1998 Financial Statements

Notes to Financial Statements
Years Ended December 31, 1998, 1997 and 1996

License Agreements

Noven has license agreements with Rhône-Poulenc Rorer Inc. ("RPR") and Novartis. At the time of the information of the Joint Venture, Novartis sublicensed its rights under its license agreement to the Joint Venture. Noven’s license agreement with the Joint Venture grants the Joint Venture the right to market Noven’s transdermal estrogen delivery systems in the United States. Novartis’ Canadian affiliate continues to market Noven’s first generation transdermal estrogen delivery system in Canada. The agreement provides for receipt of royalty payments based on the sales by the Joint Venture and Novartis’ Canadian affiliate (see Note 4).

In addition, warrants to purchase a total of 1,091,151 shares of common stock were granted during the period 1991 through 1994 to Novartis under this agreement. Novartis exercised a warrant for 966,184 shares in the second quarter of 1998, a warrant for 43,302 shares expired in March 1998 and the remaining warrant for 81,465 shares that will expire in November 1999 has an exercise price of $11.49. In addition, during a 30-day period subsequent to any sale of common stock by Noven in any public or private offering, Novartis has the right to purchase shares of common stock at the same price and in an amount sufficient to maintain the same ownership percentage (inclusive of shares subject to warrants held by Novartis) in outstanding common stock held prior to any such sales.

Noven has entered into two license agreements with RPR. These agreements grant RPR the right to market Noven’s first generation transdermal estrogen delivery system worldwide except for the United States and Canada and Noven’s transdermal combination estrogen/progestogen delivery system worldwide. The agreements also grant RPR the right to market Noven’s second generation transdermal estrogen delivery system in Japan. The agreements provide Noven certain milestone payments and royalties based on RPR’s sales. Noven received milestone payments totaling $1.5 million in each of 1998 and 1997, resulting from RPR’s filing of regulatory applications in 1997 and from RPR’s receipt of regulatory approval for the combination product in the United States and certain European countries in 1998. Noven does not expect to receive significant milestone payments under the existing agreements in 1999. RPR funded the construction of a manufacturing facility for the production by Noven of transdermal drug delivery systems. Noven leases the facility at a nominal rate for a term of 31.5 years expiring in 2024 and has the right to purchase the facility at any time during the term of the lease at RPR’s book value. Noven has recorded both the facility and deferred revenue at amounts equal to the funds advanced by RPR which are depreciated / amortized to depreciation expense and license revenue over the life of the underlying lease.

Copyright ©  1999 Noven Pharmaceuticals, Inc. All rights reserved.