-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CPkXc8fckF2RUI/sFq7RldIN2MhjFkma3hxHvVpHYsR8WT+YF3/+ZIQNj+rJRYcx Jm1ycfvnXZF1MDcMe8CB7A== 0000950144-99-003773.txt : 19990402 0000950144-99-003773.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950144-99-003773 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERAPEUTIC ANTIBODIES INC /DE CENTRAL INDEX KEY: 0000944744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 621212485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25978 FILM NUMBER: 99582027 BUSINESS ADDRESS: STREET 1: 1207 17TH AVENUE SOUTH STREET 2: STE 103 CITY: NASHVILLE STATE: TN ZIP: 37212 BUSINESS PHONE: 6153271027 MAIL ADDRESS: STREET 1: 1207 17TH AVENUE SOUTH STREET 2: STE 103 CITY: NASHVILLE STATE: TN ZIP: 37212 10-K 1 THERAPEUTIC ANTIBODIES INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ COMMISSION FILE NO.: 0-25978 THERAPEUTIC ANTIBODIES INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) DELAWARE 62-1212485 - ------------------------------------- --------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1207 17TH AVENUE SOUTH, SUITE 103 NASHVILLE, TENNESSEE 37212 - -------------------------------------------- --------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (615) 327-1027 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered NONE NONE - -------------------------------- ------------------------------------- Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.001 PER SHARE --------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the shares of Common Stock of the registrant held by non-affiliates on March 26, 1999 ($.91 per share) was $42,581,409. As of March 26, 1999, the registrant had outstanding 52,057,219 shares of Common Stock. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of Part III are incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 19, 1999. Certain exhibits listed in Part IV hereof are incorporated by reference to the following documents previously filed by the Registrant with the Commission: Registration Statement on Form 10, filed on May 1, 1995; Quarterly Report on Form 10-Q for the period ended September 30, 1995; Quarterly Report on Form 10-Q for the period ended March 31, 1996; Quarterly Report on Form 10-Q for the period ended June 30, 1996; Quarterly Report on Form 10-Q for the period ended September 30, 1996; Proxy Statement relating to the Special Meeting of Shareholders held on July 5, 1996; Annual Report on Form 10-K for the fiscal year ended December 31, 1996; Quarterly Report on Form 10-Q for the period ended March 31, 1997; Annual Report on Form 10-K for the fiscal year ended December 31, 1997; Form 10-Q for the period ended June 30, 1998; Form 10-Q for the period ended September 30, 1998; Proxy Statement relating to the Special Meeting of Shareholders held on November 6, 1998. PART I ITEM 1. BUSINESS OVERVIEW AND RECENT DEVELOPMENTS Therapeutic Antibodies Inc. (the "Company") is a development stage biopharmaceutical company specializing in the preparation of polyclonal antibodies for the treatment of disease and life threatening conditions for which satisfactory therapies have, generally, not previously existed. The Company has developed systems for the production and purification of polyclonal antibody products. The Company has its headquarters in Nashville, Tennessee, and has operations in the United States, the United Kingdom, and Australia. The Company was incorporated in Delaware in 1984. Its executive offices are located in Nashville, Tennessee, in the vicinity of the Vanderbilt University Medical Center. Research, production and testing operations are conducted through the Company's subsidiaries. The Company operates its research and development laboratories through Therapeutic Antibodies UK Ltd ("TAb UK"), at the facilities of The Medical College of St. Bartholomew's Hospital in London. The Company's antibody production operations are located in both Llandysul, Wales and Adelaide, Australia. These operations are conducted through the Company's subsidiaries, TAb UK and Therapeutic Antibodies Australasia Pty Ltd. ("TAb Australasia"). See "Item 2. Properties." The Company has affiliated itself with scientists at academic institutions in the United States and Europe to assist in the research, testing and development of new antibody products. See "Item 1. Business-Principal Licensing and Other Collaborative Arrangements." The Company has developed systems for the production and purification of a new generation of polyclonal antibodies that management believes can produce suitable therapies for neutralizing a variety of toxins, including certain venoms, cytokines and drugs. Some of the Company's innovations include the preparation of unique immunogens, the purification of specific antibodies and the digestion of antibodies into fragments. Management believes that these capabilities enable the Company to produce a broad range of specific antibodies that are safer and more effective than the antibody products currently available. The Company's antibody products are in various stages of development, ranging from pre-clinical testing to commercial distribution. During 1998, the Company underwent a period of restructuring following a strategic review of its business. In March 1998, Dr. Andrew Heath joined the Company as Chief Executive Officer and Vice Chairman. Dr. Heath has significant commercial experience in the pharmaceutical industry, with previous positions at Glaxo plc and Astra AB. In September 1998, Stuart M. Wallis was appointed as non-executive Chairman of the Board. Mr. Wallis has held a number of senior management and board positions in the automotive, publishing, packaging and pharmaceutical industries and served as the chief executive officer of the pharmaceutical group, Fisons, from 1994 to 1995. 1 3 Mr. Wallis' appointment coincided with the restructuring of the Company's Board of Directors. The Company completed a strategic review of its product development, research and other activities in 1998. This review has resulted in a more focused product portfolio. Through its previous research and development and associated investment, the Company has developed a highly flexible technology platform and advanced production facilities which have together been used to develop a range of products. In the near term, Therapeutic Antibodies' resources are primarily focused on CroTAb(R), the Company's crotalid antivenom product, which the Directors expect to be marketed in 1999, and DigiTAb(R), the Company's digoxin antidote, which the Directors expect to begin marketing in the United States in 2000. In the mid-term, the Directors anticipate the launch of TriTAb(R), an antidote to tricyclic anti-depressant toxicity, and CytoTAb(R), the Company's anti-TNF(alpha) antibody, for the first of several indications. Focusing on Therapeutic Antibodies' development program has led to the cessation of some basic research activities and certain clinical trial programs including research into the application of CytoTAb(R) to treat the symptoms of sepsis syndrome. The Phase IIb clinical trial of CytoTAb(R) in sepsis syndrome was discontinued because of the Directors' perception of the commercial risk which it posed to the Company. Over the last few years, and in particular since the Company's 1996 initial public offering on the London Stock Exchange (the "IPO"), there have been several notable failures by other companies of products designed to treat sepsis syndrome. As a result, major pharmaceutical companies have become reluctant to enter into licensing and marketing agreements in this area without pivotal clinical trial data proving efficacy. Providing this efficacy data would require a very substantial financial investment by the Company in a large scale Phase III clinical trial. The Board concluded that continuing to pursue this particular application of CytoTAb(R) did not represent an appropriate use of the Company's capital at this stage of the Company's development and therefore discontinued the trial. Therapeutic Antibodies would welcome a collaboration agreement in relation to the application of CytoTAb(R) to sepsis syndrome if a major pharmaceutical company was prepared to fund further trials, although there are none in contemplation at present, and the Company is not actively seeking such an agreement. Through the sepsis studies and other trials, the Company has developed a significant understanding of the efficacy of CytoTAb(R) in neutralizing TNF(alpha). This has enabled the Company to explore applications of CytoTAb(R) in relation to other indications including Crohn's disease, bypass surgery, and cerebral malaria. Each of these indications is described in greater detail under "Item 1. Business - Products." The Directors believe that research and development efforts in these indications are a more appropriate use of the Company's resources. Clinical trial results in initial studies should be available relatively quickly since it is anticipated that small numbers of patients will be required to provide proof of concept because the patient populations are relatively homogenous and the onset of elevated concentrations of TNF(alpha) can be readily predicted. The Directors intend to continue to pursue the Company's remaining development programs, with emphasis being given to bringing CroTAb(R), DigiTAb(R), and TriTAb(R) to market as rapidly as possible. THE INDUSTRY The biotechnology/biopharmaceutical industry is considered a segment of the pharmaceutical industry. Management believes that advances in biotechnology research will 2 4 contribute to the development of new pharmaceutical products. In the past decade, medicine has benefited from advances in immunology through the use of antibodies for diagnostic purposes and to detect the presence of a variety of substances in the body. Antibodies are used for diagnostic purposes to measure various hormones, cancer markers, drugs and other materials in patient blood samples. In addition to diagnostic applications, research has begun to focus on the therapeutic applications of antibodies, which can be used for the treatment of numerous toxic conditions including envenomation, drug overdose and infectious disease. Although one of the Company's subsidiaries produces and sells small amounts of animal antisera that is used for diagnostic purposes, the Company's primary focus is on the production of antibodies for therapeutic purposes. TECHNOLOGY AND PRODUCTION The human immune system is part of the body's protection against invasion by infectious agents such as viruses, bacteria and parasites. It acts in two main ways, through white blood cells and antibodies. White blood cells engulf and digest organisms and other microscopic enemies of the body. Antibodies, which are a class of protein, act by binding to part of the target molecule referred to as the antigen or epitope. The reaction is highly specific to a particular combination of epitope and antibody, often likened to a lock and key. A large target molecule may present a number of different epitopes. Antibodies are specific to each different epitope and the binding of an antibody to one or more epitopes can neutralize the biological activity of that molecule, including its function, dysfunction or toxic activity. Manipulation of the immune system for therapeutic purposes has been practiced for more than two centuries, for example against smallpox, diphtheria and tetanus. This has been accomplished by the current widely practiced method of vaccination, also referred to as "active immunization." Alternatively, in passive immunization, antibodies produced by active immunization of an animal with the target molecule are subsequently injected into humans. There are two general classes of antibodies for use as therapeutic agents. The first, at the heart of Therapeutic Antibodies' technology, is polyclonal antibodies, which contain a variety of antibodies directed to different epitopes on the target molecule. The second type, monoclonal antibodies, consists of a population of identical antibodies all directed to a single epitope. The Directors believe that the combination of the following factors differentiates Therapeutic Antibodies from its competitors: - the use of polyclonal antibodies; - the production of purified specific fragments of polyclonal antibodies; and - production systems common among the Company's existing and proposed products. These factors are described in more detail in the following sections. POLYCLONAL ANTIBODIES The Directors have focused Therapeutic Antibodies' development resources on polyclonal antibodies. These may be effective for several therapeutic applications in humans, where the Directors believe that many clinically significant target molecules have multiple epitopes and are therefore better treated by polyclonal antibodies. 3 5 Unlike Therapeutic Antibodies, most immunotherapy companies in recent years have focused on monoclonal antibodies. The Directors believe that the advantages of processed and purified polyclonal antibodies over monoclonals are that polyclonals: - bind multiple sites, resulting in more effective neutralization of toxic molecules; - usually bind more strongly; - are often more robust and can generally better withstand the fragmentation and purification process; and - can be developed at less expense using a common technology. ANTIBODY FRAGMENTS An antibody can be divided into two identical components known as antibody binding Fab fragments and an additional Fc fragment. Each Fab fragment has a binding site which attaches to a specific epitope on the target molecule in order to neutralize its toxic effects. The Fc fragment is potentially harmful and can cause hypersensitivity and other adverse effects. The Company's technology allows for this harmful Fc fragment to be removed and discarded. Any foreign protein, including an antibody of animal origin, will induce an immune response if injected into a patient. Life threatening acute reactions and delayed serum sickness were common when passive immunization was first introduced at the end of the last century for the treatment of diphtheria and tetanus. This was due to the large volume of unprocessed equine serum contained in the treatment. The incidence and severity of side-effects were reduced by separating antibodies from most of the contaminating proteins. Because of its smaller size and purity, the Fab fragment is less immunogenic and less likely to form immune complexes, thereby significantly reducing the incidence of serum sickness. Therapeutic Antibodies uses papain, a cleavage enzyme, to split an antibody into its three components. Therapeutic Antibodies separates and discards the potentially harmful Fc fragment and retains the two beneficial Fab fragments, unimpaired in their ability to bind and neutralize the target molecule. Their small size ensures that the Fab fragment products are rapidly and evenly distributed throughout the body. This means that, following injection, they quickly reach the various tissues where a target molecule may be causing toxic effects. The small size of Fab fragments means that once they have bound to the target molecule they can be excreted by the kidneys. COMMON PRODUCTION PROCESS All of Therapeutic Antibodies' products are prepared using a very similar series of manufacturing steps. The Directors believe this common production platform simplifies the development process and the obtaining of regulatory approval. Products for preclinical and clinical trials are prepared in Therapeutic Antibodies' production site in Wales. The Welsh facility includes a 20,000 square foot manufacturing plant. This plant has been inspected by the United States Food and Drug Administration (the "FDA") as part of the process of obtaining approval for the manufacture of CroTAb(R). Therapeutic Antibodies' Australian facilities have serum processing capability and currently provide antisera to the manufacturing plant in Wales. The facilities in Australia have been licensed by the Australian Therapeutic Goods Administration, the Australian national regulatory authority. 4 6 Therapeutic Antibodies' production process has been developed and refined over a number of years. This technical know-how remains confidential and represents a significant commercial asset of the Company. In general terms it can be separated into three stages: - the creation of product specific immunogens. These, together with the immunization techniques developed by Therapeutic Antibodies, ensure high yields of antibodies. Once suitable levels of circulating high affinity antibodies have been obtained, collection of antisera commences on a regular basis; - the removal of unwanted serum proteins and the subsequent enzymatic cleavage with papain to produce Fab fragments of the remaining antibodies; and - the use of chromatography to select Fab fragments specific to the target molecule, thus minimizing the amount of foreign protein present in the drug. The Company has selected sheep as its source of polyclonal antibodies. Sheep antibody based products have a proven safety record when used therapeutically in patients with limited adverse effects resulting from immunogenicity and allergenicity. Therapeutic Antibodies supplies all of the antisera required for the production of its antibody products from its own flocks of sheep. All animal handling procedures are subject to stringent regulations with which the Company complies, including the Animals (Scientific Procedures) Act 1986 in the United Kingdom and those stipulated by Ethical Committees in Australia. Since the IPO, Therapeutic Antibodies has substantially increased its sheep farming production capacity in Australia and the Directors are ceasing the use of flocks raised in Wales. PRODUCTS The Company has chosen to focus on a few key products within each product development program as discussed in more detail below. Each product is described by its principal use and geographic area, estimated annual incidence of the relevant indication, stage of development, i.e., whether in progress or launched, and licensing arrangements. For financial information about foreign and domestic operations and export sales, see Note 11 to the financial statements included herein at Item 8. CROTAB(R) CroTAb(R) is the Company's product for the treatment of bites from North American crotalids (such as the rattlesnake). Clinical trials of CroTAb(R) were completed in 1997 and the Company submitted its FDA Product License Application ("PLA") and FDA Establishment License Application ("ELA") to the FDA in April 1998. In June 1998, the FDA accepted the applications for filing and the product will receive a standard twelve month review by the FDA. Consequently, the Directors believe that this product should be approved for sales in mid-1999. Pursuant to an agreement (the "Altana Agreement") with Altana Inc. ("Altana"), Altana will distribute this product within the United States, primarily to hospital emergency rooms. See "Item 1. Business-Principal Licensing and Other Collaboration Agreements." In 1994, CroTAb(R) was granted orphan drug status by the FDA and will therefore receive seven years of marketing exclusivity if the PLA is approved. Based on preclinical tests conducted on behalf of the Company at the University of Arizona, CroTAb(R) has been shown to be, on average, over five times more potent on a weight for weight basis than the existing commercially available equine derived antivenom. Although the Company has commenced but not completed comparative clinical studies of CroTAb(R) with the marketed product, the Directors believe that the safety profile will be seen as superior to the existing antivenom, which has a relatively high incidence of serious side-effects. 5 7 DIGITAB(R) Therapeutic Antibodies has developed DigiTAb(R) for treating digoxin intoxication. Digoxin is a prescription drug which is used to treat certain cardiac conditions on a long term support basis. It is the most commonly prescribed form of digitalis which has been in use worldwide for many years. However, digoxin has a narrow therapeutic range and can cause life-threatening toxicity as a result of both acute overdose and chronic poisoning when taken in excess. The Directors estimate that 7,500 cases of digoxin toxicity occur annually in the United States and Europe with the majority in the United States. In 1986, Glaxo Wellcome plc, a major multinational pharmaceutical company, introduced in the United States a specific sheep-derived polyclonal antibody product, Digibind(R), to treat life-threatening digoxin intoxication. DigiTAb(R) will therefore be competing directly with a similar established product in this market. Therapeutic Antibodies completed enrollment for the pivotal clinical study for DigiTAb(R) in December 1997, in which normal volunteers compared DigiTAb(R) to Digibind(R). The data from this study, in conjunction with data obtained from an ongoing study of DigiTAb(R) in overdose patients in the United States and Europe, is expected to be submitted to the FDA in a PLA by mid-1999. This product will be marketed in the United States under the Altana Agreement. See "Item 1. Business - Principal Licensing and Other Collaborative Arrangements." TRITAB(R) Therapeutic Antibodies is developing TriTAb(R) to treat tricyclic antidepressant ("TCA") toxicity. TCAs are a family of structurally related compounds used in the treatment of severe clinical depression and are one of the main causes of poisoning by drug overdose in the United States and Europe. Despite the introduction of safer non-TCA antidepressant drugs, TCAs, as a group, continue to hold a large share of the antidepressant market. TCAs are typically generic, and their patents have expired. For this reason, the Directors believe that TCAs are likely to remain in use for some time. The number of TCA poisoning cases in the United States and Europe is estimated to be approximately 60,000 per year. The most severe side effects of TCAs affect the heart, necessitating prolonged intensive care treatment, and can ultimately be fatal. At present, no specific antidote for TCA poisoning is available. On the basis that preclinical tests demonstrated TriTAb(R) to be effective in reversing TCA toxicity, a Phase I/II clinical study was initiated under an Investigator IND by Dr. Richard Dart of the Rocky Mountain Poison and Drug Center. The first overdose patient in this pilot study was treated in June 1998 and patient enrollment continues. The results of this study are expected to be announced by mid-1999. The Company plans to submit an IND to the FDA and expects to commence a Phase II/III clinical study in overdose patients by the end of 1999. This product will also be marketed in the United States under the Altana Agreement and will be detailed to hospital emergency rooms. The Directors are not aware of any other competitive commercial efforts in this field. CYTOTAB(R) The body's inflammatory response to trauma, certain infections and disorders often involves the release of high levels of cytokines, such as tumor necrosis factor alpha ("TNF(alpha)"), which themselves may have serious or even life-threatening effects. Therapeutic Antibodies' CytoTAb(R) product is designed to neutralize the effects of TNF(alpha). Management believes CytoTAb(R) is an 6 8 extremely beneficial drug that can be used to treat or prevent a number of indications, and has elected to focus the Company's current research and development efforts on the following disorders: - CROHN'S DISEASE -- The Company is currently enrolling patients into Phase I/II study of CytoTAb(R) in Crohn's disease. The symptoms of this disease include abdominal pain, frequent and protracted diarrhea, fever, malaise, chronic fatigue and signs and symptoms of nutritional deficiency. It is estimated that there are at least 400,000 people with this disease in the United States and Europe. The relationship of TNF(alpha) to the clinical complications of this disease has recently been recognized with the FDA's approval of Centocor Inc.'s product Remicade(R). This product is a monoclonal antibody and was recommended by the FDA to be restricted initially to short term use only. The Directors believe that CytoTAb(R) may have favorable kinetics, with rapid onset of action and a similar safety profile. The Company commenced enrollment in this study in January 1999 and three patients have been enrolled to date. - CEREBRAL MALARIA--Severe cerebral malaria is associated with mortality and elevated concentrations of TNF(alpha). Therapeutic Antibodies is investigating the use of CytoTAb(R) in mitigating the morbidity and mortality and the possible complications of treating cerebral malaria. In June 1997, Therapeutic Antibodies completed its Phase I study conducted in 28 severely ill patients suffering from malaria. This study met its objectives and demonstrated a reduction in the levels of TNF(alpha). In early 1998, the Company launched an expanded 100 patient Phase II clinical trial in Thailand. Enrollment was completed in September 1998 and the results of this study are expected by mid-1999. - CORONARY ARTERY BYPASS GRAFT SURGERY ("CABG") -- There is data to Indicate that TNF(alpha) levels in the plasma are elevated in patients undergoing cardiac surgery involving cardiopulmonary bypass. This is due to the tendency of the cardiac bypass machine to induce an inflammatory response. This response may contribute to cardiac dysfunction leading to increased post surgical morbidity and mortality. The Directors believe that CytoTAb(R) could reduce the incidence of these surgical side effects, making the procedure safer and less expensive. The Company plans to commence clinical trials in 1999. The Directors estimate that approximately 365,000 patients per year in the United States and 185,000 patients per year in Europe undergo the CABG procedure, during which cardiopulmonary bypass is required. In each of these indications, patient populations are relatively homogenous and the onset of elevated concentrations of TNF(alpha) can be readily predicted. Management, therefore, anticipates that small numbers of patients will be required to provide proof of concept and that clinical trial results from initial studies in these indications could be available relatively quickly. The CytoTAb(R) pilot study to evaluate the product's use in patients who encounter acute graft versus host disease as a result of bone marrow transplants was put on hold in the fourth quarter of 1998. Further development will be dependent upon other CytoTAb(R) programs which have a greater commercial potential in the short term. CytoTAb(R) has been shown to be safe and effective in neutralizing TNF(alpha) through work carried out to date by the Company. The Directors believe that the safety profile of CytoTAb(R) will be further documented from the data of the 81 patients enrolled in the Phase IIb sepsis study, which the Company elected to close in June 1998. See "Item 1. Business - Overview and Recent Developments." It is expected that the results of this study will be available in 1999 and will provide a greater understanding of the clinical effectiveness of CytoTAb(R). 7 9 POLONGATAB(TM) PolongaTAb is an antivenom for the Sri Lankan Daboia russelli ("Russell's viper"). The pivotal clinical study for this product was completed in December 1997. Provisional registration for this product was received in March 1999 which will allow sales prior to full registration. The Company is currently working in collaboration with F.H. Faulding & Co. Limited ("F.H. Faulding") to prepare the full registration application for the approval of this product in certain Southeast Asian markets. LAUNCHED PRODUCTS VIPERATAB(R) Therapeutic Antibodies produces and sells ViperaTAb(R) to treat bites from the European Vipera berus ("common adder") snake. This product is currently being sold on a named patient basis in Sweden, Norway, Finland and Denmark under an agreement with Swedish Orphan AB ("Swedish Orphan"). Furthermore, the Company supplies ViperaTAb(R) to the United States Department of Defense. ViperaTAb(R) has been shown to be over eight times more potent on a weight for weight basis than an equine-derived antivenom available in Europe. The Directors would like to extend product sales throughout the European Union and will pursue the approval process when the Company's resources permit. ECHITAB(TM) EchiTAb(TM) is sold by Therapeutic Antibodies as an antivenom against the West African Echis ocellatus ("carpet viper") snake. Therapeutic Antibodies has entered into an agreement with the Federal Ministry of Health on behalf of the Nigerian Government under which the Nigerian Government has contributed to the costs of development and clinical trials of EchiTAb(TM). The Company has supplied the Nigerian Government with this product since 1996. PRINCIPAL LICENSING AND OTHER COLLABORATIVE ARRANGEMENTS For certain product candidates, the Company has secured, or will in the future pursue, some form of collaborative agreement as the preferred arrangement for bringing its products to market. Abundant precedents exist within the industry for such alliances. Typically, the biotechnology company handles development while a collaborator provides funding and regulatory assistance, and takes responsibility for marketing and distribution of the product. COLLABORATIVE ARRANGEMENTS The following is a summary of the Company's current agreements: Altana. In October 1997, the Company signed an agreement whereby, upon receipt of regulatory approvals, Altana, the U.S. subsidiary of Altana, AG, a leading German supplier of pharmaceuticals through its Byk Gulden unit, will market and distribute three of Therapeutic Antibodies' emergency medicine products: CroTAb(R), DigiTAb(R), and TriTAb(R). Subject to FDA approval, the Directors expect that CroTAb(R) will be launched by Altana during the third quarter of 1999. Under terms of the Altana Agreement, Altana will pay up to $23 million for the U.S. distribution rights to CroTAb(R), DigiTAb(R), and TriTAb(R). The Company will receive up to $10 million in payments based on the achievement of milestones culminating with FDA approvals for the product line. The Company will also receive bonus payments estimated at up to $13 million tied to the first three years of each product's sales following FDA approval. To date the Company has received $2.5 million of such payments. Revenues will be shared between the companies with the Company receiving 50 per cent of net revenues through ongoing payments for the supply of product and royalties on sales. 8 10 The Altana Agreement extends for five years following the first FDA approval of each product. A renewal clause calls for an additional five years if minimum sales targets are met. The Company will continue to be responsible for the clinical development, regulatory submissions, manufacturing and packaging of each product. Swedish Orphan. In January 1990, the Company entered into an agreement with Swedish Orphan, a Swedish company, appointing them as exclusive sales representative to market ViperaTAb(R) in certain territories. The agreement was subsequently amended to include CroTAb(R), other antivenom products, and DigiTAb(R) and TriTAb(R). The territories are currently Sweden, Norway, Denmark and Finland. Swedish Orphan specializes in the development, regulatory handling, marketing and distribution of niche pharmaceuticals. Swedish Orphan has arranged for the Karolinska Institute to conduct clinical trials of the products, which are a pre-requisite to their registration in Scandinavia. Swedish Orphan receives a commission on sales of the products in all of the territories. The agreement will continue until December 31, 2002 and thereafter unless terminated by 120 days' notice by either party. F.H. Faulding. In September 1995, the Company entered into an exclusive distribution agreement with F.H. Faulding, an Australian company, appointing F.H. Faulding to obtain registration and marketing approvals for DigiTAb(R), TriTAb(R) and PolongaTAb(R). Pursuant to this agreement F.H. Faulding will also be the exclusive distributor of these products in Australia, New Zealand, and Sri Lanka. Three other countries, India, Thailand and Indonesia, may be included later upon the agreement of the Company. In October 1996, the Company signed a Clinical Trials and Registration Agreement with F.H. Faulding, to provide financial support for clinical trials and to seek registration and marketing approvals for CytoTAb(R) for treatment of cerebral malaria for Thailand and other countries in Southeast Asia. Subject to the receipt of all of the necessary approvals, F.H. Faulding has been granted an exclusive option for ninety days after issuance of such regulatory approvals to enter into a ten-year distribution and profit-sharing agreement based upon commercial terms specified in the October 1996 agreement. In November 1998, the Company entered an additional agreement with F.H. Faulding to vial, lyophilise and package CroTAb(R). Federal Ministry of Health of Nigeria. In August 1995, the Company entered into an agreement with the Federal Ministry of Health on behalf of the Nigerian Government under which the Nigerian Government has contributed to the costs of development and clinical trials of EchiTAb(TM). ACADEMIC AND CLINICAL AFFILIATIONS A proportion of the Company's research and development and product testing activities have been carried out through affiliations and consulting arrangements with clinical research organizations and scientists at academic institutions in the United Kingdom, Scandinavia and North America. Research and development and product testing have been carried out in conjunction with the St. Bartholomew's Hospital, the Karolinska Institute, the University of Arizona and Vanderbilt University Medical Center. These include arrangements in respect of preclinical and clinical research, consultancy, patents, royalties and facility leases where appropriate. COMPETITION Antivenoms. A number of organizations and companies manufacture snake antivenom throughout the world. However, management believes most are using equine-derived products based on older technology. Based on clinical results, management believes that the Company's antivenom products are, in general, safer and have greater efficacy. 9 11 There are two main European competitors to the Company's Vipera product. Both of the European Viper Antivenoms are equine-derived products. Management believes that the Company's product is superior, although both competing products are considerably cheaper. Notwithstanding the price differential, the Company has successfully competed with the products manufactured in Europe and has achieved an 80% marketshare. Only one crotalid antivenom product is currently approved in the United States. There are frequent toxicity problems associated with that product. Equine-derived antivenom products with which EchiTAb(TM) and certain other of the Company's potential antivenoms will compete are produced by, among others, Institut Pasteur and Haffkine BioPharmaceuticals. Digoxin Antidote. The Company has two competitors, one of which is well-established in Europe and the other in the United States. Glaxo Wellcome plc's Digibind(R) is available in the United Kingdom and the United States and Boehringer Mannheim GmbH's Digitalis - Antidot BM(R) is available in Europe. Both of these products are Fab-based and derived from sheep polyclonal antibodies. However, Management believes that DigiTAb(R) could achieve an attractive niche position in this area. Tricyclic Antidepressant Antidote. No specific tricyclic antidepressant antidote exists and management does not know of any commercially competitive activity in this area. The Company intends to apply for orphan drug status in the United States which, if granted, will provide seven years of marketing exclusivity. Furthermore, the Company has been granted a United States patent for the key immunogens, the production process, the resultant product and the use of the product to treat tricyclic antidepressant toxicity. Anti-TNF(alpha). Crohn's Disease. In August of 1998, the FDA approved Remicade(R), a product manufactured by Centocor for the treatment of Crohn's Disease. The Company is aware of several other companies pursing clinical development for the indication. Coronary Artery Bypass Graft (CABG). The Company is not aware of any anti-TNF(alpha) product currently approved in the United States for this indication. However, the Company is aware of several companies pursuing clinical development for this indication. INTELLECTUAL PROPERTY The Company's policy is to protect and defend the intellectual property associated with its technology and products. The Company seeks patents whenever appropriate. Management also believes that sufficient steps have been taken to ensure that trade secrets such as animal husbandry techniques and processes unique to large-scale production of polyclonal antibodies are protected. The Company has optimized the production and purification of polyclonal antibodies and has developed extensive proprietary knowledge in this area, combining scientific, veterinary and large-volume processing skills. The Company has applied for patents (United States, Europe, and elsewhere) and in some cases has been granted patents which include several key aspects of the relevant techniques. However, some parts of the process are non-patentable, and the Company has policies and procedures designed to protect proprietary information concerning manufacturing techniques. 10 12 PATENTS The Company is pursuing a multinational patent strategy for the protection of intellectual property associated with its technology and products. The Company holds the following patents: - European, Australian, and New Zealand patents for use of Fab fragments of anti-TNF(alpha) antibodies in medicine; - United States and European patents for a method of preparing Fab fragments from whole blood in a closed sterile environment; - European, United Kingdom, Australian and Russian patents on the use of mixed monospecific antivenoms; and - a United States patent in respect of an antidote to poisoning with tricyclic antidepressants. In addition, United States and European patents for use of anti-human TNF(alpha) antibodies to prevent or treat shock-related conditions arising from antilymphocyte antibody therapy were assigned to the Company by Nutrition Toxicology and Environment Research Institute Maastricht in a 1996 agreement. A confirmatory assignment is currently being arranged in order to ensure that the Company owns all the rights and to record the Company as proprietor of the patents. The Company is pursuing the following patent applications: - use of Fab fragments of anti-TNF(alpha) antibodies in medicine (in other territories including the United States, Canada and Japan); - a United States divisional for various steps in the process of production of Fab fragments; - a European divisional for a method of accelerated clotting of blood in the production of polyclonal antibodies; and - the use of mixed monospecific antivenoms (in other territories including the United States and Japan). United States applications remain confidential and are only published if a patent is granted, whereas international applications are published within 18 months even if they do not proceed to grant. In order to ensure the protection of know-how, no international equivalent of the United States application in respect of an antidote to poisoning with tricyclic antidepressants was filed. There can be no assurance that the Company will receive the requested approval of the pending patent applications. There are two European patents, both in the name of Rockefeller University, which may affect CytoTAb(R). Following the Company's opposition to the first of these patents and an oral hearing at the Opposition Division of the European Patent Office ("EPO"), the patent was revoked in its entirety. The decision could be appealed, but the Company intends to vigorously defend any appeal and management believes that the revocation will stand. The Company is also opposing the second Rockefeller patent on various grounds, including lack of patentability. If valid as granted, the patent could be used to attempt to limit the Company's freedom to use anti-TNF(alpha) antibodies, and 11 13 therefore its ability to market CytoTAb(R). The provisional (although non-binding) opinion of the Opposition Division of the EPO is that this patent should also be revoked. The Company will continue to oppose the patents until a final decision is reached, which is expected by the end of 1999. Patent rights related to those European patents referred to in the previous paragraph also exist in the United States, Canada, Australia and Japan. Management is of the opinion that, owing to the precise nature of these patent rights in Australia and the United States, commercial exploitation of CytoTAb(R) in these territories will not infringe any valid claims of these patents. The Company has itself applied for specific patents covering the use of Fab fragments of anti-TNF(alpha) antibodies, and methods for their preparation, as summarized above. In March 1999, the Company's patent attorneys opined that the antilymphocyte antibody therapy United States patent can be used to prevent the use of anti-TNF(alpha) antibodies to prevent or ameliorate acute tumor lysis syndrome brought about by the administration of the monoclonal antibody rituximab. Rituximab, an anticancer treatment directed against lymphoma cells that express the CD20 tumor antigen, is licensed in Europe by the Roche Group from IDEC Pharmaceuticals ("IDEC") in the United States, where IDEC markets the product jointly with Genentech, Inc. ("Genentech"). In January 1999, following a routine search by its patent attorneys, the Company was alerted to a Genentech United States patent, dated August 18, 1998, with claim to "A tumor necrosis factor-alpha (TNF-alpha) antagonist comprising an antibody which neutralizes cytotoxic activity of human TNF-alpha." This patent was subsequently found to be a continuation of another Genentech United States patent which claims "A method for treatment of a graft versus host reaction which comprises administering to a patient a therapeutically effective dose of a tumor necrosis factor-alpha antagonist." The Company is currently investigating the implications of these patents. No equivalent European patents or applications have been found. A European patent has recently been granted which includes claims relating to the purification of antivenoms and the resulting purified antivenoms and which, if valid, could be used to attempt to limit exploitation of the Company's antivenom products. The Company has been advised by one of its patent attorneys, Carpmaels & Ransford, that to the extent it is alleged any of the Company's mixed monospecific antivenom products fall within the scope of the claims of the patent, there are reasonable grounds to argue the claims are invalid. The Company therefore intends, if necessary, to oppose the patent. Significant validation deadlines for the patent in various European countries fell due recently and the outcomes are currently being monitored by the Company's attorneys. Initial indications suggest a varied pattern, with the patent being allowed to lapse in some territories. Broadly equivalent patents to the European patent referred to in the previous paragraph have been granted in Australia and the United States but the claims of these patents are more limited than those of the European patent. Management has been advised and is confident that exploitation of the Company's antivenom products in these territories will not infringe the granted patents. TRADEMARKS The Company has registered the following trademarks: - TAb in the United States, Canada, Australia, major European countries, and Japan; - CytoTAb, DigiTAb, TriTAb, and ViperaTAb in the United States and various countries worldwide; and 12 14 - CroTAb in the United States. The Company has withdrawn or abandoned its attempts to register the DigiTAb mark in Australia, Canada, Denmark, and Germany in the face of oppositions or prior registrations of Digibind(R). An application for the TAb mark in the United Kingdom is pending. MARKETING AND RESEARCH AND DEVELOPMENT STRATEGIES MARKETING STRATEGY Collaboration agreements between large pharmaceutical companies and biotechnology companies are common. The large pharmaceutical companies seek to in-license products which are at an advanced stage of development, providing the pharmaceutical companies with lower risk investments in the development of new pharmaceuticals and access to products outside their core area of research and development expertise. This provides a biotechnology or biopharmaceutical company, such as the Company, with a source of revenue prior to the launch of a product together with access to marketing skills and to an experienced sales force. These agreements typically include an upfront payment on signing the agreement, milestone payments on reaching defined stages in the development program, and royalties payable on sales by the marketing collaborator together with a margin on the supply of product. Management intends to enter into such arrangements for most of the Company's products. The stage at which the Company will out-license will depend on balancing the market potential of the product with the costs and risks associated with the continuing development program. Except in certain limited circumstances, the Directors do not intend that the Company will establish its own sales force but expect to market its products through alliances with collaborators. Management groups the Company's products in two general categories: Niche Products. These products include the antivenoms and DigiTAb(R). Niche products serve an acute medical need in a low volume market. Generally, the products have a lower commercial risk as they tend to have lower development costs, shorter lead times and potentially accelerated regulatory review. Management believes that the Company's niche products will be able to show improved safety or efficacy compared with existing products or that they will be able to present a market opportunity in an established market place. Major Market Products. These products include the anti-cytokine products and certain of the anti-drug products. Major market products are being developed to meet medical needs for life threatening conditions, which management considers to have significant market potential. For products requiring sizable later stage trials, management intends to out-license these products at the end of Phase II clinical trials. 13 15 RESEARCH AND DEVELOPMENT STRATEGY The nature of the Company's technology affords flexibility in its development of a variety of products. By varying the initial target molecule and using consistent production techniques, the Company has already demonstrated that it can create products for different therapeutic uses. Management intends to take advantage of opportunities for which United States orphan drug status might be granted given the development, registration and marketing incentives which are available when such status is granted. The Company has already established and will continue to seek new collaborative arrangements with academic institutions either sponsoring their work directly or acquiring the intellectual property rights (or rights to use the same) to complementary novel developments. This provides the Company with another source of new technology to develop further its new products. GOVERNMENT REGULATION GENERAL Regulation by government authorities in the United States, Europe and other countries in which the Company operates is a significant consideration in the development, production, marketing, labeling and reimbursement of the Company's products and in its continuing research and development activities. In the United States, Europe and most other countries there is a requirement to obtain and to maintain an approval for a product from the appropriate regulatory authority ("marketing authorization"). The Company is also subject to various laws, regulations, policies, guidelines and recommendations relating to such matters as safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the protection of the environment. The general trend has been towards greater regulation of the pharmaceutical industry and its products. The submission of an application to a regulatory authority does not guarantee that an authorization will be granted. Regulatory authorities require substantial data in connection with marketing authorization applications, resulting in a lengthy approval process. The time taken to obtain such approval varies, but can take from a few months to several years and can involve substantial expenditure. This may be due to the lack of the necessary results required by regulatory authorities or changing or additional regulation during the product development process. Furthermore, regulatory authorities of different countries may impose differing requirements and may refuse to grant, or may require additional data before granting an approval, even though the product may have been approved by the regulatory authority of another country. Even if approval is obtained, failure to comply with present or future regulatory requirements, or new information reflecting on the safety or effectiveness of the approved drug, can lead the regulator to withdraw its approval to market the product. In the United States, the principal regulatory agency is the FDA. Nearly all other countries have national regulatory authorities. The Company may have to satisfy different requirements from the FDA, European authorities and other national regulatory authorities. There is an ongoing initiative, the International Conference on Harmonization, between representatives from Japan, the United States and the European Union, to limit differences where possible, but it may be many years before its objective is achieved, if at all. In Europe, the Company must take into consideration (a) the regulatory climate within the European Union, including the stances of the International Conference on Harmonization, 14 16 the European Agency for the Evaluation of Medicinal Products ("EMEA") and the European Committee for Proprietary Medicinal Products ("CPMP"), as well as (b) the position of the national regulatory authorities of other European countries. New licensing procedures were introduced in the European Union in 1995 aimed at progressively limiting the differences in requirements between the regulatory authorities of European member states in respect of the same products. However, it is too early to assess fully the impact of these new procedures. Wherever practical, the Company intends to design preclinical and clinical protocols which should generate sufficient data to be acceptable to support applications for the same product in each country where it is intended to be marketed. PRICE REGULATION In some countries it is necessary to obtain approval for the price to be charged. This is true in a number of European member states. In the United Kingdom the launch price is set by the manufacturer (subject to the constraints of the pharmaceutical price regulation system, which controls the profitability of a company's business with the United Kingdom's National Health Service). Governments may also influence the price through the control of national healthcare systems and also organizations which may bear the cost of supply of such products. In the United States, government-funded or private medical care plans can influence prices, and there are a variety of indirect controls. UNITED STATES REGULATION Regulatory Authorities. The development and marketing of medicinal products for human use in the United States is regulated at the federal and state levels. The principal federal regulatory agency is the FDA within the Department of Health and Human Services. Although most states maintain one or more agencies with power to regulate medicines, they commonly defer to the FDA in matters relating to product development and approval. Due to the requirements imposed by the FDA, the development process for new pharmaceuticals in the United States is lengthy, expensive and commercially risky. The great majority of compounds screened for possible development are ultimately rejected at some stage in the pre-market testing process; total development time for successful compounds often exceeds 10 years. However, under the provisions of recent legislation the FDA has committed to reduce the review time for applications. Although the agency has achieved some reductions, especially for high-priority medicines, the review process remains lengthy and complex. There has been little or no reduction in the testing required before applications are submitted, which consumes most of the time spent in developing new medicines for the United States market. Good Practice Standards. Various standards are applied either by law or custom to the activities of pharmaceutical companies. These include principally Good Laboratory Practice ("GLP"), applied to studies performed during preclinical developments to identify the compound's behavior and toxicity in animals, Good Clinical Practice ("GCP"), intended to ensure the quality and integrity of clinical data and to protect the rights and safety of human subjects in clinical trials, and Good Manufacturing Practice ("GMP") which ensures the quality of drugs by setting minimum standards for all drug manufacturing facilities. Such standards have been developed by the FDA and by the United States National Committee for Clinical Laboratory Standards. Violation of these regulations can lead to invalidation of the relevant studies. In Europe they are embodied in law (GMP and GLP) or guidelines (GCP). The Company has used consulting firms in the United Kingdom and in the United States for advice on compliance with existing regulations and guidelines. 15 17 Clinical Trials. Clinical trials of new product candidates are designed to establish their safety and efficacy in treating a specific disease and are usually conducted in three phases, although there are not always distinct divisions between the objectives and activities undertaken in each phase. The clinical trial process may take from two to six years or more to complete. Phase I trials are normally conducted in a small number of healthy human subjects or patients with the specific condition targeted. Their purpose is to provide a preliminary evaluation of the product candidate's safety, toxicity and behavior when administered to humans. In Phase II trials, the product candidate is assessed for its short-term safety and preliminary efficacy in a limited number of patients with the targeted disease or disorder. The appropriate dose ranges and regimens for Phase III are also determined during this Phase. Phase III trials involve a comprehensive evaluation of safety, efficacy and toxicity that might not have been seen in smaller studies. The trials are carried out, typically on a multi-center basis, on a sufficient number of patients to obtain statistically significant results. All adverse reactions are investigated in detail and special features of the product candidate are explored. All clinical trials of investigational medicines in the United States must be carried out under investigational new drug ("IND") submissions to the FDA. FDA regulations impose requirements for documenting the safety of proposed clinical trials, provide for submissions to FDA before clinical trials can commence and authorize the FDA to suspend or withdraw permission to continue clinical trials. If the drug is considered by the FDA and by prospective users to provide an important benefit in the treatment of a serious disease, the applicant may be faced with demands from patient groups, sometimes endorsed by the FDA, for release of the drug for treatment during the investigative stage. The supply of such treatment is termed treatment use. Supplying drugs on this basis can involve significant expense and resource demands for the sponsor of the drug, which must administer the pre-approval release program. This may, in some situations, interfere with the ability to complete controlled clinical trials of the drug. Approval Procedures and Criteria. The FDA applies essentially the same requirements for approval of all products: proof of safety and efficacy, demonstration of adequate controls in the manufacturing process and conformity with requirements for labeling. Efficacy must usually be demonstrated by two well-controlled clinical trials carried out in accordance with FDA regulations. The FDA has discretion to determine whether the data submitted is adequate for approval. The time taken for this approval process is related to the quality of the submission, the potential contribution of the compound in improving the treatment of the target disease and the workload at the FDA. There can be no assurance that any new drug will successfully proceed through this approval process or that it will be approved in any specific period of time. During its review, the FDA may ask for additional test data. If the FDA approves the product, it may require post-marketing testing, including potentially expensive Phase IV studies. This phase assesses further the product's therapeutic value and provides additional information about the safety and efficacy of the product across a broader patient base. In addition, the FDA can impose restrictions on the use of the drug that may be difficult and expensive to administer. Orphan Drug Status. The Orphan Drug Act encourages manufacturers to seek approval of products intended to treat diseases with a prevalence of under 200,000 patients per annum in the United States. This Act provides tax incentives, FDA assistance with protocol design, and a period of seven years of marketing exclusivity for the product. The Company expects some of 16 18 its proposed products to be designated as orphan drugs by the FDA. The Company's Crotalid antivenom, CroTAb(R), has already been designated by the FDA as an orphan drug. Accelerated Approval. The FDA may accelerate approval of medicines that offer a significant improvement in the treatment of fatal or life-threatening conditions, or conditions for which there is no alternative therapy. In certain cases, the FDA may permit Phase II and Phase III studies to be compressed into a single study. It is unusual for the FDA to base an approval on such compressed studies and, although many of the Company's products would be included in this category, there can be no assurance that such combined testing would be considered acceptable for any of the Company's products. Acceptance of Foreign Clinical Data. The FDA will accept reports of foreign clinical trials if they meet requirements for GCP and are relevant to United States medical practice. It is, however, uncommon for the agency to approve a product without some evidence from clinical trials conducted in the United States, and most sponsors carry out at least one pivotal trial there. Studies conducted outside the United States are subject to special audits by FDA inspectors and may be rejected if United States requirements for record-keeping, protection of human subjects and other matters relating to GCP are not met. Non-Patent Market Exclusivity. Under United States law, there are two forms of non-patent market exclusivity. First, the law prohibits approval of abbreviated new drug applications or literature-based applications for copies of innovative products for a period of five years after the approval of a new chemical entity, and three years after the approval of a new indication or dosage form for which substantial clinical trials were required. Second, the law provides for a seven-year period of protection for orphan drugs (see above). During this period, the FDA is precluded (subject to complex exceptions) from approving any application for the same drug, even if it is based on original data. These provisions apply to all drugs, including antibiotics and biological products. Manufacturing Controls. The FDA inspects pharmaceutical manufacturing establishments for compliance with current GMP and conformity with specifications in marketing approvals. Biological manufacturing establishments must be licensed by the FDA. The agency inspects foreign manufacturing facilities that supply bulk or finished products for the United States market. If companies cannot meet FDA requirements, their products may be excluded from the United States. Advertising and Promotion. The FDA regulates advertising and promotion of prescription medicines. Promotion for unapproved uses is prohibited, and sponsorship of medical symposia and publications is restricted. Financial incentives to prescribers are regulated under federal and state criminal laws as well as codes of practice for the medical professions. Enforcement Powers. The federal government has extensive powers to compel compliance with pharmaceutical regulations. Volatile products are subject to seizure, and imported products may be detained. Companies and individuals that violate these regulations are subject to injunctions and criminal penalties with no requirement for proof of negligence or intent. Persons and companies convicted of certain offenses can be barred from involvement in the approval process. The federal government can suspend or withdraw approval of products if questions arise concerning safety or effectiveness. Product Liability. Companies that market medicines in the United States are subject to suit in state and federal courts for personal injuries caused by their products. The risk of product liability litigation is significantly greater in the United States than in most European jurisdictions, 17 19 and damage awards can be substantial. FDA approval is not a defense to liability, and failure to comply with FDA requirements may constitute evidence of negligence. EUROPEAN REGULATION The Company's activities in Europe are regulated by national and local laws and European Union law. There are European Directives governing the development, manufacture and marketing (including wholesale) of medicinal products which member states are required to implement into local law and which must be interpreted in line with the European provisions. However, failure to implement them properly by national governments may allow companies to rely upon provisions of pre-existing local laws. Certain areas of regulation continue to be regulated by national law, for example, the regulation of clinical research, although a European Good Clinical Practice Directive is under development. Another current proposal is the Orphan Drug Directive, which if implemented may potentially have benefits for some of the Company's products. Clinical Trials. The three phase approach to clinical development of new product candidates discussed in the section on United States Regulation is also applicable to European regulation. When adequate preclinical data is available, application will usually be made to the regulatory authority in the country where the trial is to be conducted. In most developed countries, clinical trials may only be commenced after notification to and/or approval by the competent regulatory authority and an independent ethics committee. In European Union member states, marketing authorizations must be supported by clinical trial data as set out in European Directives and guidelines, but the approval process and criteria for commencement of clinical trials are not yet uniform under European Union law. The International Conference on Harmonization is developing proposals to conform national laws and practices. Marketing Authorizations. When clinical trial data supporting safety and efficacy and the necessary manufacturing and formulation data are available, an application for a marketing authorization may be submitted. If a regulatory authority is satisfied that the criteria of safety, quality and efficacy are met, a marketing authorization will be granted although European Union law does allow member states, exceptionally, to prohibit product use on grounds connected with public order or morality. Marketing authorizations are granted subject to certain generally applicable conditions and may also be subject to product-specific restrictions determined by the regulatory authorities. Two new procedures for the registration of medicinal products in the European Union came into effect on January 1, 1995: the "centralized" and "mutual recognition" systems. From January 1, 1998, national applications have effectively been superseded by the mutual recognition system. The centralized system is compulsory for certain biotechnology products, and optional for certain other products, including new active substances not previously authorized in the European Union, products administered by innovative and novel delivery systems and significant new indications for existing products. The EMEA coordinates the registration process, but the CPMP, a body of scientific experts drawn from each member state, undertakes the scientific assessment of the product dossier and gives an opinion as to whether the product meets the criteria for authorization. Time periods are laid down for various stages in the approval process, including allowances for questions and appeals. The decision to grant or refuse a marketing authorization is taken by the European Commission and, when granted, the single authorization obtained is valid throughout all member states and the European Free Trade Association. The mutual recognition system is based upon a marketing authorization granted by one national regulatory authority, the Reference Member State ("RMS"). Having obtained a marketing authorization from the RMS, the authorization holder may apply to the regulatory authorities of other member states to "recognize" that prior authorization and to issue national authorizations on the same terms. Such applications can be made sequentially. There are procedures and time limits according to which objections by member states can be raised and appeals 18 20 may be heard, although these may significantly lengthen the time from initial application to approval. Arbitrations are handled by the CPMP whose decision, when adopted by the European Commission, is binding on all member states. Consequently, arbitration may adversely affect prior authorizations. The passage of a product through the approval system can therefore be long and drawn out. Although the procedures impose time limits upon the authorities, these limits do not run if the applicant delays in providing additional data or responses to queries raised. In addition, the regulatory authorities can suspend, vary or revoke a marketing authorization at any time after it has been granted if they are no longer satisfied as to the product's safety, quality or efficacy. Increasing uniformity of decision-making in the European Union through the CPMP means that, in the future, concerns raised by any one member state are likely to be examined at CPMP level and the outcome of its deliberations will affect the product in all member states. Marketing authorizations are generally granted for a period of five years and require renewal. During that period, should new developments occur, the holder of the authorization is required to update the product dossier. There is an obligation on the holder of the authorization to report adverse events to the regulatory authorities and to keep product safety under review. Manufacturing Authorizations and Facilities Licenses. European Union law requires that companies manufacturing medicinal products must hold a manufacturer's authorization and must comply with the requirements of GMP. These standards are enforced by inspection. Failure to comply may result in the suspension or revocation of the manufacturer's authorization and may lead to suspension of product marketing. In the United Kingdom facilities licenses are issued after an application to, and inspection by, the Medicines Control Agency, and similarly in Australia by the Therapeutic Goods Administration ("TGA"). REGULATION IN OTHER COUNTRIES In general, regulation is similar in countries outside the United States and Europe, with the approval system regulated by specific agencies in each geographic area. However, approval by one agency does not ensure approval in other countries. In Australia successful marketing of a therapeutic substance may be dependent on receiving marketing approval from the TGA and also on obtaining Commonwealth Government subsidy for use of the product via either the Pharmaceutical Benefit Scheme or the Special Access Scheme. Applications for listing on either of these Schemes requires additional information, in particular economic analysis data, and approval for this second step may lag behind obtaining marketing approval. The Australian Government is able to exercise considerable power over price control through this process. EMPLOYEES As of December 31, 1998, the Company had 142 full-time employees, including 41 scientists, 22 management and 22 administrative personnel. In addition, the Company employed 26 part-time employees at December 31, 1998. The Company believes that its future success will depend, in part, on its ability to attract and retain highly skilled technical, marketing, support and management personnel. None of the Company's employees in the United States are subject to a collective bargaining agreement, and the Company has never experienced a work stoppage. Management believes that its employee relations are good. 19 21 ITEM 2. PROPERTIES The Company's physical properties are primarily owned or leased through its subsidiaries. TAb UK operates the Company's research and development laboratories at St. Bartholomew's Hospital Medical College in London located at Charterhouse Square, London, EC1A 7BE. TAb UK leases 5,099 square feet of laboratory space from the trustees of St. Bartholomew's Medical School. The current lease term has an expiration date of September 30, 2003. TAb UK also leases approximately 4,000 square feet of office space at 14/15 Newbury Street in Central London. The contractual terms of the lease came to an end on March 24, 1999. Under English law TAb UK is entitled to continue to occupy the premises and is entitled to a new tenancy of the premises. At present TAb UK is in the process of negotiating with the landlord terms for a possible new lease. In addition, TAb UK owns and operates production offices, quality control laboratories and a manufacturing facility located at Blaenwaun Farm and Gernos Farm in Ceredigion, Wales. In 1992, the Company acquired these initial Welsh facilities, including approximately 220 acres of pasture land, animal stock, and production and ancillary facilities. The Welsh facilities were established with financial support of the Welsh Office and Welsh Development Agency in the form of grants and investments. In 1995, TAb UK completed construction of a 20,000 square foot manufacturing plant within its existing Welsh facilities. In 1995, TAb Australasia (formerly TAb Australia Pty. Ltd) leased offices and laboratories and acquired grazing rights over 250 hectares of land at the Turretfield Research Centre in Adelaide, South Australia. The flocks of sheep were moved to this location and a bleeding shed constructed. In the fourth quarter of 1996, TAb Australasia completed construction of new facilities on the property, which include offices, a cleanroom and a manufacturing plant, located adjacent to the Company's existing facilities. The lease of the Turretfield Research Centre property will expire on July 31, 2000, but the Company has an option to extend the term on prior written notice for a further period of 15 years. The Company has grazing rights at the Turretfield Research Centre until July 31, 2005 and has an option to further extend this right for a period of 10 years upon prior written notice. The Company's corporate headquarters is located at 1207 17th Avenue South, Suite 103, Nashville, Tennessee 37212. This property is 7,722 square feet of leased office space in the vicinity of Vanderbilt University Medical Center. This lease expires on January 31, 2001. All of the Company's laboratories, production facilities and farms are suitably equipped for their intended purposes. ITEM 3. LEGAL PROCEEDINGS There are no pending legal proceedings involving the Company or any of its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of Shareholders of the Company was held on November 6, 1998. At the meeting, the shareholders approved and authorized the Company to file a Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock from 39,000,000 to 59,000,000. This increase of authorized shares was necessary to facilitate the private placement of 28,690,561 shares of the Company's Common Stock, which closed on November 9, 1998. Proxies for the meeting were solicited pursuant to Rule 14a-3 under the Securities Exchange Act of 1934, as amended. There was no solicitation in opposition to management's recommendations as stated in the proxy statement. 20 22 The vote on the amendment was 15,162,843 in favor and 34,425 against, with zero broker non-votes or abstentions. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is currently traded on the London Stock Exchange (under the symbol TAB). There is no public trading market for the Company's Common Stock within the United States. The following table presents quarterly information on the price range(1) of the Company's Common Stock, stated in British pounds and United States dollars. This information indicates the high and low sale prices reported by the London Stock Exchange.
QUARTER ENDING HIGH LOW -------------- ---- --- March 31, 1997 (pound)3.89 ($6.38) (pound)3.035 ($5.00) June 30, 1997 (pound)3.74 ($6.18) (pound)3.325 ($5.50) September 30, 1997 (pound)3.325 ($5.62) (pound)1.80 ($2.80) December 31, 1997 (pound)2.585 ($4.45) (pound)2.18 ($3.60) March 31, 1998 (pound)2.22 ($3.66) (pound)1.93 ($3.23) June 30, 1998 (pound)2.09 ($3.48) (pound)1.40 ($2.28) September 30, 1998 (pound)1.42 ($2.36) (pound)0.63 ($1.03) December 31, 1998 (pound)0.86 ($1.47) (pound)0.47 ($0.77) - -------- (1) Currency translations were calculated based upon the currency exchange rates in effect on the date the price disclosed was reported on the London Stock Exchange.
As of March 26, 1999, there were approximately 1,344 holders of record of the Company's Common Stock. On March 26, 1999, the last sale prices reported on the London Stock Exchange for the Company's Common Stock was 56 pence ($.91). The Company to date has paid no dividends on its Common Stock. The declaration and payment of future dividends will be determined by the Board of Directors in light of conditions existing in the future and are expected to depend upon earnings, financial condition, capital requirements, and other relevant factors not presently determinable. The Company does not expect to pay dividends in the foreseeable future. On November 9, 1998, the Company issued an aggregate of 28,690,561 new shares of the Company's Common Stock in connection with a $19.5 million refinancing. This refinancing consisted of a private placement of 21,300,000 new shares at $0.68 per share to raise approximately $12.6 million net of expenses. In addition, the holders of approximately $2.9 million aggregate principal amount of the Company's 1998 15% Subordinated Promissory Notes and certain other 21 23 notes elected to convert their notes into 4,394,869 shares of Common Stock. Also in connection with the refinancing, the holders of the Company's Series A Convertible Redeemable Preferred Stock elected to convert all outstanding shares of Series A Preferred Stock, together with accrued dividends thereon, into 2,995,692 shares of Common Stock. Panmure Gordon & Co. Limited acted as underwriters for the shares sold in the private placement. All shares issued in the refinancing were issued without registration under the Securities Act of 1933, as amended, (the "Securities Act") in reliance on exemptions contained in Section 4(2) of the Securities Act. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data at and for each of the five years in the period ended December 31, 1998 have been derived from the Company's consolidated financial statements. The data set forth below should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein and also with "Management's Discussion and Analysis of Financial Condition and Results of Operations"
8/10/84 YEARS ENDED DECEMBER 31, (INCEPTION) ------------------------------------------------------------------- THROUGH 1998 1997 1996 1995 1994 12/31/98 ---- ---- ---- ---- ---- -------- STATEMENT OF OPERATIONS DATA: Total Revenues(1)........................... $ 3,631,809 $ 2,677,931 $ 3,268,368 $ 750,490 $ 1,130,323 $ 13,018,554 Expenses: Research and development............... 11,363,218 11,462,352 9,185,126 6,321,674 5,107,894 53,405,675 General, administrative, marketing..... 4,598,073 4,176,139 3,083,151 2,247,472 1,619,824 19,517,793 Depreciation and amortization.......... 1,561,951 1,643,922 1,387,916 856,756 864,288 7,073,621 Interest expense and debt conversions.. 1,305,549 1,001,959 2,002,932 388,258 137,018 5,837,728 Foreign currency losses (1)............ 240,703 913,119 _ _ _ 1,153,822 Other.................................. 451,244 328,158 355,360 36,368 119,052 1,331,226 ----------- ------------ ------------ ----------- ----------- ------------ Total expenses....................... 19,520,737 19,525,649 16,014,485 9,850,528 7,848,076 88,319,865 Net loss............................... (15,888,928) $(16,847,718) $(12,746,117) $(9,100,038) $(6,717,753) $(75,301,311) Preferred stock dividends.............. (32,877) _ _ _ _ (32,877) ----------- ------------ ------------ ----------- ----------- ------------ Net loss applicable to common shareholders......................... (15,921,805) $(16,847,718) $(12,746,117) $(9,100,038) $(6,717,753) $(75,136,715) =========== ============ ============ =========== =========== ============ Basic and diluted net loss per share... $(0.59) $(0.74) $(0.68) $(0.57) $(0.47) $(6.78) =========== ============ ============ =========== =========== ============ BALANCE SHEET DATA: Cash and cash equivalents(1)(3)........ $ 7,760,328 $ 4,915,077 $ 20,502,536 $ 3,397,082 $ 593,154 Total assets(2)(3)..................... 21,421,502 20,800,065 37,179,990 15,157,099 12,103,994 Long term debt, net of current portion (2).......................... 4,744,216 6,059,072 8,592,755 9,595,420 2,917,251 Deficit accumulated during development (75,301,311) (59,412,383) (42,564,665) (29,818,548) (20,718,510) stage................................ Stockholders' equity(3)................ 12,022,434 9,758,345 25,215,530 894,479 4,862,404
Notes: (1) At December 31, 1998, the Company held approximately U.S. $7,508,000 denominated in British pounds and U.S. $31,500 in Australian dollars. The decline in the exchange rate at year end between the British pound and Australian dollar versus the U.S. dollar resulted in a foreign currency transaction loss of U.S. $240,703. At December 31, 1997, the Company held approximately U.S. $2,960,000 which was denominated in British pounds. As a result of improvement in the exchange rate between the British pound and the U.S. dollar, the Company experienced a foreign currency transaction loss of U.S. $913,119 for the year ended December 31, 1997. (2) In 1995 and 1994, the Company constructed a pilot production facility in London and a manufacturing facility in Wales. These facilities were funded through financing arrangements provided by Aberlyn Capital Management Company, Inc. and the Welsh Development Agency. See Note 5 to the consolidated financial statements. 22 24 (3) On July 23, 1996, the Company completed an initial public offering of 4,190,477 shares of its common stock on the London Stock Exchange at (pound)5.25 ($8.14) per share. See Note 1 to the consolidated financial statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and notes thereto. GENERAL Since its inception, Therapeutic Antibodies has been in the development stage, devoting its efforts and resources to drug discovery and development programs relating to the development of highly purified, polyclonal antibodies for the treatment of disease. The Company's revenues have been primarily derived from licensing agreements with corporate partners, contract agreements, product sales, grant income, and interest income. The Company has incurred net losses each year since its inception and the Company expects to continue to incur operating losses during at least the next year due to continued spending on research, product development and the requirements for process development, preclinical and clinical testing, regulatory affairs, initial manufacturing activities and administration. To fund these activities, the Company will continue to evaluate opportunities to raise further funding which will be required to carry out the current business plan. The Company conducts its operations from its headquarters in the United States and through subsidiaries located in the United Kingdom and Australia. For a discussion of the Company's international operations for the past three fiscal years, see Note 11 to the Company's financial statements. RESULTS OF OPERATIONS Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 The Company's revenues for 1998 increased by 36% to $3,632,000 from $2,678,000 for 1997. Licensing revenue increased 129% to $2,544,000 for the year ended December 31, 1998 from $1,113,000 for the year ended December 31, 1997. This increase is primarily attributable to milestone payments received from licensing agreements with pharmaceutical partners. An 85% increase in sales and contract revenue to $727,000 during the year ended December 31, 1998 from $393,000 during the year ended December 31, 1997 was due to the recognition in 1998 of a $219,000 sale of the Company's Nigerian EchiTAb(TM) product as well as an increase in contract revenue in 1998 due to an increase in the number of sheep managed by Therapeutic Antibodies under contractual arrangements with third parties in the United Kingdom. Grant revenue decreased 80% in 1998. The Company received a $129,000 grant from the Welsh Government in 1997 for expansion of the Company's Welsh operations. Interest income 23 25 for the year ended December 31, 1998, decreased 73% to $239,000 from $887,000 for 1997 due to lower cash and short-term investment holdings during 1998. The Company's total expenses for the year ended December 31, 1998 were slightly less than 1997 expenses. Research and development expenses for 1998 decreased to $11,363,000 from $11,462,000 in 1997 due to cost reduction measures initiated by the Company in 1998. Research and development expenses had increased between 18% and 50% per year for the previous five years ending in 1997. In early 1998, management implemented a plan to conserve cash and to sharpen the focus of the Company's research and development efforts. As part of this streamlining, some of the Company's basic research activities and certain clinical trial programs, including research into the application of CytoTAb(R) to treat the symptoms of sepsis syndrome, have ceased. The Company is currently pursuing other applications for CytoTAb(R). The Company began to realize the results of these cost reduction measures during late 1998. General and administrative expenses for the year ended December 31, 1998 increased by 14% to $4,051,000 from $3,562,000 for the year ended December 31, 1997. This increase is due to one-time costs incurred for management changes, the development of an information systems department, and fees incurred for restructuring the Company's United Kingdom subsidiary entities. Marketing and distribution expenses decreased for the year ended December 31, 1998 by 11% to $547,000 from $615,000 for the year ended December 31, 1997 primarily as a result of a vacancy in the Director of Business Development position from April until December 1998. Depreciation and amortization expenses for the year ended December 31, 1998 decreased by 5% to $1,562,000 from $1,644,000 for the year ended December 31, 1997. The Company had significant capital expenditures in 1994 through 1996 for the establishment of the Welsh and Australian production facilities. Expenditures for production facilities incurred in 1997 and 1998 resulted in a leveling off and slight reduction in depreciation expense in 1998. In addition, the majority of 1998 expenditures occurred later in the year resulting in less depreciation during the year. Interest expense for the year ended December 31, 1998 increased by 30% to $1,306,000 from $1,002,000 for the year ended December 31, 1997. During 1998, the Company incurred an additional $516,000 in interest and warrant expense related to the Company's private placement of $4,025,000 principal amount of short-term bridge notes between June and September 1998. Changes in foreign currency exchange rates resulted in the recording of less foreign currency loss in 1998 than in 1997. Gains and losses are the result of fluctuations in the exchange rates of the currencies in which the Company conducts its business compared to the United States dollar. The Company's net loss for the year ended December 31, 1998, was $15,889,000 compared to a net loss of $16,848,000 for the year ended December 31, 1997. The Company's net loss applicable to common shareholders for the year ended December 31, 1998 was $15,922,000 compared to a net loss applicable to common shareholders of $16,848,000 for the year ended December 31, 1997. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Therapeutic Antibodies' revenues for 1997 decreased by 18% to $2,678,000 from $3,268,000 for 1996. During the year ended December 31, 1996 the Company recorded a foreign currency transaction gain of $1,733,000 as a result of the United States dollar's improvement during 1996 against the British pound sterling compared to a loss of $913,000 for the year ended December 31, 1997. Licensing revenue increased 676% to $1,113,000 for the year ended December 31, 1997 24 26 from $144,000 for the year ended December 31, 1996 due to milestone payments received from licensing agreements with pharmaceutical partners. Sales and contract revenue decreased during the year ended December 31, 1997 primarily because 1996 included a one time payment of $173,000 which was attributable to the Company's Nigerian EchiTAb(TM) contract. In 1997 grant revenue increased $87,000 due to a grant received from the Welsh Government for expansion of the Company's Welsh operations. Interest income in the year ended December 31, 1997, increased 46% to $887,000 from $607,000 due to additional cash and short-term investment holdings from the proceeds of the Company's IPO in the United Kingdom in July 1996. Total expenses for the year ended December 31, 1997 increased by 22% to $19,526,000 from $16,014,000 for the same period in 1996. Research and development expenses during the same periods increased by 25% to $11,462,000 from $9,185,000 as a result of the following: advanced clinical trial activities for DigiTAb(R) and CytoTAb(R); continued preparation for the regulatory review process for CroTAb(R); manufacturing the Company's products for clinical trials; and conducting and establishing the necessary quality control and assurance systems. Additionally, the expansion of the Australian facility was completed in early 1997 and the Company began devoting resources to that facility to meet the need for increased serum requirements for commercial production. General and administrative expenses for the year ended December 31, 1997 increased by 31% to $3,562,000 from $2,722,000 for the year ended December 31, 1996. This increase relates primarily to increased insurance requirements, stockholder relations and other activities required following the Company's IPO in the United Kingdom in 1996. Marketing and distribution expenses increased for the year ended December 31, 1997 by 70% to $615,000 from $361,000 in the year ended December 31, 1996. This increase reflects additional staffing and associated expenses. Depreciation and amortization expenses for the year ended December 31, 1997 increased by 18% to $1,644,000 from $1,388,000 for the year ended December 31, 1996. This increase is the result of the depreciation of the capital expenditure for the Australian production facility, which was placed in service in February 1997. Interest expenses for the year ended December 31, 1997 decreased by 17% to $1,002,000 from $1,201,000 in the year ended December 31, 1996. This decrease is a result of the Company's repayment in 1996 of approximately $4,750,000 in debt obligations. The Company's net loss for the year ended December 31, 1997, was $16,848,000 compared to a net loss of $12,746,000 for the year ended December 31, 1996. In addition to the factors described above, changes in foreign currency exchange rates used to translate the foreign subsidiaries financial statements into United States dollars resulted in higher expense levels. 25 27 LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has been in the development stage, devoting its efforts and resources to drug discovery and development programs. Capital resources have been used for the establishment and expansion of production facilities, for product research and development activities, for clinical testing and to meet Therapeutic Antibodies' overall increased working capital requirements. Management does not expect revenues from product sales to be a significant source of funding until additional products receive regulatory approval. Although the Company anticipates the launch of CroTAb(R) following FDA approval in mid-1999, revenues from sales of CroTAb(R) are not expected to be significant in 1999. Future capital requirements will depend on numerous factors including the progress of the Company's research programs and clinical trials, the development of regulatory submissions, the receipt of FDA approval of CroTAb(R), the commercial viability of the Company's products, the ability to attract collaborative partners with sales, distribution and marketing capabilities, and the terms of any new licensing arrangements. Funds for the Company's operating and capital requirements historically have been provided by the sale of equity and debt and from collaboration agreements and other financing arrangements. In November 1998, the Company completed the private placement (described below) of 28,690,561 shares of Common Stock in the United States and in the United Kingdom, raising net cash proceeds of $12,600,000. At the time of the private placement, the Company estimated that the fundraising, together with licensing and contract revenue, would provide sufficient funds to allow the Company to reach the launch of several of its products, and accordingly bring the Company to the point at which its revenues can sustain ongoing product development. With the loss of the 1999 milestone payments and product revenues that would have been received under the Searle agreement (described below), the Company will need to raise additional financing by mid-1999 to fund operations. The Company is currently pursuing several financing alternatives, including preliminary discussions that may lead to a merger on a share exchange basis at a value that approximates the current market value of Therapeutic Antibodies. The Board has also entered into discussions with third parties relating to the sale of additional debt or equity securities, the disposal of certain non-core investments, additional product licensing arrangements, and possible combinations or collaborations with strategic partners. While the Directors believe that they will be able to successfully implement one or more of these financing strategies, there can be no assurance that they will be able to do so or to otherwise obtain financing on terms acceptable to the Company. In the meantime, the Company continues to take measures, implemented in 1998, to conserve cash resources, while sustaining the progress of clinical trials for products that promise the most success. See "Item 1. Business- Overview and Recent Developments." At December 31, 1998, the Company had cash and cash equivalents totaling $7,760,000, of which approximately $7,508,000 was denominated in British pounds. The Company's net cash used in operating activities during the year ended December 31, 1998 totaled $13,283,000, a decrease of 1% from the year ended December 31, 1997. Capital expenditures increased 10% to $1,385,000 in 1998 from $1,257,000 in 1997. Capital expenditures included replacement of certain essential equipment, computer hardware and software upgrades to meet Year 2000 needs (see below), and facility improvements prior to the early 1999 inspection of the Welsh facility by the FDA. Capital expenditures of $1,900,000 are budgeted for 1999. These expenditures are for process improvement and scale-up of the Company's facilities for commercial production and will be contingent upon availability of funding. Therapeutic Antibodies uses sheep for the production of its polyclonal antibodies and supplies all the antisera required from its own flocks. The Company's subsidiaries currently have approximately 6,200 sheep. The Company will keep the number of sheep constant through much of 1999 and add sheep in late 1999 in anticipation of increased TriTAb(R) production requirements. The Company has agreed to repay the outstanding balance of an $800,000 term loan, plus accrued interest, to Equitas, L.P. on or before March 31, 1999. The loan currently bears interest at an annual rate of 11.5%. 26 28 During 1998, the Company received milestone payments of $1,500,000 under the Altana Agreement as a result of the FDA's acceptance of the Company's PLA and ELA for CroTAb(R). The Company is entitled to receive additional payments under the agreement based on achievement of certain milestones relating to CroTAb(R) and the Company's DigiTAb(R) and TriTAb(R) products. The Company anticipates receiving additional payments under the agreement of $2,000,000 in 1999 based on FDA approval of CroTAb(R) and progression of the DigiTAb(R) and TriTAb(R) regulatory filings with the FDA. In May 1998, the Company entered into an agreement with G. D. Searle & Co. ("Searle") for the identification, development and commercialization of a new antibody based drug designed to titrate the effects of Searle's new xemilofiban and orbofiban anticoagulent products. Searle anticipated that it would pay the Company up to $8,000,000 over the term of the agreement for research and development and product supplies based on achieving certain milestones. The Company received its first milestone payment of $1,000,000 upon execution of the agreement in May 1998. In January 1999, however, Searle made the decision to cease development of its xemilofiban and orbofiban projects and exercised its right to terminate its agreement with the Company. Between June and September 1998, the Company raised $4,025,000 in a private placement of 15% Subordinated Promissory Notes (the "1998 Notes"). The 1998 Notes matured in the fourth quarter of 1998 and interest was payable quarterly. The Company issued warrants to purchase 25,000 shares of its Common Stock to each purchaser of $250,000 principal amount of 1998 Notes. As part of the Company's November 1998 Placing (described below), the holders of $2,375,000 aggregate principal amount of the 1998 Notes converted principal plus accrued interest of $107,000 into a total of 3,658,058 shares of the Company's Common Stock. A portion of the proceeds of the Company's 1998 Placing was used to repay $1,650,000 of the outstanding principal balance and $80,000 of accrued interest on the 1998 Notes in November 1998. In September 1998, the Company issued 100 shares of Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") to an institutional investor and received total proceeds of $2,000,000. In November 1998, as a part of the 1998 Placing, the investor exercised its right to convert all outstanding shares of the Series A Preferred Stock and $33,000 of accrued dividends into 2,995,692 shares of the Company's Common Stock. On November 9, 1998, the Company completed a $19,500,000 capital refinancing involving the issuance of 28,690,561 new shares of the Company's Common Stock on the London Stock Exchange at $.68 per share (the "1998 Placing"). The 1998 Placing included the private placement of 21,300,000 new shares of Common Stock and the conversion of all outstanding shares of Series A Preferred Stock and $2,900,000 principal and interest amount of the 1998 Notes and certain other loan notes into a total of 7,390,561 shares of the Company's Common Stock. Included in the loans converted was $500,000 principal amount of an outstanding $750,000 loan from an officer of the Company which was converted into 736,811 shares of Common Stock. Of the approximately $12,600,000 in cash raised in the private placement, net of expenses, $1,730,000 was used to repay the outstanding balance of principal and interest on the 1998 Notes. The remaining proceeds were and continue to be used to fund the ongoing development of the Company's products. In April 1998, the Company received a loan of $162,000 from the Department of Primary Industries and Resources of the South Australian Government to be used for the construction of transportable buildings at the Company's Australian facility. The interest rate on the loan is currently 6.5% annually and is variable at the discretion of the Minister for Primary Industries. Principal on the loan is payable in 20 equal semi-annual installments, together with interest accrued thereon, beginning October 1998 through April 2008. 27 29 In June 1998, the Company received the final installment on a loan from the Department of Industry and Trade ("DIT") of the South Australian Government. In April 1996, the DIT agreed to loan the Company up to $62,000 based upon the number of local citizens employed by the Company through April 1998. At December 31, 1998, the Company had received a total of $50,000. This loan is provided interest-free and is due in full on April 29, 2006. Year 2000 Readiness General The following material is designated a Year 2000 readiness disclosure for purposes of the Year 2000 Information Readiness and Disclosure Act. The Company utilizes management information systems and software technology that may be affected by Year 2000 issues. During 1998, the Company implemented a plan (the "Y2K project") to ensure that its systems would be Year 2000 compliant. The Y2K project is addressing the issue of Programmable Logic Controllers ("PLC") and computer programs being able to distinguish between dates in the 20th century and dates in the 21st century. The Y2K project is expected to make all of the Company's business systems Year 2000 compliant. Y2K Project Therapeutic Antibodies' Y2K project is divided into five phases. The project phases are as follows: 1) compile an inventory of all equipment; 2) assign priorities to the equipment identified as being at risk for Year 2000 issues; 3) assess the Year 2000 compliance of items identified as being significant to the operational activities of the Company; 4) repair or replace material items that are determined not to be Year 2000 compliant; and 5) test and validate material items. A task force has been established to carry out these tasks which includes subgroups at each of the Company's four locations, Nashville, USA; Adelaide, Australia; London, UK; and Llandysul, UK. During 1998 the Company completed the inventory and priority assignment phases (phases 1 and 2) for each location. The assessment of Year 2000 compliance (phase 3) includes the identification and prioritization of critical external suppliers. The Company is currently communicating with its critical suppliers to evaluate their progress and preparation for Year 2000 compliance. Based on the results of these evaluations the Company will develop contingency plans in the second quarter of 1999. The Company plans to complete Phase 3 by mid-1999. Phase 4, the repair and replacement of equipment and application software that is not Year 2000 compliant, includes conversion, where available from the supplier, or replacement. Finally, Phase 5, the testing phase, will be undertaken as the hardware and software is converted or replaced. During 1998, the Y2K task force had identified the accounting software used in Australia as not being Year 2000 compliant. During the first quarter of 1999 the software vendor has released an upgrade solution that is Year 2000 compliant which TAb is planning to implement during the third quarter of 1999. In addition, TAb has identified a possible risk to Year 2000 compliance posed by some of the PLC or embedded systems controlling the site utilities at each of its production sites (Wales and Australia). The Company is currently researching the extent of this risk and the optimal solution by obtaining confirmation from suppliers that there is no hidden coding in the embedded systems and also by looking at the source code to determine where dates are used and the impact those have on the operation of the system. Changes in equipment will be made during the Company's September shut-down. 28 30 All phases of the Y2K project are expected to be complete before the end of 1999. The phases are concurrent rather than consecutive; therefore, more than one phase may be in progress at the same time. Costs The total estimated cost associated with the Y2K project is not expected to be material to the Company's financial position. The total capital cost is estimated to be no more than $150,000. This figure will depend on the cost of any replacements needed after completion of the assessment phase of the Y2K project. The total operating cost attributable to staff time and effort devoted to the Y2K project to date is $45,000. The estimated future operating cost of completing the project is $60,000. Risks The failure to correct any Year 2000 problem could result in an interruption in, or a failure of normal business activities or operations. Due to the inherent uncertainty when dealing with Year 2000 issues, and from the uncertainty of the Year 2000 readiness of suppliers and other third parties, the Company is unable to determine whether or not any Year 2000 failures will have a material effect on the Company, its operations or its financial condition. The Y2K project is expected to significantly reduce the level of uncertainty about any Year 2000 problems posed to the Company, either internally, or by the compliance of its third party suppliers. The Company believes that with the implementation and completion of its Y2K project the possibility of significant interruptions of normal operations should be minimal. Despite the efforts of the Company to address year 2000 issues, the Company can provide no assurance that the year 2000 issues will not have an adverse effect upon the Company's operations or financial condition. Further, although the Company has received assurances of year 2000 compliance from third parties with which the Company has significant relationships, the Company cannot guarantee that these parties will be year 2000 compliant. NET OPERATING LOSS CARRYFORWARDS As of December 31, 1998, the Company had approximately $70.5 million of net operating loss carryforwards for income tax purposes, of which $57.7 million are available to offset United States federal income taxes and expire from 1999 through 2018. In addition, the Company has approximately $307,000 of research and development tax credits available to offset future federal income tax, subject to limitations for alternative minimum tax. The Internal Revenue Code of 1986, as amended, contains certain limits on net operating loss carryforwards available to be used in any given year if certain events occur, including significant changes in ownership. At present the Company's net operating loss carryforwards are subject to these limitations. No assets have been recognized in the Company's financial statements for these net operating loss carryforwards because management believes the criteria for recognition under generally accepted accounting principle have not been met. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board issued Statement of Position No. 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No. 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). The Company will adopt SOP No. 98-1 and 29 31 SOP No. 98-5 in 1999 as required. The effect of the adoption, however, will not have a significant impact on the Company's financial position and results of operations. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). In general, SFAS No. 133 requires that all derivatives be recognized as either assets or liabilities in the balance sheet at their face value, and sets forth the manner in which gains or losses thereon are to be recorded. The treatment of such gains and losses is dependent upon the type of exposure, if any, for which the derivative is designated as a hedge. This statement is effective for periods beginning after June 15, 1999. Management is currently assessing the impact of adopting SFAS No. 133, but does not anticipate a significant impact on the Company's financial position or results of operations. 30 32 BUSINESS RISKS This report contains forward-looking statements regarding our business and industry. Such statements include the completion of certain clinical trials involving our products, the receipt of regulatory approvals, the adequacy of our capital resources and other statements regarding trends relating to the biopharmaceutical industry and various revenue and expense items. Many factors, including the uncertainties described below, could cause actual results to differ materially from those discussed in the forward-looking statements made in this report. We may be unable to develop commercially successful products. Although we have completed the development of our first products, our success depends on the research and development of additional products. We cannot assure you that we will successfully develop any of our product candidates. To produce polyclonal antibodies in quantities sufficient for commercial distribution, we may encounter delays and incur unanticipated production costs and expenses. Our product candidates may not successfully complete the clinical testing process or meet the regulatory and production requirements necessary for commercial distribution. We have a history of operating losses. We have incurred annual operating losses since our organization in 1984, and we may incur additional losses in the future. As of December 31, 1998, our accumulated deficit was approximately $75 million. Losses result principally from costs associated with the research and development and clinical and manufacturing activities before marketing approval of our products. Collaborative research, development and licensing arrangements, research grants and interest income have generated substantially all of our revenue to date. We cannot guarantee that we will be able to operate profitably unless our products achieve regulatory approval and commercial success. We will require additional financing to continue our operations. We must spend substantial funds to complete the research, development, manufacturing and marketing of our products. Until we begin generating sufficient revenue from product sales, we may obtain additional funding for these purposes through a variety of methods, including new collaborative arrangements, strategic alliances and additional equity or debt financings. We cannot assure you that additional funds will be available in the future. Even if available, the cost of funds may substantially dilute stockholders' interests. If we do not have adequate funds available, our business will be materially adversely affected. Failure to obtain regulatory approval would adversely affect our business. Various regulations in all countries apply to the clinical evaluation, manufacturing and marketing of our products. We must obtain and maintain applicable regulatory approval for a product before we can market it. To receive this approval, we must clinically evaluate data relating to the safety, quality and efficacy of a product. Many 31 33 countries, including the United States and the United Kingdom, have very high standards of technical appraisal. Therefore, the clinical trial process and obtaining of regulatory approval is, in most cases, costly and very lengthy. Although the time frame for approval varies, it can be up to five years from the date of application. Additionally, if a product obtains regulatory approval, the applicable regulatory agency continues to review the product and its manufacture. We cannot assure you that a government or regulatory agency will not withdraw or restrict approval for our products. A regulatory agency may impose restrictions on a product if there are changes in legislation, regulatory policies or the discovery of problems with the product or its manufacture. Any of these restrictions may adversely affect our business. Our manufacturing facilities have not yet obtained the necessary regulatory approvals and we cannot assure you that they will receive them. The progress and success of our clinical evaluations will also influence our ability to obtain commercial collaboration and funding agreements with pharmaceutical manufacturers and distributors, and the value of those agreements, if obtained. Professional guidelines could adversely affect our business. Private health and science foundations and organizations involved in various diseases may publish guidelines or recommendations to the healthcare and patient communities. These private organizations may recommend treatments that affect the usage of various therapies, drugs or procedures, including our products. These recommendations may relate to: - usage, - dosage, - route of administration, and - use of concomitant therapies. If patients and healthcare providers follow recommendations or guidelines that result in decreased use of our products, our business could be materially adversely affected. Additionally, if the investment community perceives that patients and healthcare providers will follow these recommendations or guidelines, the market price of our common stock could be adversely affected. Competition in the pharmaceutical industry could adversely affect our business. The pharmaceutical industry is highly competitive. We compete with pharmaceutical companies in the United States, the United Kingdom and Europe for both our existing products and those currently under development. Many of these companies have research, development, marketing, financial and personnel resources greater than ours. Competitors may develop and receive regulatory approval for a marketable product before we do. Competitors may also develop a product that is more effective or 32 34 economically viable than our products. We may not be able to compete successfully and our technology and products may become obsolete. Our success depends on our collaborators, marketing and distribution. Our success depends on our ability to contract with pharmaceutical manufacturers and distributors to receive funding for product development and to establish marketing and distribution alliances for our products. Our ability to obtain these agreements, and their value, may depend on the stage and success of clinical trials that we have not yet begun or completed. We cannot assure you that we will obtain these agreements or that they will be successful. Additionally, a company that contracts with us may pursue alternative technologies either on its own or in collaboration with others, including our competitors. Although we will continue to seek contractual agreements with third parties for the marketing and distribution of our products, we cannot assure you that we will reach agreements with these parties. Failure to protect our patents and proprietary rights could adversely affect our business. Our ability to compete effectively with other companies depends in part on the protection and exploitation of our technology. We cannot assure you that our competitors have not developed or will not develop substantially equivalent techniques or gain access to our technology. We may not receive patents that we have applied for or that we may apply for in the future. Our failure to receive patents may materially adversely affect our ability to develop and market our proposed products. Additionally, we may not develop products that are patentable, and granted patents may not be sufficiently broad in their scope to prevent competition. The commercial success of our products also depends upon non-infringement of patents granted to third parties for products that facilitate our ability to develop and exploit our own products. If infringement occurs, we may have to obtain alternative technology or reach commercial terms for the license of third party intellectual property rights. We cannot assure you that we will obtain these licenses, and our failure to do so may materially adversely affect our business. Challenging the proprietary rights of others in defense of our own proprietary rights could involve substantial time and expense and could materially adversely affect our business. Product liability claims could adversely affect our business. A product failure could expose us to substantial liability for damages. Any such liability could materially adversely affect our business and financial condition. We cannot assure you that we will have necessary insurance coverage in the future or that our insurance coverage will be adequate if there is a claim. 33 35 The loss of key executives could adversely affect our business. Although we have employment agreements with key members of our management, we cannot guarantee their continued services. If any of our senior management is ever unable or unwilling to continue in their present positions, our business could be materially adversely affected. The uncertainty of reimbursement policies could adversely affect our business. Marketing our products successfully depends in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our products and related treatments. Newly approved healthcare products have an uncertain reimbursement status. We cannot assure you that we, or our licensees, have adequate health administration or third party coverage to obtain satisfactory price levels to realize an appropriate return on our investment. Some governments are increasing the pressure to contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products. In some cases, these governments refuse to provide coverage for uses of products for disease conditions if the relevant regulatory agency has not granted marketing approval. The price of our common stock is volatile. Occasionally, the market price of our common stock, like that of other biotechnology companies, may fluctuate significantly. In recent years, the stock market has fluctuated significantly in terms of price and volume. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance. Factors that could cause this volatility include: - fluctuations in our operating results, - announcements by us or our competitors about clinical trial results and other product developments, - regulatory matters, - announcements in the scientific and research community, - intellectual property and legal matters, - changes in reimbursement policies or medical practices, or - broader industry and market trends unrelated to our performance. Additionally, if our revenue or earnings in any quarter fail to meet the investment community's expectations, this failure may immediately adversely affect the price of our common stock. 34 36 Environmental hazards could adversely affect our business. Our business involves the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for handling and disposing of these materials comply with state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. If an accident occurs, we could be liable for any resulting damages. We cannot assure you that any such liability will not exceed our resources. 35 37 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Therapeutic Antibodies is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could impact its results of operations and financial condition. A significant portion of the Company's operations consist of manufacturing and sales activities in foreign countries exposing the Company to the effects of changes in foreign currency rates. The Company has exposure to changes in interest rates on certain floating rate debt instruments. The Company does not purchase derivative instruments or engage in hedging activities to mitigate the risks of fluctuations in foreign currency exchange rates or interest rates. The Company believes that its exposure to foreign currency and interest rate risks are currently not material. The Company is exposed to foreign currency gains and losses from the translation of cash into other foreign currencies and from sales and purchase transactions with certain customers and suppliers. For these transactions, currency exchange rates are agreed upon prior to the time of the actual transfer of cash. The Company realizes a transaction gain or loss based upon the actual currency exchange rate at the time the transaction is completed and records these gains and losses in the Statements of Operations and Comprehensive Losses. To reduce exposure to these fluctuations, the Company keeps cash balances in its primary foreign currencies. For all years reported, the primary net foreign currency market exposures were British pounds and Australian dollars. At December 31, 1998, the Company held (pound)4,524,000 in British pounds. The Company's exposure to foreign currency fluctuations is not considered material. In addition to transaction gains and losses, the Company remeasures foreign denominated assets and liabilities every reporting period and records translation gains and losses resulting from fluctuations in the foreign currency exchange rates on the Balance Sheets. At December 31, 1998 and 1997, the cumulative translation gains were $197,000 and $220,000, respectively. Therapeutic Antibodies has loans with floating interest rates. These loans were 23% and 19% of the Company's total debt portfolio at December 31, 1998 and 1997. Changes in the interest rates charged on these loans have not been material in the years ended December 31, 1998, 1997 and 1996. 36 38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 and the cumulative development stage from August 10, 1984 (inception) through December 31, 1998
Page ---- Report of Independent Accountants.........................................38 Consolidated Financial Statements: Balance Sheets...................................................39 Statements of Operations.........................................40 Statements of Stockholders' Equity...............................41 Statements of Cash Flows.........................................42 Notes to Financial Statements....................................43
37 39 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Therapeutic Antibodies, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Therapeutic Antibodies, Inc. and Subsidiaries, A Development Stage Company (the Company) at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 and for the period August 10, 1984 (inception) through December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has been in the development stage since inception with its primary activities being research and development and has not yet commenced planned principal operations. The Company's efforts to obtain additional financing necessary to support 1999 activities have not been concluded, raising substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ PRICEWATERHOUSECOOPERS, LLP Louisville, Kentucky March 5, 1999 38 40 THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED BALANCE SHEETS
December 31, 1998 December 31, 1997 ----------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 7,760,328 $ 4,915,077 Restricted cash 419,168 - Short-term investments - 1,997,240 Trade receivables 67,677 594,267 Value added tax receivable 326,849 179,629 Inventories 287,802 489,138 Other current assets 712,370 409,929 ------------ ------------ Total current assets 9,574,194 8,585,280 Property and equipment, net 11,074,766 11,456,690 Patent and trademark costs, net 678,306 598,924 Other assets, net 94,236 159,171 ------------ ------------ Total assets $ 21,421,502 $ 20,800,065 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,755,098 $ 1,457,121 Accrued interest 122,486 146,326 Current portion of notes payable 2,159,428 2,545,701 ------------ ------------ Total current liabilities 4,037,012 4,149,148 Notes payable, net of current portion 4,744,216 6,059,072 Deferred revenue 342,363 559,467 Other liabilities 275,477 274,033 ------------ ------------ Total liabilities 9,399,068 11,041,720 ------------ ------------ Convertible redeemable preferred stock - par value $.01 per share; 1,000,000 shares authorized - - Stockholders' equity: Common stock - par value $.001 per share; 59,000,000 shares authorized, 52,057,219 issued and outstanding December 31, 1998; 30,000,000 shares authorized, 23,252,825 issued and outstanding December 31, 1997 52,057 23,253 Additional paid-in capital 87,074,215 68,927,203 Deficit accumulated during the development stage (1984-1998) (75,301,311) (59,412,383) Other comprehensive income 197,473 220,272 ------------ ------------ Total stockholders' equity 12,022,434 9,758,345 ------------ ------------ Total liabilities and stockholders' equity $ 21,421,502 $ 20,800,065 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 39 41 THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Cumulative For the Years Ended Development Stage December 31, from August 10, 1984 ---------------------------------------------------- (inception) through 1998 1997 1996 December 31, 1998 ------------ ------------ ------------ ----------------- Revenues: Sales and contract revenue $ 726,960 $ 392,888 $ 600,607 $ 3,518,077 Licensing revenue 2,543,925 1,112,955 143,500 3,900,380 Interest income 239,362 886,511 607,479 2,162,048 Grant income 41,488 205,569 118,535 774,007 Foreign currency gains - - 1,733,357 1,785,984 Value-added tax and insurance recoveries - - - 577,170 Other 80,074 80,008 64,890 300,888 ------------ ------------ ------------ ------------ 3,631,809 2,677,931 3,268,368 13,018,554 ------------ ------------ ------------ ------------ Expenses: Cost of sales and contract revenue 440,759 110,740 334,989 985,916 Research and development 11,363,218 11,462,352 9,185,126 53,405,675 General and administrative 4,050,667 3,561,541 2,721,889 16,993,834 Marketing and distribution 547,406 614,598 361,262 2,523,959 Depreciation and amortization 1,561,951 1,643,922 1,387,916 7,073,621 Interest 1,305,549 1,001,959 1,201,335 5,036,131 Foreign currency losses 240,703 913,119 - 1,153,822 Debt conversion expense - - 801,597 801,597 Other 10,485 217,418 20,371 345,310 ------------ ------------ ------------ ------------ 19,520,737 19,525,649 16,014,485 88,319,865 ------------ ------------ ------------ ------------ Net loss (15,888,928) (16,847,718) (12,746,117) (75,301,311) Preferred stock dividends (32,877) - - (32,877) ------------ ------------ ------------ ------------ Net loss applicable to common shareholders (15,921,805) (16,847,718) (12,746,117) (75,334,188) Other comprehensive income (loss), before and after tax: Change in equity due to foreign currency translation adjustments (22,799) (455,521) 859,202 197,473 ------------ ------------ ------------ ------------ Total comprehensive loss $(15,944,604) $(17,303,239) $(11,886,915) $(75,136,715) ============ ============ ============ ============ Basic and diluted net loss per share $ (0.59) $ (0.74) $ (0.68) $ (6.78) ============ ============ ============ ============ Weighted average shares used in computing basic and diluted net loss per share 26,910,291 22,888,226 18,821,524 11,114,957 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 40 42 THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996 and for the Cumulative Development Stage from August 10, 1984 (inception) through December 31, 1998
Common Stock Additional ------------------------------ Common Stock Paid-In Shares Par Value Subscribed Capital ------------ --------------- ------------------- ---------------- Sale of common stock 1985 - 1995 10,055,243 $ 10,055 2,122 $ 27,418,235 One thousand-for-one stock split 1985 2,797,200 2,797 (2,797) Exercise of stock warrants at $.75 per share 1989 and $.50-$.75 1995 166,402 167 110,134 Issuance of shares 1990, 1992, 1994 and 1995 2,121,883 2,122 (2,122) (13,677) Issuance of shares for acquisition of PAL 1992 1,415,875 1,416 3,155,984 Issuance of warrants 1992 and 1993 212,000 Translation adjustment 1992 - 1995 Net loss from August 10, 1984 (inception) to December 31, 1995 ------------ -------------- ------------------- --------------- Balance, December 31, 1995 16,556,603 16,557 - 30,879,879 Issuance of shares upon debt conversion 466,383 466 2,564,639 Debt conversion charge 801,597 Sale of common stock, net 164,332 165 933,384 Initial public offering, net 4,190,477 4,190 30,370,518 Exercise of stock warrants at $.75-$4.50 per share 942,897 943 1,332,989 Exercise of stock options 33,000 33 89,667 Issuance of warrants 46,944 Stock-based compensation expense 62,431 Net loss 1996 Translation adjustment ------------ -------------- ------------------- --------------- Balance, December 31, 1996 22,353,692 22,354 - 67,082,048 Exercise of stock warrants at $.60-$3.50 per share 888,716 889 1,357,197 Stock-based compensation expense 469,438 Exercise of stock options 10,417 10 18,520 Net loss 1997 Translation adjustment ------------ -------------- ------------------- --------------- Balance, December 31, 1997 23,252,825 23,253 - 68,927,203 Refinancing, net 28,690,561 28,690 - 17,642,828 Exercise of stock warrants at $2.50 per share 20,500 21 51,229 Stock-based compensation expense 160,129 Exercise of stock options 93,333 93 (93) Issuance of warrants 292,919 Net loss 1998 Translation adjustment ------------ -------------- ------------------- --------------- Balance, December 31, 1998 52,057,219 $ 52,057 - $ 87,074,215 ============ ============== =================== ===============
Deficit Stock Accumulated During Other Subscriptions Development Comprehensive Receivable Stage Income Total ----------------- ------------------ ------------- ------------ Sale of common stock 1985 - 1995 (3,528,537) - - $ 23,901,875 One thousand-for-one stock split 1985 Exercise of stock warrants at $.75 per share 1989 and $.50-$.75 1995 110,301 Issuance of shares 1990, 1992, 1994 and 1995 3,528,537 3,514,860 Issuance of shares for acquisition of PAL 1992 3,157,400 Issuance of warrants 1992 and 1993 212,000 Translation adjustment 1992 - 1995 $ (183,409) (183,409) Net loss from August 10, 1984 (inception) to December 31, 1995 $ (29,818,548) (29,818,548) ---------------- ------------------ ----------- ---------- Balance, December 31, 1995 - (29,818,548) (183,409) 894,479 Issuance of shares upon debt conversion 2,565,105 Debt conversion charge 801,597 Sale of common stock, net 933,549 Initial public offering, net 30,374,708 Exercise of stock warrants at $.75-$4.50 per share 1,333,932 Exercise of stock options 89,700 Issuance of warrants 46,944 Stock-based compensation expense 62,431 Net loss 1996 (12,746,117) (12,746,117) Translation adjustment 859,202 859,202 ---------------- ------------------ ----------- ---------- Balance, December 31, 1996 - (42,564,665) 675,793 25,215,530 Exercise of stock warrants at $.60-$3.50 per share 1,358,086 Stock-based compensation expense 469,438 Exercise of stock options 18,530 Net loss 1997 (16,847,718) (16,847,718) Translation adjustment (455,521) (455,521) ---------------- ------------------ ----------- ---------- Balance, December 31, 1997 - (59,412,383) 220,272 9,758,345 Refinancing, net - 17,671,518 Exercise of stock warrants at $2.50 per share 51,250 Stock-based compensation expense 160,129 Exercise of stock options - Issuance of warrants 292,919 Net loss 1998 (15,888,928) (15,888,928) Translation adjustment (22,799) (22,799) ---------------- ------------------ ----------- ---------- Balance, December 31, 1998 - $ (75,301,311) $ 197,473 $12,022,434 ================ ================== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 41 43 Therapeutic Antibodies Inc. and Subsidiaries (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR the Cumulative For the Years Ended Development Stage December 31, From August 10, 1984 ------------------------------------------------ (Inception) Through 1998 1997 1996 December 31, 1998 ------------ ------------ ----------- ------------------- Cash flow from operating activities: Net loss $(15,888,928) $(16,847,718) $(12,746,117) $(75,301,311) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,561,951 1,643,922 1,387,916 7,073,621 Disposal of property and equipment 279,328 282,806 532,817 1,206,566 Foreign currency loss (gain) 240,703 913,119 (1,733,357) (632,162) Warrant expense 292,919 - 46,944 486,913 Stock-based compensation expense 160,129 487,968 62,431 710,528 Debt conversion expense - - 801,597 801,597 Changes in: Restricted cash (419,168) - - (419,168) Trade receivable 355,227 (434,140) (52,373) (154,005) Inventories 201,335 (88,971) (7,073) (173,629) Other current assets (301,155) 60,616 (128,813) (709,262) Accounts payable and accrued expenses 333,821 646,550 (340,411) 1,887,203 Accrued interest 86,749 (777) (37,512) 862,974 Deferred revenue (218,581) (84,063) 313,670 11,026 Other 32,877 - (234,301) (10,612) ------------ ------------ ------------ ------------ Net cash used in operating activities (13,282,793) (13,420,688) (12,134,582) (64,359,721) ------------ ------------ ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (1,385,027) (1,257,448) (3,293,214) (15,273,350) Patent and trademark costs, net (99,657) (109,709) (198,502) (760,654) Purchase of short-term investments - (11,931,028) (2,002,266) (13,933,294) Maturity of short-term investments 2,094,509 11,838,785 - 13,933,294 Other - - - 69,750 ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities 609,825 (1,459,400) (5,493,982) (15,964,254) ------------ ------------ ------------ ------------ Cash flows from financing activities: Proceeds from notes payable 4,641,239 17,605 2,518,239 20,450,244 Payments on notes payable (3,346,423) (1,299,211) (1,969,138) (9,523,894) Proceeds from line of credit - 61,897 123,371 3,371,278 Payments on line of credit (43,836) (118,505) (1,018,738) (3,371,278) Proceeds from convertible debt, net - - 5,432,500 9,655,000 Payments on convertible debt - - (4,320,325) (4,320,325) Proceeds from issuance of stock, net 14,707,529 1,358,086 32,326,264 71,719,109 Proceeds from issuance of warrants - - - 65,000 Other (1,869) 39,184 (5,628) (149,467) ------------ ------------ ------------ ------------ Net cash provided by financing activities 15,956,640 59,056 33,086,545 87,895,667 ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash and cash equivalents (438,421) (766,427) 1,647,473 188,636 ------------ ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents 2,845,251 (15,587,459) 17,105,454 7,760,328 Cash and cash equivalents, beginning of period 4,915,077 20,502,536 3,397,082 - ------------ ------------ ------------ ------------ Cash and cash equivalents, end of period $ 7,760,328 $ 4,915,077 $ 20,502,536 $ 7,760,328 ============ ============ ============ ============ Supplemental cash flow disclosures: Cash payments for interest (net of amount capitalized) $ 929,106 $ 1,017,000 $ 1,142,738 $ 1,612,778 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 42 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS OF THE COMPANY: Therapeutic Antibodies Inc. (the "Company") was incorporated on August 10, 1984 for the purpose of engaging in the research, development, production and marketing of therapeutic antibodies that provide protection against venoms, drugs, toxins and infectious diseases. The Company is a development stage company as defined in Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises, and is devoting substantially all of its present efforts to research and development, including pre-production activities. Certain of the Company's research and development and product testing activities are carried out through affiliations with scientists at academic institutions around the world. These affiliations include preclinical and clinical research agreements, consulting agreements, patent and royalty agreements and facility leases. Inherent in the development stage is a range of risks including the need for, and uncertainty of, future financing. The Company also faces risks stemming from the nature of the biopharmaceutical industry, such as the risk of competition, the risk of regulatory change, including potential changes in health care coverage, uncertainties associated with obtaining and enforcing patents and proprietary technology, uncertainty of the approval of products by governmental agencies and risks related to fluctuations in interest rates and foreign currencies. Since its inception, the Company has been in the development stage, devoting its efforts and resources to drug discovery and development programs. Capital resources have been used for the establishment and expansion of production facilities, for product research and development activities, for clinical testing and to meet Therapeutic Antibodies' overall increased working capital requirements. Management does not expect revenues from product sales to be a significant source of funding until additional products receive regulatory approval. Although the Company anticipates the launch of CroTAb(R) following FDA approval in mid-1999, revenues from sales of CroTAb(R) are not expected to be significant in 1999. Future capital requirements will depend on numerous factors including the progress of the Company's research programs and clinical trials, the development of regulatory submissions, the receipt of FDA approval of CroTAb(R), the commercial viability of the Company's products, the ability to attract collaborative partners with sales, distribution and marketing capabilities, and the terms of any new licensing arrangements. Funds for the Company's operating and capital requirements historically have been provided by the sale of equity and debt and from collaboration agreements and other financing arrangements. In November 1998, the Company successfully completed the private placement (described below in more detail) of 28,690,561 shares of Common Stock in the United States and in the United Kingdom, raising net cash proceeds of $12,600,000. At the time of the private placement, the Company estimated that the fundraising, together with licensing and contract revenue, would provide sufficient funds to allow the Company to reach the launch of several of its products, and accordingly bring the Company to the point at which its revenues can sustain ongoing product development. With the loss of the 1999 milestone payments and product revenues that would have been received under the Searle agreement, the Company will need to raise additional financing by mid-1999 to fund operations. The Company is currently pursuing several financing alternatives, including preliminary discussions that may lead to a merger on a share exchange basis at a value that approximates the current market value of Therapeutic Antibodies. The Board has also entered into discussions with third parties relating to the sale of additional debt or equity securities, the disposal of certain non-core investments, entering into additional product licensing arrangements, and possible combinations or collaborations with strategic partners. While the Directors believe that they will be able to successfully implement one or more of these financing strategies, there can be no assurance that they will be able to do so or to otherwise obtain financing on terms acceptable to the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In the meantime, the Company continues to take measures, implemented in 1998, to conserve cash resources, while sustaining the progress of clinical trials for products that promise the most success. On November 9, 1998, the Company completed a $19,500,000 ((pound)11,500,000) capital refinancing involving the issuance of 28,690,561 new shares of Common Stock on the London Stock Exchange at $.68 (40 pence) per share. The refinancing included the private placement of 21,300,000 new shares of Common Stock. It also included the conversion of $2,000,000 (all outstanding shares) of the Series A Convertible Redeemable Preferred Stock issued by the Company in September 1998 and accrued dividends thereon of $33,000 into 2,995,692 shares of the Company's Common Stock and of $2,900,000 ((pound)1,700,000) principal and interest amount of certain loan notes into 4,394,869 shares of Common Stock. Approximately $12,600,000 ((pound)7,500,000) in cash was raised in the private placement, net of expenses, which will be used to fund the ongoing development of the Company's products and to repay the balance of the outstanding 15% Notes (see Note 5). 43 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. b. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries denominated in foreign currencies are translated to United States (U.S.) dollars at period-end exchange rates. Revenues and expenses denominated in foreign currencies are translated at average exchange rates for the period. Translation adjustments are reported as a separate component of stockholders' equity. The effects of translation of intercompany loans to international subsidiaries, which have been designated as long-term investments, are also included in the separate component of stockholders' equity. At December 31, 1998, the Company had approximately(pound)4,524,000 in British sterling and $31,500 in Australian dollars which were translated to U.S. dollars at the year end currency rates of 1.6595 and 0.6123, respectively. Foreign currency transaction losses for the years ended December 31, 1998 and 1997 were $240,703 and $913,119 and foreign currency transaction gains for the year ending December 31, 1996 were $1,733,357. c. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: All highly liquid investments with an original maturity of three months or less when purchased are classified as cash equivalents. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and temporary cash investments. The Company places substantially all of its cash and temporary cash investments with one major financial institution. As of December 31, 1998, and at times throughout the period, cash balances were in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in such accounts and believes no significant exposure from this concentration exists with respect to cash and temporary cash investments. The Company also maintains balances at a U.S. institution denominated in British pounds sterling and Australian dollars. Short-term investments consisted of governmental and corporate debt instruments. The carrying value of these short-term investments approximated fair value at December 31, 1997. d. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out) or market. 44 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: e. LONG-LIVED ASSETS: Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful life of the asset as follows: Buildings and improvements - 10 to 20 years Furniture, fixtures and equipment - 3 to 10 years Livestock - 5 years Leasehold improvements are amortized over the shorter of their estimated life or the period of the related leases, including anticipated renewals for which the Company has an option. Patent costs consist of legal fees associated with patent applications and filings and trademark costs consists of legal fees associated with trademark procurement. Once a patent is granted, costs are amortized using the straight-line method over 17 years from the patent grant date. Accumulated amortization was $55,117 and $27,282 as of December 31, 1998 and 1997, respectively. Trademark costs are amortized using the straight-line method over 10 years. Accumulated amortization was $27,231 and $34,790 as of December 31, 1998 and 1997, respectively. The carrying value of long-lived assets is reviewed if the facts and circumstances suggest that they may be impaired. If this review indicates that the carrying value will not be recoverable, the carrying value is reduced to fair value. f. REVENUE RECOGNITION: Revenues from sales of products are recognized at the time of shipment. Revenues from licensing agreements are recognized when earned based upon signing the agreement, if applicable, and upon reaching predefined milestones in the development program. The Company has received grants from the United Kingdom (U.K.) and Australia as a result of reaching certain employment levels and constructing production facilities. Grants related to employment levels and conducting clinical trials are recognized as income at the point in time that the conditions of the grant are satisfied. Grants related to construction of production facilities are recognized over the life of the facility. g. RESEARCH AND DEVELOPMENT COSTS: Research and development costs ("R&D"), costs for developing and improving manufacturing processes, pilot plant operations and inventories of products not yet approved for sale by governmental regulatory authorities are expensed when incurred. 45 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: h. BASIC AND DILUTED EARNINGS PER COMMON SHARE: The basic and diluted earnings per common share calculation was based on SFAS No. 128, "Earnings per Share", which the Company adopted during the year ended December 31, 1997. The calculations are based upon the weighted average number of shares of common stock outstanding during each period. Common equivalent shares from stock options, warrants and other dilutive securities are excluded from the computations, as their effect is antidilutive. i. VALUE-ADDED TAX RECEIVABLE: The Company's operations in the U.K. are subject to value-added tax (VAT) where the Company pays tax at a rate of 17.5% on most goods and services purchased. These VAT taxes are subject to refund based on returns, which are filed quarterly with U.K. taxing authorities. j. FINANCIAL STATEMENTS 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 and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: During 1998 Statement of Position (SOP) No. 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No. 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5") were issued. The Company will adopt SOP No. 98-1 and SOP No. 98-5 in 1999 as required. However, the effect of the adoption will not have a significant impact on the Company's financial position and results of operations. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". In general, SFAS No. 133 requires that all derivatives be recognized as either assets or liabilities in the balance sheet at their face value, and sets forth the manner in which gains or losses thereon are to be recorded. The treatment of such gains and losses is dependent upon the type of exposure, if any, for which the derivative is designated as a hedge. This statement is effective for periods beginning after June 15, 1999. Management is currently assessing the impact of adopting SFAS No. 133, but does not anticipate a significant impact on the Company's financial position or results of operations. 46 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. PROPERTY AND EQUIPMENT: Property and equipment at December 31 consists of the following:
1998 1997 ----------- ------------ Land $ 617,668 $ 614,429 Buildings and improvements 8,314,053 7,976,570 Construction in progress - 64,571 Furniture, fixtures and equipment 7,870,686 7,141,732 Livestock 905,062 870,323 ----------- ----------- 17,707,469 16,667,625 Accumulated depreciation 6,632,703 5,210,935 ----------- ----------- $11,074,766 $11,456,690 =========== ===========
Buildings and improvements includes $10,120 and $38,288 of capitalized interest associated with the construction of a building in Australia in 1997 and 1996, respectively and $491,408 with the construction of buildings in the U.K. in 1995. 47 49 Notes to Consolidated Financial Statements, Continued 5. Notes Payable: Notes payable at December 31 consist of:
1998 1997 ------------ ------------ 6% convertible notes payable, principal due October 1, 2000, interest due semi-annually on April 1 and October 1 $ 2,905,000 $ 2,905,000 Capital lease payable to Phoenixcor Inc. (formerly Aberlyn Capital Management Limited Partnership), interest at 14.5%-18%, collateralized by equipment in the U.K. with a net book value of $1 million with monthly payments due through January 2000 568,118 1,697,708 11.5% note payable to Equitas, LP, principal due March 1999, interest due quarterly in November, February, May, and August, collateralized by various assets of the Company's subsidiaries and common shares of the Company's subsidiary, TAb U.K. 800,000 800,000 12% and 15% unsecured notes payable to an officer of the Company, interest due monthly and/or quarterly, principal due January 1999 and December 2000, respectively 500,000 1,000,000 Note payable to Bank of Wales PLC, collateralized by certain real property in the U.K., interest at 2.5% over Bank of Wales lending rate (effective rate of 8.75% at December 31, 1998), principal and interest due monthly over 10 years through February 2005 356,445 395,363 Notes payable to South Australian Minister for Primary Industries, collateralized by building and equipment, interest rates from 6.5% to 9%, principal repayable in annual installments through April 2008 1,199,775 1,217,177 Capital equipment leases, interest rates from 10.6% to 21.3%, principal and interest payable monthly through 2001 206,711 327,172 6% note payable to CATO, Inc., interest due semi-annually, principal due December 2000 100,000 100,000 Other 267,595 162,353 ------------ ------------ 6,903,644 8,604,773 Less current portion 2,159,428 2,545,701 ------------ ------------ $ 4,744,216 $ 6,059,072 ============ ============
48 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE, CONTINUED: In August 1995, the Company initiated a private placement of its 6% Convertible Notes due October 1, 2000 (the "6% Notes"). Interest on the 6% Notes is payable semi-annually and the notes are convertible into shares of the Company's Common Stock at $8.00 per share at any time prior to maturity upon the election of the holder. The 6% Notes are not collateralized. In January 1996, the Company offered each holder of the 6% Notes the opportunity to exchange all or a portion of their 6% Notes for shares of the Company's Common Stock at the rate of $5.50 per share until February 9, 1996. Pursuant to this offer, the holders of $2,565,105 aggregate amount of principal and accrued interest on the 6% Notes elected to tender their 6% Notes to the Company in exchange for 466,383 shares of common stock. This exchange conversion resulted in a non-cash debt conversion expense of $801,597. The Company has capital lease agreements with Aberlyn Capital Management Limited Partnership under which it has financed $1,000,000 at 18% and $3,203,573 at 14.5%. The borrowings are collateralized by certain of the Company's equipment located in the U.K. Principal amounts mature through January 2000. During 1998, the $1,000,000 leases at 18% were repaid in full. Principal and interest payments on the remaining leases of $568,118 are due monthly. In connection with the agreement, the Company issued warrants in 1995 and 1994 to purchase a total of 102,514 shares of the Company's Common Stock at $5.00 per share. In June 1998, Aberlyn assigned the $3,203,573 leases at 14.5% to Phoenixcor Inc. In 1995, the Company obtained the proceeds of an $800,000 loan from Equitas, LP. The loan agreement provides for interest at an annual rate of 11.5% to be paid quarterly. Principal is due in full at maturity on July 24, 2000. However, the lender has elected to exercise its right to call the loan early and principal will be repaid in March 1999. The lender received warrants to purchase 22,198 shares of the Company's Common Stock at $8.00 per share. The loan is collateralized by accounts receivable, antisera inventory, and livestock from certain of the Company's subsidiaries as well as limited guarantees from those subsidiaries. The common shares of the Company's subsidiary, TAb U.K., additionally collateralize this loan. In April 1996, an officer of the Company made a short-term unsecured loan to the Company of $1,000,000 bearing interest at 12% (the "12% Note"). In May 1996, the officer converted $750,000 principal amount of the 12% Note into an equal amount of the Company's 1996 notes bearing interest at 15% (the "15% Notes"). In November 1998, $500,000 of the 15% Note was converted into 736,811 shares of the Company's Common Stock as a part of the capital refinancing. The $250,000 principal balance on the remaining 12% Note was paid in full with accrued interest in January 1999. The remaining $250,000 principal balance on the 15% Note is due in December 2000. 49 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE, CONTINUED: In January 1995, financing of $465,900 was obtained from Bank of Wales PLC collateralized by certain real property in the U.K. The note is repayable over 10 years beginning in February 1995. Interest is paid at 2.5% over the Bank of Wales's base lending rate (effective rate of 8.75% at December 31, 1998). The Company's subsidiary, TAb Australasia Pty. Ltd., has two loan agreements with the South Australian Minister for Primary Industries (the "Minister"). The first agreement allowed TAb Australasia Pty. Ltd. to draw up to $2,000,000 Australian dollars ($1,224,600 U.S. dollars at December 31, 1998) to assist with construction and equipment of buildings at its Turretfield location in South Australia. The loan is to be repaid over ten years in equal annual installments through August 2007. Interest is variable at the discretion of the Minister and is due annually. The interest rates at December 31, 1998 and 1997 were 9% and 11% per annum. The loan is collateralized by a mortgage on the building and equipment purchased. The second agreement provided for a loan of $250,000 Australian dollars ($153,075 U.S. dollars at December 31, 1998) for the construction of transportable buildings at the Company's Australian location. Principal and interest accrued thereon are to be repaid in semi-annual installments through April 2008. The interest rate at December 31, 1998 was 6.5% and is variable at the discretion of the Minister. The Company has available lines of credit at December 31, 1998 totaling 150,000 British pounds sterling with the Bank of Scotland and its subsidiary, Bank of Wales PLC, in the U.K. Interest is paid at 2.5% over the relevant bank's base lending rate (effective rate of 8.75% at December 31, 1998). The Company also has available lines of credit at December 31, 1998 of 50,000 Australian dollars with the Westpac Bank. This line of credit bears interest at 1.75% above the bank's base lending rate (effective rate of 10.5% at December 31, 1998). These lines of credit are collateralized by the guarantee of the Company and are due on demand. At December 31, 1998, the Company had no outstanding borrowings on these lines of credit. The weighted average interest rate on these lines of credit outstanding at December 31, 1997 was 9%. 50 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE, CONTINUED: Aggregate maturities of fixed payments on notes payable for the next five years follow:
YEARS ENDING DECEMBER 31: ------------ 1999 $2,159,428 2000 3,514,044 2001 193,623 2002 202,405 2003 215,733 Thereafter 618,411 ---------- $6,903,644 ==========
At December 31, 1998 and 1997, $1,700,250 and $1,868,967, respectively, of the Company's debt obligations were denominated in British pounds sterling or Australian dollars and were translated to U.S. dollars at year-end exchange rates. The Company is subject to foreign currency risk to the extent that exchange rates between the U.S. dollar and the foreign currencies change. For accounting purposes, changes in exchange rates for the debt obligations result in translation adjustments which are reported as part of the separate component of stockholders' equity. At December 31, 1998 and 1997, the amount included in the cumulative translation adjustment related to the Company's debt obligations was $320,484 and $242,956 of gain, respectively. The Company does not hedge its exposure to foreign currency risks. 51 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. INCOME TAXES: Under SFAS No. 109, Accounting for Income Taxes, deferred income taxes are recognized for future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted laws and statutory rates applicable in the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company determined that at December 31, 1998 and 1997 its ability to realize future benefits of deferred tax assets did not meet the "more likely than not" criteria in SFAS No. 109. The components of the net deferred tax liability recognized in the accompanying consolidated balance sheets are as follows:
DECEMBER 31, 1998 1997 ------------ ----------- Deferred tax assets $ 24,916,109 $ 19,214,452 Deferred tax liabilities (275,477) (643,339) Valuation allowance (24,916,109) (18,845,146) ------------ ------------ $ (275,477) $ (274,033) ============ ============
The deferred tax liability arose due to tax differences in the bases of assets and liabilities relative to the acquisition of Polyclonal Antibodies, Ltd. and the temporary difference in capital allowance in U.K. assets. The deferred tax asset arises primarily from the Company's net operating loss carryforwards. At December 31, 1998, the Company had available net operating loss carryforwards for U.S. federal tax purposes of approximately $57,700,000, which expire in various amounts through 2018 and approximately $307,000 of research and development tax credits which expire through 2013. As a result of the capital refinancing in 1998 discussed in Note 1, the Company experienced an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. Consequently, the Company is subject to an annual limitation on the amount of net operating loss carryforwards that can be used to offset taxable income. The annual limitation is $1,502,000 plus certain gains included in taxable income attributable to the Company prior to the ownership change. United Kingdom net operating loss carryforwards of $11,128,000 and Australian net operating loss carryforwards of $1,687,000 are available to offset future taxable income generated in those respective countries and may be carried forward indefinitely. The Company's effective tax rate varies from the federal statutory rate due to the recognition of a valuation allowance for financial reporting purposes. 52 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS: At December 31, 1998 there were warrants outstanding to purchase 1,265,207 shares of the Company's Common Stock at prices ranging from $.68 to $8.00 (average price of $4.18) per share. All outstanding warrants expire from 1999 to 2003. Activity in stock warrants is as follows:
NUMBER OF EXERCISE PRICE WARRANTS PER SHARE ------------------------------- Outstanding at December 31, 1995 2,303,135 $ .60-$8.00 Granted 366,500 $ 8.00 Forfeited - - Exercised (942,897) $ .75-$4.50 Outstanding at December 31, 1996 1,726,738 $ .60-$8.00 Granted 5,000 $ 1.25 Forfeited (105,648) $1.25-$3.50 Exercised (888,716) $ .60-$3.50 Outstanding at December 31, 1997 737,374 $2.50-$8.00 Granted 707,500 $ .68-$2.49 Forfeited (159,167) $2.50-$3.50 Exercised (20,500) $ 2.50 ----------- Outstanding at December 31, 1998 1,265,207 $ .68-$8.00 ===========
On April 26, 1996, the Board of Directors of the Company amended the Therapeutic Antibodies Inc. 1990 Stock Incentive Plan (the "1990 Plan"). Up to 1,650,000 shares of the Company's Common Stock may be subject to incentives under the 1990 Plan. The 1990 Plan provides for the grant to key employees, advisors, officers and directors of the Company of stock options complying with Section 422(a) of the Internal Revenue Code (qualified options) or options not qualifying under such provision (nonqualified options) as well as stock appreciation rights (SARs). The 1990 Plan provides for adjustment of the number of shares under the 1990 Plan in the event of stock splits, stock dividends and certain other events. The 1990 Plan also provides that if the Company shall not be the surviving corporation in a business combination, the holder of an outstanding option will be entitled to purchase stock in the surviving corporation on the same terms and conditions as the options. Options are nontransferable, and options and SARs are subject to any restrictions contained in the grant and applicable securities laws. 53 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS, CONTINUED: On April 27, 1997, shareholders of the Company voted in favor of adopting the Company's 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan states that 1,100,000 shares of the Company's Common Stock will be reserved for issuance, at the discretion of the Company's Compensation Committee, to any director, employee, consultant or advisor of the Company or any of its subsidiaries. The 1997 Plan provides for adjustment of the number of shares available under the 1997 Plan in the event of stock splits, stock dividends and certain other events. Between the 1990 Plan and the 1997 Plan, options to purchase 2,589,609 shares of the Company's Common Stock were outstanding at December 31, 1998 at prices ranging from $.90 to $8.18 (average price of $3.97). Options granted under both the 1990 and 1997 Plans have a contractual life of ten years. The average remaining contractual life of outstanding options under both plans at December 31, 1998 is approximately 7.4 years. Generally, the Company grants options with a graded vesting requirement, which typically vests ratably over one to five years. The options are issued at or above the fair value of the underlying stock at date of grant. At December 31, 1998, 1,611,259 options were exercisable at a weighted average price of $4.09. All options expire from 1999 to 2008. Activity in stock options is as follows:
NUMBER OF EXERCISE PRICE WEIGHTED OPTIONS PER SHARE AVERAGE PRICE --------------------------------------------------- Outstanding at December 31, 1995 1,108,626 $1.25-$6.00 $ 3.10 Granted 538,050 $6.00-$8.18 $ 6.12 Forfeited (1,300) $ 6.00 $ 6.00 Exercised (33,000) $2.40-$3.00 $ 2.49 Outstanding at December 31, 1996 1,612,376 $1.25-$8.18 $ 4.12 Granted 504,450 $4.00-$6.00 $ 5.49 Forfeited (84,438) $3.00-$6.00 $ 4.18 Exercised - - - Outstanding at December 31, 1997 2,032,388 $1.25-$8.18 $ 4.46 Granted 1,042,670 $ .90-$3.37 $ 2.71 Forfeited (287,949) $2.40-$6.58 $ 4.73 Exercised (197,500) $ 1.25 $ 1.25 --------- Outstanding at December 31, 1998 2,589,609 $.90-$8.18 $ 3.97 =========
54 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS, CONTINUED: As permitted by SFAS No. 123, "Accounting for Stock Based Compensation", the Company follows the provisions of Accounting Principles Board Opinion 25 "Accounting For Stock Issued to Employees", and related interpretations in accounting for its stock option grants. Compensation expense for employees has not been recognized for options issued under the 1990 Plan and the 1997 Plan. Had compensation been determined based on the fair value of the awards at the grant date consistent with the provisions of SFAS No. 123, the Company's net loss and basic and diluted net loss per share would have been increased to the pro forma amounts that follow:
1998 1997 1996 ------------ ------------ ------------ Net loss applicable to common shareholders As reported ($15,921,805) ($16,847,718) ($12,746,117) Pro forma ($16,572,715) ($17,249,174) ($12,922,164) Basic and diluted net loss per share As reported ($0.59) ($0.74) ($0.68) Pro forma ($0.62) ($0.75) ($0.69)
During 1998, 1997 and 1996, the Company granted options to non-employees to purchase 395,420, 290,650 and 107,550 shares, respectively, of the Company's Common Stock. The expense related to these grants recognized during 1998, 1997 and 1996 was approximately $160,000, $469,000 and $62,000 respectively. The weighted average fair value of options granted during 1998, 1997 and 1996 was $1.55, $2.88 and $0.97, respectively. Fair value estimates were determined using a variation of the Black-Scholes model with the following weighted average assumptions for 1998, 1997 and 1996:
1998 1997 1996 --------- --------- ------- Risk-free interest rate 6.0% 6.0% 6.0% Volatility factor 55% 30% 25% Expected term of options (in years) 10 10 5 Dividend yield none none none
The effects of applying SFAS No. 123 in this pro forma disclosure are not necessarily indicative of the future amounts. SFAS No. 123 does not apply to awards made prior to December 31, 1995, and the Company anticipates making awards in the future under its stock-based compensation plan. 55 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 8. NET LOSS PER COMMON SHARE COMPUTATIONS:
1998 1997 1996 ----------- ------------- ------------ Net loss applicable to common shareholders used for basic and diluted per share computations (numerator) ($15,921,805) ($16,847,718) ($12,746,117) Shares used for basic and diluted per share computations (denominator) 26,910,291 2,888,226 18,821,524 Basic and diluted net loss per amount share ($0.59) ($0.74) ($0.68)
9. COMMITMENTS: ROYALTY COMMITMENT: In 1992, the Company entered into a patent sale and royalty agreement with scientists who at the time worked at the University of Arizona. Under the agreement, the Company purchased the scientists' rights under their U.S. patent and certain U.S. patent applications. The Company agreed to pay royalties to the sellers with respect to products developed and sold under the patents. Currently, no royalty payments have yet been required under this agreement. LEASES: The Company leases laboratory and office space under operating leases. Aggregate rent expense incurred under these leases was approximately $694,915 in 1998, $475,209 in 1997 and $190,248 in 1996. Future minimum rental commitments under noncancelable operating leases as of December 31, 1998 are as follows:
YEARS ENDING DECEMBER 31, ------------ 1999 $ 733,941 2000 696,087 2001 535,883 2002 519,836 2003 508,965 ---------- $2,994,712 ==========
56 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. RELATED PARTY TRANSACTIONS: The Company incurred interest expense and loan guarantee fees of $167,312, $142,500 and $115,241 in the years ended December 31, 1998, 1997 and 1996, respectively, on notes payable to certain directors of the Company and loan guarantees made by certain directors on behalf of the Company in order to obtain short-term loan financing. 57 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. INTERNATIONAL OPERATIONS: The Company operates in one business segment and conducts its activities in the U.S., the U.K., Australia and before 1998, New Zealand. International operations are primarily located in the U.K. Intercompany sales between regions are made at cost plus markup. Summarized financial data by region are as follows:
1998 U.S. INTERNATIONAL ELIMINATIONS NET - ---- ------------ ------------ ------------ ------------ Revenues: Trade $ 3,292,859 $ 338,950 $ -- $ 3,631,809 Intercompany (a) 908,323 9,747,363 (10,655,686) -- ------------ ------------ ------------ ------------ $ 4,201,182 $ 10,086,313 (10,655,686) $ 3,631,809 ============ ============ ============ ============ R & D expense (a) $ 11,512,863 $ 9,268,170 $ (9,417,815) $ 11,363,218 ============ ============ ============ ============ Foreign currency loss $ 240,703 $ 157,652 $ (157,652) $ 240,703 ============ ============ ============ ============ Net loss $(13,386,190) $ (2,490,904) $ 11,834 $(15,888,928) ============ ============ ============ ============ Capital expenditures $ 33,126 $ 1,351,901 $ -- $ 1,385,027 ============ ============ ============ ============ Long lived assets $ 1,375,562 $ 10,483,745 $ (12,000) $ 11,847,307 ============ ============ ============ ============
1997 U.S. INTERNATIONAL ELIMINATIONS NET - ---- ------------ ------------- ------------ ------------ Revenues: Trade $ 2,255,334 $ 422,597 $ -- $ 2,677,931 Intercompany (a) 779,507 10,912,302 (11,691,809) -- ------------ ------------ ------------ ------------ $ 3,034,841 $ 11,334,899 $(11,691,809) $ 2,677,931 ============ ============ ============ ============ R & D expense (a) $ 13,458,565 $ 8,871,785 $(10,867,998) $ 11,462,352 ============ ============ ============ ============ Foreign currency loss $ 913,119 $ 696,969 $ (696,969) $ 913,119 ============ ============ ============ ============ Net loss $(15,763,860) $ (1,819,741) $ 735,883 $(16,847,718) ============ ============ ============ ============ Capital expenditures $ 54,712 $ 1,202,736 $ -- $ 1,257,448 ============ ============ ============ ============ Long lived assets $ 1,459,792 $ 10,766,992 $ (12,000) $ 12,214,784 ============ ============ ============ ============
58 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. INTERNATIONAL OPERATIONS, CONTINUED:
1996 U.S. INTERNATIONAL ELIMINATIONS NET - ---- ------------ ------------- ------------ ------------ Revenues: Trade $ 1,184,619 $ 350,392 $ -- $ 1,535,011 Foreign currency gain 1,733,357 -- -- 1,733,357 Intercompany (a) 1,301,702 5,318,319 (6,620,021) -- ------------ ------------ ----------- ------------ $ 4,219,678 $ 5,668,711 $(6,620,021) $ 3,268,368 ============ ============ =========== ============ R & D expense (a) $ 5,279,302 $ 6,860,712 $(2,954,888) $ 9,185,126 ============ ============ =========== ============ Net loss $ (5,468,662) $ (5,223,305) $(2,054,150) $(12,746,117) ============ ============ =========== ============ Capital expenditures $ 99,035 $ 3,194,179 $ -- $ 3,293,214 ============ ============ =========== ============ Long lived assets $ 1,528,257 $ 11,931,885 $ (12,000) $ 13,448,142 ============ ============ =========== ============
(a) Intercompany revenues include interest income earned by the U.S. parent company on loans made to international subsidiaries and sales of products to, and the performance of contract research and development for, the U.S. parent company by international subsidiaries on a cost plus markup basis. The intercompany account associated with this activity is eliminated in consolidation. 12. NONCASH INVESTING AND FINANCING ACTIVITIES: During 1998 and 1997 the Company purchased equipment in the amounts of $19,195 and $227,000, respectively, which was financed under capital lease agreements. 59 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 12. NONCASH INVESTING AND FINANCING ACTIVITIES, CONTINUED: On November 9, 1998 holders of $2,375,000 of the 15% Notes issued in 1998 converted principal plus accrued interest of $107,000 into 3,658,058 shares of the Company's Common Stock. On November 9, 1998, the Company converted $2,000,000 (all of the 100 outstanding shares) of its Series A Convertible Redeemable Preferred Stock and $33,000 of accrued dividends into 2,995,692 shares of its Common Stock. On November 9, 1998 the Company also converted $500,000 principal of the 15% Note held by an officer of the Company into 736,811 shares of the Company's Common Stock. On February 9, 1996 the Company issued 466,383 shares of common stock in exchange for $2,500,000 of principal and $65,000 of accrued interest on the 6% Notes. In May 1996 an officer of the Company converted $750,000 principal of the 12% Note into an equal principal amount of the Company's 15% Notes. On October 21, 1996 the Company issued 150,000 shares of common stock in exchange for(pound)250,000 principal on two notes payable to the Welsh Development Agency. 13. CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents and short-term investments approximates fair value due to the short maturities of these instruments. The Company believes that it is not practicable to estimate the fair value of its long-term debt because these instruments were generally issued in a convertible form or in conjunction with warrants to purchase the Company's Common Stock. The Company would be required to obtain an independent valuation of each specific instrument. 60 62 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND SECTION 16(a) COMPLIANCE Information with respect to the executive officers and directors of the Company and with respect to compliance with Section 16(a) of the Securities and Exchange Act of 1934 is incorporated by reference from the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999. ITEM 11. EXECUTIVE COMPENSATION Information with respect to the compensation of the Company's executive officers is incorporated by reference from the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999, except that the Comparative Performance Graph and the Report on Executive Compensation included in the Proxy Statement are expressly not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to the security ownership of certain beneficial owners of the Company's common stock and management is incorporated by reference from the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference to the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 19, 1999. 61 63 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are being filed as part of this Report. 1. Financial Statements...............See Item 8 herein. 2. Financial Statement Schedules Independent Auditors Report........See Item 8 herein. All schedules are omitted, because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 3.1 - Amended and Restated Certificate of Incorporation of Therapeutic Antibodies Inc. (6) 3.2 - Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Therapeutic Antibodies Inc., filed May 13, 1998 (10) 3.3 - Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Therapeutic Antibodies Inc., filed November 6, 1998 (11) 3.4 - Amended and Restated Bylaws of Therapeutic Antibodies Inc. (6) 4.1 - Certificate of Designation of Rights and Preferences of Series A Convertible Redeemable Preferred Stock of Therapeutic Antibodies Inc., filed September 28, 1998 (11) 10.1 - Marketing Agreement, as amended, dated January 1, 1990, between Swedish Orphan AB and the Company. (1) 10.2 - Contract for the Production of Sheep Anti-Human IgG, dated October 5, 1992, between Baxter Germany and the Company. (1) 10.4 - Contract Services Agreement, dated December 16, 1991, between Ministry of Agriculture and Fisheries and the Company. (1) 10.5 - Agreement, dated December 16, 1991, between Ministry of Fisheries (now AgResearch) and the Company. (1) 10.6 - Office Lease Agreement, as amended, dated August 28, 1990, between Summit Place Limited and the Company. (1)
62 64 10.7 - Lease, dated January 9, 1992, between The Medical College of St. Bartholomew's Hospital in the City of London and the Company. (1) 10.8 - Lease Agreement, dated January 29, 1997, between Vanderbilt University and the Company. (7) 10.9 - Sublease, dated January 29, 1997, between Platinum Entertainment, Inc. as Sublessor, and the Company, as Sublessee. (7) 10.10 - Assignment of 14/15 Newbury Street London EC1A 7HU, dated February 1, 1996, between Immunogen International Limited, as Assignor, and TAb London Limited, as Assignee. (7) 10.11 - 1990 Stock Incentive Plan, as amended. (1) 10.12 - 1997 Stock Option Plan (9) 10.13 - Basic Cooperation/Joint Program Agreement, dated August 30, 1995, between Nigerian Federal Ministry of Health and Therapeutic Antibodies Inc. (2) 10.14 - Memorandum of Lease, dated August 1, 1995, between Minister for Primary Industries, as Lessor, and TAb Australia Pty. Limited, as Lessee (Turretfield lease). (2) 10.15 - Registration and Distribution Agreement, dated August 31, 1995, between Therapeutic Antibodies Inc. and F.H. Faulding & Co. Limited. (2) 10.16 - Loan Agreement, dated July 10, 1995, between Minister for Primary Industries and TAb Australia Pty. Ltd. and Deed of Charge, dated July 10, 1995, between Minister for Primary Industries and TAb Australia Pty. Ltd. (2) 10.17 - Lease Assignment, dated February 1, 1996, between Immunogen International Limited and TAb London Limited. (3) 10.18 - Assignment, dated April 29, 1996, between Minister for Industry, Manufacturing, Small Business and Regional Development and TAb Australia, Pty. Ltd. (4) 10.19 - Agistment Agreement, dated August 29, 1996, between Martindale Holdings Pty Ltd. and TAb. Australia Pty Ltd. (5) 10.20 - Clinical Trials and Registration Agreement, dated October 4, 1996, between Therapeutic Antibodies Inc. and F.H. Faulding & Co. Limited. (7) 10.21 - Clinical Trials, Registration, Manufacturing and Distribution Agreement, dated February 21, 1997, between the Company and CSL Limited A.C.N. (8)
63 65 10.22 - Distribution Agreement, dated October 2, 1997, between the Company and Altana, Inc. (9) 10.23 - Service Agreement, dated July 5, 1996, between Professor Timothy Chard and the Company. (7) 10.24 - Employment Agreement, dated February 6, 1998, between Andrew J. Heath and the Company.* 10.25 - Letter Agreement, dated September 1, 1998, between Stuart M. Wallis and the Company (regarding appointment as non-executive chairman).* 10.26 - Consultancy Agreement, dated August 21, 1998, between Stuart M. Wallis and the Company.* 10.27 - Consultancy Agreement, dated September 1, 1998, between Stuart M. Wallis and the Company.* 21.1 - List of subsidiaries of the Registrant.* 27.1 - Financial Data Schedule (for SEC use only)*
(1) Incorporated by reference to exhibits filed with the Company's Registration Statement on Form 10, filed on May 1, 1995, File No. 0-25978. (2) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995. (3) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996. (4) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996. (5) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996. (6) Incorporated by reference to appendices filed with the Company's Proxy Statement relating to the Special Meeting of Shareholders held on July 5, 1996. (7) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (8) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997. (9) Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (10) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998. (11) Incorporated by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998. * Filed herewith. (b) Reports on Form 8-K. 64 66 The Company filed a Current Report on Form 8-K on October 29, 1998 relating to an (pound) 11.5 million (US $19.5 million) refinancing involving the issue of 28,690,561 new shares of Common Stock, par value US $0.001, of the Company. On November 10, 1998, the Company filed a Current Report on Form 8-K relating to a Special Meeting of Shareholders held to approve an amendment to the Company's Amended and Restated Certificate of Incorporation, which increased the number of authorized shares of the Company's Common Stock, par value US $0.001, from 39,000,000 to 59,000,000 shares. (c) Compensatory Plans or Arrangements. The following is a list of all executive compensation plans and arrangements filed as exhibits to this Annual Report on Form 10-K.
Exhibit Number Description of Exhibit -------------- ---------------------- 10.11 1990 Stock Incentive Plan, as amended. (1) 10.12 1997 Stock Option Plan. (9) 10.23 Service Agreement, dated July 5, 1996, between Professor Tim Chard and the Company. (7) 10.24 Employment Agreement, dated February 6, 1998, between Andrew J. Heath, M.D. and the Company.* 10.25 Letter Agreement, dated September 1, 1998, between Stuart M. Wallis and the Company (regarding appointment or non-executive chairman).* 10.26 Consultancy Agreement, dated August 21, 1998, between Stuart M. Wallis and the Company.* 10.27 Consultancy Agreement, dated September 1, 1998, between Stuart M. Wallis and the Company.*
* Filed herewith. (1) Incorporated by reference to exhibits filed with the Company's Registration Statement on Form 10, filed on May 1, 1995, File No. 0-25978. (7) Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (9) Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (d) Financial Statement Schedules Excluded from Annual Report to Shareholders. None. 65 67 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THERAPEUTIC ANTIBODIES INC. Date: March 30, 1999 By: /s/ Andrew John Heath, M.D., Ph.D. ------------------------------------- Andrew John Heath, M.D., Ph.D. Chief Executive Officer (Interim Principal Financial and Accounting Officer) POWER OF ATTORNEY That the undersigned officers and directors of Therapeutic Antibodies Inc., a Delaware corporation, do hereby constitute and appoint Andrew John Heath, M.D., Ph.D the lawful attorney and agent with full power and authority to do any and all acts and things and to execute any and all instruments which said attorney and agent determine may be necessary or advisable or required to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules or regulations or requirements of the Securities and Exchange Commission in connection with this Annual Report on Form 10-K. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Annual Report on Form 10-K or amendments or supplements thereto, and each of the undersigned hereby ratifies and confirms all that said attorney and agent shall do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his name. 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 TITLE DATE - ------------------------------------ ----------------------------------------- -------------- /s/ Stuart Michael Wallis Chairman of the Board March 30, 1999 - ------------------------------------ Stuart Michael Wallis /s/ Andrew John Heath, M.D., Ph.D. Chief Executive Officer, Vice Chairman of March 30, 1999 - ------------------------------------ the Board Andrew John Heath, M.D., Ph.D. /s/ Martin Shallenberger Brown Secretary and Director March 30, 1999 - ------------------------------------ Martin Shallenberger Brown /s/ Timothy Chard, M.D. Senior Vice President-Research and March 30, 1999 - ------------------------------------ Development Administration and Director Timothy Chard, M.D.
66 EX-10.24 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.24 EMPLOYMENT AGREEMENT This Agreement, entered into this 6th day of February, 1998, by and between THERAPEUTIC ANTIBODIES INC., a Delaware corporation with administrative offices in Nashville, Tennessee (the "Company") and ANDREW HEATH (the "Employee"). WITNESSETH: 1. Employment. Company employs Employee and Employee hereby accepts employment under the terms and conditions hereinafter set forth. 2. Duties. Employee is engaged as Vice Chairman and Chief Executive Officer of the Company. Employee shall perform faithfully and diligently the duties customarily performed by persons in the position for which Employee is engaged, together with such other duties assigned to him by the Board of Directors of the Company (the "Board"). Employee shall work at the Company's office in Nashville, Tennessee, and for reasonable temporary periods as agreed by the parties, at other locations. During the term of this Agreement, Employee shall serve without additional compensation in such other offices of the Company to which he may be elected or appointed by the Board. 3. Payments. a. Base Salary. Employee shall receive an annual base salary (the "Annual Base Salary") at the rate of two hundred fifteen thousand dollars (U.S. $215,000.00) (before all customary payroll deductions), which shall be paid in arrears in equal bi-weekly installments in accordance with the Company's normal payroll practices. The Annual Base Salary shall be subject to review by the Board from time to time and may be increased by the Board during the term hereof. b. Annual Bonus. In addition to the Annual Base Salary, Employee shall be entitled to receive an annual bonus (the "Annual Bonus"), the amount of which shall be determined by the Compensation Committee of the Board at its sole discretion. If certain milestones as set forth in Exhibit A attached hereto are achieved by the Company in the first year of the term hereof, Employee may receive a cash bonus of up to fifty thousand dollars (U.S. $50,000.00) after his first year of employment. Thereafter, Employee may receive a bonus in the form of stock options, stock, or cash, the amount and timing of which shall be determined in the sole discretion of the Board. The Company reserves the right to change all such plans, practices, policies and programs on 2 a prospective basis, at any time, effective upon delivery of written notice to Employee. Employee shall not earn and accumulate unused vacation and sick leave, or other benefits in excess of an unused amount equal to the amount earned for one year. Employee shall not be entitled to receive payments in lieu of said benefits, other than for unused vacation leave earned and accumulated at the time the employment relationship terminates. c. Stock Options. The Company shall grant Employee options to purchase shares of the common stock of the Company on the terms set forth in the option agreement attached as Exhibit B. d. Benefit Plans. During the term hereof, Employee shall be entitled to participate in all incentive, savings, retirement, welfare, fringe benefit plans, practices, policies and programs of the Company and agrees with their terms. Employee shall be entitled to twenty-one (21) vacation days per year plus public holidays recognized by the Company. e. Employment Expenses. During the term hereof, Employee shall be entitled to receive prompt reimbursement for all reasonable and documented employment expenses incurred by the Employee in accordance with the expense reimbursement policy of the Company. f. Relocation Expenses. Employee shall be entitled to be reimbursed for all reasonable and documented closing expenses for the sale of real property in California, personal moving expenses, and incidental expenses related to his personal relocation from California to Tennessee (the "Relocation Expenses"); provided that the total reimbursement by the Company of the Relocation Expenses shall not exceed one hundred thousand dollars (U.S. $100,000.00). 4. Extent of Service. Employee shall devote substantially his full business time, attention and energies to the business of the Company and the performance of his duties and shall not, during the term of this Agreement, provide consulting services or scientific services to any other business or enterprise without the prior written consent of the Company. 5. Term and Termination. a. Commencement of Employment. Employee's employment under this Agreement shall begin on March 2, 1998 (the "Commencement Date"). b. Termination by Employee. Employee may terminate this Agreement at any time upon thirty (30) days prior written notice. If Employee terminates this Agreement at any time prior to eighteen (18) months 2 3 after the Commencement Date, he shall reimburse the Company on the last day worked for a portion of the Relocation Expenses. The portion of the Relocation Expenses for which Employee must reimburse the Company shall be the proportionate amount of Relocation Expenses corresponding to the amount of time that has not elapsed out of said eighteen-month (18-month) period prior to termination by Employee. Reimbursement of Relocation Expenses shall be payable in full upon the last day of employment, and the Company reserves the right to offset or withhold such amounts from monies due Employee. In the event of termination by Employee, Employee shall not receive any severance allowance. After providing notice of termination, Employee shall continue to perform his duties diligently and faithfully as requested by the Board until the termination date. c. Termination by Company Without Cause. The Company may terminate this Agreement without "cause" (as defined herein) at any time by giving thirty (30) days prior written notice to Employee. Upon termination by the Company without "cause," Employee shall be entitled to compensation (the "Severance Compensation") equal to the Annual Base Salary; provided that on or after the third anniversary of the Commencement Date, Severance Compensation may be calculated as an amount different from Annual Base Salary if the Board authorizes a new policy in regard to severance payments for the Employee. d. Termination by Company With Cause. The Company may terminate this Agreement at any time upon the occurrence of "cause" hereunder and in such event all compensation and benefit obligations of the Company hereunder shall terminate upon the date of termination. For the purposes of this Agreement, the Company shall have "cause" in the event any of the following occurs: (i) Employee breaches a material term or condition of this Agreement; (ii) Employee is convicted of any crime involving fraud, dishonesty, or moral turpitude; (iii) Employee engages in theft or dishonesty in the conduct of the Company business; (iv) Employee fails to adhere to any written policy of the Company. e. Termination by Death. This Agreement and the Company's obligation to continue to pay salary to Employee shall terminate upon (i) the 3 4 death of Employee or (ii) an illness, injury or disability due to which Employee is unable to perform substantially all of his duties (a "Disability"); provided, however, that in the event of the death or Disability of Employee, any and all benefits vested in Employee shall remain in place in accordance with the terms and conditions of the applicable benefit plans. 6. Restrictive Covenants. a. Confidential Information. Employee agrees to comply with the terms and conditions of the Confidentiality Agreement attached hereto as Exhibit C and incorporated herein by reference as if fully set forth herein. b. Non-Compete. For a period determined as set forth below, Employee agrees not to enter into or engage in the research, development, and production of polyclonal antibodies and polyclonal antibody-based products (the principal business conducted by the Company) either as an individual for his own account, as a partner for a joint venture, or as employee agent, officer, director, or substantial shareholder in a corporation or otherwise in the United States or the United Kingdom. The term of this non-compete provision shall commence on the date hereof. If the Employee voluntarily terminates his employment, the term of the non-compete shall expire twenty-four (24) months from the date of such termination. If the Employee is terminated for "cause" as defined in Section 5, the term of the non-compete provision shall expire eighteen (18) months from the date of such termination. If the Employee is terminated without "cause," the term of the non-compete provision shall expire on the date of such termination. c. Non-Solicitation. Upon termination of his employment for any reason, whether voluntary or involuntary, Employee agrees not to directly or indirectly (i) offer employment to or procure employment for any person who at any time during the twelve (12) months immediately preceding such termination has been employed by the Company or (ii) solicit business from any entity, organization or person which has contracted with the Company, which has been doing business with the Company, from which the Company was soliciting business at the time of Employee's termination, or from which the Employee knew or had reason to know that the Company was going to solicit business at the time of Employee's termination for a twelve-month period from the date of termination of Employee's employment with the Company. d. Enforcement. Employee acknowledges that in the event of breach of its covenants under this Section 6, the Company shall be entitled, if it 4 5 so elects, to institute and prosecute proceedings, either in law or in equity, to enjoin Employee from violating any of the terms of this Section 6, to enforce the specific performance by Employee of any of the terms of this Section 6, and to obtain damages for any of them, but nothing herein contained shall be construed to prevent such remedy or combination of remedies as the Company may elect to evoke. The failure of the Company to promptly institute legal action upon any breach of this Section 6 shall not constitute a waiver of that or any other breach hereof. e. Survival. Notwithstanding any provision to the contrary otherwise contained in this Agreement, the agreements and covenants contained in this Section 6 shall not terminate upon Employee's termination of his employment with the Company or upon the termination of this Agreement under any other provision of this Agreement. 7. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered or certified mail to his residence on file with the Company in the case of Employee, or to its principal office in the case of the Company. 8. Waiver of Breach. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement. 9. Assignment. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Employee acknowledges that services to be rendered by him are unique and personal, and Employee may not assign any of his rights or allocate any of his duties or obligations under this Agreement. 10. Entire Agreement. This instrument and the exhibits attached hereto comprise the entire agreement of the parties, and supersede all prior agreements. This Agreement may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 11. Choice of Law and Forum. This Agreement shall be governed by the laws of the state of Tennessee. Any dispute arising out of this Agreement shall be resolved, at the Company's sole option, by federal or state courts sitting in Nashville, Tennessee, and Employee waives any objection to such venue. 12. Severable Provisions. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be judicially unenforceable, 5 6 in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 13. Employee's Representation. Employee represents and warrants that Employee (i) is free to enter into this Agreement and to perform each of the terms and covenants contained herein, (ii) is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and (iii) will not be in violation or breach of any other Agreement by reason of Employee's execution and performance of this Agreement. 14. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. EMPLOYEE /s/ Andrew Heath --------------------------- Andrew Heath THERAPEUTIC ANTIBODIES INC. By: /s/ Martin S. Brown ------------------------ Title: Chairman --------------------- 6 EX-10.25 3 LETTER AGREEMENT 1 EXHIBIT 10.25 From: Therapeutic Antibodies (UK) Limited 14-15 Newbury Street London EC1A 7HU Tel: 0171 606 8637 To: Stuart Wallis Briarwood Nightingales Lane Chalfont St Giles Bucks HP8 4SR 1 September 1998 APPOINTMENT AS NON-EXECUTIVE CHAIRMAN Dear Stuart: I am pleased to set out below the detailed terms of your appointment as Chairman of Therapeutic Antibodies Limited (the "Company"). To signify your agreement, please sign and return to me the enclosed copy of this letter as indicated. 1. APPOINTMENT AND DUTIES (1) You will serve the Company as non-executive Chairman with effect from 1 September 1998 on the terms of this agreement (the "Appointment"). (2) You will devote such time as is reasonably necessary to the Appointment (having regard to its non-executive nature), and you will use your best endeavours to promote and protect the interests of the Company and its subsidiaries (the "Group"). (3) Your role as Chairman will include responsibility for chairing board meetings and shareholder meetings and you will also ensure, so far as you are reasonably able, that the corporate governance of the Company conforms with prevailing guidelines. Your specific responsibilities are as agreed with the Board. (4) You will report to the Board such information regarding the affairs of the Group as it may from time to time require. You will be based at your City of London office or as may be otherwise agreed but will travel to such other locations as may be necessary for the proper performance of your duties hereunder. 2 2. SALARY The Company will pay you a salary of (pound)10,000 per annum payable monthly in arrears. No other fees or benefits will be payable in respect of your Appointment under this contract. 3. EXPENSES The Company will reimburse you (on production of such evidence as it may reasonably require) the amount of all travelling and other expenses properly and reasonably incurred by you in the discharge of your duties under the Appointment in accordance with Company guidelines. 4. PENSION AND OTHER INSURANCES (1) You will be responsible for your own pension arrangements and no contributions will be payable by the Company. (2) You will not be eligible for membership of any of the Company's insurance or medical schemes. 5. TERM AND TERMINATION (1) The Appointment will continue subject to 12 months' notice being given by either party to terminate such appointment, save that the Company may not terminate this Appointment before 31 August 2001. (2) On the lawful termination of the Appointment you shall immediately resign all offices held by you in any Group Company (without prejudice to the rights of any party arising out of this agreement or the termination of the Appointment). 6. RESTRICTIONS During the period of your Appointment you will not accept any other appointments with companies which are competitors of the Company or which will affect your ability to perform your duties as non-executive Chairman. 7. CONFIDENTIALITY (1) You will not make use of or divulge to any person, and shall use your best endeavours (it being agreed that you are not required to take steps following a breach of confidentiality by a third party beyond informing the Board as soon as is reasonably practicable) to prevent the use, publication or disclosure of, any information of a confidential or secret nature concerning the business of the Company or any Group Company and which comes to your knowledge 2 3 during the course of or in connection with your holding any office within the Group. (2) This clause shall not apply to information which is: (a) used or disclosed in the proper performance of your duties or with the prior written consent of the Company; or (b) ordered to be disclosed by a court of competent jurisdiction or otherwise required to be disclosed by law. 8. GOVERNING LAW This agreement shall be governed by and construed in accordance with English law. 9. NOTICES (1) Any notice or other document to be served under this agreement may, in the case of the Company, be delivered or sent by first class post or facsimile process to the Company at its registered office for the time being marked for the attention of the Company Secretary and, in your case may be delivered or sent by first class post to the address set out above. (2) Any such notice or other document shall be deemed to have been served: (a) if delivered, at the time of delivery; (b) if posted, at 10:00 a.m. on the second day (being any day other than a Saturday, Sunday or bank holiday) ("Working Day") after it was put into the post; or (c) if sent by facsimile process, at the expiration of two hours after the time of despatch, if despatched before 3:00 p.m. on any Working Day, and in any other case at 10:00 a.m. on the Working Day following the date of despatch. (3) In proving such service it shall be sufficient to prove that delivery was made or that the envelope containing such notice or other document was properly addressed and posted as a pre-paid first class letter or that the facsimile message was properly addressed and despatched as the case may be. 3 4 Yours sincerely /s/ Andrew J. Heath, Chief Executive - ------------------------------------ For and on behalf of THERAPEUTIC ANTIBODIES (UK) LIMITED I confirm my agreement to the terms of this letter and its schedule. /s/ Stuart Wallis Dated: 1st September 1998 - ----------------------------------- ------------------------------ S. M. Wallis 4 EX-10.26 4 CONSULTANCY AGREEMENT 1 EXHIBIT 10.26 CONSULTANCY AGREEMENT This Consultancy Agreement is made on 21 August 1998 between Therapeutic Antibodies (UK) Limited whose registered office is at Blaenwaun, Ffostrasol, Llandysul, Ceredigiwn, SA44 5JT ("the Company") and STUART M WALLIS of Briarwood, Nightingales Lane, Chalfont St. Giles, Buckinghamshire HP8 4SR trading as "Stuart Wallis Associates" ("the Consultant"). 1. THE ADVICE The Consultant has agreed with the Company on the terms set out below that he will provide to the Company in relation to the development of the business of the Company and its subsidiaries (the "Group") the consultancy Advice more precisely described in Schedule 1 to this agreement ("the Advice"). 2. DURATION OF AGREEMENT This consultancy agreement is deemed to have commenced on 8 June 1998 ("the Commencement Date") and will continue until notice of termination is given by the Company to the Consultant (not to expire before 7 June 2001) or one month's notice is given by the Consultant to the Company at any time. 3. FEE 3.1 By way of fee for the Consultant in consideration for the provision of the Advice under this agreement the Company hereby grants to him the share option rights set out in the Schedule 2. 3.2 The Consultant shall submit an invoice (together with a VAT invoice if applicable) each month summarising the Advice provided in the period covered and any expenses to be reclaimed under Clause 3.3 below. 3.3 Subject to prior written approval of such expenses, the Company will pay to the Consultant the amount of any reasonable expenses wholly and necessarily incurred by him in the provision of the Advice. 3.4 The Consultant agrees not to charge any monthly fee for the first 6 months of the agreement, though expenses incurred by him on the provision of the Advice over that period may be reclaimed. 2 4. OBLIGATIONS OF THE CONSULTANT During the currency of this agreement the Consultant shall: 4.1 provide the Advice to the Company to the best of his skill and ability and promptly as required by the Company and in the provision of that advice will aim always to promote and protect the interests of the Group. The Consultant shall devote such hours to his obligations under this Agreement as are reasonably necessary for the proper provision of the Advice, which shall be on average around 15 hours per month. 4.2 attend the Company's head office or such other place as he is reasonably required to attend for the proper provision of the Advice; 4.3 (it being acknowledged by the Company that the detailed provision of the Advice is a matter for the Consultant) observe the Company's general guidance and instruction with regard to the provision of the Advice; 4.4 notify the Company so far as possible in advance of any periods over which he is or will be unable to provide the Advice due to his holiday, sickness or (subject to and in accordance with 6 below) third party commitment; 4.5 maintain full and proper confidentiality in relation to all information belonging to the Company or any of its clients of a confidential nature whether oral, written or electronically recorded concerning the business and affairs of the Company and the Group and any other information specifically identified by the Company as confidential or known to the Consultant as being held by the Company under a duty of confidentiality to a third party, in either case coming to his attention in the course of or for the purposes of his providing the Advice; 4.6 comply properly with the requirements of all relevant legislation and agreements relating to payment of value added tax, income and other taxes and charges levied in respect of the Company's use of him and the fees payable to him under this Agreement; 5. NON-EXCLUSIVITY OF SERVICE Nothing in this Agreement will prevent the Consultant from supplying similar consultancy services to any third party during or after the currency of this agreement provided in all cases that such third party supply shall not entail or be likely to lead to a breach of the Consultant's confidentiality obligations to the Company or otherwise interfere in any way with the full and efficient performance of the Consultant's obligations in respect of the Advice. The Consultant shall not supply similar consultancy services if the 2 3 proposed appointment might affect his abilities to properly provide advice under this Agreement or would involve him with competitors of the Group. 6. OTHER INTERESTS The Consultant will not accept any non-executive appointments which are either with competitors of the Group or which will affect the Consultant's ability to provide the Advice under this Agreement. 7. RELATIONSHIP Nothing in this Agreement will create the relationship of agency or partnership or employer and employee between the Company and the Consultant. 8. ASSIGNMENT AND SUBSTITUTION No rights under this Agreement may be assigned by the Consultant save with the prior written consent of the Company. The Consultant may not use any other person to provide the Advice to the Company in his place or sub-contract it, save with the prior written consent of the Company. 9. TITLE TO WORK The Consultant acknowledges that he shall not acquire rights or title to any intellectual property or any Advice provided by him for the purposes of the Company under this Agreement. The rights and title in all Advice provided by the Consultant to the Company shall be and remain with the Company as shall those in any documents provided to the Consultant for the purposes of his providing the Advice and in any notes, copies or extracts derived from those documents which the Consultant might make in the drawing up or delivery of the Advice. 10. PROVISIONS ON TERMINATION GENERALLY 10.1 On the termination of this agreement for whatever reason the Consultant shall; 10.1.1 deliver to the Company forthwith all property of its or any of its clients which may then be in his possession or control, including without limitation any records, plans, programs, designs, specifications, samples and documentation in any form and shall, in the case of any data held on his own computer, erase all such data, code and programs; 10.1.2 cease to hold himself out as in any way connected with the Company; 3 4 10.1.3 thereafter observe the duty of confidentiality as set out in 4.5 of this Agreement notwithstanding its termination. 10.2 The Company shall have the right to terminate this agreement immediately without payment to the Consultant (other than for any figures by way of fee or expenses accrued due up to the date of that termination) if the Consultant dies, becomes bankrupt, is convicted of an indictable offense or commits any act of dishonesty in his provision of the Advice. 11. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of England. 12. NOTICES 12.1 Any notice or other document to be served under this agreement may, in the case of the Company, be delivered or sent by first class post or facsimile process to the Company as its registered office for the time being marked for the attention of the Company Secretary and, in the case of the Consultant may be delivered or sent by first class post to the address set out above. 12.2 Any such notice or other document shall be deemed to have been served: 12.2.1 if delivered at the time of delivery; 12.2.2 if posted, at 10:00 a.m. on the second day (being any day other than a Saturday, Sunday or bank holiday) ("Working Day") after it was put into the post; or 12.2.3 if sent by facsimile process, at the expiration of two hours after the time of despatch, if despatched before 3:00 p.m. on any Working Day, and in any other case at 10:00 a.m. on the Working Day following the date of despatch. 12.3 In proving such service it shall be sufficient to prove that delivery was made or that the envelope containing such notice or other document was properly addressed and posted as a pre-paid first class letter or that the facsimile message was properly addressed and despatched as the case may be. 4 5 Signed /s/ Andrew J. Heath, Chief Executive Dated: 21/8/98 ------------------------------------- ------ Authorised Representative of Therapeutic Antibodies (UK) Ltd Signed /s/ S.M. Wallis Dated: 21st August 1998 ------------------------------------- ---------------- Consultant 5 6 SCHEDULE I THE ADVICE The Advice the Consultant will provide to the Company will be in relation to the following: 1. Conducting a detailed review of the current operations of the Company and where appropriate the Group; 2. Devising methods for the strategic development of the Company (and the Group) in the market place; 3. Considering the constitution of the Board and recommending changes; 4. Considering the benefits of changing the place of incorporation of the Company and in particular of converting it to a PLC; 5. Reviewing the trading operations of the Company and recommending key areas for change; 6. Considering and recommending improvements in the Company's cash control function; 7. Considering and recommending improvements in the short term fund raising activities of the Company. Schedule 2 SHARE OPTION RIGHTS 7 SCHEDULE DEFINITIONS In this Schedule the following words and phrases have the following meanings: "Auditors" the auditors for the time being of the Company (acting as experts and not as arbitrators); "Award" the right to acquire Shares in accordance with this Schedule to the extent that it has neither lapsed nor been exercised; "Board" the Board of Directors from time to time of the Company or a duly authorised committee thereof; "Consultancy" any contract for the provision of services by the Consultant to any Member of the Group; "Control" has the same meaning as in Section 840 of the Act; "Date of Grant" 8 June 1998; "Exercise Price" L.1 in respect of each and any exercise; "Increased Value" on any date, the market capitalisation of the Company on that date, less the aggregate of (a) the market capitalisation of the Company on the Date of Grant, and (b) any amounts received by the Company in consideration for the issue of equity share capital since the Date of Grant; "Group" the Company and its Subsidiaries from time to time; "London Stock Exchange" the London Stock Exchange Limited; "Market Value" on any date, the average closing mid-market quotations of a Share as derived from the London Stock Exchange Daily Official List on the last five dealing days prior to that date; "Members of the Group" the Company or any one of its Subsidiaries from time to time; "Schedule" this Schedule as amended in accordance with its provisions by the Board or by the Company in General Meeting; 8 "Share" a fully paid ordinary share in the capital of the Company; "Subsidiary" a company which is both under the Control of the Company and is a subsidiary of the Company (within the meaning of Section 736 of the Companies Act 1985); Where the context so admits the singular shall include the plural and vice versa and the masculine gender shall include the feminine. Any reference to a statutory provision is to be construed as a reference to that provision as for the time being amended or re-enacted. 1. Grant of Award The Company hereby grants the Award to the Consultant. 2. Non-Assignability of the Award No operative provision 3. When Awards may be exercised 3.1 Save as otherwise provided in this Schedule the Award shall be exercisable (provided it has not lapsed) once during each of: (a) the period of ninety days commencing on and including the second anniversary of the Date of Grant; and, (b) the period of ninety days commencing on and including the third anniversary of the Date of Grant. 3.2 If before 8 June 1999 the Consultant ceases to hold a Consultancy by reason of lawful termination (other than by reason of dishonesty or fraud) or by reason of effluxion of time, for more than six consecutive weeks, so as to hold no Consultancy the Award shall become, if it is not already, exercisable and shall remain exercisable until 8 July 1999, on which date it shall lapse and shall not be capable of exercise (or, as the case may be, further exercise). 3.3 The Award shall lapse and cease to be exercisable upon the earliest to happen of the following: (a) the expiry of thirty nine months from the Date of Grant (except, for the avoidance of doubt, where the Consultant has died before 8 June 1999 (in which case paragraph 3.2 shall apply) or after 8 June 2000, in which case Clause 3.3(b) shall apply); 2 9 (b) the first anniversary of the date of death of the Consultant, if the Consultant dies after 8 June 2000; (c) the date upon which the Consultant ceases to hold a Consultancy by reason of dishonesty or fraud; (d) immediately following the exercise of the Award under Clause 3.2; (e) the expiry of any of the periods mentioned in Clause 6 (subject to the exercise of "roll-over" rights pursuant to Clause 6.6); (f) immediately following any exercise that takes place following the third anniversary of the Date of Grant. 3.4 The Consultant shall not be treated as having ceased to hold a Consultancy for the purposes of this Clause 3 until he holds no Consultancy. 4. Effect of Exercise of Award 4.1 On the first exercise of the Award the Consultant shall become entitled to receive a number of Shares calculated as follows: NS = IV x RF (the "Formula") ------- MV where NS is the number of Shares to which the Consultant is entitled following exercise (subject to Clause 5.6); IV is the Increased Value at the date of exercise; MV is the Market Value of a Share calculated at the date of exercise; RF is the relevant fraction calculated in accordance with Clause 4.3 below, except where the Award is exercised pursuant to Clause 6, when it shall be 1; and, for the avoidance of doubt, the Award shall continue to subsist following the exercise unless Clause 3.3 applies. 4.2 On any second exercise of the Award, the number of Shares the Consultant shall be entitled to receive shall be calculated in accordance with Clause 4.1 above, provided that the term "Increased Value" shall be calculated as if 9 June 2000 were substituted for the "Date of Grant" in (a) the definition of "Increased Value"; and (b) the definition of Relevant Fraction in Clause 4.3 (including the calculation of Share Growth Return). 3 10 4.3 The Relevant Fraction shall be determined by comparing the Share Growth Return ("SGR") (calculated in accordance with the Appendix) obtained by holders of Shares since the Date of Grant with the SGR obtained over the same period by holders of shares in the other companies set out or referred to in the Appendix (in each case with SGR and x calculated according to the Appendix).
RANKING OF THE COMPANY RELEVANT FRACTION outside first and second quartiles 0 In second quartile Between 0, where the Company ranks at (x)and 1/10th where the --- (2) Company ranks at (x), increasing on --- (4) a straight line basis between those positions In first quartile 1/10th
5. Manner of exercise of Award 5.1 The Award shall be exercised by the Consultant lodging with the Secretary of the Company at its registered office (or otherwise as may be notified to the Consultant from time to time): (i) a notice in such form as the Board may from time to time prescribe; and (ii) payment (in such manner as the Board shall direct) of L.1; and the date of exercise of the Award shall be: (a) in the case an Award exercised pursuant to Clause 3.2, the date of receipt by the Company of such notice and payment, (b) in the case of an Award exercised pursuant to Clause 3.1(a), 8 June 2000, and (c) the case of an Award exercised pursuant to Clause 3.1(b), 8 June 2001. 5.2 Subject to the obtaining of any necessary consents from HM Treasury, The Bank of England or other authority and to the terms of any such consent the Board shall within thirty days of the receipt of notice exercising the Award either cause the Company to allot and issue or arrange for the transfer of the relevant Shares to the Award holder and send or cause to be sent to the Award holder or his nominee (as the case may be) a share certificate (or other evidence of title) for the Shares in respect of which the Award is exercised. 5.3 Shares issued pursuant to this Schedule will rank pari passu in all respects with the Shares then already in issue except that they will not rank for any dividend or other distribution of the Company paid or made by reference to a 4 11 record date (being the date on which entitlement to a dividend or distribution is fixed by reference to the Company's register of members) falling prior to the date of exercise of the relevant Award pursuant to Clause 5.1. 5.4 The Company shall as soon as is practicable after any allotment apply to the London Stock Exchange for permission for Shares issued pursuant to the exercise of an Award to be admitted to the London Stock Exchange Official List, or apply for the listing of those Shares on any other stock exchange on which the Shares are listed. 5.5 The Company shall maintain sufficient issued and/or unissued share capital to satisfy the Award. 5.6 The Company may make such provision for and take such action as it considers necessary or expedient (acting reasonably) for the withholding or payment of any statutory deductions for which the Consultant or the Company or the Member of the Group is accountable and which the Company or Member of the Group is obliged to make, wherever those taxes are imposed, provided that those taxes arise in respect of the grant or exercise of rights over, issue, or transfer of Shares pursuant to this Schedule including (but not limited to) the withholding and/or sale of Shares from any issue or transfer of Shares under the Schedule until the Consultant reimburses the Company for the amounts of any such taxes (excluding interest or penalties) for which the Company, the Member of the Group or the Consultant is properly accountable. 5.7 In the event that withholding or deductions are intended to be made pursuant to Rule 5.6, the Company shall inform the Consultant of the intention to make such withholding or deduction and the Consultant, on showing evidence satisfactory to the Board that the withholding or deduction is disputed, may require that an amount of cash or a number of shares equal in value to the amount to be withheld or deducted be placed in an escrow account pending resolution of whether the withholding or deduction should be made. In such case, provided that the Consultant shall indemnify the Member of the Group in respect of the reasonable legal costs of the dispute, the Consultant shall have conduct of such dispute, and the Consultant shall keep the Member of the Group informed of the progress of such dispute, provided that in the event that the Company obtains (at its own cost) an opinion from a mutually acceptable barrister of at least ten years standing that the Company or the Consultant is, on the balance of probabilities, unlikely to succeed in the dispute, the Consultant may continue with the dispute, but shall in such case indemnify the Company in respect of all penalties and fines accruing after the date of such opinion as well as (for the avoidance of doubt) all legal fees incurred after the date of such opinion. 5 12 6. Takeovers and Liquidations 6.1 If any person obtains Control of the Company as a result of making: (a) a general offer to acquire the whole of the issued share capital of the Company which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or (b) a general offer to acquire the whole or the issued share capital of the Company which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or (c) a general offer to acquire all the shares in the Company which are of the same class as the Shares; or otherwise then the Award may be exercised within three months of the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made has been satisfied. 6.2 If under 425 of the Companies Act 1985 the Court sanctions a compromise or arrangement proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, or if an arrangement having similar effect in any other jurisdiction comes into force, the Award may be exercised within three months of the Court sanctioning the compromise or arrangement, or the arrangement coming into force. 6.3 If any person becomes bound or entitled to acquire shares in the Company under Sections 428 to 430F of the said Act of 1985, or under an equivalent provision in any other jurisdiction, the Award may be exercised at any time when the person remains so bound or entitled. 6.4 If the Company passes a resolution for voluntary winding up, or if an arrangement having similar effect in any other jurisdiction comes into force, the Award may be exercised within three months of the passing of the resolution, or the arrangement coming into force. 6.5 The exercise of the Award pursuant to the preceding provisions of this Clause 6 shall be subject to the provisions of Clauses 4.1 and 5 above. 6.6 On the occurrence of any of the circumstances set out in Clause 6.1 to 6.4, the Consultant may, during the period of exercise of the Award and with the agreement of the acquiring company, or, as the case may be, of the successor company to the Company or the company that continues the business of the Company (in each case "the Relevant Company"), agree that the Award shall 6 13 continue notwithstanding Rule 6.7, but shall take effect over shares in the Relevant Company or such other company as is nominated by the Relevant Company, and the SGR figures and targets shall be recalculated as agreed between the Consultant and the Relevant Company. 6.7 The Award shall lapse if it shall not have been exercised by the expiry of any time limit for exercise set out in this Clause 6, whichever shall expire first. 7. Additional Rights 7.1 This Schedule shall not form part of any contract for services between any Member of the Group and the Consultant and the rights and obligations of the Consultant under the terms of his Consultancy with any Member of the Group shall not be affected by his participation in this Schedule or any right which he may have to participate therein. 7.2 Each Member of the Group shall be entirely free to conduct its business affairs as its sees fit without regard to any consequences under, upon or in relation to this Schedule or the Award or the Consultant. 8. Administration and Amendment 8.1 The terms of this Schedule shall be administered under the direction of the Board who may at any time and from time to time by resolution and without other formality amend or augment the terms of this Schedule in any respect provided that: (a) no amendment shall operate to effect adversely in any way rights already acquired by the Consultant without the consent of the Consultant; (b) no amendment may be made to the advantage of the Consultant except with the prior approval of the Company in General Meeting except for minor amendments to benefit the administration of the Schedule and amendments to obtain and maintain favourable tax, exchange control or regulatory treatment for the Consultant or for any Member of the Group. 8.2 The Board shall determine any matter relating to the interpretation of this Schedule (including the rectification of errors or mistakes or procedures or otherwise), provided that in the event of a dispute, the matter shall be referred to independent accountants acceptable to the Company and the Consultant, acting as experts and not as arbitrators, and their decision as to the matter referred, as well as to the costs of the determination, shall be final. 7 14 8.3 The provisions of the Company's Articles of Association for the time being with regard to the service of notices shall apply mutatis mutandis to any notices to be given by the Company hereunder. 8.4 The Board shall be entitled to authorise any person to execute on behalf of the Consultant, at the request of the Consultant, any document relating to this Award, in so far as such document is required to be executed pursuant hereto. 8.5 The terms of this Schedule shall be governed by English Law. 8 15 APPENDIX SGR Calculation The Share Growth Return ("SGR") shall be calculated over the relevant period (being the period from the Date of Grant to the Date of Exercise of an Award) "the Measurement Period". It assumes the purchase by a shareholder of a share on the first day of the Measurement Period, and it comprises any increase or decrease in the share price over that period. The Comparator Group means all companies in the FTSE Smallcap Index other than investment trusts. 1. Calculation of SGR (a) On the first day of the Measurement Period the shareholders shall be assumed to have purchased on share (the "Notional Shareholding") in each member of the Comparator Group. The performance of each share shall be calculated over the Measurement Period. The purchase price of the Company's shares for this purpose shall be 71p. (b) On the last day of the Measurement Period an average shall be taken of the daily prices of the relevant company's shares during the 30 calendar day period ending on that date and such amount shall be deemed to be the sale price of a share. (c) SGR will be calculated according to the formula: End Value - Start Value ----------------------- Start Value where Start Value is the value of the relevant company at the start of the Measurement Period (subject to paragraph 1(a)); and End Value is the value of the relevant company at the end of the Measurement Period and expressed as a percentage 2. Treatment of changes within the Comparator Group List (a) In the Event that a Company ceased to trade, is acquired by another company or is for other reasons suspended for dealing on the London Stock Exchange it shall be deleted from the list. (b) In the event of a demerger within a company the Total Shareholder Return of the original company will be calculated as though the shares 16 allocated or distributed in the new company or companies were a distribution and invested in the original company as in 1(c) above. (c) On any stock split, scrip issue, discounted open offer, sub-division, consolidation or rights issue or any other event or circumstance of like effect occurring during the Measurement Period, prices subsequent to the event shall be restated as calculated by Hemmington-Scott. (d) An appropriate adjustment shall be made for any merger, take-over or other change in capital. Any price adjusted to take account of capital changes shall be calculated by Hemmington-Scott. 3. Compilation of SGR As soon as practicable following the Measurement Period the SGR of each member of the Comparator Group will be determined and ranked in accordance with their SGR with the company having the highest SGR being listed as number and the company with the lowest having the highest number. In addition, the first and second quartile positions in the list will be highlighted, as will the position of the Company within the Comparator Group list. The first quartile will comprise the companies ranked 1 to x - 4 The second quartile will comprise the companies ranked x + 1 to x - - 4 2 x is the number of companies in the Comparator Group and fractions will be ignored. References to a "Take-over" mean an offer as defined in the City Code on Take-overs and Mergers ("the Code"). For the purposes of this Schedule a "change in control" shall have occurred if a third party (or a group of persons acting in concert for the purposes of the Code) shall become entitled to exercise more than 50% of the voting rights attributable to the equity share capital of the Company. 2 EX-10.27 5 CONSULTANCY AGREEMENT 1 EXHIBIT 10.27 CONSULTANCY AGREEMENT This Consultancy Agreement is made on 1 September 1998 between Therapeutic Antibodies (UK) Limited whose registered office is at Blaenwaun, Ffostrasol, Llandysul, Ceredigiwn, SA44 5JT ("the Company") and STUART M WALLIS of Briarwood, Nightingales Lane, Chalfont St. Giles, Buckinghamshire HP8 4SR trading as "Stuart Wallis Associates" ("the Consultant"). 1. THE ADVICE The Consultant has agreed with the Company on the terms set out below that he will provide to the Company in relation to the management and expansion of the business of the Company and its subsidiaries (the "Group") the consultancy Advice more precisely described in Schedule 1 to this agreement ("the Advice"). 2. DURATION OF AGREEMENT This consultancy agreement is commenced on 1 September 1998 ("the Commencement Date") and will, subject to the terms of this agreement continue until 12 months' notice of termination is given by either side, any such notice not to expire before three years from the Commencement Date. 3. FEE 3.1 The Company shall pay to the Consultant a fee of (pound)5000 per month exclusive of VAT in arrears, subject to prior receipt by the Company of an appropriate invoice from him under Clause 3.2 below. 3.2 The Consultant shall submit an invoice (together with a VAT invoice if applicable) each month summarising the Advice provided in the period covered, any expenses to be reclaimed under Clause 3.3 below and the amount of the fee due. 3.3 Subject to prior written approval of such expenses, the Company will pay to the Consultant the amount of any reasonable expenses wholly and necessarily incurred by him in the provision of the Advice. 3.4 Nothing in this agreement shall replace or prejudice any entitlements which the Consultant may have in relation to the share option rights granted to him by a consultancy agreement between him and the Company of 21st August 1998. 2 4. OBLIGATIONS OF THE CONSULTANT During the currency of this agreement the Consultant shall: 4.1 provide the Advice to the Company to the best of his skill and ability and promptly as required by the Company and in the provision of that advice will aim always to promote and protect the interests of the Group. The Consultant shall devote such hours to his obligations under this Agreement as are reasonably necessary for the proper provision of the Advice, which shall be on average around 15 hours per month. 4.2 attend the Company's head office or such other place as he is reasonably required to attend for the proper provision of the Advice; 4.3 (it being acknowledged by the Company that the detailed provision of the Advice is a matter for the Consultant) observe the Company's general guidance and instruction with regard to the provision of the Advice; 4.4 notify the Company so far as possible in advance of any periods over which he is or will be unable to provide the Advice due to his holiday, sickness or (subject to and in accordance with 6 below) third party commitment; 4.5 maintain full and proper confidentiality in relation to all information belonging to the Company or any of its clients of a confidential nature whether oral, written or electronically recorded concerning the business and affairs of the Company and the Group and any other information specifically identified by the Company as confidential or known to the Consultant as being held by the Company under a duty of confidentiality to a third party, in either case coming to his attention in the course of or for the purposes of his providing the Advice; 4.6 comply properly with the requirements of all relevant legislation and agreements relating to payment of value added tax, income and other taxes and charges levied in respect of the Company's use of him and the fees payable to him under this Agreement; 5. NON-EXCLUSIVITY OF SERVICE Nothing in this Agreement will prevent the Consultant from supplying similar consultancy services to any third party during or after the currency of this agreement provided in all cases that such third party supply shall not entail or be likely to lead to a breach of the Consultant's confidentiality obligations to the Company or otherwise interfere in any way with the full and efficient performance of the Consultant's obligations in respect of the Advice. The Consultant shall not supply similar consultancy services if the 2 3 proposed appointment might affect his abilities to properly provide advice under this Agreement or would involve him with competitors of the Group. 6. OTHER INTERESTS The Consultant will not accept any non-executive appointments which are either with competitors of the Group or which will affect the Consultant's ability to provide the Advice under this Agreement. 7. RELATIONSHIP Nothing in this Agreement will create the relationship of agency or partnership or employer and employee between the Company and the Consultant. 8. ASSIGNMENT AND SUBSTITUTION No rights under this Agreement may be assigned by the Consultant save with the prior written consent of the Company. The Consultant may not use any other person to provide the Advice to the Company in his place or sub-contract it, save with the prior written consent of the Company. 9. TITLE TO WORK The Consultant acknowledges that he shall not acquire rights or title to any intellectual property or any Advice provided by him for the purposes of the Company under this Agreement. The rights and title in all Advice provided by the Consultant to the Company shall be and remain with the Company as shall those in any documents provided to the Consultant for the purposes of his providing the Advice and in any notes, copies or extracts derived from those documents which the Consultant might make in the drawing up or delivery of the Advice. 10. PROVISIONS ON TERMINATION GENERALLY 10.1 On the termination of this agreement for whatever reason the Consultant shall; 10.1.1 deliver to the Company forthwith all property of its or any of its clients which may then be in his possession or control, including without limitation any records, plans, programs, designs, specifications, samples and documentation in any form and shall, in the case of any data held on his own computer, erase all such data, code and programs; 10.1.2 cease to hold himself out as in any way connected with the Company; 3 4 10.1.3 thereafter observe the duty of confidentiality as set out in 4.5 of this Agreement notwithstanding its termination. 10.2 The Company shall have the right to terminate this agreement immediately without payment to the Consultant (other than for any figures by way of fee or expenses accrued due up to the date of that termination) if the Consultant dies, becomes bankrupt, is convicted of an indictable offense or commits any act of dishonesty in his provision of the Advice. 11. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of England. 12. NOTICES 12.1 Any notice or other document to be served under this agreement may, in the case of the Company, be delivered or sent by first class post or facsimile process to the Company as its registered office for the time being marked for the attention of the Company Secretary and, in the case of the Consultant may be delivered or sent by first class post to the address set out above. 12.2 Any such notice or other document shall be deemed to have been served: 12.2.1 if delivered at the time of delivery; 12.2.2 if posted, at 10:00 a.m. on the second day (being any day other than a Saturday, Sunday or bank holiday) ("Working Day") after it was put into the post; or 12.2.3 if sent by facsimile process, at the expiration of two hours after the time of despatch, if despatched before 3:00 p.m. on any Working Day, and in any other case at 10:00 a.m. on the Working Day following the date of despatch. 12.3 In proving such service it shall be sufficient to prove that delivery was made or that the envelope containing such notice or other document was properly addressed and posted as a pre-paid first class letter or that the facsimile message was properly addressed and despatched as the case may be. 4 5 Signed /s/ Andrew J. Heath Dated: 1st September 1998 ----------------------------------- -------------------------- Authorised Representative of Therapeutic Antibodies (UK) Ltd Signed /s/ Stuart Wallis Dated: 1st September 1998 ----------------------------------- -------------------------- Consultant 5 6 SCHEDULE I THE ADVICE The Advice the Consultant will provide to the Company will be in relation to the following: 1. Overseeing the implementation of such methods devised by the Consultant for the strategic development and growth of the Company (and the Group) as are adopted by the Company; 2. Attending key meetings with specific customers and suppliers in order to further the interests of the Company (and the Group); 3. Acting as an interface with City institutions and their representatives on behalf of the Company (and the Group). EX-21.1 6 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 Subsidiaries of the Registrant
Subsidiaries of the Company Jurisdiction of Organization - -------------------------------------------------- ---------------------------- Polyclonal Antibodies Limited United Kingdom TAb London Limited United Kingdom TAb Wales Limited United Kingdom Therapeutic Antibodies Australasia Pty. Ltd. Australia Therapeutic Antibodies UK Ltd United Kingdom
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 8,179,496 0 67,677 0 287,802 9,574,194 17,707,468 6,632,702 21,421,502 4,037,012 4,744,216 0 0 52,057 11,970,377 21,421,502 726,960 3,631,809 440,759 988,164 18,532,573 0 1,305,549 0 0 (15,888,928) 0 0 0 (15,888,928) .59 .59
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