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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
________________________
[ X ] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal Year ended July
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 number 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California 33-0476164
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
2714 Loker Avenue West
Carlsbad, California 92008
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(760) 929-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
[ X ] YES [ ] NO
As of October 26,1998, the Registrant had 15,711,877 shares of
Common Stock, no par value, outstanding, and the aggregate
market value of the shares held by non-affiliates on that date
was $29,563,000 based upon the last sales price of the
Registrant's Common Stock reported on the American Stock
Exchange.*
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
_______________
* Excludes 3,264,437 shares of Common Stock held by directors,
executive officers and shareholders whose beneficial ownership
exceeds ten percent of the shares outstanding on October 26,
1998. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the
management or policies of the Registrant, or that such person is
controlled by or under common control with the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual
Meeting of Shareholders to be filed on or before November 28,
1998 are incorporated by reference into Part III.
PART I.
Item 1. Business.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results
could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed in the description of the
Company's business below and the sections entitled "Licenses",
"Manufacturing", "Sales and Marketing", "Competition",
"Government Regulation", "Patents and Proprietary Rights" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", those discussed in the S-3 Registration
Statement File No. 333-25661 filed with U.S. Securities and
Exchange Commission, as well as those discussed in any documents
incorporated by reference herein or therein.
General
Cypros Pharmaceutical Corporation (the "Company") is a specialty
pharmaceutical company which develops and markets products for
the critical care market. The Company's sales and marketing force
is currently marketing three products, Glofil and Inulin, two
injectable drugs that assess kidney function by the measurement
of glomerular filtration rate, and Ethamolin, an injectable drug
that treats bleeding esophageal varices. In addition, the Company
intends to launch two burn/wound care products, Neoflo and
Sildaflo, in the next year. The Company's development programs
target ischemic (impaired blood flow) disorders and the Company
is currently conducting a Phase III clinical trial on Cordox
(formerly CPC-111) in sickle cell crisis patients. The Company is
also planning (i) Phase III clinical trials of Cordox in other
ischemic disorders, such as coronary artery bypass grafting
surgery ("CABG") and (ii) other pivotal clinical trials of
Ceresine in closed head injury patients.
Acquisitions of Approved Products to Build Commercial
Capabilities. The Company has an 11-person sales and marketing
force directed at the critical care market. In advance of the
potential approval of Cordox and Ceresine by the U.S. Food and
Drug Administration ("FDA"), the Company is building a sales,
marketing and distribution capability through the acquisition of
already approved products; Glofil-125 and Inulin, which it
acquired in August 1995, and Ethamolin, which it acquired in
November 1996 from Schwarz Pharma, Inc. In November 1997, the
Company acquired a patented drug delivery technology, Dermaflo,
and two FDA-approved products, Neoflo and Sildaflo, which it is
planning to launch during the next year into the burn and wound
care markets. The Company will continue to build its sales and
marketing force as it completes additional acquisitions. During
the fiscal year ended July 31, 1998, the net sales of the
Company's three acquired products reached $3,446,000, a 42%
increase over the $2,428,000 recorded during the prior fiscal
year.
Cordox and Ceresine: Ischemia Therapies in Late Stage Development
Serving Unmet Medical Needs. There are several million cases of
ischemia-induced disorders annually in the United States,
resulting in over seven hundred thousand deaths and several
billion dollars in annual costs for physical and mental
rehabilitation and ongoing care, and yet there are currently no
FDA-approved drugs to avoid or reverse the massive cell damage
caused by ischemia (termed "cytoprotective drugs"). Ischemic
disorders include heart attack, stroke, surgery, trauma and
various anemias. Currently approved drugs for treating
cardiovascular ischemia, such as "clot busting" drugs, serve to
re-establish blood flow but do not have direct cytoprotective
effects on the ischemic tissue. The Company believes that the
drugs it is developing, Cordox and Ceresine, if approved by the
FDA and successfully marketed, should reduce significantly the
number of fatalities and the rehabilitation and ongoing care
costs associated with ischemic disorders.
Impairment of blood flow reduces the supply of oxygen to body
cells, interrupting normal aerobic metabolism and causing
depletion of adenosine triphosphate ("ATP"), the cells' primary
energy source. Ischemia-induced depletion of ATP produces a
myriad of increasingly destructive cellular events known as the
"toxic ischemic cascade." The Company believes that the
cytoprotective drugs under development by others for treatment of
ischemia are focused on treating specific elements of the toxic
ischemic cascade, leaving other elements free to cause cell,
tissue and organ damage.
The Company's approach, based on preventing or reversing the
toxic ischemic cascade, is comprehensive in nature and, the
Company believes, potentially more effective. Cordox and Ceresine
are designed to act during and after ischemia by maintaining
cellular ATP levels or accelerating their restoration. Cordox (a
natural substance) and Ceresine are more amenable to being used
early in the patient management process, which is critical in
acute care settings.
Further, Cordox and Ceresine are small molecules, easily
deliverable and inexpensive to produce. Significant human data,
available from the Company's own studies and independent,
physician-sponsored Investigational New Drug applications
("INDs"), show that each of these drugs is well tolerated when
administered at clinically relevant doses to healthy subjects.
The minimal side effects associated with Cordox and Ceresine
should reduce their development risk and may permit their broad,
early use in acute care settings, such as emergency rooms, where
rapid access to treatment is of utmost importance.
During the fiscal year ended July 31, 1998, the Company released
positive data in its Phase II trial of Cordox in sickle cell
anemia crisis patients, completed and filed a Phase III protocol
with the FDA and began recruiting clinical trial sites for the
Phase III trial. In addition, the Company also filed a U.S.
patent application during the year based upon the data from the
Phase II trial and in September 1998 was informed by the U.S.
Patent and Trademark Office that all claims had been allowed.
This patent provides specific coverage for the use of Cordox in
sickle cell anemia crisis patients to reduce the painful
occlusive ischemic episodes.
Pre-clinical Programs Focused on Ischemic Disorders. Further
implementing its overall strategy of developing drugs that
protect cells from ischemic damage, the Company is conducting pre-
clinical studies on additional compounds intended to reduce the
neurodegeneration associated with stroke and traumatic head
injury. The Company believes that these drugs may reduce
"excitotoxicity," the excess release of excitatory amino acid
("EAA") neurotransmitters in the brain that stems from
ischemically-caused ATP depletion in certain brain cells. Drugs
being developed in these studies include: (i) a new class of
neuronal calcium channel blockers which block excessive EAA
neurotransmitter release; (ii) a patented series of novel
compounds which augment levels of adenosine (a naturally
occurring substance which inhibits EAA release) in ischemic
tissue by inhibiting its metabolism for which the Company
received a $100,000 Small Business Innovation Research Phase I
grant during the past year; and (iii) a novel series of compounds
which inhibit the release of EAA (especially glutamate) from
glial cells in the brain. The Company is attempting to develop
lead compounds from all three of the above pre-clinical programs
to treat a variety of ischemic disorders of both the
cardiovascular and cerebrovascular systems.
The Company is also pursuing the development of Cordox prodrugs
with improved pharmacokinetic and pharmacodynamic properties that
will permit oral delivery of Cordox and also access to the
central nervous system.
Acquired Pharmaceutical Products
The Company's strategy includes building near-term sustainability
with the cash flow from acquired pharmaceutical products with the
goal of reducing its overall cash consumption rate and building
its sales, marketing and distribution infrastructure in advance
of the potential approval of Cordox and Ceresine by the FDA.
Glofil-125 and Inulin. Kidney disease afflicts more than 2
million persons in the United States and is increasing primarily
due to the growth in diabetes and systemic lupus erythromatosis
cases. Kidney disease results in over $12 billion annually in
healthcare costs in the United States. The measurement of kidney
function (glomerular filtration rate or "GFR") is critical to the
understanding of the disease state and its appropriate
therapeutic intervention. GFR has historically been estimated by
the measurement of endogenous serum creatinine and by creatinine
clearance. These diagnostic assays overestimate kidney function
by as much as 100 percent in patients. The Company believes that
the injection of a renal filtration marker, such as Inulin and
Glofil-125, is the most accurate and direct means of determining
GFR.
Glofil-125 and Inulin are FDA-approved products for the
measurement of GFR. Nephrologists and nuclear medicine
departments at major medical centers are the primary users of
these products. During the fiscal year ended July 31, 1998, the
Company recorded sales from these two products of $1,227,000 and
one customer using Glofil-125 for clinical trials of a renal
therapeutic accounted for 33% of these sales and 12% of the
Company's total sales. That customer has terminated those trials
and the Company expects its sales of Glofil to suffer for the
next six to nine months.
Glofil-125 is an injectable radioactive diagnostic drug, which
provides rapid information on GFRs with great accuracy. It is
currently sold by the Company in 4ml vials and in prefilled
syringes through the 117 nationwide radiopharmacies of Syncor
International pursuant to a distribution agreement entered into
with the Company in February 1996. Inulin is an injectable
diagnostic drug, which provides a measure of GFRs. Inulin is
currently sold in 50 ml ampules with actual patient dosing
correlated to patient weight.
The Company believes there is substantial opportunity for
increased utilization of Glofil-125. Present diagnostic
procedures for measuring kidney function include serum creatinine
and creatinine clearance tests. These two tests are the most
commonly performed methods of measuring kidney function because
of their low cost, however both methods significantly
overestimate kidney function in the estimated 500,000 patients
with severe renal disease. The use of Glofil-125 has been
established in published clinical studies as being a more direct,
true measure of kidney function yielding much more accurate
results than serum creatinine or creatinine clearance tests.
This improved accuracy can be essential to reliably monitoring
disease progression and intervention, as well as assessing renal
impairment in its early and most treatable stage.
In addition, the serum creatinine test involves blood draws and
an average time of 3-4 hours to complete, and the creatinine
clearance test involves 24-hour urine collection, followed by an
additional 3-4 hours of analysis time. The Company is currently
funding a clinical study of Glofil-125 at the University of Texas
Southwest Medical Center to prove the viability of a 45 minute
test. If the study is successful, the Company believes that
Glofil will have a significant competitive advantage over the
other tests.
The biggest impediment to the continued growth in the sales of
Glofil-125 would be a change in the ability of the end users to
obtain reimbursement for the test or the inability of the Company
to include Glofil in the protocols of other clinical studies of
renal therapeutics.
Inulin, which is sold by the Company, and 99mTc-DTPA (which is
not sold by the Company and must be prepared onsite by the end
user) are alternative agents for GFR measurement, however the
preparation and use of these two drugs is difficult and they do
not provide the practical advantages of Glofil-125. The Company
is aware of no new diagnostic drugs being introduced or in
development that the Company is aware of as a competitive threat
to Glofil-125.
Ethamolin. Approximately 75,000 people in the United States
have or are approaching end stage liver disease. Liver disease
(hepatic cirrhosis) results in approximately 25,000 deaths
annually and ranks ninth among the leading causes of death.
Hepatic cirrhosis promotes the formation of esophageal varices
through development of portal hypertension. When intravenous
blood pressure rises, these varicosities may cause a life
threatening form of upper gastrointestinal hemorrhage associated
with a 35-50% mortality rate. At least 50,000 patients in the
United States either have actively bleeding esophageal varices or
are at imminent risk of bleeding.
Early and effective treatment of esophageal varices to achieve
hemostasis is essential to the outcome of the bleeding patient.
The most common pharmaceutical treatment protocol involves the
injection of a sclerosing agent into the varix, achieving clot
formation and obliteration of the varix. This form of hemostasis
is called sclerotherapy and usually requires multiple treatment
sessions. Ethamolin is the only sclerotherapy agent cleared by
the FDA for the treatment of bleeding esophageal varices and has
recently become the market leader in this therapeutic category.
During the fiscal year ended July 31, 1998, the Company recorded
sales from this product of $2,296,000 and one wholesaler
accounted for 35% of these sales and 23% of total sales.
However, there is strong competition from another drug,
Sotradecol, which is being prescribed off-label, and from band
ligation, a form of surgery.
The Dermaflo Technology and the Neoflo and Sildaflo Products. In
November 1997, the Company acquired the Dermaflo technology, a
patented topical drug delivery system, from Enquay, Inc. for a
combination of cash and royaties on net sales. The technology is
a polymer matrix system that can store a variety of different
drugs and release them at a desired rate over an extended period
of time so that optimal clinical response is obtained. Included
in the assets acquired were two FDA-approved products, Neoflo and
Sildaflo, and a substantial amount of manufacturing equipment.
Neoflo and Sildaflo, the first two products that the Company
expects to launch using the Dermaflo technology address consumer
needs in both the over-the-counter and acute care markets. Neoflo
is a dressing that incorporates the triple antibiotic, polymyxin
B sulfate, bacitracin zinc and neomycin sulfate. The Company
intends to manufacture Neoflo in various sizes, small sizes to
address the over-the-counter market (through a distributor) and
larger sizes for the hospital market. Sildaflo is a dressing that
incorporates silver sulfadiazine, the most widely-used topical
antimicrobial for the treatment of burns. The Company intends to
manufacture Sildaflo in various large sizes to address the
hospital/burn clinic market. Initially, the Company intends to
address the critical care markets with its own sales force.
The Company believes the extended-release nature of the
technology will result in decreased treatment-related costs,
increased patient compliance and reduced pain and discomfort,
resulting in a marketing advantage for the products sold using
the Dermaflo technology. While it is difficult to determine the
market potential of Neoflo and Sildaflo, it is known that silver
sulfadiazine and the triple antibiotic have combined sales of
approximately $60 million in the United States in their non-
controlled-release forms.
The Company will be manufacturing the Dermaflo products itself,
has located a facility in Kansas City, Missouri for that purpose,
has installed some of the equipment in that facility and is
beginning to manufacture test batches of the Neoflo product. The
facility will require tenant improvements and a series of
validations to manufacture the Sildaflo product, and therefore,
the Company believes that Neoflo in both its over-the-counter and
acute care sizes will be on the market before Sildaflo. Both
products are expected to be on the market in the next year.
Cytoprotection Market Opportunities
Cytoprotective drugs for acute care settings that treat ischemic
injury are not currently available and the market opportunities
for the Company's drugs are large, totalling several million
cases annually in the United States. The Company believes that
its drugs, if approved, could substantially reduce not only the
large number of fatalities associated with ischemia-related
disorders but also reduce significantly the billions of dollars
spent annually in rehabilitation and ongoing care in the United
States of these victims.
The Company's drugs are designed to be administered intravenously
in order to speed their delivery to the ischemic tissue. In order
to ensure early interventions, they are intended to be standard
components in hospital emergency rooms, operating theater suites,
endoscopy suites and radiology suites. Their lack of acute
toxicity should suit them for this purpose.
Circulatory System Ischemia. Cardiovascular ischemia can result
in a spectrum of clinically significant events ranging from
angina (pain) to heart attack and sudden death. In addition to
the numerous trauma or disease related causes of ischemia, there
are a variety of voluntary surgical procedures which result in
ischemia to vital organ systems. Procedures such as coronary
artery bypass grafting surgery, which are performed to improve
blood flow to the heart, induce temporary ischemia which can
result in tissue damage. Thus, Cordox, if approved, could also
be a part of the treatment regimen for these disorders. All of
these conditions or procedures represent potential opportunities
for use of the Company's drugs to reduce the tissue damage known
to be associated with them.
Cerebrovascular ischemia (stroke) can result in temporary loss of
consciousness, permanent behavioral and neurologic impairment,
coma and death. Traumatic injury to the head is caused by
accidents, near drownings and similar incidents. The resultant
medical problems are, in large part, caused by ischemia to the
brain. The biochemical processes associated with stroke and head
trauma are thought to be very similar; thus, the Company expects
drugs developed for one indication to be useful for the other.
Sickle Cell Anemia. Sickle cell anemia is an autosomal recessive
genetic disease carried by about 8% of African-Americans and a
lesser number of people native to the Mediterranean region.
Approximately 72,000 African-Americans suffer from the most
severe form (homozygous) of the disease, where the red blood
cells form "sickle" shapes that can occlude capillaries and
result in severe and disseminated ischemia (termed vaso-occlusive
events or "VOE"). Most sickle cell patients undergo multiple VOEs
each year. Cordox has been shown pre-clinically to help reduce
this "sickling" process and to reduce pain in sickle cell disease
patients. The Company is evaluating it in a Phase III trial of
sickle cell anemia crisis patients. The FDA has granted orphan
drug designation to Cordox in this indication.
The Pathology of Ischemia
Metabolic Aspects (All Tissues). All living animal cells require
glucose and oxygen to survive, both of which are supplied to
tissues by the blood. Glucose is transformed into carbon dioxide
and water with the resultant formation of ATP. ATP is the
universal fuel which is required to keep the cell alive. During
and after ischemia, the decrease in cellular ATP levels damages
the cell and, the Company believes, results in the toxic ischemic
cascade, a myriad of cell-damaging processes discussed below
which cause further cell damage.
ATP generation occurs in two phases. The first phase, called
glycolysis or anaerobic metabolism, does not require oxygen. The
second phase, called aerobic metabolism or the Krebs cycle,
requires oxygen and occurs in mitochondria. Glycolysis is a means
of producing cellular energy in ischemic conditions, and
therefore, represents the body's natural defense against ischemic
damage. For this reason, the facilitation of glycolysis is of
interest therapeutically in the prevention of ischemic damage to
tissues and organs. When pyruvic acid builds up during ischemia
due to the inability of aerobic metabolism to utilize it, an
enzyme converts it to lactic acid which blocks glycolysis. The
therapeutic principle underlying Cordox and Ceresine is to
facilitate glycolysis during and after ischemia so the cell
continues to produce ATP and the toxic ischemic cascade is pre-
empted or reversed. Specifically, Cordox bypasses the lactic acid
block and does not need to be energized by ATP to be metabolized.
Ceresine reduces ischemia induced lactic acid accumulation by
removing the cause of the metabolic block, and therefore, allows
energy metabolism to continue.
Excitotoxicity (Nerve Tissue). The destructive impact of ATP
depletion in nerve tissue is further complicated by the
over-production in nerve cells of various excitatory amino acids,
chemicals that transmit nerve impulses from one nerve cell to
another. The over-production and release of EAAs (predominately
glutamate and aspartate) by nerve cells exposed to ischemia over-
stimulates adjacent postsynaptic nerve cells, causing them in
time to succumb to metabolic exhaustion and cell death. This
ischemia-induced process, called delayed excitotoxicity, is
associated with a number of acute (stroke and traumatic head
injury) and chronic (Alzheimer's, Parkinson's Disease and
Amyotrophic Lateral Sclerosis) neurologic disorders. Controlling
delayed excitotoxicity by blocking the postsynaptic EAA receptors
has recently attracted the attention of both academic and
pharmaceutical scientists. To date, the drugs in development that
act by this mechanism have considerable side effects and only
block selected receptor subtypes, therefore only dealing with
part of the problem since all receptor subtypes appear to cause
damage.
Recent evidence has shown that specific presynaptic channels,
neuronal calcium channels, regulate the release of
neurotransmitters in nerve cells. The Company has shown that
compounds which block excessive EAA neurotransmitter release from
nerve cells greatly reduce excitotoxicity and post-ischemic
tissue damage in animal models of stroke and head trauma. The
Company is seeking to develop drugs that specifically block
neuronal calcium channels and therefore, if successful, would
block the excitotoxic process and reduce the resultant cell
damage. These drugs are believed to have a more comprehensive
effect on excitotoxicity than the specific postsynaptic EAA
receptor blockers, since they will reduce the stimulation of all
and not just some EAA receptors.
The Company has also shown that adenosine, a natural compound,
has cytoprotective properties. The Company is seeking to develop
a series of drugs, called adenosine metabolism inhibitors, which,
if successful, would augment adenosine levels in ischemic tissue
and have cytoprotective effects in both brain and heart tissue.
See "Adenosine Metabolism Inhibitor Program."
Additionally, the Company is developing a novel series of
compounds which inhibit the release of EAA (especially glutamate)
from glial cells in the brain.
The Toxic Ischemic Cascade. Ischemia-induced cell damage
triggers a number of processes which cause further damage to each
affected cell and its surrounding cells. This myriad of
destructive processes is facilitated by reperfusion injury, which
occurs after blood flow is re-established. The traumatized,
ATP-depleted cell enters into the toxic ischemic cascade,
resulting in the release of a host of toxic agents, including
damaging reactive chemicals called free radicals, as well as
other molecules that are products of cell membrane breakdown,
all of which damage cells. Excessive intracellular calcium
buildup is also an element of the toxic ischemic cascade and also
triggers a host of other damaging processes, such as activation
of proteolytic enzymes which break down proteins and digest cells
and activation of protein kinases which regulate cell metabolism.
The traumatized cell also releases agents which stimulate the
immune system, activating various blood cells, such as
neutrophils and macrophages which actually eliminate the cell
affected by ischemia. Rather than target each of these myriad
events, the Company's drugs, Cordox and Ceresine, address ATP
replenishment so that the cell can correct the ischemic cascade
naturally.
There are currently no known FDA-approved cytoprotective drugs.
Those under development are, to the Company's knowledge,
primarily aimed at specific elements of the toxic ischemic
cascade. The Company believes that its approach to
cytoprotective drug development is unique in that it seeks to pre-
empt or reverse the entire cascade by decreasing the initial
metabolic trauma which triggers it (i.e., ATP depletion). The
Company believes that this approach is preferable to treating
specific elements of the cascade, since it more comprehensively
addresses the underlying pathology and should therefore result in
more efficacious therapy.
Cardiovascular and Cerebrovascular Ischemia Drugs in Development-
The Metabolism Program
The Company is starting a Phase III clinical trial on Cordox in
sickle cell crisis patients. The Company has also released
substantial amounts of data from its CABG trial of Cordox and its
traumatic head injury trial of Ceresine and is planning Phase III
trials in both of these indications.
Cordox. Cordox is a small phophoryllated sugar that the Company
believes (based on extensive pre-clinical and mechanistic data)
stimulates and maintains glycolysis in cells undergoing ischemia
by circumventing the ischemia-induced blockage of this process.
The drug also appears to inhibit various aspects of immune system
activation which underlie reperfusion injury. The Company has
licensed or obtained several issued U.S. patents which cover the
use of Cordox in several acute ischemic indications and a U.S.
patent on a novel formulation of Cordox.
There are numerous published U.S. and foreign clinical studies
with Cordox, where more than 500 patients were administered the
drug, indicating that Cordox is well tolerated in humans with
little or no side effects. These studies indicate that the drug
improves heart function and recovery in various ischemic
situations where the heart is injured. In addition, 317 patients
have participated in the four Phase II trials of Cordox under the
Company's IND and the drug continues to be well tolerated.
A total of 125 CABG patients participated in the Company's double-
blind, placebo-controlled Phase II trial, and the data released
demonstrates that in patients receiving the active drug, Cordox
(a) has a cardioprotective effect on heart muscle, (b) improves
key parameters of heart function, including cardiac output, left
ventricular stroke work index and cardiac index and (c) reduces
the need for inotope support post-operatively in the intensive
care unit (the "ICU") and results in shorter patient stays in
the ICU.
In October 1997, the Company released positive data from a 47-
patient double-blind, placebo-controlled, dose-ranging Phase II
clinical trial with Cordox in sickle cell anemia crisis patients
showing that the drug significantly reduced pain during crisis
using two different measures of pain, the visual analog scale and
the categorical assessment scale.
Ceresine. Ceresine is also a small non-peptide molecule which
acts on glycolysis at a different site from Cordox. The Company
has licensed or obtained two issued U.S. patents covering the use
of Ceresine in cerebral ischemia. The Company believes that
Ceresine stimulates a specific enzyme which is present in the
membrane of mitochondria that removes a precursor of lactic acid
(pyruvic acid) from the cytoplasm of the cell by transporting it
into the mitochondria and converting it to acetyl coA. This
results in a reduction of lactic acid in the cell. Increased
post-ischemia accumulation of lactic acid is a major causal
factor in the cessation of glycolysis, the resultant decrease in
cellular ATP levels and eventual cell death. Numerous studies
have shown that Ceresine reduces post-ischemia lactic acid levels
in humans subjected to various traumatic events which would
otherwise have resulted in increased lactic acid (lactic
acidosis).
Ceresine has been employed by clinical investigators in patients
on an experimental basis for the intravenous treatment of lactic
acidosis. Published clinical studies and the Company's own Phase
I data have established that Ceresine reduces serum lactic acid
and exhibited no serious side effects at the dose levels in that
study. It has also been shown in human studies to permeate the
blood-brain barrier and to reduce brain lactic acid levels in
congenital lactic acidosis patients.
The Company's Phase II clinical trial data on Ceresine in closed
head injury patients showed that the drug crosses the blood-brain
barrier at high levels and very quickly thereafter reduces brain
lactate levels substantially. This effect lasted for at least 12
hours. Serum lactate levels were also reduced substantially in
the drug-treated group. The strength of this data has led the
Company to announce that it will pursue the Phase III development
of Ceresine in this indication and in July 1998, the FDA granted
expedited development status to Ceresine in head injury under
Subpart E of the FDA regulations. In addition, the Company has
completed enrollment in a Phase II clinical trial on Ceresine in
stroke patients. 103 patients have participated in the Phase I
and two Phase II trials of Ceresine under the Company's IND and
the drug continues to be well tolerated.
Ischemia Drugs in Pre-clinical Research-The Metabolism and
Excitotoxicity Programs
The Company is also seeking to develop new drugs for the
treatment of ischemia-related disorders involving neurological
damage, such as stroke, traumatic head injury, epilepsy and
chronic neurodegenerative disorders such as Alzheimer's and
Parkinson's disease. These pre-clinical research programs are
focused on either the metabolic or the excitotoxicity aspects of
ischemia therapeutics, and involve the chemical modification of
identified lead molecules that regulate adenosine metabolism,
various calcium ion channels on neuronal cells and chloride
channels on glial cells.
Adenosine Metabolism Inhibitor Program. The Company is seeking to
develop CPC-405 and certain of its derivatives, which are novel
small molecules with demonstrated potency as inhibitors of
adenosine metabolism. Adenosine is a natural cytoprotective agent
which is generated in ischemic tissue and serves to protect cells
from a variety of traumatic situations. Naturally generated
adenosine is rapidly degraded by enzymes. The Company expects
that CPC-405 will increase the level of adenosine in tissue
traumatized by ischemia and thereby increase its cytoprotective
effect. A U.S. patent has been issued on the composition of the
CPC-400 series of drugs. During the past yeart, the Company
licensed an additional U.S. patent from the University of Rhode
Island which covers the composition of additional CPC-400 series
compounds.
Neuronal Calcium Channel Blocker Program. The Company believes
that the therapeutic approach to excitotoxicity currently
attracting the most commercial attention involves the development
of specific EAA receptor blockers which inhibit the excessive
postsynaptic EAA action that is triggered by ischemia. Although
these EAA receptor blockers have neuroprotective properties in
cell culture and animal models of ischemia, their usefulness is
hampered by toxic side effects associated with the blockage of
EAA receptors and by the fact that there are multiple EAA
receptor subtypes, all of which appear to cause post-ischemic
damage when they are excessively stimulated. Also, a number of
these EAA receptor blockers have recently failed in various
stroke and head injury clinical trials.
The Company is seeking to develop new classes of drugs that are
designed to remedy excitotoxicity in a potentially more complete
and effective manner by reducing EAA release from nerve cells,
thereby reducing the over-stimulation of all EAA receptor
subtypes. This pre-synaptic approach to neuroprotection is viewed
by the Company as potentially more effective than blocking
receptors post-synaptically.
Specifically, the Company is seeking to develop separate classes
of small-molecule drugs that act as neuronal calcium channel
blockers, which it has labelled as the CPC-300, CPC-800 and CPC-
8000 series and has synthesized over 100 compounds in this
series. If successful, these drugs would have the ability to
normalize or decrease EAA release and thereby comprehensively
reduce the over-stimulation of EAA receptors. Prototype agents
such as CPC-8027 have shown the desired effect of acting at the
neuronal calcium channels, which controls EAA release. The
Company has demonstrated neuroprotection in several pre-clinical
models with CPC-304, CPC-317, CPC-877 and CPC-8027 and intends to
further modify them structurally with the goal of improved drug
delivery to the central nervous system. These modifications will
require additional pre-clinical testing.
Glial Chloride Channel Blockers. The Company has synthesized a
series of agents designated as the CPC-700 series. These agents
act to inhibit glial cell swelling in the brain which occurs
after injury in disorders such as stroke and head injury. These
agents inhibit the excess release of EAAs from glial cells and
have demonstrated neuroprotective properties. The Company is
currently filing patents on these compounds.
Licenses
The Company believes its strategic objectives can best be met by
combining its in-house research and development efforts with
licenses and research collaborations with scientists at outside
academic and clinical research centers.
The principal sources of the Company's existing licenses are:
Angel K. Markov, M.D.
Cordox. The Company has obtained an exclusive license from Dr.
Markov to four U.S. patents covering the use of Cordox in a
number of ischemic indications. As part of the license, the
Company is funding clinical development in Dr. Markov's
laboratories at the University of Mississippi Medical Center. In
this regard, the Company has undertaken certain development
obligations which must be met in order to maintain this license
in force. In the event the Company breaches the license
agreement, such as by not meeting certain milestones within the
specified time periods or by failing to expend certain amounts in
connection with clinical trials within specified time periods,
the license will automatically terminate and all rights under the
license and information acquired by the Company concerning any
products based on the licensed technology will revert to Dr.
Markov. In the event of such termination, the Company will
retain the rights to market products for which sales occurred
within the calendar year prior to the termination, and all other
products and information related thereto based on the licensed
technology will revert to Dr. Markov. To date, the Company has
met all such milestones.
University of Cincinnati
Ceresine. The Company has an exclusive license from the
University of Cincinnati ("UC") to a U.S. patent covering the use
of Ceresine in cerebral ischemia. The Company has undertaken
certain development obligations which must be met in order to
maintain its rights in force. If certain milestones are not met
by the Company within specified time periods, UC may, in its sole
discretion, elect to continue the agreement, negotiate in good
faith with the Company to modify the agreement or terminate the
agreement upon 30 days' written notice in which event all rights
under the license would revert to UC. To date, the Company has
met all such milestones.
Manufacturing
The Company does not currently manufacture any of its acquired
products or its products in development but is undertaking to
manufacture the Dermaflo products. The finished forms of Glofil,
Inulin, Ethamolin, Cordox and Ceresine are manufactured for the
Company under contract by established manufacturers and
alternative manufacturers have been qualified for Cordox and
Ceresine. In the case of Inulin, Cordox and Ceresine, the Company
is responsible for obtaining the bulk drug from a third party and
delivering it to the finished goods manufacturer. In the case of
Inulin and Ceresine, the Company has qualified alternative
sources of supply for the bulk drug. There can be no assurance
that any of the Company's bulk or finished goods contract
manufacturers will continue to meet the Company's requirements
for quality, quantity and timeliness or the FDA's current Good
Manufacturing Practice ("cGMP") requirements or that the Company
would be able to find a substitute bulk manufacturer for Cordox,
or a substitute finished goods manufacturer for Inulin, Glofil
and Ethamolin or any other of its products which would meet these
requirements or that lots will not have to be recalled with the
attendant financial consequences to the Company.
In addition, the Dermaflo product line is the Company's first
attempt at in-house manufacturing of any of its products and
there can be no assurance that the Kansas City facility will be
completed, or when completed, will be approved by the FDA, or
when approved will have the capacity to meet demand. Although the
Company believes the facility will meet cGMP requirements, the
Company has not manufactured any products using the Dermaflo
technology yet in the facility. The Company also faces risks
inherent in the operation of a single facility for the
manufacture of Dermaflo products, including risks of unforeseen
plan shutdowns due to personnel, equipment or other factors. Any
delay in the manufacturing of Dermaflo products could result in
delays of product shipments, which could have a material adverse
effect on the Company's business, financial condition and results
of operations. Further, the Company is relying on third parties
to supply it with the active ingredients for the Neoflo and
Sildaflo products in bulk form, and there can be no assurance
that such third parties may not cause delays in the manufacture
or shipments of these Dermaflo products.
The Company's limited manufacturing experience and its dependence
upon others for the manufacture of bulk or finished forms of its
products may adversely affect the future profit margin, if any,
on the sale of those products and the Company's ability to
develop and deliver products on a timely and competitive basis.
In the event the Company is unable to manufacture its products,
directly or indirectly through others, on commercially acceptable
terms, it may not be able to commercialize its products as
planned.
Sales and Marketing
The Company currently has a director of marketing, a customer
service representative, a product manager, a national sales
manager and six field sales representatives for Glofil, Inulin
and Ethamolin and is hiring additional sales representatives.
The Company believes that it will be able to serve the hospital
market in North America with a 50 to 70 person sales and
marketing staff. There can be no assurance that the Company will
be able to establish sales and distribution capabilities or be
successful in gaining market acceptance for its drugs.
Competition
The Company faces competition from specialized biotechnology
companies, pharmaceutical companies of all sizes, academic
institutions, government agencies and public and private research
organizations, many of which have extensive resources and
experience in research and development, clinical testing,
manufacturing, regulatory affairs, distribution and marketing.
Some of these entities have significant research activities in
areas upon which the Company's programs focus. Many of the
Company's competitors possess substantially greater research and
development, financial, technical, marketing and human resources
than the Company and may be in a better position to develop,
manufacture and market drugs. These entities may discover and
develop drugs competitive with or superior to those developed by
the Company.
Government Regulation
The manufacture and sale of the Company's products are subject to
extensive regulation by United States and foreign governmental
authorities prior to commercialization. In particular, drugs are
subject to rigorous preclinical and clinical testing and other
approval requirements by the FDA, state and local authorities and
comparable foreign regulatory authorities. The process for
obtaining the required regulatory approvals from the FDA and
other regulatory authorities takes many years and is very
expensive. There can be no assurance that any produuct developed
by the Company will prove to meet all of the applicable standards
to receive marketing approval in the United States or abroad.
There can be no assurance that any such approvals will be granted
on a timely basis, if at all. Delays and costs in obtaining
these approvals and the subsequent compliance with applicable
federal, state and local statutes and regulations could
materially adversely affect the Company's ability to
commercialize its products and its ability to receive sales
revenues.
The research activities required by the FDA before a drug can be
approved for marketing begin with extensive preclinical animal
and laboratory testing. The tests include laboratory evaluation
of product chemistry and animal studies for the safety and
efficacy of the drug. The results of these studies are submitted
to the FDA as part of an IND which is reviewed by the FDA prior
to beginning clinical trials, first in normal volunteers and then
in patients with the disease.
Clinical trials involve the administration of the investigational
new drug to healthy volunteers or to patients, under the
supervision of a qualified physician/principal investigator.
Clinical trials are conducted in accordance with governmental
statutes, regulations and guidelines and under protocols that
detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be evaluated by an independent
Institutional Review Board ("IRB") at the institution at which
the study will be conducted. The IRB considers, among other
things, ethical factors, the safety of human subjects and the
possible liability of the institution, and approves the informed
consent to be obtained from all subjects and patients in the
clinical trials. The Company will have to monitor the conduct of
clinical investigators in performing clinical trials and their
compliance with FDA requirements.
Clinical trials are typically conducted in three sequential
phases (Phase I, Phase II and Phase III), but such phases may
overlap. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any
specified time period, if at all, with respect to any of the
Company's drugs. Furthermore, the Company or the FDA may suspend
clinical trials at any time if it is felt that the subjects or
patients are being exposed to an unacceptable health risk or that
the investigational product lacks any demonstrable efficacy.
The results of the pharmaceutical development, preclinical
studies and clinical studies are submitted to the FDA in the form
of a New Drug Application ("NDA") for approval of the marketing
and commercial shipment of the drug. The testing and approval
process is likely to require substantial time (frequently five to
eight years or more) and expense and there can be no assurance
that any approval will be granted on a timely basis, if at all.
The FDA may deny an NDA if applicable regulatory criteria are not
satisfied, require additional testing or information, or require
post-marketing testing and surveillance to monitor the safety of
the Company's drugs. Notwithstanding the submission of the NDA
and any additional testing data or information, the FDA may
ultimately decide that the application does not satisfy its
regulatory criteria for approval. Finally, drug approvals may be
withdrawn if compliance with labeling and cGMP regulatory
standards is not maintained or if unexpected safety problems
occur following initial marketing.
Among the conditions for clinical studies and NDA approval is the
requirement that the prospective manufacturer's quality control
and manufacturing procedures conform to cGMP, which must be
followed at all times. In complying with standards set forth in
these regulations, manufacturers must continue to expend time,
monies and effort in the area of production and quality control
to ensure full technical compliance.
Also, the Prescription Drug Act of 1997 requires that companies
engaged in pharmaceutical development, such as the Company, pay
user fees of at least $100,000 upon submission of an NDA. In
addition to regulations enforced by the FDA, the Company is
subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other
present and potential future federal, state or local regulations.
For marketing outside the United States, the Company is subject
to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements
governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country.
Patents and Proprietary Rights
The Company's success may depend in large measure upon its
ability to obtain patent protection for its products, maintain
confidentiality and operate without infringing upon the
proprietary rights of third parties. The Company has obtained
patent coverage, either directly or through licenses from third
parties, for certain of its products. The Company currently owns
or has licensed a total of 13 U.S and foreign patents covering
Cordox and Ceresine in a variety of ischemic disorders. It also
holds an exclusive license to 5 U.S. and foreign patents on the
Dermaflo technology, 2 issued U.S. patents on adenosine
metabolism inhibitors, 2 issued U.S. patents on the use of
disulfiram in ischemic disorders and an issued U.S. patent of
aminoglycosides as neuroprotective agents.
In addition to the patents issued and allowed as mentioned above,
the Company has also filed several other patent applications in
the United States and abroad on its various products and expects
to file additional applications in the future. There can be no
assurance that any of these patent applications will be approved,
except where claims have already been examined and allowed, or
that the Company will develop additional proprietary products
that are patentable. Nor can there be any assurance that any
patents issued to the Company or its licensors will provide the
Company with any competitive advantages or will not be challenged
by third parties or that patents issued to others will not have
an adverse effect on the ability of the Company to conduct its
business. Furthermore, because patent applications in the United
States are maintained in secrecy until issue, and because
publication of discoveries in the scientific and patent
literature often lag behind actual discoveries, the Company
cannot be certain that it was the first chronologically to make
the inventions covered by each of its pending U.S. patent
applications, or that it was the first to file patent
applications for such inventions. In the event that a third
party has also filed a U.S. patent application for any of its
inventions, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark
Office to determine priority of the invention, which could result
in substantial cost to the Company, even if the eventual outcome
is favorable to the Company. In addition, there can be no
assurance that the Company's U.S. patents, including those of its
licensors, would be held valid by a court of law of competent
jurisdiction. If patents are issued to other companies that
contain competitive or conflicting claims which ultimately may be
determined to be valid, there can be no assurance that the
Company would be able to obtain a license to any of these
patents.
Under Title 35 of the United States Code, as amended by the
General Agreement on Tariffs and Trade implementing the Uruguay
Round Agreement Act of 1994 ("GATT"), patents that issue from
patent applications filed prior to June 8, 1995 will enjoy a 17-
year period of enforceability as measured from the date of patent
issue while those that issue from applications filed on or after
June 8, 1995 will enjoy a 20-year period of enforceability as
measured from the date the patent application was filed or the
first claimed priority date, whichever is earlier. Patents that
issue from applications filed on or after June 8, 1995 may be
extended under the term extension provisions of GATT for a period
up to five years to compensate for any period of enforceability
lost due to interference proceedings, government secrecy orders
or appeals to the Board of Patent Appeals or the Federal Circuit.
Under the Drug Price Competition and Patent Term Restoration Act
of 1984, including amendments implemented under GATT (the "Patent
Term Restoration Act"), the period of enforceability of a first
or basic product patent or use patent covering a drug may be
extended for up to five years to compensate the patent holder for
the time required for FDA regulatory review of the product. This
law also establishes a period of time following FDA approval of
certain drug applications during which the FDA may not accept or
approve applications for similar or identical drugs from other
sponsors. Any extension under the Patent Term Restoration Act and
any extension under GATT are cumulative. There can be no
assurance that the Company will be able to take advantage of such
patent term extensions or marketing exclusivity provisions of
these laws. While the Company cannot predict the effect that such
changes will have on its business, the adoption of such changes
could have a material adverse effect on the Company's ability to
protect its proprietary information and sustain the commercial
viability of its products. Furthermore, the possibility of
shorter terms of patent protection, combined with the lengthy FDA
review process and possibility of extensive delays in such
process, could effectively further reduce the term during which a
marketed product could be protected by patents.
The Company also relies on trade secrets and proprietary
know-how. The Company has been and will continue to be required
to disclose its trade secrets and proprietary know-how to
employees and consultants, potential corporate partners,
collaborators and contract manufacturers. Although the Company
seeks to protect its trade secrets and proprietary know-how, in
part by entering into confidentiality agreements with such
persons, there can be no assurance that these agreements will not
be breached, that the Company would have adequate remedies for
any breach or that the Company's trade secrets will not otherwise
become known or be independently discovered by competitors.
Scientific Advisory and Clinical Trials Advisory Boards
Scientific Advisory Board
The Company currently has a Scientific Advisory Board ("SAB")
whose members periodically advise the Company with respect to the
Company's scientific research and development programs. The SAB
does not meet as a group; rather, individual members are
contacted for advice on an as-needed basis. The members are
compensated through the grant of stock options and, if meetings
are held, will receive fees for attending meetings as well as
reimbursement for expenses. The Company has hired certain SAB
members to perform services for the Company such as assay
development and compound preparation.
The members of the Company's SAB are:
Name and Affiliation Area of Expertise
Chung Hsu, M.D., Ph.D.
Director of Stroke Clinical Trials,
Washington University, St. Louis Animal models of
School of Medicine stroke/clinical trials
Ronald Hayes, Ph.D.
Professor of Neurosurgery, Animal models of head
University of Texas, Houston trauma
Bruce P. Bean, Ph.D.
Professor of Neurobiology,
Harvard University Neuronal ion channels
Robert Parks, M.D., Ph.D.
Professor Emeritus of Pharmacology,
Brown University Biochemical pharmacology
John Olney, M.D.
Professor of Psychiatry and
Neuropathology, Excitotoxicity;
Washington University, St. Louis animal models of stroke
Edward J. Cragoe, Ph.D.
Former Senior Director of
Medicinal Chemistry, Medicinal chemistry/ion
Merck Sharp & Dohme Research Laboratories channels
K.C. Nicolaou, Ph.D.
Head of Chemistry,
The Scripps Research Institute
Professor of Chemistry,
University of California, San Diego Medicinal chemistry
Harold Kimelberg, Ph.D.
Professor, Division of Neurology, Glial cell release of
Albany Medical College glutamate
Elie Abushanab, Ph.D. Medicinal chemistry/
adenosine
Thomas J. Maloney
President,
The Iso-Tex Companies, Radioisotopes/Nuclear
Friendswood, Texas Medicine
Claude Wasterlain, M..D.
Chief of Neurology Services,
Sepulveda VA Medical Center,
Professor of Neurology,
University of California Los Angeles Stroke and epilepsy
Clinical Trials Advisory Boards
The Company has assembled two Clinical Trials Advisory Boards
("CTABs"), composed of physician "thought leaders" in the
cardiology and neurology area, to assist in the planning, design
and execution of the Company's clinical trials involving Cordox
and Ceresine. The individuals who constitute each of the CTABs
are paid consultants to the Company and are listed below:
Cardiovascular Clinical Trials Advisory Board
Eric J. Topol, M.D. (Chair)
Chairman, Department of Cardiology,
Director, Center for Thrombosis and Vascular Biology,
Cleveland Clinic and Foundation
David R. Holmes, Jr., M.D.
Associate Professor of Medicine,
Mayo Clinic Medical School
Robert M. Califf, M.D.
Associate Professor of Medicine,
Duke University Medical Center
Cerebrovascular Clinical Trials Advisory Board
William G. Barsan, M.D. (Chair)
Director of Emergency Medicine,
University of Michigan Medical School
Patrick M. Kochanek, M.D.
Safar Center for Resuscitation Research
University of Pittsburgh
Pittsburgh, Pennsylvania
Randall M. Chestnut, M.D.
Oregon Health Sciences Center
School of Medicine, Division of Neurosurgery
Portland, Oregon
Patrick D. Lyden, M.D.
Chief, Stroke Clinic
University of California, San Diego
Charles F. Contant, Jr., Ph.D.
Baylor College of Medicine
Department of Neurosurgery
Houston, Texas
Anthony Marmarou, Ph.D.
Medical College of Virginia
Division of Neurosurgery
Richmond, Virginia
The members of the SAB and the CTABs may be employed by or have
consulting agreements with entities other than the Company, some
of which may compete with the Company. These other obligations
may limit the availability of the members to the Company. Most
are not expected to participate actively in the Company's
development. Certain of the institutions with which the members
are affiliated may have regulations or policies which are unclear
with respect to the ability of such persons to act as part-time
consultants or in other capacities for a commercial enterprise.
Regulations or policies now in effect or adopted in the future
may limit the ability of the members to consult with the Company.
The loss of the services of certain of the members could
adversely affect the Company.
Furthermore, inventions or processes discovered by the SAB and
CTAB members will not, unless otherwise agreed, become the
property of the Company but will remain the property of such
persons or of their full-time employers. In addition, the
institutions with which the members are primarily affiliated may
make available the research services of their scientific and
other skilled personnel, including the members, to entities other
than the Company. In rendering such services, such institutions
may be obligated to assign or license to a competitor of the
Company patents and other proprietary information which may
result from such services, including research performed by a
member for a competitor of the Company.
Scientific and Other Personnel
As of October 26, 1998, the Company had 42 full-time employees,
eight of whom hold Ph.D. degrees, two of whom also hold an M.D.
degree and one of whom holds a J.D. degree. Twelve of the full-
time employees are employed in finance and general
administration, seven in clinical and regulatory affairs, eight
in quality control and quality assurance, four in pre-clinical
research and development, and eleven in sales and marketing,
customer service and business development. The Company believes
that it maintains good relations with its employees.
Executive Officers of Registrant
Set forth below is certain information with respect to the
executive officers of the Company at October 26, 1998:
Name Age Position
Paul J. Marangos, 51 Chairman of the Board, President
Ph.D. and Chief Executive Officer
Zofia E. Dziewanowska, 59 Senior Vice President, Drug
Ph.D, M.D. Development and Regulatory Affairs
David W. Nassif, 44 Senior Vice President, Chief Financial
J.D. Officer and Secretary
Larry A. Risen 36 Vice President of Corporate Development
Brian W. Sullivan 39 Vice President of Product Development
Paul J. Marangos, Ph.D., has been President and Chairman of the
Board since he founded the Company in November 1990. In February
1993, he became Chief Executive Officer. From April 1988 to
November 1990, he was Senior Director of Research at Gensia
Pharmaceuticals, Inc., a biotechnology company. From 1980 to
1988, he was Chief of Neurochemistry in the Biological Psychiatry
Branch, National Institute of Mental Health. Dr. Marangos
obtained his doctorate in biochemistry from the University of
Rhode Island and did his post-doctoral work at the Roche
Institute of Molecular Biology. He has published 250 research
papers and four books in the field of biochemistry and
pharmacology, the most recent of which is entitled Emerging
Strategies in Neuroprotection. He is a member of the Society for
Neuroscience and the American Academy for the Advancement of
Science. Dr. Marangos is the founding editor of the Journal of
Molecular Neuroscience published by Humana Press.
Zofia E. Dziewanowska, Ph.D., M.D., joined the Company in October
1997 as the Senior Vice President of Drug Development and
Regulatory Affairs. From May 1994 to October 1997, she was the
Senior Vice President, Global Clinical Affairs, of Genta
Incorporated ("Genta"), a publicly-traded pharmaceutical company
principally engaged in developing a proprietary drug delivery
technology to develop oral controlled-release formulations.
Prior to joining Genta, Dr. Dziewanowska spent 17 years at
Hoffman-La Roche in various research and development positions,
including Vice President and Director of International
Therapeutic Research and Medical Affairs Advisor. Dr.
Dziewanowska currently holds a faculty appointment at the Cornell
University Medical School. She also has held various positions in
the Pharmaceutical Research and Manufacturers Association of
America, the most recent being a Vice-Chairman of the Medical
Section Steering Committee, American Association of
Pharmaceutical Physicians and the International Federation of
Pharmaceutical Medicine. Dr. Dziewanowska received an M.D. degree
from the University of Warsaw Medical School and a Ph.D. in
physiology from the Institute of Immunology and Experimental
Therapeutics, Polish Academy of Science.
David W. Nassif, J.D., joined the Company in August 1993 as Vice
President, Chief Financial Officer and Secretary, and was
promoted to Senior Vice President in September 1997. From
January 1993 to August 1993, he was a consultant to various
public and private companies in the areas of capital raising,
mergers and acquisitions, investor relations and securities law
compliance. From July 1992 to January 1993, he was the Vice
President, Chief Financial Officer and Assistant Secretary of
999, Inc., a diversified manufacturing and environmental services
company. From December 1987 to July 1992, he was the Vice
President and Assistant Secretary of Showscan Corporation, a
technology company. Mr. Nassif holds honors finance, management
information systems and law degrees from the University of
Virginia.
Larry A. Risen joined the Company in November 1994 as Associate
Director of Business Development, was promoted to Director of
Business Development in August 1995 and to Vice President of
Corporate Development in September 1998. From August 1990 to
November 1994, Mr. Risen was employed at Gen-Probe, Inc., a
developer, manufacturer and marketer of diagnostic tests; first
as Product Manager from August 1990 to November 1993 and as
Marketing Manager from November 1993 to November 1994. Mr. Risen
holds a B.Sc. degree in Biology from the University of Iowa.
Brian W. Sullivan, Ph.D., joined the Company in April 1994 as
Associate Director, Chemistry, was promoted to Director of
Pharmaceutical Chemistry in November 1995 and to Vice President
of Product Development in September 1998. From 1985 to April
1994, Dr. Sullivan was employed at Hybritech, Inc., a developer,
manufacturer and marketer of in vitro diagnostic products; first
as Research Scientist from 1985 to 1991 and then as a Scientific
Investigator from 1991 to 1994. Dr. Sullivan holds a B.A. in
Chemistry and a Ph.D. in Marine Natural Products Chemistry from
the University of California, San Diego.
Item 2. Properties.
The Company leases two buildings in Carlsbad, California at a
total monthly rental of $37,651. All of the Company's operations
are located in 18,339 square feet of space located at 2714 Loker
Avenue West (the "2714 Space"). In April 1997, the Company
subleased its other building at 2732 Loker Avenue West (the "2732
Space") to another pharmaceutical company (the "Subtenant").
The Company has leases on two floors in the 2714 Space, one of
which commenced in April 1996 and has a term of 69 months, and
the other of which commenced in November 1996 and has a term of
61 months. The lease on the 2732 Space commenced in December 1993
and has a term of 81 months. Both leases have clauses providing
for rent increases at various points in time during the terms of
the leases. The Subtenant's lease covers the remainder of the
Company's original lease term plus a 36-month option, and the
Subtenant's rental payments to the Company exceed the Company's
rental payments to the landlord. In addition, the sublease
provides for annual rent increases. Under the sublease, the
Company spent approximately $200,000 on tenant improvements (the
"Tenant Improvement Obligation") to the 2732 Space, however, the
net present value of the Subtenant's rental payments over the
term of the sublease greatly exceeds the Tenant Improvement
Obligation.
Item 3. Legal Proceedings.
In July 1998, the Company was served with a complaint in the
United States Bankruptcy Court for the Southern District of New
York by the Trustee for the Liquidation of the Business of A.R.
Baron & Co., Inc. ("A.R. Baron") and the Trustee of The Baron
Group, Inc. (the "Baron Group"), the parent of A.R. Baron. The
complaint alleges that A.R. Baron and the Baron Group made
certain preferential or fraudulent transfers of funds to the
Company prior to the commencement of bankruptcy proceedings
involving A.R. Baron and the Baron Group. The Trustee is seeking
return of the funds, totalling $3.2 million. The Company believes
that the Trustee's claims are unfounded and intends to contest
the allegations in the complaint vigorously. The Company contends
that the transfers challenged by the Trustee relate to (i) the
exercise by A.R. Baron in 1995 of unit purchase options issued to
it in 1992 as part of its negotiated compensation for
underwriting the Company's initial public offering and (ii) the
repayment by the Baron Group of the principal and interest (at
12% per annum) payments and certain loan extension fees related
to certain collateralized loans made to it by the Company in 1995
and 1996. The Company believes that it has insurance coverage
sufficient to cover any costs, expenses or losses that might be
incurred in connection with this action.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended July
31, 1998.
PART II.
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.
The Common Stock of the Company was quoted on the Nasdaq National
Market System under the symbol "CYPR" until January 1998. In
January 1998, the Company was listed on the American Stock
Exchange, Inc. under the symbol "CYP". The Redeemable Class B
Warrants of the Company were also quoted on the Nasdaq National
Market System under the symbol "CYPRZ" until November 3, 1997,
when they expired.
The following table sets forth for the calendar quarters
indicated, the high and low sales prices of the Common Stock on
the Nasdaq National Market System and the American Stock
Exchange, Inc., as reported in published financial sources, for
the periods that the Common Stock was quoted or listed.
CYPROS PHARMACEUTICAL CORPORATION EXHIBIT 3.4 CERTIFICATE OF ADOPTION OF BYLAW AMENDMENT David W. Nassif certifies that: 1. He is a Vice President and Secretary of Cypros Pharmaceutical Corporation (the"Corporation"), a California corporation. 2. In his above capacity as Secretary he has access to the corporate records of said Corporation; 3. The following resolution was duly moved, seconded and adopted by a unanimous written consent of the Board of Directors of the Corporation dated November 6, 1995, and that subsequently the following resolution was duly moved, seconded and adopted by a majority of the 11,404,373 outstanding shares of Common Stock of the Corporation entitled to vote at its Annual Meeting of Shareholders held at the executive offices of the Corporation on January 22, 1996 (the "Annual Meeting") in accordance with Section 903 (a) (1) of the General Corporation Law of the State of California; RESOLVED, that Article III, Section 2 of the Bylaws of the Company, as amended, is amended to read in its entirety as follows: "Section 2. - Number and Qualification of Directors.The number of directors of the Corporation shall be not less than four (4) nor more than (7). The exact number of directors shall be five (5) until changed, within the limits specified above, by a bylaw amending this Section 2, duly adopted by the board of directors or by the shareholders. The indefinite number of directors may be changed, or a definite number fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus (1)." I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of my own knowledge. IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of February, 1996. /s/ David W. Nassif - -------------------- David W. Nassif Vice President and Secretary
EXHIBIT 10.2
CYPROS PHARMACEUTICAL CORPORATION
1992 STOCK OPTION PLAN
Adopted by the Board of Directors and Shareholders on August 20,
1992
Amended by the Committee on August 31, 1993
Amended by the Committee on November 15, 1993
Amended by the Committee on November 4, 1994
Amended by the Committee and the Board of Directors on November 14, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the
Company, and its Affiliates, may be given an opportunity to
purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or
Consultants to the Company, to secure and retain the services of
new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the
success of the Company.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated
pursuant to subsection 3(c), be either Incentive Stock Options or
Nonstatutory Stock Options. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to
section 6, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "Company" means Cypros Pharmaceutical Corporation, a
California corporation.
(f) "Consultant" means any person, including an advisor, engaged
by the Company or an Affiliate to render services and who is
compensated for such services, provided that the term
"Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant"
means the employment or relationship as a Director or Consultant
is not interrupted or terminated by the Company or any Affiliate.
The Board, in its sole discretion, may determine whether
Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or
any other personal leave; provided, however, that for purposes of
Incentive Stock Options, any such leave may not exceed ninety
(90) days, unless reemployment upon the expiration of such leave
is guaranteed by contract (including certain Company policies) or
statute; or (ii) transfers between locations of the Company or
between the Company, Affiliates or its successor.
(h) "Director" means a member of the Board.
(i) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(j) "Employee" means any person, including Officers and
Directors, employed by the Company or any Affiliate of the
Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Non-Employee Director" means a Director who either (i) is
not a current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or subsidiary for
services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which
disclosure would be required under Item 404(a) of Regulation S-K,
and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K;
or (ii) is otherwise considered a "non-employee" for purposes of
Rule 16b-3.
(m) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of
the Code and the regulations promulgated thereunder.
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the
terms and conditions of the Plan.
(r) "Optioned Stock" means the common stock of the Company
subject to an Option.
(s) "Optionee" means an Employee, Director or Consultant who
holds an outstanding Option.
(t) "Outside Director" means a Director who is considered an
"outside director" for purposes of Section 162(m) of the Code.
(u) "Plan" means this 1992 Stock Option Plan.
(v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect with respect to the Company
when discretion is being exercised with respect to the Plan.
3. ADMINISTRATION
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how the Option
shall be granted; whether the Option will be an Incentive Stock
Option or a Nonstatutory Stock Option; the provisions of each
Option granted (which need not be identical), including the time
or times such Option may be exercised in whole or in part; and
the number of shares for which an Option shall be granted to each
such person.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or
in any Option Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan as provided in Section 11.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the
"Committee"), all of the members of which Committee may be, in
the discretion of the Board, Non-Employee Directors. If
administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject,
however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by
the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan.
Notwithstanding anything in this Section 3 to the contrary, at
any time, the Board or the Committee may delegate to a committee
of one or more members of the Board the authority to grant
Options to eligible persons who are not then subject to Section
16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold
pursuant to Options shall not exceed in the aggregate two million
seven hundred sixty-six thousand two hundred and eighty-eight
(2,766,288) shares of the Company's common stock. If any Option
shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such Option
shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees,
Directors or Consultants.
(b) No person shall be eligible for the grant of an Option if,
at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred
ten percent (110%) of the fair market value of such stock at the
date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) In any calendar year, no Employee shall be eligible to be
granted Options covering an aggregate number of shares greater
than one hundred thousand (100,000) shares.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate. The
provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof
by reference in the Option or otherwise) the substance of each of
the following provisions:
(a) Term. No Option shall be exercisable after the expiration
of ten (10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the fair
market value of the stock subject to the Option on the date the
Option is granted. The exercise price of each Nonstatutory Stock
Option shall be not less than eighty-five percent (85%) of the
fair market value of the stock subject to the Option on the date
the Option is granted.
(c) Consideration. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by
applicable statutes and regulations, either (i) in cash at the
time the Option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other
common stock of the Company, (B) according to a deferred payment
arrangement or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common
stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall
be payable at least annually and shall be charged at the minimum
rate of interest necessary to avoid the treatment as interest,
under any applicable provisions of the Code, of any amounts other
than amounts stated to be interest under the deferred payment
arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person. A
Nonstatutory Stock Option shall only be transferable by the
Optionee upon such terms and conditions as are set forth in the
option agreement for such Nonstatutory Stock Option, as the Board
or the Committee shall determine in its discretion.
(e) Vesting. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments
(which may, but need not, be equal). The Option Agreement may
provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect
to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to
such period and/or any prior period as to which the Option became
vested but was not fully exercised. During the remainder of the
term of the Option (if its term extends beyond the end of the
installment periods), the Option may be exercised from time to
time with respect to any shares then remaining subject to the
Option. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options
may vary but in each case will provide for vesting of at least
twenty percent (20%) of the total number of shares subject to the
Option per year. The provisions of this subsection 6(e) are
subject to any Option provisions governing the minimum number of
shares as to which an Option may be exercised.
(f) Securities Law Compliance. The Company may require any
Optionee, or any person to whom an Option is transferred under
subsection 6(d), as a condition of exercising any such Option,
(1) to give written assurances satisfactory to the Company as to
the Optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced
in financial and business matters, and that he or she is capable
of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option;
and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under
a then currently effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or
(ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in
the circumstances under the then applicable securities laws.
(g) Termination of Employment or Relationship as a Director or
Consultant. In the event that an Optionee's Continuous Status as
an Employee, Director or Consultant terminates (other than upon
the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within such period of time as is
determined by the Board (which period shall not be less than
thirty (30) days from the date of such termination), and only to
the extent that the Optionee was entitled to exercise it at the
date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement).
If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option
shall revert to the Plan.
(h) Disability of Optionee. In the event an Optionee's
Continuous Status as an Employee, Director or Consultant
terminates as a result of the Optionee's Disability), the
Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination (or such period of
time as is determined by the Board which period shall not be less
than six (6) months from the date of such termination), and only
to the extent that the Optionee was entitled to exercise it at
the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Option
Agreement). If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered
by the unexercisable portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to
the Plan.
(i) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised, at any time within twelve
(12) months following the date of death (or such period of time
as is determined by the Board which period shall not be less than
six (6) months following the date of death) by the Optionee's
estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, and only to the extent the
Optionee was entitled to exercise the Option at the date of death
(but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). If, at the time of
death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of
the Option shall revert to the Plan. If, after death, the
Optionee's estate or a person who acquired the right to exercise
the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to the Plan.
(j) Withholding. To the extent provided by the terms of an
Option Agreement, the Optionee may satisfy any federal, state or
local tax withholding obligation relating to the exercise of such
Option by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company
to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to
satisfy such Options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock
upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or
issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall
constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect
to, any shares subject to such Option unless and until such
person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee,
Director, Consultant or Optionee any right to continue in the
employ of the Company or any Affiliate (or to continue acting as
a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee with or without cause.
(c) To the extent that the aggregate fair market value
(determined at the time of grant) of stock with respect to which
Incentive Stock Options granted after 1986 are exercisable for
the first time by any Optionee during any calendar year under all
plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or otherwise), the Plan and outstanding Options will be
appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares
and price per share of stock subject to outstanding Options.
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger
in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding
the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options for those
outstanding under the Plan, or (ii) such Options shall continue
in full force and effect. In the event any surviving corporation
refuses to assume or continue such Options, or to substitute
similar options for those outstanding under the Plan, then such
Options shall be terminated if not exercised prior to such event.
In the event of a dissolution or liquidation of the Company, any
Options outstanding under the Plan shall terminate if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be
effective unless approved by the shareholders of the Company
within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Options under the
Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires shareholder
approval in order for the Plan to satisfy the requirements of
Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to satisfy
the requirements of Section 422 of the Code or to comply with the
requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the
Plan in any respect the Board deems necessary or advisable to
provide Optionees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or
to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(c) Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any
amendment of the Plan unless (i) the Company requests the consent
of the person to whom the Option was granted and (ii) such person
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on August 1,
2002. No Options may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the
Plan is in effect shall not be altered or impaired by suspension
or termination of the Plan, except with the consent of the person
to whom the Option was granted.
13. EFFECTIVE DATE OF THE PLAN.
The Plan shall become effective as determined by the Board, but
no Options granted under the Plan shall be exercised unless and
until the Plan has been approved by the shareholders of the
Company, and, if required, an appropriate permit has been issued
by the Commissioner of Corporations of the State of California.
EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 and S-8) of our report dated August 21, 1998, with respect to the financial statements of Cypros Pharmaceutical Corporation included in the Annual Report (Form 10-K) for the year ended July 31, 1998. ERNST & YOUNG LLP San Diego, California October 26, 1998
F-1 Form 10-K Items 14(a) (1) and (2) Cypros Pharmaceutical Corporation Years ended July 31, 1998, 1997 and 1996 with Report of Independent Auditors Cypros Pharmaceutical Corporation Form 10-K Items 14(a) (1) and (2)