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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 DECEMBER 31, 2000, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19529
ALTEON INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3304550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 WILLIAMS DRIVE, RAMSEY, NEW JERSEY 07446
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(Address of principal executive offices) (Zip Code)
(201)934-5000
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Each Class On Which Registered
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Common Stock, Par Value $.01 per share American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the equity stock held by non-affiliates of the
Registrant, based on the American Stock Exchange closing price of the Common
Stock ($4.35 per share), as of February 28, 2001, was $97,862,680.
At February 28, 2001, 22,537,635 shares of the Registrant's Common Stock, par
value $.01 per share, were outstanding.
Documents Incorporated By Reference
Document Where Incorporated
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Proxy Statement for 2001 Part III
Annual Meeting of Stockholders
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PART 1
ITEM 1. BUSINESS.
OVERVIEW
We are a product-based biopharmaceutical company engaged in the
discovery and development of oral drugs for the treatment of diseases of aging
and diabetes. Our product candidates represent novel approaches to some of the
largest pharmaceutical markets, such as cardiovascular and kidney diseases. Two
of our compounds are in clinical development; several others are undergoing
pre-clinical testing. These pharmaceutical candidates were developed as a result
of our understanding of the Advanced Glycosylation End-product ("A.G.E.")
pathway, a fundamental pathological process and inevitable consequence of aging
that may result in many medical disorders.
A.G.E.s are glucose/protein complexes that form as a result of
circulating blood glucose reacting with proteins. These A.G.E. complexes
subsequently interact and bond with other proteins (crosslink), resulting in
"hardened" (stiffened) arteries, toughened tissues and impaired flexibility and
function of many body organs. In healthy individuals, this pathological
A.G.E.-formation process occurs slowly as the body ages. In diabetic patients,
the rate of A.G.E. accumulation and the extent of protein crosslinking are
accelerated because of high glucose levels. We believe that A.G.E.s are a major
factor contributing to many of the disorders of aging and diabetes, including
cardiovascular, kidney and eye diseases.
Our current research and drug development activities targeting the
A.G.E. pathway take three directions: the breaking of A.G.E. crosslinks between
proteins in order to reverse damage (A.G.E. Crosslink Breakers); the prevention
or inhibition of A.G.E. formation (A.G.E.-Formation Inhibitors); and the
reduction of the A.G.E. burden through a novel class of anti-hyperglycemic
agents, Glucose Lowering Agents, ("GLA"). We believe that we were the first
company to focus on the development of compounds to treat diseases caused by
A.G.E. formation and crosslinking. Since our inception, we have created an
extensive library of novel compounds targeting the A.G.E. pathway, and have
actively pursued patent protection for these discoveries. We have 98 issued
United States patents and over 80 issued foreign patents focused primarily on
A.G.E. technology.
ALT-711 is our lead product candidate in a class of proprietary
compounds known as A.G.E. Crosslink Breakers. ALT-711 offers the possibility of
the first therapeutic approach to "breaking" A.G.E. crosslinks, the benefit of
which may be to reverse tissue damage caused by aging and diabetes, thereby
restoring flexibility and function. We are initially developing ALT-711 for the
treatment of cardiovascular disease, and have completed a 93-patient,
placebo-controlled safety, efficacy and pharmacology trial of ALT-711, known as
a Phase IIa clinical trial. In January 2001, we announced that these study
results showed that patients who received ALT-711 experienced a statistically
significant (p less than or equal to 0.05) and clinically meaningful reduction
in pulse pressure, defined as the difference between systolic and diastolic
blood pressures. Results also showed a clinically meaningful increase in large
artery compliance, an indicator of greater vascular flexibility and volume
capacity. Additionally, the drug was well tolerated. The results of the Phase
IIa trial were accepted to be presented at the Special Sessions Presentation of
"Late Breaking Clinical Trials" at the American College of Cardiology Annual
Scientific Session in March 2001.
These positive results suggest that ALT-711 is a novel potential
therapy for isolated systolic hypertension, a disease that occurs as a result of
vascular stiffening due to age or diabetes. We plan to initiate a Phase IIb
efficacy trial to further assess ALT-711's activity in isolated systolic
hypertension ("ISH"). Additionally, we are evaluating potential clinical trials
in other therapeutic indications where the compound may address significant
unmet needs.
We are actively evaluating product development opportunities from our
library of compounds. Pimagedine, our clinical lead A.G.E.-Formation Inhibitor,
and ALT-946, a pre-clinical lead second-generation A.G.E.-Formation Inhibitor,
are being considered for further development. In addition, we are utilizing our
technical expertise in the field of diabetes to develop compounds focused on
glucose regulation and control. We are evaluating our lead GLA compounds to
determine the most appropriate pre-clinical development course.
We were incorporated in Delaware in October 1986 under the name
Geritech Inc. Our name was changed to Alteon Inc. in August 1991.
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OUR BUSINESS STRATEGY
Our strategy is to develop drug candidates from our existing portfolio
of new chemical entities. Because of the novel mechanism of action of our
compounds, we are seeking to position these compounds to address large medical
needs that are unmet by existing therapies. We will seek, as appropriate, to
selectively out-license our drug candidates. As we continue clinical development
of ALT-711, we will determine if it is appropriate to retain development and
marketing rights for one or several indications in North America, while at the
same time continuing to evaluate potential corporate partnerships for the
further development and ultimate marketing of the compound. In addition to
ALT-711, we have identified compounds in multiple chemical classes that we
believe warrant further evaluation and potential development.
MARKETS OF OPPORTUNITY
The pre-clinical and clinical data generated to date on our
A.G.E.-Formation Inhibitors and A.G.E. Crosslink Breakers demonstrates clear and
consistent findings across several species, including rats, dogs, non-human
primates and man.
These development and research efforts have led us to an initial focus
on cardiovascular disease, including ISH, as well as complications of diabetes.
Targeting the A.G.E. pathway may impact a number of medical disorders related to
aging and diabetes, thus potentially broadening our markets of opportunity.
Cardiovascular Disease
According to the American Heart Association, nearly 60 million
Americans have one or more types of cardiovascular disease. Cardiovascular
disease has been the number one killer of Americans since the early 1900's. The
latest World Health Organization - International Society of Hypertension
guidelines for the management of hypertension emphasize the importance of pulse
pressure and arterial stiffness (hardening) as predictors of general
cardiovascular risk. Currently available hypertensive agents reduce pressure on
the vessel wall in such a manner as to lower both systolic and diastolic blood
pressures without affecting pulse pressure. Our approach increases large
arterial elasticity in such a manner as to increase the volume of the large
artery and thereby reduce pulse pressure beyond what would be expected from
restoring the dynamic range of the vessel wall with a reduction in blood
pressure alone. Pharmacologic intervention targeting the stiffness of the
cardiovascular system may decrease the incidence and severity of complications
such as left ventricular hypertrophy and congestive heart failure. Published
studies have shown that a 10mm Hg reduction in pulse pressure correlates with a
35% reduction in cardiovascular mortality.
Isolated Systolic Hypertension
ISH is defined as elevated systolic blood pressure (greater than 160mm
Hg) accompanied by normal diastolic blood pressure (less than 90mm Hg). ISH,
which affects over eight million Americans, is primarily a consequence of
age-related stiffening of the large arteries. It is associated with a
significantly increased risk of overall mortality, cardiovascular mortality and
congestive heart failure and is not adequately treated by existing therapies.
The ability of ALT-711 to decrease pulse pressure and increase large artery
compliance (see "A.G.E. Crosslink Breakers - ALT-711") offers an opportunity to
provide a treatment option specifically for ISH. Though other hypertensive
agents are being used to treat ISH, ALT-711 is the first drug to show direct
activity against this condition by targeting stiff vessel disease that causes
this form of hypertension. We believe that because ALT-711 exerts its activity
by a mechanism uniquely different from currently available therapies, its
benefits will be over and above current standard treatment.
Complications of Diabetes
The Diabetes Control and Complications Trial ("DCCT"), a multi-center
clinical trial conducted by the National Institutes of Health, demonstrated that
elevated blood glucose levels significantly increase the rate of progression of
eye, kidney, blood vessel and nerve complications from diabetes. More than 50%
of people with diabetes in the United States develop diabetic complications that
range from mild to severe.
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Overt Nephropathy
Kidney disease is a significant cause of morbidity and mortality in
patients with Type 1 and Type 2 diabetes. It is a chronic and progressive
disease. One of the early signs of kidney damage is microalbuminuria
(characterized by leakage of small amounts of protein into the urine), which
progresses to overt nephropathy (characterized by leakage of large amounts of
protein into the urine) and ultimately to End-Stage Renal Disease ("ESRD"),
advanced kidney disease requiring dialysis. Approximately 34% of patients with
Type 1 diabetes and approximately 10-15% of patients with Type 2 diabetes
develop nephropathy. As of 1995, there were approximately 1,000,000 diabetics
diagnosed with kidney disease in the United States.
In a Phase II/III trial in diabetic patients with overt nephropathy,
the ACTION trial, Pimagedine therapy showed a statistically significant
reduction in urinary protein excretion, though it did not reach statistical
significance in its primary endpoint, the time to doubling of serum creatinine.
In addition, our pre-clinical candidate, ALT-946, has shown a protective effect
on the kidneys in a pre-clinical study.
Retinopathy
Approximately nine out of 10 people with diabetes eventually develop a
complication that affects the eyes known as diabetic retinopathy. Retinopathy
affects the blood vessels inside the eye and can lead to blindness. Each year,
approximately 12,000 to 24,000 people lose their sight because of diabetes. The
incidence and severity of retinopathy increases with the duration of diabetes.
Though not a primary endpoint in the Phase II/III ACTION trial, Pimagedine
therapy did result in a statistically significant reduction in the progression
of retinopathy. In addition, we believe that ALT-711 may have an impact on
retinopathy.
Cardiovascular Disease
A significant portion of diabetic individuals develops cardiovascular
disease due to the high levels of blood glucose and A.G.E.s within the body.
Other Diseases
We are actively evaluating other potential indications for our
compounds, including the treatment of patients on peritoneal dialysis, with
urological conditions, scleroderma and other dermatologic conditions.
OUR TECHNOLOGY: THE A.G.E. PATHWAY IN AGING AND DIABETES
A.G.E.s are permanent glucose structures that form when glucose binds
to the surface of proteins. As the body ages, A.G.E. complexes form on proteins
continuously and naturally, though slowly, at a rate dependent upon glucose
levels and on the body's natural ability to clear these pathological structures.
A.G.E. complexes subsequently crosslink to other proteins, causing a progressive
loss of flexibility and function in various tissues, blood vessels and organs.
The formation and crosslinking of A.G.E.s is a well-known process in
food chemistry, where it is called the Maillard Reaction. The toughening and
discoloration of food during the cooking process and after prolonged storage
occurs, in part, as a result of the formation of complexes between sugars and
the amino acids of proteins.
The harmful consequences of A.G.E. formation in man was proposed in
1986 by our scientific founders as an outgrowth of a research effort focused on
diabetes. The A.G.E. crosslink has been found to be unique in biology and is
prevalent in animal models of aging and diabetes. Scientific literature suggests
that the formation and crosslinking of A.G.E.s is an inevitable part of the
aging process that leads to a loss of flexibility and function in body tissues,
organs and vessels.
The A.G.E. pathway may provide the scientific explanation for how and
why many of the medical complications of the aging process occur with higher
frequency and earlier in life in diabetic patients. Diabetic individuals form
excessive amounts of A.G.E.s earlier in life than do non-diabetic individuals,
due primarily to higher levels of blood sugar. For this reason, diabetes may be
viewed as an accelerated form of aging.
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A.G.E.s and A.G.E. crosslinks are considered to be likely causative
factors in the development of many age-related and diabetic disorders, including
those associated with the cardiovascular and renal systems. For example,
proteins in the body, such as collagen and elastin, which play an important role
in maintaining the elasticity of the cardiovascular system, are prime targets
for A.G.E. crosslinking. This mechanical process can impair the normal function
of contractile organs, such as blood vessels and cardiac muscle, which depend on
flexibility for normal function. Loss of flexibility of the vasculature may lead
to a number of cardiovascular disorders including ISH, which creates increased
workload for the heart and may lead to heart failure.
The foundation for our technology is the experimental evidence that
intervention and treatment along the pathway towards A.G.E. crosslink formation
would be likely to provide significant benefit in slowing or reversing the
development of the serious pathologies that develop in the diabetic and aging
populations. ALT-711 and Pimagedine are the lead compounds resulting from our
research in this field.
Studies conducted in animal models of diabetes or aging at numerous
independent institutions worldwide demonstrate that A.G.E.s are a major factor
contributing to many of the disorders of aging and diabetes, including
cardiovascular, kidney and eye diseases, as well as atherosclerosis. Recent
human clinical studies we performed confirm that impacting the A.G.E. pathway
can have a significant beneficial effect on such disease states.
The following chart illustrates the process of A.G.E. formation and
crosslinking and is qualified by the more detailed description in the text. It
also highlights those areas within the A.G.E. cascade where we are attempting to
offer pharmaceutical agents to intervene therapeutically.
[ NOTE: THE PRINTED COPY OF THIS FORM 10-K CONTAINS A GRAPHICAL ]
[ REPRESENTATION OF THE FOLLOWING. THE "I" REPRESENTS ARROWS ]
[ POINTING FROM "GLUCOSE LOWERING AGENTS" TO "GLUCOSE + PROTEINS," ]
[ FROM "A.G.E.-FORMATION AND CROSSLINK INHIBITORS" TO "A.G.E.S," AND ]
[ FROM "A.G.E. CROSSLINK BREAKERS" TO "CROSSLINKED A.G.E.S" ]
OUR TECHNOLOGY PLATFORM AND PRODUCT PIPELINE
Glucose / Proteins ====> A.G.E.s ====> Crosslinked A.G.E.s
I I I
Glucose Lowering A.G.E. Formation A.G.E. Crosslink
Agents and Crosslink Breakers
Inhibitors
- - New Chemical Class - 9 New Chemical Classes - 4 New Chemical Classes
(51 Compounds) (852 Compounds) (375 Compounds)
- - New Mechanism - New Mechanism - New Mechanism
- Improves pancreas function - Blocks A.G.E. cascade - Breaks A.G.E. crosslinks
- Increases insulin production - Improves kidney function - Restores vascular function
- Restores insulin sensitivity - Effect additive to ACE - Restores heart function
Inhibitors - Activity unlike any known
drug
Lead Compounds:
ALT-4037 Pimagedine ALT-711
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Pre-Clinical Lead Phase II/III Phase II Candidate
Type II Diabetes Diabetic Disease Cardiovascular Disease
ALT-946
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Pre-Clinical Lead
We incurred research and development expenditures of $6,022,000,
$10,598,000 and $24,592,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
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A.G.E. Crosslink Breakers
By "breaking" A.G.E. crosslinks, these novel classes of compounds may
have an impact on a number of medical disorders where loss of flexibility or
elasticity leads to a loss in function. Our lead clinical candidate, ALT-711,
has demonstrated in a Phase IIa trial the ability to reverse tissue damage and
restore function to the cardiovascular system.
Additionally, we are evaluating development of the breaker class for
several other indications where A.G.E.s and A.G.E. crosslinking lead to abnormal
function. Early clinical experience in human studies of ALT-711 suggests that
urinary elastic dysfunction (leading to urinary incontinence) is a potential
therapeutic target. The scientific literature also points to the possible
utility of breaker compounds in ophthalmic and dermatological conditions, stiff
joint disorders and treatment of complications in patients undergoing peritoneal
dialysis.
We have identified four distinct chemical classes of A.G.E. crosslink
breakers, and have a library of more than 375 compounds.
ALT-711
Through its unique mechanism of action, ALT-711 is the first compound
that breaks A.G.E.-derived crosslinks between proteins, both in vitro and in
vivo. The compound is under Phase II clinical evaluation in cardiovascular
disease, as well as in various pre-clinical models to assess its potential in a
variety of disease states.
Studies in animal models in several laboratories around the world have
demonstrated rapid reversal of impaired cardiovascular functions with ALT-711.
In these pre-clinical models, ALT-711 reverses the stiffening of arteries, as
well as stiffening of the heart, that accompanies the development of aging and
diabetes. Pre-clinical studies of ALT-711 conducted by researchers from The
National Institute on Aging and Johns Hopkins Geriatric Center demonstrated the
ability of the compound to significantly reduce arterial stiffness in elderly
Rhesus monkeys. In this primate study, administration of ALT-711 every other day
for three weeks was found to significantly reduce aortic stiffness with the
maximum improvement in vessel wall flexibility occurring at the six-week
evaluation after the end of treatment with ALT-711. Baseline weight, fasting
blood glucose, creatinine and cholesterol did not change after treatment. In a
pre-clinical study of ALT-711 in aged dogs, administration of ALT-711 for one
month resulted in an approximate 40% decrease in age-related ventricular
stiffness, or hardening of the heart. This decrease was accompanied by an
overall improvement in cardiac function. Reductions in blood pressure that have
been observed in animal models of diabetic hypertension suggest that ALT-711
also may prove beneficial in the treatment of systolic hypertension in the
elderly or in the diabetic.
ALT-711 is a small, easily synthesized compound with a rapid mode of
action. It is well absorbed from an oral tablet formulation. Since June 1998,
five Phase I safety and dose escalation studies have been conducted. These
trials have shown the drug to be well tolerated.
In April 2000, we initiated a Phase IIa clinical trial of ALT-711 at
nine clinical sites in the United States to evaluate effects of the compound on
the cardiovascular system. This trial was a double blind, placebo-controlled
study evaluating the safety, efficacy and pharmacology of ALT-711. The trial
enrolled 93 patients over the age of 50 with measurably stiffened
cardiovasculature, including systolic blood pressure of at least 140mm Hg and
pulse pressure of at least 60mm Hg. Patients were randomized to receive oral
doses of either 210 mg of ALT-711 or placebo once daily for eight weeks.
Patients were evaluated for cardiovascular elasticity and function as measured
by pulse pressure, cardiovascular compliance, pulse wave velocity and cardiac
output. Under this protocol, ALT-711 treatment was in addition to the best
available therapeutic regimen chosen by the treating physicians.
In January 2001, we announced that these study results showed that
patients who received ALT-711 experienced a statistically significant (p[less
than, equal to] 0.05) and clinically meaningful reduction in the arterial pulse
pressure, defined as the difference between systolic and diastolic blood
pressures. Results also showed a clinically meaningful increase in large artery
compliance, an indicator of greater vascular flexibility and volume capacity,
using a traditional measurement of the ratio of stroke volume to pulse pressure.
Additionally, the drug was well tolerated. This Phase IIa data was accepted to
be presented at the Special Sessions Presentation of "Late Breaking Clinical
Trials" at the American College of Cardiology Annual Scientific Session in March
2001.
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Based on the positive results of this trial, we plan to initiate a
Phase IIb efficacy trial of ALT-711. The timing and extent of ALT-711's clinical
development will be determined by our ability to secure additional financing.
A.G.E.-Formation Inhibitors
A.G.E.-formation inhibitors are designed to prevent glucose/protein
formation and crosslinking. We believe that this class of compounds may have
broad applications in slowing down the key complications of diabetes.
We have identified nine distinct chemical classes of A.G.E.-formation
inhibitors, encompassing a library in excess of 800 compounds. Further
development of the A.G.E. inhibitor class of compounds is subject to further
funding.
Pimagedine
Pimagedine is our lead compound in the A.G.E.-formation inhibitor
class. We conducted a randomized double-blind, placebo-controlled, multi-center,
Phase II/III clinical trial to evaluate the safety and efficacy of Pimagedine in
Type 1 diabetic patients with overt nephropathy, the ACTION I trial. The primary
objective of the trial was to evaluate the safety and efficacy of Pimagedine in
preserving kidney function in Type 1 patients. The trial enrolled 690 patients
at 56 investigational sites in the United States and Canada. Patients were
treated for a minimum of two years and received twice daily oral doses of
Pimagedine, adjusted for kidney function. Under this protocol, Pimagedine
treatment was in addition to the best available therapeutic regimen chosen by
the treating physicians.
In November 1998, we announced results of an analysis of data from the
ACTION I trial. Although the results showed that Pimagedine reduced the risk of
doubling of serum creatinine, the study's primary endpoint, the data did not
reach statistical significance. However, Pimagedine therapy did result in a
statistically significant and clinically meaningful reduction of urinary protein
excretion. Pimagedine also reduced, to a statistically significant extent,
cholesterol and triglycerides as well as the progression of retinopathy.
Additional data suggested a trend toward improvements in other measures of
kidney function including estimated creatinine clearance and glomerular
filtration rate. The drug was generally well tolerated.
In addition to evaluating oral Pimagedine in overt nephropathy, we have
completed acute toxicity studies in animals with an intravenous formulation of
Pimagedine. Animal studies have demonstrated that Pimagedine, when given prior
to or after indication of stroke by occlusion of the middle cerebral artery,
reduced the volume of tissue death by 30%. We have filed an investigational new
drug application ("IND") with the United States Food and Drug Administration
("FDA").
We are actively exploring partnering and regulatory pathways for the
continued development of Pimagedine and expect to pursue development if funding
is obtained.
ALT-946
ALT-946 is the pre-clinical lead candidate in our A.G.E.- formation
inhibitor class of compounds. A study of ALT-946 in diabetic rats demonstrated
that ALT-946 had a protective effect on the kidneys, and that ALT-946 was more
potent than Pimagedine in inhibiting A.G.E. crosslinking, both in vitro and in
vivo. We continue to evaluate ALT-946 in pre-clinical testing.
Glucose Lowering Agents
High glucose levels (hyperglycemia of diabetes) accelerate the rate of
A.G.E. formation and crosslinking. Controlling glucose levels has been shown to
slow the rate of progression of diabetic complications. The GLA Program arose
from a search of plant-derived natural products that would exhibit a beneficial
profile of glucose and lipid lowering of Type 2 diabetes. Several pre-clinical
candidates that display these beneficial properties have been evaluated. They
have demonstrated the ability to lower glucose and lipids, restore insulin
sensitivity and stimulate increased insulin production.
We have identified one chemical class of GLA, which includes more than
50 compounds.
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ALT-4037
ALT-4037 has been identified as the pre-clinical lead in the glucose
lowering agent class of compounds. ALT-4037 is a novel compound that lowers
glucose and lipids, restores normal pancreatic sensing of glucose, stimulates
greater production of insulin and restores insulin sensitivity in skeletal
muscle and fat in animal models of Type 2 diabetes. Additional development is
subject to further funding.
CORPORATE STRATEGIC ALLIANCES
Yamanouchi
We granted to Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi") an
exclusive license to commercialize our A.G.E.-related technology in Japan, South
Korea, Taiwan and The People's Republic of China (the "Yamanouchi Territory") in
exchange for royalty payments on net sales, if any. Yamanouchi has the right to
terminate the agreement upon 90 days' prior written notice. This license expires
as to each product in each licensed country upon the later of 15 years from the
date of the agreement, the expiration of the last patent applicable to the
product or five years after the first commercial sale of the product in the
country. Pursuant to the license agreement, we granted to Yamanouchi the right
to manufacture Pimagedine bulk material for sale in the Yamanouchi Territory.
Roche
In December 1994, we entered into an exclusive licensing arrangement
with Roche Diagnostics GmbH ("Roche") for our technology for diagnostic
applications. Under this alliance, we will be entitled to receive royalties
based on net sales of research and commercial assays developed by Roche and
based on our A.G.E. technology. Roche received exclusive worldwide rights to the
technology for diagnostic applications outside the Yamanouchi Territory. The
agreement gives Roche discretion over commercial development of diagnostic
applications. Roche may terminate the license agreement upon 90 days' prior
written notice.
Under the agreement, Roche agreed to develop immunoassays to detect
A.G.E.-hemoglobin, ApoB-A.G.E. and A.G.E.-serum protein/peptides. Development of
reagents and formats for the A.G.E. competitive ELISA and a procedure for
measuring hemoglobin-A.G.E. was completed in 1998. This research assay is
currently being evaluated at a number of institutes and medical universities in
Germany. Continuation of the program to adapt these reagents to automated
clinical assays is contingent upon FDA approval of Pimagedine and would advance
along with any product launch of Pimagedine.
Gamida
In November 1995, we entered into clinical testing and distribution
agreements with Gamida for Life ("Gamida"). Under these agreements, Gamida
conducted, at its own expense, a Phase II multi-site clinical trial in Israel,
in accordance with the protocol developed by us, to evaluate Pimagedine in
patients with diabetes and elevated serum cholesterol levels. Gamida will
receive the exclusive right to distribute Pimagedine, if successfully developed
and approved for marketing, in Israel, Bulgaria, Cyprus, Jordan and South
Africa. The distribution agreement is for a term ending 10 years after the date
of regulatory approval for the sale of Pimagedine in Israel; thereafter, it will
be automatically renewed for successive three-year periods unless terminated by
either party on the last day of the initial or renewal term.
IDEXX
In June 1997, we entered into a license and supply agreement with IDEXX
Laboratories, Inc. ("IDEXX"), pursuant to which we licensed Pimagedine to IDEXX
as a potential therapeutic in companion animals (dogs, cats and horses) and its
A.G.E. diagnostics technology for companion animal use. IDEXX will be
responsible for the development, licensing and marketing of Pimagedine and
A.G.E. diagnostics for such use on a worldwide basis. We will be entitled to
receive milestone payments and royalties on sales of the licensed products. To
date, IDEXX has not developed any such products.
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HemoMax
In October 2000, we entered into an agreement with HemoMax, LLC
("HemoMax") for the development of a novel technology designed to increase the
delivery of oxygen to tissues in the body through enhanced blood circulation.
Under the agreement, HemoMax will fund the pre-clinical development of compounds
arising from the technology, and we will directly manage the development
programs. HemoMax has granted us an exclusive right of first refusal to acquire
the HemoMax technology. In addition, based on the achievement of certain
milestones, we will receive 15% ownership of HemoMax. While this technology is
not currently a part of our main technology platform, we entered into this
relationship because it represents an opportunity to participate in the
development of and potentially acquire a technology that complements our
cardiovascular activities with ALT-711.
ACADEMIC RESEARCH AND LICENSE AGREEMENTS
Washington University, St. Louis
In June 1995, we obtained an exclusive, worldwide, royalty-bearing
license from Washington University for patents covering the use of Pimagedine as
an inhibitor of inducible nitric oxide synthase ("iNOS"). The agreement requires
us to pay certain licensing fees upon the attainment of development milestones
as well as a royalty on net sales or a share of sub-licensing profits on
products covered by the patents. The license also covers patents developed
through any subsequent research collaboration between the parties that we agree
to fund.
The Rockefeller University
Pursuant to an agreement with Rockefeller University, we have
exclusive, worldwide and perpetual rights to the technology and inventions
relating to A.G.E.s and other protein crosslinking, including those relating to
the complications of aging and diabetes. See "--Patents, Trade Secrets and
Licenses."
The Picower Institute for Medical Research
Pursuant to an agreement with The Picower Institute, a not-for-profit
biomedical science institution, we have received an exclusive worldwide,
royalty-bearing license for certain commercial health care applications of
A.G.E.-related inventions. See "--Patents, Trade Secrets and Licenses."
MANUFACTURING
We have no manufacturing facilities for either production of bulk
chemicals or the manufacturing of pharmaceutical dosage forms. We rely on
third-party contract manufacturers to produce the raw materials and chemicals
used as the active drug ingredients in our products used in clinical trials, and
we expect to rely on third parties to perform the tasks necessary to process,
package and distribute these products in finished form.
We will inspect third-party contract manufacturers and their
consultants to confirm compliance with current Good Manufacturing Practice
("cGMP") required for pharmaceutical products. We believe we will obtain
sufficient quantities of bulk chemicals at reasonable prices to satisfy
anticipated needs. There can be no assurance, however, that we can continue to
meet our needs for supply of bulk chemicals or that manufacturing limitations
will not delay clinical trials or possible commercialization. See "--Corporate
Strategic Alliances."
MARKETING AND SALES
We plan to market and sell our products, if successfully developed and
approved, directly or through co-promotion or other licensing arrangements with
third parties. Such arrangements may be exclusive or nonexclusive and may
provide for marketing rights worldwide or in a specific market.
For certain of our products, we have licensed exclusive marketing
rights, formed joint marketing arrangements or granted distribution rights
within specified territories with its corporate partners, Yamanouchi, Roche,
Gamida and IDEXX. See "--Corporate Strategic Alliances."
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PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for our product candidates, processes and
know-how is important to our business. We aggressively file and prosecute
patents covering our proprietary technology, and, if warranted, will defend our
patents and proprietary technology. As appropriate, we seek patent protection
for our proprietary technology and products in the United States and Canada and
in key commercial European and Asia/Pacific countries. We also rely upon trade
secrets, know-how, continuing technological innovation and licensing
opportunities to develop and maintain our competitive position.
As of December 31, 2000, our patent estate of owned and/or licensed
patent rights consisted of 98 issued patents and one allowed United States
patent application, none of which expire prior to 2005, and 30 pending patent
applications in the United States, the majority of which are A.G.E.-related. We
also own or have exclusive rights to over 80 issued patents in Europe, Japan,
Australia and Canada.
We have four issued United States patents and three issued foreign
patents, including one from the European Patent Office, as well as 22 pending
patent applications in the United States, covering certain novel compounds in
the A.G.E. crosslink breaker category. These patents and additional patent
applications contain compound, composition and method of treatment claims for
several chemical classes of crosslink breaker compounds.
Pimagedine is not protected by a composition-of-matter patent but is
protected by a series of use patents. In 1992, a United States patent on the use
of Pimagedine was issued to Rockefeller University and subsequently exclusively
licensed to us with claims relating to the inhibition of A.G.E. formation. The
patent claims the new use of a known agent for the treatment of the
complications of aging and diabetes. In 1994, corresponding patents were granted
in France, Germany, Italy, the United Kingdom and other European countries. A
corresponding patent was issued in Japan in 1995. We continue to pursue and
patent chemical analogs of known A.G.E.-formation inhibitors, as well as novel
compounds having potential inhibitory properties.
We believe that our licensed and owned patents provide a substantial
proprietary base that will allow us and our collaborative partners to
commercialize products in this field. There can be no assurance, however, that
pending or future applications will issue, that the claims of any patents which
do issue will provide any significant appreciation of our technology or that our
directed discovery research will yield compounds and products of therapeutic and
commercial value.
In 1987, we acquired an exclusive, royalty-free, worldwide license
(including the right to sub-license to others) to issued patents, patent
applications and trade secrets from Rockefeller University relating to the
A.G.E.-formation and crosslinking technology currently under development by us.
Additional patent applications have since been filed on discoveries made in
support of the technology from research conducted at Rockefeller University, The
Picower Institute and our laboratories. Pursuant to our agreement with The
Picower Institute, certain patentable inventions and discoveries relating to
A.G.E. technology have been licensed exclusively to us. In consultation with us,
The Picower Institute is responsible for the worldwide filing and prosecution of
patent applications and maintenance of patents for such inventions. We will
contribute 50% of the cost of such activities.
We intend to continue to focus our research and development efforts on
the synthesis of novel compounds and on the search for additional therapeutic
applications to expand and broaden our rights within our technological and
patent base. We are also prepared to in-license additional technology that may
be useful in building our proprietary position.
Where appropriate, we utilize trade secrets and unpatentable
improvements to enhance our technology base and improve our competitive
position. We require all employees, scientific consultants and contractors to
execute confidentiality agreements as a condition of engagement. There can be no
assurance, however, that we can limit unauthorized or wrongful disclosures of
unpatented trade secret information.
We believe that our estate of licensed and owned issued patents, if
upheld, and pending applications, if granted and upheld, will be a substantial
factor in our success. The patent positions of pharmaceutical firms, including
ours, are generally uncertain and involve complex legal and factual questions.
Consequently, even though we are currently prosecuting such patent applications
in the United States and foreign patent offices, we do not know whether any of
such applications will result in the issuance of any additional patents or, if
any additional patents are
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issued, whether the claims thereof will provide significant proprietary
protection or will be circumvented or invalidated.
Competitors or potential competitors have filed for or have received
United States and foreign patents and may obtain additional patents and
proprietary rights relating to compounds or processes competitive with those of
ours. Accordingly, there can be no assurance that our patent applications will
result in patents being issued or that, if issued, the claims of the patents
will afford protection against competitors with similar technology; nor can
there be any assurance that others will not obtain patents that we would need to
license or circumvent. See "--Competition."
Our success will depend, in part, on our ability to obtain patent
protection for its products, preserve our trade secrets and operate without
infringing on the proprietary rights of third parties. There can be no assurance
that our current patent estate will enable us to prevent infringement by third
parties or that competitors will not develop competitive products outside the
protection that may be afforded by the claims of such patents. To the extent we
rely on trade secrets and unpatented know-how to maintain our competitive
technological position, there can be no assurance that others may not develop
independently the same or similar technologies. Failure to maintain our current
patent estate or to obtain requisite patent and trade secret protection, which
may become material or necessary for product development, could delay or
preclude us or our licensees or marketing partners from marketing their products
and could thereby have a material adverse effect on our business, financial
condition and results of operations.
GOVERNMENT REGULATION
We and our products are subject to comprehensive regulation by the FDA
in the United States and by comparable authorities in other countries. These
national agencies and other federal, state and local entities regulate, among
other things, the pre-clinical and clinical testing, safety, effectiveness,
approval, manufacturing, labeling, marketing, export, storage, record keeping,
advertising and promotion of our products.
The process required by the FDA before our products may be approved for
marketing in the United States generally involves (i) pre-clinical new drug
laboratory and animal tests, (ii) submission to the FDA of an IND, which must
become effective before clinical trials may begin, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug for its intended indication, (iv) submission to the FDA of a new drug
application ("NDA") and (v) FDA review of the NDA in order to determine, among
other things, whether the drug is safe and effective for its intended uses.
There is no assurance that the FDA review process will result in product
approval on a timely basis, if at all.
Pre-clinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Certain pre-clinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
pre-clinical tests are submitted to the FDA as part of an IND and are reviewed
by the FDA prior to the commencement of clinical trials or during the conduct of
the clinical trials, as appropriate.
Clinical trials are conducted under protocols that detail such matters
as 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 protocol must be reviewed and approved by
an institutional review board.
Clinical trials are typically conducted in three sequential phases,
which may overlap. During Phase I, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase II involves studies in a limited
patient population to (i) evaluate preliminarily the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage and (iii) identify possible adverse effects and safety risks. Phase
II/III trials are undertaken in order to further evaluate clinical efficacy and
to further test for safety within an expanded patient population. The FDA may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.
We will need FDA approval of our products, including a review of the
manufacturing processes and facilities used to produce such products before such
products may be marketed in the United States. The process of obtaining
approvals from the FDA can be costly, time-consuming and subject to
unanticipated delays. There can be no assurance that the FDA will grant
approvals of our proposed products, processes or facilities on a timely basis,
if
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at all. Any delay or failure to obtain such approvals would have a material
adverse effect on our business, financial condition and results of operations.
Moreover, even if regulatory approval is granted, such approval may include
significant limitations on indicated uses for which a product could be marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's manufacturing procedures conform to cGMP
requirements, which must be followed at all times. In complying with those
requirements, manufacturers (including a drug sponsor's third-party contract
manufacturers) must continue to expend time, money and effort in the area of
production and quality control to ensure compliance. Domestic manufacturing
establishments are subject to periodic inspections by the FDA in order to
assess, among other things, cGMP compliance. To supply a product for use in the
United States, foreign manufacturing establishments must comply with cGMP and
are subject to periodic inspection by the FDA or by regulatory authorities in
certain of such countries under reciprocal agreements with the FDA.
Both before and after approval is obtained, a product, its manufacturer
and the holder of the NDA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the pre-clinical and clinical testing process, the approval process,
or thereafter (including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market and/or the imposition
of criminal penalties against the manufacturer and/or NDA holder. In addition,
later discovery of previously unknown problems may result in restrictions on
such product, manufacturer or NDA holder, including withdrawal of the product
from the market. Also, new government requirements may be established that could
delay or prevent regulatory approval of our products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, especially where no satisfactory alternative therapy exists. We
cannot predict the ultimate impact, however, of the FDA's accelerated approval
of procedures on the timing or likelihood of approval of any of our potential
products or those of any competitor. In addition, the approval of a product
under the accelerated approval procedures may be subject to various conditions,
including the requirement to verify clinical benefit in post-marketing studies,
and the authority on the part of the FDA to withdraw approval under streamlined
procedures if such studies do not verify clinical benefit.
For marketing outside the United States, we will have to satisfy
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and diagnostic products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. We do not currently have any facilities or
personnel outside of the United States.
In addition to regulations enforced by the FDA, we are also 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. Our research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our resources.
COMPETITION
We believe that A.G.E.s are a major factor contributing to many of the
disorders of aging and diabetes, including cardiovascular, kidney and eye
diseases. We are aware of several biotechnology companies that are developing
A.G.E.-formation inhibitors. We have no knowledge of any company that has an
A.G.E. crosslink breaker compound in clinical development. Many companies are
pursuing research and development of compounds for cardiovascular and kidney
diseases and the lowering of glucose levels.
Many of our potential competitors have substantially greater financial,
technical and human resources than ours and may be better equipped to develop,
manufacture and market products. In addition, many of these companies have
extensive experience in pre-clinical testing and human clinical trials. These
companies may develop and introduce products and processes competitive with or
superior to ours.
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Our competition will be determined, in part, by the potential
indications for which our compounds are developed and ultimately approved by
regulatory authorities. For certain of our potential products, an important
factor in competition may be the timing of market introduction of our or our
competitors' products. Accordingly, the relative speed with which we can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are important competitive
factors. We expect that competition among products approved for sale will be
based on, among other things, product efficacy, safety, reliability,
availability, price and patent position. Our competitive position also depends
upon our ability to attract and retain qualified personnel, obtain protection or
otherwise develop proprietary products or processes and secure sufficient
capital resources.
A broad range of drugs is under development that could reduce or
eliminate the market for any product developed by us. For example, competitive
drugs based on other therapeutic mechanisms may be efficacious in treating
cardiovascular disease or diabetic complications. The development by others of
non-A.G.E.-related treatment modalities could render our products
non-competitive or obsolete. Therapeutic approaches being pursued by others
include curing cardiovascular disease or diabetic complications via gene therapy
or cell transplantation, as well as pharmaceutical intervention with agents such
as the aldose reductase inhibitors.
Angiotensin converting enzyme inhibitors, angiotensin receptor
blockers, calcium channel blockers, beta-blockers and diuretics are effective
treatments for essential hypertension, a disease characterized by increased
peripheral vascular resistance (essential hypertension closely related to
diastolic blood pressure). ISH, characterized by increased stiffness of the
large arteries, is not usually associated with increased peripheral vascular
resistance. In the absence of any marketed products that address the underlying
pathology of ISH patients, treatments approved for essential hypertension are
currently being prescribed to treat hypertension in these patients. However,
these agents are of limited value where stiffness of the large arteries is the
underlying pathology.
Results of the DCCT showed that tight glucose control reduced the
incidence of diabetic complications. Numerous companies are pursuing other
methods to manage glucose control and to reduce the incidence of diabetic
complications. In addition, several companies have initiated research with drugs
that inhibit vascularization as a potential treatment of diabetic retinopathy.
In the event one or more of these initiatives are successful, the market for
some of our products may be reduced or eliminated.
MEDICAL AND CLINICAL ADVISORS
Our Medical and Clinical Advisors consist of individuals with
recognized expertise in the medical and pharmaceutical science and related
fields who advise us about present and long-term scientific planning, research
and development. These advisors consult and meet with our management informally
on a frequent basis. All advisors are employed by employers other than us and
may have commitments to, or consulting or advisory agreements with, other
entities that may limit their availability to us. These companies may also be
competitors of ours. The advisors have agreed, however, not to provide any
services to any other entities that might conflict with the activities that they
provide us. Each member also has executed a confidentiality agreement for our
benefit.
The following persons are Medical and Clinical Advisors:
George L. Bakris, M.D., F.A.C.P., F.C.P., Professor of Preventive and
Internal Medicine, Vice Chairman, Department of Preventive Medicine and
Director, Hypertension/Clinical Research Center, Rush-Presbyterian/St.
Luke's Medical Center; President, American College of Clinical
Pharmacology.
Leslie Z. Benet, Ph.D., Professor UCSF, School of Pharmacy, Department
of Biopharmaceutical Sciences; Chairman of the Board, AvMax, Inc.;
former Chairman, Department of Biopharmaceutical Sciences of UCSF.
Michael A. Brownlee, M.D., Anita and Jack Saltz Professor of Diabetes
Research, Departments of Medicine and Pathology, Albert Einstein
College of Medicine.
Edward D. Frohlich, M.D., Distinguished Scientist of the Alton Ochsner
Medical Foundation; Professor of Medicine and Physiology at Louisiana
State University; Clinical Professor of Medicine and Adjunct Professor
of Pharmacology at Tulane University; President, Society of Geriatrich
Cardiology.
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Richard J. Glassock, M.D., M.A.C.P., Professor Emeritus, UCLA School of
Medicine; Past-President, National Kidney Foundation; Past-President,
American Society of Nephrology.
Jan Lessem, M.D., Ph.D., F.A.C.C., Chief Medical Officer and Vice
President, Clinical Research and Development, OraPharma, Inc.; former
Vice President and Corporate Officer, Drug Strategy and Medical
Director, Takeda America, Inc.; former Director of Clinical
Investigations, SmithKline Beecham Pharmaceuticals.
Lawrence Resnick, M.D., Professor of Medicine, Division of
Hypertension, New York Presbyterian Hospital/Weill Medical College of
Cornell Medical Center.
Mark E. Williams, M.D., Director of Dialysis, Joslin Diabetes Center;
Chairman, National Scientific Council on Diabetic Kidney Disease,
National Kidney Foundation.
EMPLOYEES
As of February 28, 2001, we employed 26 persons (eight of whom held a
Ph.D., M.D. or other advanced degree), of whom 13 were engaged in research and
development and 13 were engaged in administration and management. We believe
that we have been successful in attracting skilled and experienced personnel.
Our employees are not covered by collective bargaining agreements, but all
employees are covered by confidentiality agreements. We believe that our
relationship with our employees is good.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS
Statements in this Form 10-K that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by us or our representatives are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "estimate"
or other expressions, which are predictions of or indicate future events and
trends and which do not relate to historical matters, identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements as they involve risks and uncertainties, and actual
results could differ materially from those currently anticipated due to a number
of factors, including those set forth in this section and elsewhere in this Form
10-K. These factors include, but are not limited to, the risks set forth below.
The forward-looking statements represent our judgment and expectations as of the
date of this Report. We assume no obligation to update any such forward-looking
statements.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT ADDITIONAL FUNDING TO MEET OUR NEEDS OR
TO ALLOW US TO CONTINUE THE RESEARCH, PRODUCT DEVELOPMENT, PRE-CLINICAL TESTING
AND CLINICAL TRIALS OF OUR PRODUCT CANDIDATES.
We anticipate that our existing available cash and cash equivalents and
short-term investments will be adequate to satisfy our working capital
requirements for our current operations into 2002. We will require substantial
new funding in order to continue the research, product development, pre-clinical
testing and clinical trials of our product candidates, including ALT-711 and
Pimagedine. We will also require additional funding for operating expenses, the
pursuit of regulatory approvals for our product candidates and the establishment
of marketing and sales capabilities. Our future capital requirements will depend
on many factors, including continued scientific progress in our research and
development programs, the size and complexity of these programs, progress with
pre-clinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
establishment of additional collaborative arrangements, the cost of
manufacturing arrangements, commercialization activities and the cost of product
in-licensing and strategic acquisitions, if any. We cannot be certain that our
cash reserves and other liquid assets will be adequate to satisfy our capital
and operating requirements.
We intend to seek funding through arrangements with corporate
collaborators and through public or private sales of our securities, including
equity securities, when and if conditions permit. In addition, we may pursue
opportunities to obtain debt financing, including capital leases, in the future.
We cannot be certain, however, that additional funding will be available on
reasonable terms, if at all. Any additional equity financing would be dilutive
to our stockholders. If adequate funds are not available, we may be required to
curtail significantly or eliminate one or more of our research and development
programs. If we obtain funds through arrangements with collaborative partners or
others, we may be required to relinquish rights to certain of our technologies
or product candidates.
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WE MAY NOT SUCCESSFULLY DEVELOP OR DERIVE REVENUES FROM ANY PRODUCTS.
All of our product candidates are in research or clinical development.
We cannot be certain that we will succeed in the development and marketing of
any therapeutic or diagnostic product. To achieve profitable operations, we
must, alone or with others, successfully identify, develop, introduce and market
proprietary products. Such products will require significant additional
investment, development and pre-clinical and clinical testing prior to potential
regulatory approval and commercialization.
We have not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. Before obtaining regulatory
approvals for the commercial sale of any of our products under development, we
must demonstrate through pre-clinical studies and clinical trials that the
product is safe and effective for use in each target indication. The results
from pre-clinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and we cannot be certain
that any clinical trials we undertake will demonstrate sufficient safety and
efficacy to obtain the requisite regulatory approvals or will result in
marketable products.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during pre-clinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. We cannot be certain
that we will undertake additional clinical trials or that our product
development efforts will be successfully completed, that required regulatory
approvals can be obtained or that any products, if introduced, will be
successfully marketed or achieve customer acceptance. We do not expect any of
our products, including ALT-711 and Pimagedine, to be commercially available for
a number of years, if at all.
WE MAY NEVER GENERATE PROFITS.
All of our revenues to date have been generated from collaborative
research agreements and financing activities, or interest income earned on these
funds. We have not received any revenues from product sales. We cannot be
certain that we will realize product revenues on a timely basis, if at all.
At December 31, 2000, we had an accumulated deficit of $134,011,000. We
anticipate that we will incur substantial, potentially greater losses in the
future. We cannot be certain that our products under development will be
successfully developed or that our products, if successfully developed, will
generate revenues sufficient to enable us to earn a profit. We expect to incur
substantial additional operating expenses over the next several years as our
research, development and clinical trial activities increase. We do not expect
to generate revenues from the sale of products, if any, for a number of years.
Our ability to achieve profitability depends, in part, on our ability to enter
into agreements for product development, obtain regulatory approval for our
products and develop the capacity or enter into agreements, for the manufacture,
marketing and sale of any products. We cannot be certain that we will obtain
required regulatory approvals, or successfully develop, manufacture,
commercialize and market product candidates or that we will ever achieve product
revenues or profitability.
Based on the performance of our stock, we repriced certain employee
stock options on February 2, 1999, in order to bolster employee retention. As a
result of this repricing, options to purchase 1.06 million shares of stock were
repriced and certain vesting periods related to these options were modified or
extended. This repricing may have a material adverse impact on future financial
performance based on an amendment to the Accounting Principals Board Opinion No.
25 ("APB Opinion No. 25"), "Accounting for Stock Issued to Employees." This
amendment requires us to record compensation expense, which is adjusted every
quarter, for increases or decreases in the fair market value of the repriced
options based on changes in our stock price from the value at July 1, 2000,
until the repriced options are exercised, forfeited or expire.
WE MAY NOT BE ABLE TO FORM AND MAINTAIN THE COLLABORATIVE RELATIONSHIPS THAT OUR
BUSINESS STRATEGY REQUIRES.
Our strategy for developing and deriving revenues from our products
depends, in large part, upon entering into arrangements with research
collaborators, corporate partners and others.
We have established collaborative arrangements with Yamanouchi, Gamida,
Roche and IDEXX with respect to the development of drug therapies and
diagnostics utilizing our scientific platforms. To succeed, we will have to
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develop additional relationships. We are seeking to establish new collaborative
relationships to provide the funding necessary for continuation of our product
development, but we cannot be certain that such effort will be successful. If we
are unable to enter into or manage additional collaborations, our programs may
suffer and we may be unable to develop products.
OUR DEPENDENCE ON COLLABORATIVE RELATIONSHIPS MAY LEAD TO DELAYS IN PRODUCT
DEVELOPMENT AND DISPUTES OVER RIGHTS TO TECHNOLOGY.
We will, in some cases, be dependent upon outside partners to conduct
pre-clinical testing and clinical trials and to provide adequate funding for our
development programs. Our corporate partners may have all or a significant
portion of the development and regulatory approval responsibilities. Failure of
the corporate partners to develop marketable products or to gain the appropriate
regulatory approvals on a timely basis, if at all, would have a material adverse
effect on our business, financial condition and results of operations.
In most cases, we will not be able to control the amount and timing of
resources that our corporate partners devote to our programs or potential
products. If any of our corporate partners breached or terminated its agreements
with us or otherwise failed to conduct its collaborative activities in a timely
manner, the pre-clinical or clinical development or commercialization of product
candidates or research programs could be delayed, and we would be required to
devote additional resources to product development and commercialization or
terminate certain development programs.
We cannot be certain that disputes will not arise in the future with
respect to the ownership of rights to any technology we develop with third
parties. These and other possible disagreements between us and collaborators
could lead to delays in the collaborative research, development or
commercialization of product candidates or could require or result in litigation
or arbitration, which would be time-consuming and expensive and would have a
material adverse effect on our business, financial condition and results of
operations.
Any corporate partners we have may develop, either alone or with
others, products that compete with the development and marketing of our
products. Competing products, either developed by the corporate partners or to
which the corporate partners have rights, may result in their withdrawal of
support with respect to all or a portion of our technology, which would have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO PROTECT THE PROPRIETARY RIGHTS THAT ARE CRITICAL TO OUR
SUCCESS.
Our success will depend on our ability to obtain patent protection for
our products, preserve our trade secrets, prevent third parties from infringing
upon our proprietary rights and operate without infringing upon the proprietary
rights of others, both in the United States and abroad.
We cannot be certain that competitors will not develop competitive
products outside the protection that may be afforded by the claims of our
patents. We are aware that other parties have been issued patents and have filed
patent applications in the United States and foreign countries with respect to
other agents which impact A.G.E. or A.G.E. crosslink formation.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and our potential products are subject to this uncertainty.
Pimagedine is not a novel compound and is not covered by a composition-of-matter
patent. The patents covering Pimagedine are use patents containing claims
covering therapeutic indications and the use of Pimagedine to inhibit A.G.E.
formation. Competitors may develop and commercialize Pimagedine or
Pimagedine-like products for indications outside of the protection provided by
the claims of our use patents. Physicians, pharmacies and wholesalers could then
substitute for our Pimagedine products. Substitution for our Pimagedine products
would have a material adverse effect on our business, financial condition and
results of operations. Use patents may afford a lesser degree of protection in
certain foreign countries due to their patent laws. In addition, although we
have several patent applications pending to protect proprietary technology and
potential products, we cannot be certain that these patents will be issued, that
the claims of any patents which do issue will provide any significant protection
of our technology or products, or that we will enjoy any patent protection
beyond the expiration dates of our currently issued patents.
We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to maintain, develop and expand
our competitive position, which we seek to protect, in
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part, by confidentiality agreements with our corporate partners, collaborators,
employees and consultants. We also have invention or patent assignment
agreements with our employees and certain, but not all, corporate partners and
consultants. We cannot be certain that relevant inventions will not be developed
by a person not bound by an invention assignment agreement. We cannot be certain
that binding agreements will not be breached, that we would have adequate
remedies for such breach, or that our trade secrets will not otherwise become
known to or be independently discovered by competitors.
WE CANNOT BE CERTAIN THAT REGULATORY APPROVALS WILL BE OBTAINED FOR OUR
PRODUCTS.
Our research, pre-clinical testing and clinical trials of our product
candidates are, and the manufacturing and marketing of our products will be,
subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where we intend to test
and market our product candidates.
Prior to marketing, any product we develop must undergo an extensive
regulatory approval process. This regulatory process, which includes
pre-clinical testing and clinical trials, and may include post-marketing
surveillance, of each compound to establish its safety and efficacy, can take
many years and can require the expenditure of substantial resources. Data
obtained from pre-clinical and clinical activities is susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. In
addition, we may encounter delays or rejections based upon changes in FDA policy
for drug approval during the period of product development and FDA regulatory
review of each submitted NDA. We may encounter similar delays in foreign
countries. We cannot be certain that regulatory approval will be obtained for
any drugs we develop. Moreover, regulatory approval may entail limitations on
the indicated uses of the drug. Further, even if regulatory approval is
obtained, a marketed drug and its manufacturer are subject to continuing review
and discovery of previously unknown problems with a product or manufacturer
which may have adverse effects on our business, financial condition and results
of operations, including withdrawal of the product from the market. Violations
of regulatory requirements at any stage, including pre-clinical testing and
clinical trials, the approval process or post-approval, may result in various
adverse consequences including the FDA's delay in approving, or its refusal to
approve, a product withdrawal of an approved product from the market and the
imposition of criminal penalties against the manufacturer and NDA holder. None
of our products has been approved for commercialization in the United States or
elsewhere. We cannot be certain that we will be able to obtain FDA approval for
any products. Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested will delay or preclude our licensees or
marketing partners from marketing our products or limit the commercial use of
such products and will have a material adverse effect on our business, financial
condition and results of operations.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH BIOTECHNOLOGY COMPANIES AND
ESTABLISHED PHARMACEUTICAL COMPANIES IN THE DEVELOPMENT AND MARKETING OF CURES
AND THERAPIES FOR DIABETES, CARDIOVASCULAR DISEASES AND THE OTHER CONDITIONS FOR
WHICH WE SEEK TO DEVELOP PRODUCTS.
We are engaged in pharmaceutical fields characterized by extensive
research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than ours are
attempting to develop products that would be competitive with our products.
Other companies may succeed in developing products that are safer, more
efficacious or less costly than any we may develop and may also be more
successful than us in production and marketing. Rapid technological development
by others may result in our products becoming obsolete before we recover a
significant portion of the research, development or commercialization expenses
incurred with respect to those products.
Certain technologies under development by other pharmaceutical
companies could result in a cure for diabetes or the reduction of the incidence
of diabetes and its complications. For example, a number of companies are
investigating islet cell transplantation as a possible cure for Type 1 diabetes.
Results of a study conducted by the National Institutes of Health, known as the
DCCT, published in 1993, showed that tight glucose control reduced the incidence
of diabetic complications. Several pharmaceutical companies have introduced new
products for glucose control for the management of hyperglycemia in Type 2
diabetes. In addition, several large companies have initiated or expanded
research, development and licensing efforts to build a diabetic pharmaceutical
franchise focusing on diabetic nephropathy, neuropathy, retinopathy and related
conditions. An example of this is research seeking anti-angiogenesis drugs for
the potential treatment of diabetic retinopathy. It is possible that one or more
of these initiatives may reduce or eliminate the market for some of our
products.
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In addition, a broad range of cardiovascular drugs are under
development by many pharmaceutical and biotechnology companies. It is possible
that one or more of these initiatives may reduce or eliminate the market for
some of our products.
EFFORTS TO REDUCE HEALTH CARE COSTS MAY AFFECT OUR OPERATIONS.
Our business, financial condition and results of operations may be
materially adversely affected by the continuing efforts of government and
third-party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. In the United
States, we expect that there will continue to be federal and state initiatives
to control and/or reduce pharmaceutical expenditures. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on
pharmaceutical pricing. Cost control initiatives could decrease the price that
we receive for any products we may develop and sell in the future and have a
material adverse effect on our business, financial condition and results of
operations. Further, to the extent that cost control initiatives have a material
adverse effect on our corporate partners, our ability to commercialize our
products may be adversely affected.
Our ability to commercialize pharmaceutical products may depend, in
part, on the extent to which reimbursement for the products will be available
from government health administration authorities, private health insurers and
other third-party payers. Significant uncertainty exists as to the reimbursement
status of newly approved health care products, and third-party payers, including
Medicare, are increasingly challenging the prices charged for medical products
and services. We cannot be certain that any third-party insurance coverage will
be available to patients for any products developed by us. Government and other
third-party payers are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products and by refusing in some cases to provide coverage for uses of approved
products for disease indications for which the FDA has not granted labeling
approval. If adequate coverage and reimbursement levels are not provided by
government and other third-party payers for our products, the market acceptance
of these products would be adversely affected.
WE HAVE NO EXPERIENCE IN MARKETING OR SALES AND MAY HAVE TO RELY ON OTHERS TO
MARKET AND SELL ANY PRODUCTS WE MAY DEVELOP, WHICH MAY IMPAIR OUR ABILITY TO
DELIVER PRODUCTS.
For certain of our products, we have licensed exclusive marketing
rights to our corporate partners or formed collaborative marketing arrangements
within specified territories in return for royalties to be received on sales, a
share of profits or beneficial transfer pricing. These agreements are terminable
at the discretion of our partners upon as little as 90 days' prior written
notice. If the licensee or marketing partner terminates an agreement or fails to
market a product successfully, our business, financial condition and results of
operations may be adversely affected.
We currently have no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any approved product, we
must either develop a marketing and sales force or, where appropriate or
permissible, enter into arrangements with third parties to market and sell our
products. We cannot be certain that we will develop successfully marketing and
sales experience, or that we will be able to enter into marketing and sales
agreements with others on acceptable terms, if at all, or that any such
arrangements, if entered into, will not be terminated. If we develop our own
marketing and sales capability, it will compete with other companies that
currently have experienced, well funded and larger marketing and sales
operations. To the extent that we enter into co-promotion or other sales and
marketing arrangements with other companies, revenues will depend on the efforts
of others, and we cannot be certain that their efforts will be successful.
WE HAVE NO EXPERIENCE IN MANUFACTURING PRODUCTS AND MAY HAVE TO RELY ON OTHERS
TO MANUFACTURE ANY PRODUCTS WE MAY DEVELOP, WHICH MAY IMPAIR OUR ABILITY TO
DEVELOP OR DELIVER PRODUCTS.
We have no experience in manufacturing products for commercial purposes
and do not have manufacturing facilities. Consequently, we are dependent on
contract manufacturers for the production of products for development and
commercial purposes. The manufacture of our products for clinical trials and
commercial purposes is subject to cGMP regulations promulgated by the FDA. In
the event that we are unable to obtain or retain third-party manufacturing for
our products, we will not be able to commercialize such products as planned. We
cannot be certain that we will be able to enter into agreements for the
manufacture of future products with manufacturers whose facilities and
procedures comply with cGMP and other regulatory requirements. Our current
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dependence upon others for the manufacture of our products may adversely affect
our profit margin, if any, on the sale of future products and our ability to
develop and deliver such products on a timely and competitive basis.
USE OF ANY PRODUCTS WE DEVELOP MAY RESULT IN LIABILITY CLAIMS.
The use of any of our potential products in clinical trials and the
sale of any approved products, including the testing and commercialization of
ALT-711 or Pimagedine, may expose us to liability claims resulting from the use
of products or product candidates. These claims might be made directly by
consumers, pharmaceutical companies or others. We maintain product liability
insurance coverage for claims arising from the use of our products in clinical
trials. However, coverage is becoming increasingly expensive, and we cannot be
certain that we will be able to maintain insurance or, if maintained, that
insurance can be acquired at a reasonable cost or in sufficient amounts to
protect us against losses due to liability that could have a material adverse
effect on our business, financial conditions and results of operations. We
cannot be certain that we will be able to obtain commercially reasonable product
liability insurance for any product approved for marketing in the future or that
insurance coverage and our resources would be sufficient to satisfy any
liability resulting from product liability claims. A successful product
liability claim or series of claims brought against us could have a material
adverse effect on our business, financial condition and results of operations.
WE MAY BE UNABLE TO ATTRACT AND RETAIN THE KEY PERSONNEL ON WHOM OUR SUCCESS
DEPENDS.
We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these personnel could impede
the achievement of our development objectives. Furthermore, recruiting and
retaining qualified scientific personnel to perform research and development
work in the future will also be critical to our success. We cannot be certain
that we will be able to attract and retain personnel on acceptable terms given
the competition between pharmaceutical and health care companies, universities
and non-profit research institutions for experienced scientists. In addition, we
rely on consultants to assist us in formulating our research and development
strategy. All of our consultants are employed outside of us and may have
commitments to or consulting or advisory contracts with other entities that may
limit their availability to us.
OUR OPERATIONS INVOLVE A RISK OF INJURY OR DAMAGE FROM HAZARDOUS MATERIALS.
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of hazardous
materials comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of an accident, we could be held liable for
any damages or fines that result. Such liability could have a material adverse
effect on our business, financial condition and results of operations.
ITEM 2. PROPERTIES.
We lease a 37,000 square foot building in Ramsey, New Jersey, which
contains our executive and administrative offices and research laboratory space.
The lease, which commenced on November 1, 1993, has a 10-year term. In addition,
the lease has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS.
On July 13, 2000 and August 8, 2000, Colby S. Parks and Marion H. Parks
filed suits against us in the United States District Court for the Middle
District of North Carolina and the Superior Court of Chatham County, North
Carolina, respectively, claiming unspecified damages for injuries Mr. Parks
allegedly sustained as a result of his participation in one of our Pimagedine
clinical trials. Our liability insurance carrier is defending these actions.
On October 20, 2000, Charles L. Grimes, one of our stockholders, and
his wife, Jane Gillespie Grimes, filed a complaint against us in the Court of
Chancery in Delaware, claiming breach of an alleged oral agreement with us which
would have purportedly entitled Mr. Grimes to purchase 10% of our private
placement of $6,235,000 of common stock and warrants in September 2000. We
believe the suit is without merit and intend to defend it vigorously.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
In our quarterly report on Form 10-Q for the quarter ended September
30, 2000, we reported that in September 2000, we had entered into an agreement
to sell 2,834,088 shares of common stock (the "Shares") and warrants to purchase
1,133,636 shares of common stock (the "Warrants") to the parties named therein
in a private placement. We indicated that the closing of the sale of one-half of
the Shares and Warrants was completed on September 29, 2000, and that there
would be a subsequent closing of the sale of the remainder of the Shares and
Warrants. This subsequent closing of the remaining one-half of the Shares and
Warrants was completed on November 28, 2000.
Our Common Stock traded on the American Stock Exchange ("Amex") since
August 7, 2000, under the symbol "ALT." Prior to August 7, 2000, our Common
Stock was traded on the Over-the-Counter Bulletin Board ("OTCBB") under the
symbol "ALTN." The following table sets forth, for the calendar periods
indicated, the range of high and low sale prices for our Common Stock on Amex or
OTCBB, as applicable:
2000 High Low
---- -------- --------
First Quarter.................... $ 5.0000 $ 0.9062
Second Quarter................... 3.6250 1.5000
Third Quarter.................... 3.5625 2.1250
Fourth Quarter................... 8.3125 2.8750
1999 High Low
---- -------- --------
First Quarter.................... $ 1.6875 $ 0.6875
Second Quarter................... 1.0625 0.6250
Third Quarter.................... 1.4375 0.5625
Fourth Quarter................... 1.3438 0.5000
As of February 28, 2001, there were 318 holders of the Common Stock.
On February 28, 2001, the last sale price reported on the Amex for the Common
Stock was $4.35 per share.
We have neither paid nor declared dividends on our Common Stock since
our inception and do not plan to pay dividends in the foreseeable future. Any
earnings that we may realize will be returned to finance our growth.
The market prices for securities of biotechnology and pharmaceutical
companies, including ours, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors, such as fluctuations in our operating results, announcements
of technological innovations or new therapeutic products by us or others,
clinical trial results, developments concerning agreements with collaborators,
governmental regulation, developments in patent or other proprietary rights,
public concern as to safety of drugs developed by us or others, future sales of
substantial amounts of Common Stock by existing stockholders and general market
conditions, can have an adverse effect on the market price of the Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in
conjunction with the audited financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. The selected financial data for
the five years ended December 31, 2000, has been derived from our audited
financial statements.
Years Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Investment income ........................ $ 570 $ 835 $ 1,321 $ 1,510 $ 2,295
Other income ............................. -- 600 -- -- --
--------- --------- --------- --------- ---------
Total revenues ....................... 570 1,435 1,321 1,510 2,295
Expenses:
Research and development ................. 6,022 10,598 24,592 23,264 17,494
Elimination of previously accrued
loss contingency ..................... -- -- (1,771) -- --
General and administrative ............... 4,422 4,357 4,842 3,633 3,517
Non-cash stock compensation .............. 1,244 -- -- -- --
Interest ................................. -- -- 4 25 47
--------- --------- --------- --------- ---------
Total expenses ....................... 11,688 14,955 27,667 26,992 21,058
--------- --------- --------- --------- ---------
Loss before income tax benefit ................ (11,118) (13,520) (26,346) (25,412) (18,763)
Income tax benefit ............................ 1,548 2,588 -- -- --
--------- --------- --------- --------- ---------
Net loss ...................................... (9,570) (10,932) (26,346) (25,412) (18,763)
Preferred stock dividends
and discount amortization ................ 2,945 2,707 2,207 1,091 --
--------- --------- --------- --------- ---------
Net loss applicable to common
stockholders .............................. $ (12,515) $ (13,639) $ (28,553) $ (26,503) $ (18,763)
========= ========= ========= ========= =========
Basic and diluted loss per share to
common stockholders ....................... $ (0.63) $ (0.72) $ (1.57) $ (1.60) $ (1.20)
========= ========= ========= ========= =========
Weighted average common shares used in
computing basic and diluted loss per share 19,861 19,055 18,211 16,566 15,640
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments ................... $ 9,955 $ 12,370 $ 24,132 $ 28,974 $ 34,500
Working capital ............................... 9,754 10,425 20,093 22,390 26,542
Total assets .................................. 13,389 15,021 27,652 33,508 40,139
Long-term capital lease obligations ........... -- -- -- -- 162
Accumulated deficit ........................... (134,011) (121,496) (107,857) (79,303) (52,800)
Stockholders' equity .......................... 11,453 12,827 23,338 26,455 31,371
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
We are a product-based biopharmaceutical company engaged in the
discovery and development of oral drugs for the treatment of diseases of aging
and diabetes. Our product candidates represent novel approaches to some of the
largest pharmaceutical markets, such as cardiovascular and kidney diseases. Two
of our compounds are in clinical development; several others are undergoing
pre-clinical testing. These pharmaceutical candidates were developed as a result
of our understanding of the Advanced Glycosylation End-product ("A.G.E.")
pathway, a fundamental pathological process and inevitable consequence of aging
that may result in many medical disorders.
Our lead compound, ALT-711, is initially being developed for
cardiovascular indications, including ISH. We recently completed a Phase IIa
trial to evaluate the effect of ALT-711 on cardiovascular compliance. Based on
the positive results of this trial, we plan to initiate a Phase IIb efficacy
trial of ALT-711.
We are pursuing development of other compounds from our library of
A.G.E. crosslink breakers and A.G.E.-formation inhibitors in additional aging-
and diabetes-related pathologies.
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As we continue clinical development of ALT-711, we will determine if
it is appropriate to retain development and marketing rights for one or several
indications in North America, while at the same time continuing to evaluate
potential corporate partnerships for the further development and ultimate
marketing of the compound in other territories throughout the world.
Since our inception in October 1986, we have devoted substantially all
of our resources to research, drug discovery and development programs. To date,
we have not generated any revenues from the sale of products and do not expect
to generate any such revenues for a number of years, if at all. We have incurred
an accumulated deficit of $134,011,000 as of December 31, 2000, and expect to
incur operating losses, potentially greater than losses in prior years, for a
number of years.
We have financed our operations through proceeds from an initial
public offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, and private placements of common and preferred equity
securities, revenue from present and former collaborative relationships,
reimbursement of certain of our research and development expenses by our
collaborative partners, investment income earned on cash balances and short-term
investments and the sale of a portion of our New Jersey State Net Operating
Losses carryforwards.
In September 2000, we entered into an agreement with several investors
pursuant to which we sold them, in a private placement, an aggregate of
2,834,088 shares of common stock and warrants to purchase 1,133,636 shares of
common stock (the "Warrants") for an aggregate purchase price of $6,235,000. The
exercise price of the Warrants is $3.40 per share, while the term is seven
years.
In March 2000, the Financial Accounting Standards Board ("FASB")
released Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, An Interpretation of APB Opinion No. 25." The interpretation
became effective on July 1, 2000, but in some circumstances applies to
transactions that occur prior to the effective date. Under the interpretation,
stock options that are repriced must be accounted for as variable-plan
arrangements until the options are exercised, forfeited or expire. This
requirement applies to any options repriced after December 15, 1998. On February
2, 1999, we repriced certain stock options. The total compensation expense
resulting from the repricing and included in net loss for the year ended
December 31, 2000, is $1,244,000.
In 2000 and 1999, we sold $14.1 million and $27.6 million,
respectively, of our gross State net operating loss carryforwards and $590,000
and $645,000, respectively, of our State research and development tax credit
carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program (the "Program"). The Program allowed qualified
technology and biotechnology business in New Jersey to sell unused amounts of
net operating loss carryforwards and defined research and development tax
credits for cash. The proceeds from the sale in 2000 and 1999 were $1,548,000
and $2,588,000, respectively, and such amounts were recorded as a tax benefit in
the statements of operations. The proceeds from the sale of the net operating
loss carryforwards and the research and development tax credit carryforwards
sold in 2000 were received on January 8, 2001.
Our business is subject to significant risks including, but not
limited to, (i) our ability to obtain funding, (ii) the risks inherent in our
research and development efforts, including clinical trials, (iii) uncertainties
associated with obtaining and enforcing our patents and with the patent rights
of others, (iv) the lengthy, expensive and uncertain process of seeking
regulatory approvals, (v) uncertainties regarding government reforms and product
pricing and reimbursement levels, (vi) technological change and competition,
(vii) manufacturing uncertainties and (viii) dependence on collaborative
partners and other third parties. Even if our product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. Such reasons include the possibilities that the products will
prove ineffective or unsafe during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. These risks and others
are discussed under the heading "Forward-Looking Statements and Cautionary
Statements."
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RESULTS OF OPERATIONS
Years Ended December 2000, 1999, 1998
Revenues
Total revenues for 2000, 1999 and 1998 were $570,000, $1,435,000 and
$1,321,000, respectively. Revenues were derived from interest earned on cash and
cash equivalents and short-term investments, and in 1999, the $600,000 payment
under an option agreement with Taisho Pharmaceutical Co., Ltd., pursuant to
which they were granted an option by us (which expired without being exercised)
to acquire a license to ALT-711 in certain territories. The decrease in revenues
in 2000 over 1999 was attributed to a decrease in cash and cash equivalents and
short-term investment balances and the absence of the option payment in 2000.
Operating Expenses
Total expenses decreased to $11,688,000 in 2000, from $14,955,000 in
1999 and $27,667,000 in 1998, and consisted primarily of research and
development expenses. Research and development expenses were $6,022,000 in 2000,
$10,598,000 in 1999 and $24,592,000 in 1998. Research and development expenses
decreased in 2000, from 1999, by $4,576,000, or 43.2%. This decrease was
primarily related to the closure of the ACTION I and ESRD trials and decreased
personnel-related expenses, offset by increased expenses related to the ALT-711
Phase IIa costs. Research and development expenses decreased in 1999, from 1998,
by $13,994,000, or 56.9%, due to the decreased expenses related to the closure
of the ACTION I and ESRD trials and personnel-related expenses.
General and administrative expenses were $4,422,000 in 2000,
relatively unchanged from $4,357,000 in 1999 and $4,842,000 in 1998. In January
2000, and March 2000, we completed a downsizing of our associates. We undertook
the downsizing to reduce operating expenses in order to preserve our existing
capital resources for research and development programs.
Non-cash stock compensation expense totaled $1,244,000 in 2000, which
resulted from certain stock options being repriced.
Net Loss
At December 31, 2000, we had available Federal net operating loss
carryforwards, which expire in various amounts from the years 2006 through 2020,
of approximately $125.9 million for income tax purposes and State net operating
loss carryforwards, which expire in the years 2001 through 2007, of
approximately $81.8 million. In addition, we had Federal research and
development credit carryforwards of approximately $4.9 million and State
research and development tax credit carryforwards of approximately $2.2 million.
We had net losses of $9,570,000 in 2000, $10,932,000 in 1999 and $26,346,000 in
1998.
LIQUIDITY AND CAPITAL RESOURCES
We had cash, cash equivalents and short-term investments at December
31, 2000, of $9,955,000 compared to $12,370,000 at December 31, 1999. This is a
decrease in cash, cash equivalents and short-term investments for the twelve
months ended December 31, 2000, of $2,415,000. This consisted of $8,986,000 of
cash used in operations, consisting primarily of research and development
expenses, personnel and related costs and facility expenses and approximately
$62,000 of capital expenditures. This was offset by $6,636,000 of financing
activities related to a private placement of common stock and proceeds from
stock option exercises. As of December 31, 2000, we had invested $7,444,000 in
capital equipment and leasehold improvements.
In September 2000, we entered into an agreement with several investors
pursuant to which we sold them, in a private placement, an aggregate of
2,834,088 shares of common stock and warrants to purchase 1,133,636 shares of
common stock (the "Warrants") for an aggregate purchase price of $6,235,000. The
exercise price of the Warrants is $3.40 per share, while the term is seven
years.
In 2000 and 1999, we sold $14.1 million and $27.6 million,
respectively, of our gross State net operating loss carryforwards and $590,000
and $645,000, respectively, of our State research and development tax credit
carryforwards under the Program. The Program allowed qualified technology and
biotechnology business in New
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Jersey to sell unused amounts of net operating loss carryforwards and defined
research and development tax credits for cash. The proceeds in 2000 and 1999
were $1,548,000 and $2,588,000, respectively, and such amounts were recorded as
a tax benefit in the statements of operations. The proceeds from the sale of the
net operating loss carryforwards and the research and development tax credit
carryforwards sold in 2000 were received on January 8, 2001.
We anticipate that our existing available cash and cash equivalents
and short-term investments will be adequate to satisfy our working capital
requirements for our current operations into 2002.
The amount of our future capital requirements will depend on numerous
factors, including the progress of our research and development programs, the
conduct of pre-clinical tests and clinical trials, the development of regulatory
submissions, the costs associated with protecting patents and other proprietary
rights, the development of marketing and sales capabilities and the availability
of third-party funding.
Because of our long-term capital requirements, we may seek access to
the public or private equity markets whenever conditions are favorable. We may
also seek additional funding through corporate collaborations and other
financing vehicles, potentially including off-balance sheet financing through
limited partnerships or corporations. There can be no assurance that such
funding will be available at all or on terms acceptable to us. If adequate funds
are not available, we may be required to curtail significantly one or more of
our research or development programs. If we obtain funds through arrangements
with collaborative partners or others, we may be required to relinquish rights
to certain of our technologies or product candidates.
Our current priorities are the evaluation and possible continued
development of ALT-711, our lead A.G.E. Crosslink Breaker candidate, and the
continued development of Pimagedine. We are focusing our resources on the
development of ALT-711. As we continue clinical development of ALT-711, we will
determine if it is appropriate to retain development and marketing rights for
one or several indications in North America, while at the same time, continuing
to evaluate potential corporate partnerships for the further development and
ultimate marketing of the compound throughout the world. We have also decided to
pursue the continued development of Pimagedine and are actively seeking one or
more corporate partners. We believe that additional development of this compound
and other product candidates will require us to find sources of funding.
Effective August 7, 2000, our Common Stock was approved for listing on
the American Stock Exchange under the symbol "ALT."
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The adoption of SAB 101 had no impact on the accompanying financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market risk for changes in interest rates relates
primarily to our investment in marketable securities. We do not use derivative
financial instruments in our investments. Our investments consist primarily of
debt instruments of the U.S. government, government agencies, financial
institutions and corporations with strong credit ratings. The table below
presents principal amounts and related weighted average interest rates expected
by maturity date for our investment portfolio. There are no maturities after
2001, and our exposure is limited based on the short-term nature of these
investments.
2001
----
Assets
Cash equivalents:
Fixed rate ............ $3,600,328
Average interest rate .. 6.72%
Short-term investments:
Fixed rate ............. $6,354,479
Average interest rate .. 6.64%
Total investment securities: $9,954,807
Average interest rate .. 6.66%
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
a) The financial statements required to be filed pursuant to this
Item 8 are appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Index to Financial Statements and
Schedules" on page 28.
b) The unaudited quarterly financial data for the two-year period
ended December 31, 2000 is as follows:
Net Loss
Loss Before Applicable to
Income Tax Common Basic/Diluted
Revenues Expenses Benefit Stockholders Loss Per Share
-------- -------- --------- ------------ --------------
(in thousands, except per share amounts)
2000
First Quarter $ 166 $ 2,762 $ (2,596) $ (3,305) $ (0.17)
Second Quarter 143 2,402 (2,259) (2,983) (0.15)
Third Quarter 110 3,339 (3,229) (3,977) (0.20)
Fourth Quarter 151 3,185 (3,034) (2,250) (0.11)
-------- -------- -------- -------- --------
Total Year $ 570 $ 11,688 $(11,118) $(12,515) $ (0.63)
1999
First Quarter $ 278 $ 5,623 $ (5,345) $ (5,992) $ (0.32)
Second Quarter 227 4,240 (4,013) (4,681) (0.25)
Third Quarter 370 2,489 (2,119) (2,808) (0.15)
Fourth Quarter 560 2,602 (2,043) (158) (0.00)
-------- -------- -------- -------- --------
Total Year $ 1,435 $ 14,954 $(13,520) $(13,639) $ (0.72)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information called for by Item 10 is incorporated by reference
from the information under the caption "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our
Proxy Statement for our 2001 Annual Meeting of Stockholders to be held on June
5, 2001.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by Item 11 is incorporated by reference
from the information under the caption "Executive Compensation" in our Proxy
Statement for our 2001 Annual Meeting of Stockholders to be held on June 5,
2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by Item 12 is incorporated by reference
from the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in our Proxy Statement for our 2001 Annual Meeting of
Stockholders to be held on June 5, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
25
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements:
Our audited financial statements, financial statement schedules and
the Report of Independent Public Accountants are appended to this Annual Report
on Form 10-K. Reference is made to the "Index to Financial Statements and
Schedules" on page 28.
(b) Reports on Form 8-K.
On December 14, 2000, we filed a current report on Form 8-K, dated
December 6, 2000, announcing the appointment of a Medical Director.
On November 8, 2000, we filed a current report on Form 8-K, dated
October 17, 2000, regarding the grant of a patent.
On October 20, 2000, we filed a current report on Form 8-K, dated
October 10, 2000, announcing that we entered into an agreement with HemoMax,
LLC.
On October 5, 2000, we filed a current report on Form 8-K, dated
September 29, 2000, announcing that we entered into an agreement for the private
placement of common stock and warrants.
(c) Exhibits.
The exhibits required to be filed are listed on the Index to Exhibits
attached hereto, which is incorporated herein by reference.
26
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 1st day of March
2001.
ALTEON INC.
By: /s/ Kenneth I. Moch
------------------------------------------
Kenneth I. Moch
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Mark Novitch Chairman of the Board March 1, 2001
- ----------------
Mark Novitch
/s/ Kenneth I. Moch President and Chief Executive Officer March 1, 2001
- ------------------- (principal executive officer)
Kenneth I. Moch
/s/ Elizabeth O'Dell Vice President, Finance and Administration, March 1, 2001
- -------------------- Secretary and Treasurer (principal finance
Elizabeth O'Dell and accounting officer)
/s/ Edwin Bransome, Jr. M.D. Director March 1, 2001
- ----------------------------
Edwin Bransome, Jr. M.D.
/s/ Marilyn G. Breslow Director March 1, 2001
- ----------------------
Marilyn G. Breslow
/s/ Alan J. Dalby Director March 1, 2001
- -----------------
Alan J. Dalby
/s/ David McCurdy Director March 1, 2001
- -----------------
David McCurdy
/s/ George M. Naimark, Ph.D. Director March 1, 2001
- ----------------------------
George M. Naimark, Ph.D.
27
28
Form 10-K - Item 14(a)(1)
Alteon Inc.
Index to Financial Statements and Schedules
Page
----
Report of Independent Public Accountants - Arthur Andersen LLP ......... 29
Financial Statements:
Balance Sheets at December 31, 2000 and 1999 ................... 30
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 .......................... 31
Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998 .......................... 32
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 .......................... 33
Notes to Financial Statements .................................. 34
28
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alteon Inc.:
We have audited the accompanying balance sheets of Alteon Inc. (a Delaware
corporation) as of December 31, 2000 and 1999, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alteon Inc. as of December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 15, 2001
29
30
ALTEON INC.
BALANCE SHEETS
ASSETS
December 31, December 31,
2000 1999
------------- -------------
Current Assets:
Cash and cash equivalents ................................ $ 3,600,328 $ 5,335,529
Short-term investments ................................... 6,354,479 7,034,258
Other current assets ..................................... 1,735,660 248,983
------------- -------------
Total current assets ................................ 11,690,467 12,618,770
Property and equipment, net .............................. 1,696,082 2,399,305
Deposits and other assets ................................ 2,815 2,815
------------- -------------
Total assets ........................................ $ 13,389,364 $ 15,020,890
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ......................................... $ 304,779 $ 431,000
Accrued expenses ......................................... 1,631,579 1,763,202
------------- -------------
Total current liabilities ........................... 1,936,358 2,194,202
------------- -------------
Stockholders' Equity:
Preferred Stock, $0.01 par value,
1,993,329 shares authorized, and 912 and 839
of Series G and 2,739 and 2,518 of Series H shares
issued and outstanding, as of December 31, 2000 and
December 31, 1999, respectively ..................... 37 34
Common Stock, $0.01 par value,
40,000,000 shares authorized, and 22,399,660 and
19,189,701 shares issued and outstanding, as of
December 31, 2000 and December 31, 1999, respectively 223,997 191,897
Additional paid-in capital ............................... 145,241,265 134,129,513
Accumulated deficit ...................................... (134,011,423) (121,496,049)
Accumulated other comprehensive (loss)/income ............ (870) 1,293
------------- -------------
Total stockholders' equity .......................... 11,453,006 12,826,688
------------- -------------
Total liabilities and stockholders' equity .................... $ 13,389,364 $ 15,020,890
============= =============
The accompanying notes are an integral part of these balance sheets.
30
31
ALTEON INC.
STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Investment income ................................. $ 570,444 $ 834,661 $ 1,320,538
Other income ...................................... -- 600,000 --
------------ ------------ ------------
Total revenues .............................. 570,444 1,434,661 1,320,538
------------ ------------ ------------
Expenses:
Research and development .......................... 6,022,315 10,598,008 24,591,769
Elimination of previously accrued loss contingency -- -- (1,770,975)
General and administrative ........................ 4,422,146 4,356,447 4,842,176
Non-cash stock compensation ....................... 1,243,669 -- --
Interest .......................................... -- -- 3,610
------------ ------------ ------------
Total expenses .............................. 11,688,130 14,954,455 27,666,580
------------ ------------ ------------
Loss before income tax benefit ...................... (11,117,686) (13,519,794) (26,346,042)
Income tax benefit .................................. 1,547,763 2,588,210 --
------------ ------------ ------------
Net loss ............................................ (9,569,923) (10,931,584) (26,346,042)
Preferred stock dividends and discount amortization 2,945,451 2,707,844 2,207,205
------------ ------------ ------------
Net loss applicable to common stockholders .......... $(12,515,374) $(13,639,428) $(28,553,247)
============ ============ ============
Basic and diluted loss per share to
common stockholders ............................... $ (0.63) $ (0.72) $ (1.57)
============ ============ ============
Weighted average common shares used in computing
basic and diluted loss per share .................. 19,860,847 19,054,750 18,210,902
============ ============ ============
The accompanying notes are an integral part of these statements.
31
32
ALTEON INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
------------------------------ -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
Balances at
DECEMBER 31, 1997 .................. 942 $ 9 17,922,319 $ 179,223
Net loss .......................... -- -- -- --
Change in unrealized gains/(losses) -- -- -- --
Comprehensive loss ................ -- -- -- --
Issuance of Series H preferred
stock valued at $10,000 per
share to Genentech, Inc., net
of transaction costs ............. 2,254 23 -- --
Issuance of Series G and H
preferred stock dividends ........ 133 1 -- --
Conversion of Series G preferred
stock to common stock ............ (243) (2) 822,204 8,222
Preferred stock discount
amortization ..................... -- -- -- --
Exercise of employee stock
options .......................... -- -- 70,217 702
Deferred compensation expense
in connection with the issuance
of non-qualified stock options
and options granted to non-
employees ........................ -- -- -- --
------------- ------------- ------------- -------------
DECEMBER 31, 1998 .................. 3,086 31 18,814,740 188,147
Net loss .......................... -- -- -- --
Change in unrealized gains/(losses) -- -- -- --
Comprehensive loss ................ -- -- -- --
Issuance of Series G and H
preferred stock dividends ........ 271 3 -- --
Exercise of employee stock
options .......................... -- -- 374,961 3,750
Deferred compensation expense
in connection with the issuance
of non-qualified stock options
and options granted to non-
employees ........................ -- -- -- --
------------- ------------- ------------- -------------
DECEMBER 31, 1999 .................. 3,357 34 19,189,701 191,897
Net loss .......................... -- -- -- --
Change in unrealized gains/(losses) -- -- -- --
Comprehensive loss ................ -- -- -- --
Issuance of Series G and H
preferred stock dividends ........ 294 3 -- --
Exercise of employee stock
options .......................... -- -- 375,871 3,759
Private placement of common
stock and warrants ............... -- -- 2,834,088 28,341
Compensation expense related to
variable plan employee
stock options .................... -- -- -- --
Deferred compensation expense
in connection with the issuance
of non-qualified stock options
and options granted to non-
employees ........................ -- -- -- --
------------- ------------- ------------- -------------
DECEMBER 31, 2000 .................. 3,651 $ 37 22,399,660 $ 223,997
============= ============= ============= =============
Accumulated
Additional Other Total
Paid-in Accumulated Comprehensive Stockholders'
Capital Deficit Income (Loss) Equity
------------- ------------- ------------- -------------
Balances at
DECEMBER 31, 1997 .................. $ 105,585,019 $ (79,303,374) $ (5,941) $ 26,454,936
Net loss .......................... -- (26,346,042) -- (26,346,042)
Change in unrealized gains/(losses) -- -- 7,709 7,709
-------------
Comprehensive loss ................ -- -- -- (26,338,333)
-------------
Issuance of Series H preferred
stock valued at $10,000 per
share to Genentech, Inc., net
of transaction costs ............. 22,543,706 -- -- 22,543,729
Issuance of Series G and H
preferred stock dividends ........ 1,327,768 (1,327,768) -- 1
Conversion of Series G preferred
stock to common stock ............ (8,220) -- -- --
Preferred stock discount
amortization ..................... 879,437 (879,437) -- --
Exercise of employee stock
options .......................... 195,451 -- -- 196,153
Deferred compensation expense
in connection with the issuance
of non-qualified stock options
and options granted to non-
employees ........................ 481,872 -- -- 481,872
------------- ------------- ------------- -------------
DECEMBER 31, 1998 .................. 131,005,033 (107,856,621) 1,768 23,338,358
Net loss .......................... -- (10,931,584) -- (10,931,584)
Change in unrealized gains/(losses) -- -- (475) (475)
-------------
Comprehensive loss ................ -- -- -- (10,932,059)
-------------
Issuance of Series G and H
preferred stock dividends ........ 2,707,841 (2,707,844) -- --
Exercise of employee stock
options .......................... 162,691 -- -- 166,441
Deferred compensation expense
in connection with the issuance
of non-qualified stock options
and options granted to non-
employees ........................ 253,948 -- -- 253,948
------------- ------------- ------------- -------------
DECEMBER 31, 1999 .................. 134,129,513 (121,496,049) 1,293 12,826,688
Net loss .......................... -- (9,569,923) -- (9,569,923)
Change in unrealized gains/(losses) -- -- (2,163) (2,163)
-------------
Comprehensive loss ................ -- -- -- (9,572,086)
-------------
Issuance of Series G and H
preferred stock dividends ........ 2,945,448 (2,945,451) -- --
Exercise of employee stock
options .......................... 500,786 -- -- 504,545
Private placement of common
stock and warrants ............... 6,103,151 -- -- 6,131,492
Compensation expense related to
variable plan employee
stock options .................... 1,243,669 -- -- 1,243,669
Deferred compensation expense
in connection with the issuance
of non-qualified stock options
and options granted to non-
employees ........................ 318,698 -- -- 318,698
------------- ------------- ------------- -------------
DECEMBER 31, 2000 .................. $ 145,241,265 $(134,011,423) $ (870) $ 11,453,006
============= ============= ============= =============
The accompanying notes are an integral part of these statements.
32
33
ALTEON INC.
STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
Cash flows from operating activities:
Net loss .............................................. $ (9,569,923) $ (10,931,584) $ (26,346,042)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization ......................... 765,601 743,820 678,773
Amortization of deferred compensation ................. 318,698 253,948 481,872
Non-cash compensation expense related
to variable plan employee stock options ............. 1,243,669 -- --
Changes in operating assets and liabilities:
Other current assets .................................. (1,486,677) 25,162 194,535
Other assets .......................................... -- 257,265 1,278
Accounts payable and accrued expenses ................. (257,844) (2,119,073) (2,577,746)
------------- ------------- -------------
Net cash used in operating activities ............. (8,986,476) (11,770,462) (27,567,330)
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures .................................. (62,377) (157,969) (480,566)
Purchases of marketable securities .................... (11,550,202) (54,461,475) (115,976,783)
Sales and maturities of marketable securities ......... 12,227,817 60,719,408 111,241,889
Restricted cash ....................................... -- -- 620,400
------------- ------------- -------------
Net cash provided by (used in) investing activities 615,238 6,099,964 (4,595,060)
------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock ............ 6,636,037 166,441 196,153
Net proceeds from issuance of preferred stock ......... -- -- 22,543,729
Payments under capital lease obligations .............. -- -- (161,581)
------------- ------------- -------------
Net cash provided by financing activities ......... 6,636,037 166,441 22,578,301
------------- ------------- -------------
Net decrease in cash and cash equivalents ................. (1,735,201) (5,504,057) (9,584,089)
Cash and cash equivalents, beginning of period ............ 5,335,529 10,839,586 20,423,675
------------- ------------- -------------
Cash and cash equivalents, end of period .................. $ 3,600,328 $ 5,335,529 $ 10,839,586
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................. $ -- $ -- $ 3,610
============= ============= =============
The accompanying notes are an integral part of these statements.
33
34
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Alteon Inc. ("Alteon" or the "Company") is a product-based
biopharmaceutical company engaged in the discovery and development of oral drugs
for the treatment of diseases of aging and diabetes. The Company's product
candidates represent novel approaches to some of the largest pharmaceutical
markets, such as cardiovascular and kidney diseases. The Company conducts its
business in one operating segment. Alteon's proprietary technology focuses on
Advanced Glycosylation End-products ("A.G.E.s"). A.G.E.s ultimately form
crosslinks with adjacent proteins, leading to a loss of flexibility and function
in body tissues, vessels and organs. All of the Company's products are in
research or development, and no revenues have been generated from product sales.
The Company's lead A.G.E. Crosslink Breaker compound, ALT-711, is initially
being developed for cardiovascular indication, including isolated systolic
hypertension ("ISH"). Alteon recently completed a Phase IIa trial to evaluate
the effect of ALT-711 on cardiovascular compliance. Based on the positive
results of this trial, the Company plans to initiate a Phase IIb efficacy trial
of ALT-711. The Company is seeking a corporate partner to help fund the
continued development of its lead A.G.E.-Formation Inhibitor, Pimagedine, based
on the results of a Phase II/III trial of Pimagedine in Type 1 diabetic patients
with overt nephropathy. Alteon is also pursuing the development of a novel
series of glucose lowering agent compounds.
The Company's business is subject to significant risks including, but
not limited to, (i) its ability to obtain funding, (ii) its uncertainty of
future profitability, (iii) the risks inherent in its research and development
efforts, including clinical trials, (iv) uncertainties associated with obtaining
and enforcing its patents and with the patent rights of others, (v) the lengthy,
expensive and uncertain process of seeking regulatory approvals, (vi)
uncertainties regarding government reforms and product pricing and reimbursement
levels, (vii) technological change and competition, (viii) manufacturing
uncertainties and (ix) dependence on collaborative partners and other third
parties. Even if the Company's product candidates appear promising at an early
stage of development, they may not reach the market for numerous reasons. Such
reasons include the possibilities that the products will prove ineffective or
unsafe during clinical trials, will fail to receive necessary regulatory
approvals, will be difficult to manufacture on a large scale, will be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties. Alteon will require substantial additional
funding in order to continue the research, product development, pre-clinical
testing and clinical trials of its product candidates. If adequate funding is
not available, the Company may be required to curtail significantly one or more
of its research or development programs and other Company activities.
Pervasiveness of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
34
35
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash and highly liquid investments,
which have a maturity of less than three months at the time of purchase.
Short-term investments are considered available-for-sale and are recorded at
fair market value, as determined by quoted market value. As of December 31,
2000, short-term investments were invested in debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. They consist of the following:
December 31,
-----------------------
2000 1999
---------- ----------
U.S. government agency funds... $2,651,255 $ --
Corporate obligations ......... 3,703,224 7,034,258
---------- ----------
$6,354,479 $7,034,258
========== ==========
The amortized cost of short-term investments was $6,353,732 and
$7,033,844 at December 31, 2000 and December 31, 1999, respectively. Gross
unrealized gains or losses are not significant.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the useful lives
of owned assets, which range from three to five years. Leasehold improvements
and equipment under capital leases are amortized using the straight-line method
over the shorter of the lease term or the useful life of the assets.
Research and Development
Expenditures for research and development are charged to operations as
incurred.
Stock-Based Compensation
The Company accounts for employee stock-based compensation under
Accounting Principles Board Opinion No. 25 ("APB Opinion No. 25") and related
interpretations.
Net Loss Per Share
Basic loss per share is computed by dividing net loss applicable to
common stockholders by the weighted average number of shares outstanding during
the year. Diluted loss per share is the same as basic loss per share, as the
inclusion of common stock equivalents would be antidilutive.
Comprehensive Income/(Loss)
The only comprehensive income/(loss) items the Company has are
unrealized gains/(losses) on available-for-sale investments and net loss.
35
36
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Recently Issued Accounting Standards
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 138 ("SFAS 138"), "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment of
FASB Statement No. 133." SFAS No. 138 was issued to address a limited number of
issues causing implementation difficulties for entities that apply SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," issued in June
1998. SFAS No. 133 and SFAS No. 138 require that all derivatives be measured at
fair value and recognized as assets or liabilities on the balance sheet. Changes
in the fair value of derivatives should be recognized in either net
income/(loss) or other comprehensive income/(loss), depending on the designated
purpose of the derivative. The Company is required to and will adopt SFAS No.
133 and SFAS No. 138 in the first quarter of 2001. Based on the Company's
current activities, the Company does not believe that adoption of these
pronouncements will have a material impact on the Company's results of
operations, cash flows or financial position.
In March 2000, the FASB released Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation, An Interpretation of APB
Opinion No. 25." The interpretation became effective on July 1, 2000, but in
some circumstances applies to transactions that occurred prior to the effective
date. Under the interpretation, stock options that are repriced must be
accounted for as variable-plan arrangements until the options are exercised,
forfeited or expire. This requirement applies to any options repriced after
December 15, 1998. On February 2, 1999, the Company repriced certain stock
options (See Note 7). The total non-cash stock compensation expense resulting
from the repricing for the year ended December 31, 2000, is $1,244,000, which
includes research and development charges of $353,000 and general and
administrative charges of $891,000.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The adoption of SAB 101 had no impact on the accompanying financial
statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to
current year presentation.
NOTE 2 -- PROPERTY AND EQUIPMENT
December 31,
--------------------------
2000 1999
----------- -----------
Laboratory equipment ........................ $ 1,167,780 $ 1,261,640
Furniture and equipment ..................... 686,560 682,124
Computer equipment .......................... 374,589 360,713
Leasehold improvements ...................... 5,215,069 5,215,069
----------- -----------
7,443,998 7,519,546
Less: Accumulated depreciation & amortization (5,747,916) (5,120,241)
----------- -----------
$ 1,696,082 $ 2,399,305
=========== ===========
Depreciation and amortization expense was $765,601, $743,820 and
$678,773 for the years ended December 31, 2000, 1999 and 1998, respectively.
36
37
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
In December 1997, Alteon and Genentech, Inc. ("Genentech") entered
into a stock purchase agreement and a development collaboration and license
agreement providing for the development and marketing of Pimagedine, a
second-generation A.G.E.-Formation Inhibitor. Pursuant to the stock purchase
agreement, Genentech purchased Common Stock, Series G Preferred Stock and Series
H Preferred Stock for an aggregate purchase price of $37,544,000 (See Note 7).
Genentech's obligations to purchase shares of Alteon's stock terminated December
31, 1998. Pursuant to a letter agreement dated February 11, 1999 between Alteon
and Genentech, the development collaboration and license agreement terminated
effective June 30, 1999.
NOTE 4 -- OTHER DEVELOPMENT AGREEMENTS
In 1989, Alteon and Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi")
formed a strategic alliance to develop and commercialize the Company's A.G.E.
technology. Under this arrangement, the parties agreed to collaborate on further
research and development, and the Company granted to Yamanouchi an exclusive
license to commercialize the Company's technology in Japan, South Korea, Taiwan
and The People's Republic of China.
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University for patents covering the use
of Pimagedine as an inhibitor of inducible nitric oxide synthase. The agreement
requires the Company to pay certain licensing fees upon the attainment of
development milestones as well as a royalty on net sales or a share of
sub-licensing profits of products covered by the patents. The license also
covers patents developed through any subsequent research collaboration between
the parties, which Alteon agrees to fund.
In August 1999, Alteon and Taisho Pharmaceutical Co., Ltd. ("Taisho")
entered into an agreement under which Taisho was granted an exclusive option
through December 31, 1999, to acquire a license to Alteon's lead A.G.E.
Crosslink Breaker, ALT-711, for Japan, South Korea, Taiwan and The People's
Republic of China for a non-refundable option fee of $600,000. This amount is
reflected in other income in the statement of operations. The option expired on
December 31, 1999.
In October 2000, Alteon entered into an agreement with HemoMax, LLC
("HemoMax") for the development of a novel technology designed to increase the
delivery of oxygen to tissues in the body through enhanced blood circulation.
Under the agreement, HemoMax will fund the pre-clinical development of compounds
arising from the technology, and Alteon will directly manage the development
programs. HemoMax has granted Alteon an exclusive right of first refusal to
acquire the HemoMax technology. In addition, based on the achievement of certain
milestones, Alteon will receive 15% ownership of HemoMax. While this technology
is not currently a part of our main technology platform, we entered into this
relationship because it represents an opportunity to participate in the
development of and potentially to acquire a technology that complements our
cardiovascular activities with ALT-711.
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or to
which the commercial partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has also entered into various arrangements with
independent research laboratories to conduct studies in conjunction with the
development of the Company's technology. The Company receives certain rights to
inventions or discoveries that may arise from this research.
37
38
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 -- ACCRUED EXPENSES
December 31,
------------------------
2000 1999
---------- ----------
Accrued clinical trial expense ..... $ 848,745 $ 923,756
Accrued professional fees .......... 291,000 145,769
Accrued payroll and related expenses 167,680 402,288
Accrued rent ....................... 155,585 210,498
Accrued patent fees ................ 111,529 20,000
Other .............................. 57,040 60,891
---------- ----------
$1,631,579 $1,763,202
========== ==========
The Company's headquarters and research facility rent is being
expensed on a straight-line basis over the 10-year lease period (See Note 6).
NOTE 6 -- CONTINGENCIES AND COMMITMENTS
Contingencies
In December 1990, the Company and Marion Merrell Dow, Inc., which was
subsequently acquired by an affiliate of Hoechst AG and renamed Hoechst Marion
Roussel, Inc. ("HMRI"), formed a strategic alliance to develop and commercialize
the Company's A.G.E. technology for therapeutics in the areas of diabetic and
aging complications. In 1996, HMRI ended the collaboration as a result of HMRI's
continuing prioritization of its new product pipeline, and the Company regained
all rights granted to HMRI covering the Company's technology. In June 1998, the
Company and HMRI resolved various open issues arising from the termination of
their collaboration. As a result, the previously established accrual in the
amount of $1.8 million has been eliminated and credited to the statement of
operations.
Commitments
The Company leases its headquarters and research facility and related
equipment and furniture under non-cancelable operating leases. As of December
31, 2000, future minimum rentals under operating leases that have initial or
remaining non-cancelable terms in excess of one year are as follows:
Operating
Leases
----------
2001 ........ $ 536,500
2002 ........ 536,500
2003 ........ 447,000
Thereafter... --
----------
$1,520,000
==========
Rent expense for each of the years in the three-year period ended
December 31, 2000, was $586,294, $573,962 and $584,510, respectively.
38
39
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 -- STOCKHOLDERS' EQUITY
Common/Preferred Stock Issuances
In September 2000, Alteon entered into an agreement with several
investors pursuant to which we sold them, in a private placement, an aggregate
of 2,834,088 shares of common stock and warrants to purchase 1,133,636 shares of
common stock (the "Warrants") for an aggregate purchase price of $6,235,000. The
exercise price of the Warrants is $3.40 per share, while the term is seven
years.
In December 1997, the Company and Genentech entered into a stock
purchase agreement pursuant to which Genentech agreed to buy shares of Common
Stock, Series G Preferred Stock and Series H Preferred Stock (See Note 3). In
December 1997, Genentech purchased Common Stock and Series G Preferred Stock for
an aggregate purchase price of $15,000,000. On July 27, 1998 and October 1,
1998, Genentech purchased $8,000,000 and $14,544,000 respectively, of Series H
Preferred Stock. As of December 31, 2000 and 1999, respectively, approximately
$2,945,000 and $2,708,000 of Preferred Stockholder Dividends and amortization of
Preferred Stock conversion discount were recorded. Series G Preferred Stock and
Series H Preferred Stock Dividends are payable quarterly in shares at a rate of
8.5%. Each share of Series G Preferred Stock and Series H Preferred Stock is
convertible upon 70 days' prior written notice into a number of shares of Common
Stock determined by dividing $10,000 by the average of the closing sales price
of the Common Stock, as reported on the American Stock Exchange for the 20
business days immediately preceding the date of conversion.
Stock Option Plan
The Company has established two stock option plans for its employees,
officers, directors, consultants and independent contractors. Options to
purchase up to 4,192,000 shares of Common Stock may be granted under the first
plan and options to purchase up to 4,000,000 shares of common stock may be
granted under the second plan.
The plans are administered by a committee of the Board of Directors,
which may grant either non-qualified or incentive stock options. The committee
determines the exercise price and vesting schedule at the time the option is
granted. Options vest over various periods and may expire no later than 10 years
from date of grant. Each option entitles the holder to purchase one share of
Common Stock at the indicated exercise price. The plans also provide for certain
antidilution and change in control rights, as defined.
The following table summarizes the activity in the Company's stock
options:
Exercise Weighted Average
Price Range Exercise Price
Options Per Share Per Share
----------- ------------ ----------------
Balance, December 31, 1997 3,659,440 $ 6.51
Granted .................. 1,232,950 0.88 - 8.50 1.98
Exercised ................ (70,217) 0.30 - 8.63 2.79
Canceled ................. (22,913) 3.88 - 15.00 8.72
---------- -------
Balance, December 31, 1998 4,799,260 $ 5.39
Granted .................. 1,928,701 0.78 - 1.125 0.99
Exercised ................ (374,961) 0.30 - 0.60 0.44
Canceled ................. (1,277,804) 0.81 - 15.00 3.88
---------- -------
Balance, December 31, 1999 5,075,196 $ 3.40
Granted .................. 1,083,420 1.63 - 7.00 4.57
Exercised ................ (375,871) 0.60 - 5.13 1.34
Canceled ................. (550,326) 0.60 - 9.50 1.12
---------- -------
Balance, December 31, 2000 5,232,419 $ 4.03
========== =======
39
40
ALTEON INC
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes information regarding stock options
outstanding at December 31, 2000:
Options Outstanding at Options Exercisable at
December 31, 2000 December 31, 2000
--------------------------------------------- -------------------------
Weighted Weighted Weighted
Range of Average Average Number of Average
Exercise Number of Remaining Exercise Shares Exercise
Prices Shares Contractual Life Price Exercisable Price
------------------ --------- ---------------- -------- ----------- --------
$0.7810 - $ 1.0630 1,880,218 6.56 $ 0.9590 1,277,322 $ 0.9554
$1.1250 - $ 3.8750 1,424,125 8.78 $ 2.5223 847,890 $ 2.0675
$4.3600 - $ 9.2500 1,457,387 5.51 $ 7.2395 1,041,595 $ 7.4239
$9.5000 - $15.0000 470,689 2.99 $10.8932 470,689 $10.8932
--------- ---- -------- --------- --------
5,232,419 6.55 $ 4.0274 3,637,496 $ 4.3528
The weighted average fair value of the options granted was $2.54,
$0.53 and $1.71 during 2000, 1999 and 1998, respectively. Included in options at
December 31, 2000, are 835,000 options granted to certain executives with option
prices ranging from $.875 per share to $3.56 per share. Such options vest upon
the earlier of five years after grant or upon achievement of certain Company
milestones.
The Company accounts for its stock option plans under APB Opinion No.
25, under which no compensation cost (excluding those options granted below fair
market value) has been recognized. Had compensation costs for these plans been
determined consistent with FASB Statement No. 123, the Company's pro forma net
loss and loss per share applicable to common stockholders for 2000, 1999 and
1998 would have been $13.7 million, $13.9 million and $30.5 million and, $0.69,
$0.73 and $1.67, respectively. The 2000 pro forma net loss and loss per share
applicable to common stockholders reflects a benefit for the reversal of
previously recognized pro forma compensation costs on options forfeited in 2000.
Consistent with FASB Statement No. 123, the Company elected not to estimate
these forfeitures in the prior period pro forma compensation cost calculation.
Because FASB Statement No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Under FASB Statement No. 123, the fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants in 2000, 1999 and 1998,
respectively: risk free interest rates ranging 5.24% to 6.64%, 4.73% to 6.07%
and 4.32% to 5.63%, respectively; expected life of 2.02 years over the vesting
periods; expected dividend yield of 0%; and expected volatility of 70%.
In February 1999, the Board of Directors approved the repricing of
1,063,000 stock options outstanding as of February 2, 1999 (See Note 1).
NOTE 8 -- SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement plan under Section
401(k) of the Internal Revenue Code which allows eligible employees to annually
contribute a portion of their annual salary to the plan. In 1998, the Company
began making discretionary contributions at a rate of 25% of an employee's
contribution up to a maximum of 5% of the employee's base salary. The Company
made contributions of $30,530 and $49,000 for the years ended December 31, 2000
and 1999, respectively.
40
41
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9 -- RELATED PARTY TRANSACTIONS
Since the Company's inception, the Company has entered into certain
collaborative agreements with organizations with which Dr. Anthony Cerami, a
former member of the Company's Board of Directors, was affiliated. These
organizations included The Picower Institute for Medical Research ("The Picower
Institute"), The Rockefeller University, Cerami Consulting Corporation and the
Kenneth S. Warren Laboratories, Inc. The Company paid to the organizations $0,
$243,000 and $731,000 in 2000, 1999, and 1998, respectively. In addition, the
Company paid patent maintenance fees for technology related to the organizations
of $120,000, $73,000 and $207,000 in 2000, 1999 and 1998, respectively. Although
the Company has terminated its collaborative relationship with The Picower
Institute, the Company has a royalty obligation on all net sales and other
revenues associated with certain technologies developed. Effective May 17, 1999,
the Company terminated its consulting agreement with Cerami Consulting
Corporation and its research agreement with Kenneth S. Warren Laboratories, Inc.
In addition, Dr. Cerami resigned from the Company's Board of Directors on April
19, 1999.
Prior to 2000, the Company had a Scientific Advisory Board. The
Chairman and two other Scientific Advisory Board members provided consulting
services to the Company. Consulting fees paid to these members totaled $55,000
and $89,000 in 1999 and 1998, respectively.
NOTE 10 -- INCOME TAXES
At December 31, 2000, the Company had available Federal net operating
loss carryforwards, which expire in the years 2006 through 2020, of
approximately $125.9 million for income tax purposes and State net operating
loss carryforwards, which expire in the years 2000 through 2007, of
approximately $81.8 million. In addition, the Company has Federal research and
development tax credit carryforwards of approximately $4.9 million and State
research and development tax credit carryforwards of approximately $2.2 million.
The amount of Federal net operating loss and research and development tax credit
carryforwards which can be utilized in any one period may become limited by
Federal income tax regulations if a cumulative change in ownership of more than
50% occurs within a three-year period.
The components of the deferred tax assets and the valuation allowance
are as follows:
December 31,
-----------------------------
2000 1999
------------ ------------
Net operating loss carryforwards $ 47,700,000 $ 42,900,000
Research and development credit 7,100,000 7,000,000
Other temporary differences .... 2,400,000 4,700,000
------------ ------------
Gross deferred tax assets ...... 57,200,000 54,600,000
Valuation allowance ............ (57,200,000) (54,600,000)
------------ ------------
Net deferred tax assets ........ $ -- $ --
============ ============
A valuation allowance was established since the realization of the
deferred tax assets is uncertain. In 2000 and 1999, Alteon sold $14.1 million
and $27.6 million, respectively, of our gross State net operating loss
carryforwards and $590,000 and $645,000, respectively, of our State research and
development tax credit carryforwards under the State of New Jersey's Technology
Business Tax Certificate Transfer Program (the "Program"). The Program allowed
qualified technology and biotechnology business in New Jersey to sell unused
amounts of net operating loss carryforwards and defined research and development
tax credits for cash. The sales prices in 2000 and 1999 were $1,548,000 and
$2,588,000, respectively, and such amounts were recorded as a tax benefit in the
statements of operations. The proceeds from the sale of the net operating loss
carryforwards and the research and development tax credit carryforwards sold in
2000 were received on January 8, 2001. Accordingly, as of December 31, 2000,
$1,548,000 is included in other current assets.
41
42
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Restated Certificate of Incorporation, as amended.
(Incorporated by reference to Exhibit 3.1 to the Company's
Report on Form 10-Q filed on November 10, 1999).
3.2 Certificate of the Voting Powers, Designations, Preference and
Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series F
Preferred Stock of the Company.
3.3 Certificate of Retirement dated September 10, 2000, of Alteon
Inc. (Incorporated by reference to Exhibit 3.1 to the Company's
Report on Form 10-Q filed on November 10, 1999).
3.4 Certificate of Designations of Series G Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
3.5 Certificate of Amendment of Certificate of Designations of
Series G Preferred Stock of Alteon Inc. (Incorporated by
reference to Exhibit 3.4 to the Company's Report on Form 10-Q
filed on August 14, 1998).
3.6 Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
3.7 Amended Certificate of Designations of Series H Preferred Stock
of Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the
Company's Report on Form 10-Q filed on August 14, 1998).
3.8 Certificate of Retirement dated November 20, 2000, of Alteon
Inc.
3.9 By-laws, as amended. (Incorporated by reference to Exhibit 3.7
to the Company's Report on Form 10-Q filed on May 12, 1999).
4.1 Stockholders' Rights Agreement dated as of July 27, 1995,
between Alteon Inc. and Registrar and Transfer Company, as
Rights Agent.
4.2 Amendment to Stockholders' Rights Agreement dated as of April
24, 1997, between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed on May 9,
1997).
4.3 Registration Rights Agreement dated as of April 24, 1997,
between Alteon Inc. and the investors named on the signature
page thereof. (Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on May 9, 1997).
4.4 Form of Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on May 9, 1997).
4.5 Amendment to Stockholders' Rights Agreement dated as of
December 1, 1997, between Alteon Inc. and Registrar and
Transfer Company, as Rights Agent. (Incorporated by reference
to Exhibit 4.1 to the Company's Current Report on Form 8-K
filed on December 10, 1997).
4.6 Registration Rights Agreement dated September 29, 2000.
(Incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on October 5, 2000).
4.7 Form of Series 1 Common Stock Purchase Warrant. (Incorporated
by reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on October 5, 2000).
43
4.8 Form of Series 2 Common Stock Purchase Warrant. (Incorporated
by reference to Exhibit 4.3 to the Company's Current Report on
Form 8-K filed on October 5, 2000).
10.1+ Amended and Restated 1987 Stock Option Plan. (Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.2+ Amended 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q filed May 12,
1999).
10.3 Form of Employee's or Consultant's Invention Assignment,
Confidential Information and Non-Competition Agreement executed
by all key employees and consultants as employed or retained
from time to time. (Incorporated by Reference to Exhibit 10.1
to the Company's Registration Statement on Form S-1 (File
Number 33-42574), which became effective on November 1, 1991).
10.4 Amendment and Assignment of Research and Option Agreement dated
as of September 25, 1987, among Telos Development Corporation
("Telos"), The Rockefeller University ("The Rockefeller"), the
Company and Anthony Cerami. (Incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form
S-1 (File Number 33-42574), which became effective on November
1, 1991).
10.5 License Agreement dated as of September 25, 1987, among Telos,
Applied Immune Sciences, Inc., the Company and The Rockefeller,
as amended by letter agreement dated September 25, 1987, and
letter agreement dated August 15, 1991. (Incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (File Number 33-42574), which became
effective on November 1, 1991).
10.6* License Agreement dated as of June 16, 1989, between the
Company and Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi").
(Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1 (File Number 33-42574),
which became effective on November 1, 1991).
10.7* Research and License Agreement dated as of September 5, 1991,
between the Company and The Picower Institute for Medical
Research. (Incorporated by reference to Exhibit 10.29 to the
Company's Registration Statement on Form S-1 (File Number
33-42574), which became effective on November 1, 1991).
10.8 Lease Agreement dated January 11, 1993, between Ramsey
Associates and the Company.
10.9* License Agreement dated as of December 30, 1994, between the
Company and Corange International Limited.
10.10* Research Collaboration and License Agreement dated as of June
2, 1995, between Washington University and the Company.
10.11 Distribution Agreement dated September 25, 1995, between the
Company and Eryphile BV.
10.12+ Employment Agreement dated as of October 21, 2000, between the
Company and Elizabeth O'Dell.
10.13+ Alteon Inc. Change in Control Severance Benefits Plan.
10.14 Preferred Stock Investment Agreement dated as of April 24,
1997, between Alteon Inc. and the investors named on the
signature page thereof. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on May
9, 1997).
10.15* License and Supply Agreement dated June 17, 1997, between IDEXX
Laboratories, Inc. and Alteon Inc. (Incorporated by reference
to Exhibit 10.1 to the Company's Report on Form 10-Q filed on
August 13, 1997).
44
10.16 Stock Purchase Agreement dated as of December 1, 1997, between
Alteon Inc. and Genentech, Inc. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on December 10, 1997).
10.17+ Amended and Restated Employment Agreement dated as of December
15, 1998, between the Company and Kenneth I. Moch.
(Incorporated by reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999).
10.18 Letter Agreement dated February 11, 1999, between the Company
and Genentech, Inc. (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed on February
19, 1999).
10.19+ Consulting Agreement dated as of December 15, 1998, between the
Company and Mark Novitch, M.D., as amended by letter agreement
dated as of January 18, 2001.
10.20+ Employment Agreement dated as of March 14, 2000, between the
Company and Robert deGroof, Ph.D. (Incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q filed on May
12, 2000).
10.21 Common Stock and Warrants Purchase Agreement dated as of
September 29, 2000, among Alteon Inc. and EGM Medical
Technology Fund, L.P., EGM Technology Offshore Fund,
Narragansett I, L.P., Narragansett Offshore, Ltd., S.A.C.
Capital Associates, LLC, SDS Merchant Fund, LP and Herriot
Tabuteau. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on October 5, 2000).
10.22* Development Services Agreement dated September 25, 2000.
(Incorporated by reference to Exhibit 10.2 to the Company's
Report on Form 10-Q filed on November 13, 2000).
23.1 Consent of Independent Public Accountants.
- ----------
* Confidentiality has been granted for a portion of this exhibit.
+ Denotes a management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) to this Form 10-K.