which provides for EJ's
assistance in the Company's product licensing, development and marketing
efforts. The agreement can be cancelled by either party upon 30 days prior
written notice. Expenditures under this agreement totaled approximately $50,000
(1995), $106,250 (1994) and $150,000 (1993).
The Company has an interest-bearing note of approximately $132,000 from one
of the Company's officers. The note bears interest at a rate of 6% and is
included in other assets.
(14) SUBSEQUENT EVENTS
(A) SERC(R) LICENSE AGREEMENT; SALE OF PRODUCT AND TRADEMARK RIGHTS
The Company entered into an agreement in January 1996 with Solvay Duphar of
The Netherlands. Unimed licensed the rights to proprietary know-how and
manufacturing for the drug SERC(R) (betahistine hydrochloride) in the United
States. As part of the agreement, the Company received a $1.4 million payment to
help fund product development and for Unimed's product and trademark rights to
SERC(R) in Canada, Australia and South Africa. The Company will buy all
requirements of Serc(R) from Solvay Duphar, and will pay a royalty on sales of
Serc(R) in the United States, if the drug is approved for marketing.
42
35
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) WARRANT EXERCISE
In February 1996, The John N. Kapoor Trust exercised warrants to purchase
800,000 shares of the Company's common stock at an exercise price of $2.125.
These warrants, which yielded $1.7 million to the Company, were issued in March
1991 and were to expire March 31, 1996.
(C) PRIVATE PLACEMENT OF COMMON STOCK
On February 29, 1996, the Company completed a private placement of 1.4
million unregistered shares of common stock at $6 per share, for $8.4 million.
The Company will use its best efforts to file, within 30 days of the final
closing, a registration statement with the Securities and Exchange Commission on
Form S-3 covering the resale of the shares of Common Stock.
43
36
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
Unimed Pharmaceuticals, Inc.
Our report on the consolidated financial statements of Unimed
Pharmaceuticals, Inc. and Subsidiaries is included on page F-2 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on page F-1
of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 13, 1996
44
37
SCHEDULE II
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------------ ---------- ---------- ---------- ---------
Allowance for doubtful accounts and returns:
1993.......................................... $ 280,000 $ 18,000 $ 298,000
========= ========= ========
1994.......................................... $ 298,000 $ 270,000 $ 28,000
========= ========= ========
1995.......................................... $ 28,000 $ 15,000 $ 43,000
========= ========= ========
Reserve for inventory obsolescence:
1993.......................................... $ -- $ 250,000 $ 250,000
========= ========= ========
1994.......................................... $ 250,000 $ 250,000
========= ========
1995.......................................... $ 250,000 $ 195,298 $ 54,702
========= ========= ========
Accrued restructuring costs:
1993.......................................... $1,079,680 $1,079,680 $ --
========= ========= ========
Reserve for Medicaid rebates:
1993.......................................... $ -- $ 326,887 $ 326,887 $ --
========= ========= ========= ========
1994.......................................... $ -- $ 604,364 $ 604,364 $ --
========= ========= ========= ========
1995.......................................... $ -- $1,645,352 $ 938,536 $ 706,816
========= ========= ========= ========
45
38
EXHIBIT 11
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER SHARE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995
---------------------- 1994(1) 1993(1)
FULLY --------- ----------
PRIMARY DILUTED PRIMARY PRIMARY
--------- --------- --------- ----------
Common and equivalent shares:
Weighted average shares outstanding............. 6,178,453 6,226,729 6,127,161 6,040,606
Additional shares assuming exercise of dilutive
stock options................................ 499,226 637,761 33,040 --
Additional shares assuming exercise of dilutive
stock warrants............................... 352,874 436,431 240,865 --
--------- --------- --------- ---------
Average number of common and common equivalent
shares.......................................... 7,030,553 7,300,921 6,401,066 6,040,606
========= ========= ========= =========
Net income (loss):
Net income (loss)............................... $625,062 $625,062 $40,708 $(852,294)
========= ========= ========= ==========
Net income (loss) per common and common equivalent
share(1):....................................... $0.09 $0.09 $0.01 $(0.14)
========= ========= ========= =========
- -------------------------
Note:
(1) The fully diluted calculation is not presented in the 1994 and 1993
computations since they would have been antidilutive, as the resultant net
income (loss) per share is the same as for primary net income (loss) per
share.
46
39
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, thereunder duly authorized.
UNIMED PHARMACEUTICALS, INC.
By: /s/ STEPHEN M. SIMES
------------------------------------
Stephen M. Simes
President and Chief Executive
Officer
April 1, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME CAPACITY(IES) DATE
- ---------------------------------------- ----------------------------------- ---------------
/s/ DR. JOHN N. KAPOOR Chairman and Director April 1, 1996
- ----------------------------------------
Dr. John N. Kapoor
/s/ STEPHEN M. SIMES President, Chief Executive Officer April 1, 1996
- ---------------------------------------- and Director
Stephen M. Simes
/s/ DAVID E. RIGGS Senior Vice President, Chief April 1, 1996
- ---------------------------------------- Financial Officer, Secretary and
David E. Riggs Treasurer
/s/ FRED HOLUBOW Director April 1, 1996
- ----------------------------------------
Fred Holubow
/s/ ROBERT D. HUNTER Director April 1, 1996
- ----------------------------------------
Robert D. Hunter
/s/ JAMES J. LEMPENAU Director April 1, 1996
- ----------------------------------------
James J. Lempenau
/s/ ROLAND WEISER Director April 1, 1996
- ----------------------------------------
Roland Weiser
47
40
EXHIBIT INDEX
EXHIBIT NUMBER
- ---------------
4-D Stock and Warrant Agreement, dated as of August 11, 1995,
between the Company and Laboratoires Besins Iscovesco S.A.
4-E Warrant, dated August 11, 1995, for 72,550 shares of Common
Stock, issued to Laboratoires Besins Iscovesco S.A.
4-F Registration Rights Agreement, dated August 11, 1995,
between the Company and Laboratoires Besins Iscovesco S.A.
4-G Warrant, dated February 29, 1996, for 140,000 shares of
Common Stock, issued to Sunrise Securities Corp.
4-H Registration Rights Agreement, dated February 29, 1996,
between the Company and certain holders of Common Stock.
10-B(iii) Agreement between Roxane Laboratories, Inc. and the
Company, dated January 20, 1995 and letter amendment dated November 22, 1995.
10-K Unimed Pharmaceuticals, Inc. 1991 Stock Option Plan, as
amended through March 29, 1996.
10-M Employment Agreement, dated as of October 11, 1994, between
the Company and Stephen M. Simes.
10-N Employment Agreement, dated as of November 3, 1994, between
the Company and Robert E. Dudley.
10-Q Sales Agency Agreement, dated January 22, 1996, between
Sunrise Securities Corp. and the Company.
11 Computation of Income (Loss) per Share
24(a) Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule