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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-19410
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SEPRACOR INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 22-2536587
(State or Other Jurisdiction (I.R.S. Employer
of Identification No.)
Incorporation or Organization)
111 LOCKE DRIVE, 01752
MARLBOROUGH, MASSACHUSETTS (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (508) 481-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(Title of class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. / /
The aggregate market value of voting Common Stock held by nonaffiliates of
the registrant was approximately $2,786,831,000 based on the last reported sale
price of the Common Stock on the Nasdaq consolidated transaction reporting
system on March 15, 2001.
Number of shares outstanding of the registrant's class of Common Stock as of
March 15, 2001: 77,817,280 shares.
DOCUMENTS INCORPORATED BY REFERENCE
2000 Annual Report to Stockholders--Part II
Proxy Statement for the 2001 Annual Meeting of Stockholders--Part III
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 concerning
our business, operations and financial condition, including statements with
respect to the safety, efficacy and potential benefits of our products under
development, expectations with respect to development and commercialization of
our product candidates, the scope of patent protection with respect to these
product candidates and our products and information with respect to the other
plans and strategies for our business and the business of our subsidiaries. All
statements other than statements of historical facts included in this annual
report on Form 10-K regarding our strategy, future operations, timetables for
product testing, financial position, costs, prospects, plans and objectives of
management are forward-looking statements. When used in this annual report on
Form 10-K the words "expect", "anticipate", "intend", "plan", "believe", "seek",
"estimate", and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. Because these forward-looking statements involve risks and
uncertainties, actual results could differ materially from those expressed or
implied by these forward-looking statements for a number of important reasons,
including those discussed under "Factors Affecting Future Operating Results",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this annual report on Form 10-K.
You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. You should be aware that the occurrence of any of
the events described under "Factors Affecting Future Operating Results" and
elsewhere in this annual report on Form 10-K could substantially harm our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline.
We cannot guarantee any future results, levels of activity, performance or
achievements. The forward-looking statements contained in this annual report on
Form 10-K represent our expectations as of the date of this annual report on
Form 10-K and should not be relied upon as representing our expectations as of
any other date. Subsequent events and developments will cause our expectations
to change. However, while we may elect to update these forward-looking
statements, we specifically disclaim any obligation to do so, even if our
expectations change.
PART I
ITEM 1. BUSINESS.
THE COMPANY
Sepracor Inc. is a leading specialty pharmaceutical company focused on the
cost-effective development of potentially safer, purer and more effective drugs
that are improved versions of widely-prescribed pharmaceutical compounds.
Typically, these Improved Chemical Entities, which we refer to as ICEs, are
single-isomers or active-metabolites of the parent compound. We select for
development compounds with the potential to offer improvements over existing
therapies with respect to efficacy, side-effect profile, and in some cases the
opportunity for additional indications. We develop and market these drugs by
leveraging our expertise in conducting preclinical and clinical trials and
seeking regulatory approvals for new drugs. Our drug development program has
yielded an extensive portfolio of pharmaceuticals and drug candidates intended
to treat a broad range of indications. We are concentrating our product
development efforts in three major therapeutic areas:
- respiratory;
- urology and gastroenterology; and
- central nervous system disorders.
1
In May 1999, we introduced XOPENEX-Registered Trademark- (levalbuterol
hydrochloride), a beta-agonist for the treatment of reversible bronchospasm.
XOPENEX is a single-isomer of the leading bronchodilator, albuterol. XOPENEX is
the first pharmaceutical product developed and commercialized by Sepracor.
BACKGROUND
CHIRAL COMPOUNDS
Approximately 500 currently available drugs are chiral compounds. Chiral
compounds frequently exist as mixtures of mirror-image molecules known as
isomers. Although these isomers are identical in chemical composition, their
three-dimensional structures differ and, as a result, often interact differently
with cell receptors in a living organism. This interaction between the drug and
the receptor either stimulates or inhibits a biological function of the receptor
and thereby initiates the therapeutic effect. In some cases, only one of the
isomers is the desired active ingredient while the other isomer is inactive or
may cause undesirable side effects. When a chiral compound contains equal
amounts of both isomers, it is a racemic mixture. These two isomers are
generally referred to as (S)-isomers (left) and (R)-isomers (right). Typically,
in our product development process, we purify racemic mixtures of two isomers
into compounds containing only one isomer.
ACTIVE METABOLITES
A metabolite is a compound resulting from the chemical modification of a
drug after it is administered. Like the different isomers of a chiral drug, the
activity of metabolites and the isomers of metabolites may differ from the
activity of the parent compound depending upon their interaction with specific
receptors or by manifesting differences in absorption, excretion, metabolism or
distribution within the body. These changes in activity may result in a compound
that demonstrates improved safety or efficacy as compared to the parent
compound. We and our licensees are exploring parent drugs that may be chemically
modified into active-metabolites outside of the body in an effort to develop
compounds with the potential for reduced side effects, increased efficacy,
improved dosage forms, or new indications.
CORPORATE COLLABORATIONS
Our strategy for commercializing our ICE pharmaceuticals includes licensing
and co-promotion collaborations with major pharmaceutical companies and direct
marketing through our sales force.
XOPENEX. In November 1999, Abbott Laboratories, referred to in this report
as Abbott, and Sepracor announced a co-promotion agreement for levalbuterol HCl,
which we market as XOPENEX. Under terms of the agreement, Abbott's Ross Products
Division provides expanded coverage for marketing of XOPENEX to pediatricians in
the United States through its sales force of over 500 professionals. This
supplements Sepracor's approximately 170 person sales force that markets XOPENEX
to hospitals, pulmonologists, allergists and primary care physicians. All sales
are for our account and Abbott receives a commission on sales generated by its
sales force. The agreement is for a term of six years but can be terminated
earlier by Abbott if we do not achieve specified development or sales
objectives.
(S)-ZOPICLONE. In October 1999, we announced that we had entered into an
agreement with Rhone-Poulenc Rorer SA, referred to in this report as RPR, a unit
of Rhone-Poulenc SA, now Aventis, under which we exclusively licensed RPR's
preclinical, clinical and post-marketing surveillance data package relating to
zopiclone and its isomers and metabolites, to develop, make, use and sell (S)-
zopiclone in the United States. Zopiclone is marketed by Aventis under the brand
names of IMOVANE-Registered Trademark- and AMOBAN-Registered Trademark-, and is
available in approximately 80 countries worldwide and has never been marketed in
the United States. (S)-Zopiclone is currently in Phase III clinical studies.
2
LEVOCETIRIZINE. In June 1999, we licensed to UCB Farchim SA, referred to in
this report as UCB, all of our issued patents and patent applications covering
levocetirizine to develop, market and sell levocetirizine as a nonsedating
antihistamine worldwide, except in the United States and Japan. During the first
half of 2000, UCB submitted a Marketing Authorization Application, commonly
referred to as an MAA, in the European Union, or EU, for levocetirizine. In
January 2001, UCB announced that it obtained approval to market levocetirizine
in Germany. UCB has submitted levocetirizine for approval in other countries.
UCB has announced that it intends to market levocetirizine under the brand names
XYZAL-TM-/XUSAL-TM-. UCB launched this product in Germany during the first
quarter of 2001, and expects to launch the product in other countries in Europe
following receipt of required approvals. Under the agreement, UCB will begin to
pay us royalties upon first product sales, and royalties will escalate upon
achievement of sales volume milestones. Our patents covering levocetirizine
expire in 2013.
(R)-FLUOXETINE. In December 1998, we announced an exclusive license
agreement with Eli Lilly and Company, referred to in this report as Lilly,
relating to development and commercialization of (R)-fluoxetine, an isomer of
fluoxetine, which is marketed by Lilly as PROZAC-Registered Trademark-. On
October 19, 2000, we announced that Lilly terminated its exclusive license
agreement with us regarding (R)-fluoxetine. Based on a review of the available
clinical data, (R)-fluoxetine, at the highest dose tested, demonstrated a small
but statistically significant increase in QTc intenual, a heart wave
abnormality. The timetable for development of (R)-fluoxetine would delay the
submission of a New Drug Application, referred to commonly as an NDA, by at
least two years. Given the extended development timetable and an assessment of
the competitive environment, we have elected not to pursue the development of
(R)-fluoxetine at this time.
TICALOPRIDE. In July 1998, we entered into a development and license
agreement with Janssen Pharmaceutica, N.V., a wholly-owned subsidiary of
Johnson & Johnson, referred to in this report as Janssen, relating to
ticalopride, formerly referred to as (+)-norcisapride. Ticalopride is an isomer
of the active metabolite of cisapride, which is marketed by Janssen as
PROPULSID-Registered Trademark-. PROPULSID is used for the treatment of
nocturnal heartburn due to gastroesophageal reflux disease, commonly referred to
as GERD. Under the terms of the agreement, Janssen has worldwide exclusive
rights to develop and market products containing ticalopride. We are entitled to
royalties on product sales beginning upon first commercial sale in countries
where we have issued patents covering Janssen's indicated use, and royalties
will escalate upon achievement of sales volume milestones. Under certain
circumstances, we may co-promote the product in the pediatric market.
DESLORATADINE. In December 1997, we licensed to Schering-Plough
Corporation, referred to in this report as Schering, worldwide rights to develop
and market desloratadine, an active-metabolite of loratadine. Loratadine is
marketed by Schering as CLARITIN-Registered Trademark-, a leading nonsedating
antihistamine. In the fourth quarter 2000, Schering announced three new NDA
submissions for desloratadine. In January 2001, Schering announced that the
European Commission of the EU granted marketing authorization for desloratadine
as a nonsedating treatment of seasonal allergic rhinitis in adults and children
12 years of age and older. Desloratadine will be marketed in the EU by Schering
under the brand names AERIUS-TM- and NEOCLARITYN-TM-. This marketing
authorization is valid in all 15 EU member states. Schering has announced that
it is seeking marketing approval in Europe for other indications. On
January 19, 2001, Schering received an approvable letter from the U.S. Food and
Drug Administration, or FDA, for desloratadine. On February 15, 2001, Schering
announced that the FDA had issued reports citing deficiencies concerning
Schering's compliance with current Good Manufacturing Processes, or GMPs, and
that the FDA had advised Schering that GMP deficiencies must be resolved prior
to the FDA granting approval of desloratadine. This product is subject to final
approval by the FDA. Under the license agreement with Schering, we are entitled
to receive royalties on all formulations of desloratadine upon product launch in
countries in which we hold valid and enforceable patents.
3
FEXOFENADINE. In July 1993, we licensed to Hoechst Marion Roussel, Inc.,
now Aventis and referred to in this report as HMRI, our U.S. patent rights
covering fexofenadine. In October 1996, HMRI introduced
ALLEGRA-Registered Trademark- (fexofenadine hydrochloride). Under the terms of a
separate agreement, HMRI has obtained an exclusive license to our patents that
had been the subject of litigation in Europe, as well as various other patent
oppositions between the two companies outside the U.S. We are entitled to
receive royalties on fexofenadine product sales effective March 1, 1999 in
countries where we have patents related to fexofenadine. In the first quarter of
2000, Aventis received approval from the FDA to market a new dosage form of
ALLEGRA in the United States. We are entitled to receive royalties on any
fexofenadine sales in the United States following expiration of HMRI's
composition of matter patent in February 2001. On September 22, 2000, Aventis
announced that it had received approval from the Japanese Ministry of Health and
Welfare to market ALLEGRA in Japan. We hold patents in Japan covering
fexofenadine and we are receiving royalties on ALLEGRA sales in Japan.
ICE DEVELOPMENT PROGRAM
The following products are being commercialized or are in development:
RESPIRATORY--ASTHMA
LEVALBUTEROL. Levalbuterol HCl, which we market under the brand name
XOPENEX, is a single-isomer of the leading bronchodilator, albuterol. XOPENEX,
which we launched in May 1999 through our direct sales force, is the first
pharmaceutical product developed and commercialized by us. XOPENEX is sold
through our approximately 170 person sales force and in collaboration with the
Ross Products Division of Abbott. Marketed in a nebulized solution formulation,
XOPENEX sales for 2000 were approximately $55.1 million.
In the fourth quarter of 2000, we announced the successful completion of a
350 patient multi-center pediatric trial of XOPENEX. We are completing
preparation of a supplement to our NDA to include a pediatric indication of
XOPENEX inhalation solution for the treatment of asthma. We expect to submit the
supplement to the NDA in the first half of 2001.
We are also developing XOPENEX for use in other delivery systems. We have
five issued U.S. patents relating to the approved use of XOPENEX that expire
between 2010 and 2013.
(R,R)-FORMOTEROL. (R,R)-formoterol is the single-isomer of formoterol,
which is marketed under the brand names
FORADIL-Registered Trademark-/ATOCK-Registered Trademark-. FORADIL is marketed
in Canada and Europe by Novartis, and ATOCK is marketed in Japan by Yamanouchi
Pharmaceuticals. We are developing (R,R)-formoterol as a bronchodilator with the
potential to offer benefits over existing long-acting bronchodilators, including
rapid onset and longer duration of action. If successfully developed, we intend
to market (R,R)-formoterol through our direct sales force. We have an issued
U.S. patent covering the use of (R,R)-formoterol that expires in 2012. We
announced during the fourth quarter of 2000 the completion of Phase II studies
of nebulized (R,R)-formoterol used once daily in patients with chronic asthma.
Phase IIA studies showed significant improvement in forced expiratory volume in
one second, or FEV(1), up to 24 hours after dosing, compared with placebo. Other
efficacy endpoints, such as reduction in asthma scores, decrease in rescue
medication use, number of asthma control days and trough FEV(1), improved not
only in a dose-related manner, but also with the length of (R,R)-formoterol
treatment. The Phase IIB (R,R)-formoterol clinical results also confirm the
Phase IIA findings, which demonstrated a rapid onset of action and long duration
of activity. We intend to initiate pivotal Phase III studies for
(R,R)-formoterol in 2001.
4
RESPIRATORY--ALLERGIES
NORASTEMIZOLE. On March 12, 2001, we submitted an NDA for norastemizole, a
new nonsedating antihistamine for the treatment of allergic rhinitis that, if
approved, we intend to market as SOLTARA-TM-. The NDA includes information from
200 preclinical studies and 30 clinical trials, including seven large scale
allergic rhinitis studies. We anticipate selling this compound, if approved,
through our direct sales force.
DESLORATADINE. Desloratadine is an active metabolite of loratadine, a
leading nonsedating antihistamine marketed by Schering as
CLARITIN-Registered Trademark-. In December 1997, we entered into a license
agreement with Schering under which we granted Schering exclusive worldwide
rights to our patents covering desloratadine. Our patent portfolio for
desloratadine includes U.S. patents covering the use of desloratadine to treat
allergic rhinitis and allergic asthma that expire in 2014 and U.S. patent
applications pending that cover pharmaceutical formulations and additional uses.
We received $5 million as an upfront license fee and are entitled to royalty
payments from Schering upon the sale of desloratadine, at a rate increasing over
time and upon the achievement of specified sales volume and other milestones, in
countries where we hold patents.
On October 26, 1999, Schering announced that it had submitted an NDA to the
FDA seeking clearance to market desloratadine for the treatment of seasonal
allergic rhinitis. On January 19, 2001, Schering received an approvable letter
from the FDA for desloratadine. On February 15, 2001, Schering announced that
the FDA had issued reports citing deficiencies concerning Schering's compliance
with current GMPs and that the FDA had advised Schering that GMP deficiencies
must be resolved prior to the FDA granting approval of desloratadine. The
product is subject to final approval by the FDA.
FEXOFENADINE. Fexofenadine, marketed by Aventis as ALLEGRA brand
fexofenadine HCl, is a leading nonsedating antihistamine. We entered into a
license agreement with HMRI (now Aventis) under which we licensed our patents on
fexofenadine to HMRI. This agreement was amended in September 1999. In
October 1996, HMRI commercially introduced fexofenadine, as a second-
generation, nonsedating antihistamine. We currently receive royalties on sales
of fexofenadine in European countries where we hold issued patents on
fexofenadine, as well as in Japan. Under this agreement, we expect to receive
royalties on fexofenadine sales in the United States upon expiration of Aventis'
composition of matter patent in February 2001.
LEVOCETIRIZINE. In June 1999, we licensed to UCB patents and patent
applications covering levocetirizine, a single isomer of cetirizine, for
manufacture, use and sale worldwide, except in the United States and Japan. UCB
will market this new product under the brand names XYZAL-TM-/ XUSAL-TM-, and
upon respective approvals, UCB will launch levocetirizine in various European
countries. In January 2001, UCB announced that it had received approval to
market levocetirizine in Germany. Under the terms of the agreement, UCB has
agreed to pay us royalties upon first product sale, and royalties will escalate
upon achievement of sales volume milestones. Our patents for levocetirizine
expire in 2013.
UROLOGY
(S)-OXYBUTYNIN. (S)-Oxybutynin is a single-isomer of oxybutynin, which is
marketed by Alza under the brand name DITROPAN-Registered Trademark- for the
treatment of urge urinary incontinence. Urinary incontinence affects
approximately 17 million people in the United States. During the fourth quarter
of 2000, we summarized our clinical findings for (S)-oxybutynin's Phase II
program for the treatment of urge urinary incontinence. In a twelve-week study
in over 650 patients, (S)-oxybutynin, at 120 mg three times a day, demonstrated
statistically significant improvement in the reduction of combined micturitions,
voluntary micturitions and number of patients achieving complete continence,
compared with placebo.
5
(S)-Oxybutynin, 120 mg three times a day, was significantly better than DITROPAN
as determined by spontaneous reports of dry mouth. A sustained release
formulation, developed for use in Phase III trials, will potentially improve
(S)-oxybutynin's therapeutic index and patient compliance. We expect to commence
Phase III trials for (S)-oxybutynin in the first half of 2001. We have two
issued U.S. patents for (S)-oxybutynin covering methods of treating urinary
incontinence and pharmaceutical compositions that expire in 2015.
(S)-DOXAZOSIN. (S)-Doxazosin is a single-isomer of doxazosin, which is
marketed by Pfizer as CARDURA-Registered Trademark- to treat benign prostatic
hyperplasia, or enlargement of the prostate, a condition that is estimated to
affect a majority of males over the age of 55. A side effect of doxazosin is
orthostatic hypotension, the lowering of blood pressure that can cause severe
dizziness or fainting. As a result of this side effect, initial doses of the
drug are generally administered in a doctor's office over several visits. Our
preclinical studies indicate that (S)-doxazosin exhibits potential for a
reduction in orthostatic hypotension and is potentially more potent than the
parent drug. We believe that an improved version could reduce the cost of
treatment by reducing the number of required doctor's visits. While further
extensive studies and clinical work are needed to determine the efficacy and
safety profile of this compound, we believe this compound may offer a
pharmacoeconomic benefit as compared to the parent drug. (S)-Doxazosin is
currently in Phase I trials. We have an issued U.S. patent for the use of
(S)-doxazosin to treat benign prostatic hyperplasia that expires in 2013.
(S)-SIBUTRAMINE METABOLITE. The (S)-sibutramine metabolite is a
single-isomer metabolite of sibutramine, which is marketed under the brand name
MERIDIA-Registered Trademark- by Knoll Pharmaceutical Co., a division of BASF
AG, for the treatment of obesity. The (S)-sibutramine metabolite is a
norepinephrine and dopamine reuptake inhibitor that we are investigating for
urological disorders such as erectile dysfunction and stress urinary
incontinence. In vitro studies have shown that the (S)-sibutramine metabolite is
a potent inhibitor of both dopamine and norepinephrine. This dual pharmacology
has the potential to improve both erectile and ejaculatory dysfunction, and a
preclinical model has indicated that the (S)-sibutramine metabolite facilitates
sexual performance. We expect to commence proof of concept Phase II studies in
2001 for the (S)-sibutramine metabolite.
GASTROENTEROLOGY
TICALOPRIDE. Ticalopride, formerly referred to as norcisapride, is an
active metabolite of cisapride, which is marketed under the brand name
PROPULSID-Registered Trademark- by Janssen for the treatment of GERD. In the
first half of 2000, Janssen announced that PROPULSID would be sold through a
limited access program in the United States due to potentially serious cardiac
side effects. In preclinical studies, we found that ticalopride has the
potential to treat GERD and other indications, including emesis, or nausea,
bulimia, and irritable bowel syndrome without the risk of cardiac toxicity. We
have issued U.S. patents for the use of ticalopride to treat GERD, Central
Nervous System, or CNS, disorders and emesis that expire in 2015. In July 1998,
we exclusively licensed our ticalopride rights to Janssen, and we are entitled
to receive royalties on product sales beginning upon the first commercial sale
in countries where we have issued patents covering Janssen's indicated use.
Royalties escalate upon achievement of sales volume milestones. Ticalopride is
in Phase II clinical development.
(S)-LANSOPRAZOLE. (S)-Lansoprazole is a single-isomer of lansoprazole,
which is marketed under the brand name PREVACID-Registered Trademark- in the
United States by TAP Pharmaceuticals. PREVACID is a proton pump inhibitor used
to treat diseases associated with excess gastric acid secretions, primarily
GERD. Based on preclinical studies, we believe that (S)-lansoprazole may offer
more consistent dosing and improved efficacy, as compared to PREVACID. We have a
patent application pending for (S)-lansoprazole.
(-)-PANTOPRAZOLE. (-)-Pantoprazole is a single-isomer of pantoprazole,
which is marketed under the brand name PANTOZOL-Registered Trademark- by
Byk-Gulden and American Home Products for the treatment of GERD.
6
Our preclinical work suggests that (-)-pantoprazole has the potential for more
consistent dosing and improved efficacy. We have an issued U.S. patent for
(-)-pantoprazole that expires in 2013.
CENTRAL NERVOUS SYSTEM--PSYCHIATRY/NEUROLOGY
(R)-SIBUTRAMINE METABOLITE. The (R)-sibutramine metabolite is a
single-isomer metabolite of sibutramine, which is marketed under the brand name
MERIDIA-Registered Trademark- by Knoll Pharmaceuticals for the treatment of
obesity. In January 2000, we announced that we had initiated a Phase I clinical
trial for the (R)-sibutramine metabolite. During the fourth quarter of 2000, we
announced that we had initiated a large-scale Phase II clinical trial of the
(R)-sibutramine metabolite for the treatment of depression. We also plan to
initiate a dose-ranging Phase II study on the use of the (R)-sibutramine
metabolite for the treatment of attention deficit hyperactivity disorder in
2001. The (R)-sibutramine metabolite has been shown in preclinical studies to
have potent activity at all three monoaminergic reuptake sites, which include
serotonin, norepinephrine and dopamine. This unique triple mechanism of action
may provide a broader spectrum of therapeutic action than other currently
marketed antidepressants.
CENTRAL NERVOUS SYSTEM--SLEEPING DISORDERS
(S)-ZOPICLONE. (S)-Zopiclone is a single-isomer of zopiclone, which is
marketed by Aventis under the brand names of IMOVANE-Registered Trademark- and
AMOBAN-Registered Trademark- for the treatment of insomnia. Zopiclone is
available in approximately 80 countries worldwide and has never been marketed in
the United States. We have entered into an agreement with RPR, now Aventis,
under which we have exclusively licensed RPR's preclinical, clinical and
post-marketing surveillance data package relating to zopiclone, its isomers and
metabolites, for use in the United States market. In January 2000, we announced
that we had initiated a 400-patient clinical efficacy trial for (S)-zopiclone
for the treatment of insomnia. We completed two clinical trials that
demonstrated the activity of (S)-zopiclone in surrogate models of insomnia.
These studies demonstrated that the pharmacological effects of (S)-zopiclone
occur rapidly and can be seen for up to six hours. In August 2000, we announced
the successful completion of our Phase II studies in which patients treated with
(S)-zopiclone successfully achieved all efficacy endpoints, including rapid
onset of action and long duration of activity, resulting in patients falling
asleep and staying asleep through the night. All endpoints were clinically
relevant and statistically significant (p LESS THAN 0.05). Additionally,
(S)-zopiclone was well tolerated in this study. In September 2000, we announced
Phase III patient enrollment for (S)-zopiclone for the treatment of insomnia. A
second Phase III clinical study, running in parallel, began in October 2000. We
anticipate submitting an NDA for (S)-zopiclone in 2001.
CENTRAL NERVOUS SYSTEM--ANXIETY
SEP174559. SEP174559 is a single isomer of an active metabolite of
zopiclone. We are seeking to develop this compound as a treatment for anxiety.
SEP174559 demonstrated in preclinical studies to have anxiolytic, or anxiety
reducing, activity at doses far below those that would produce sedation. We
anticipate filing an Investigational New Drug, or IND, application for SEP174559
in 2001.
DRUG DISCOVERY
We are broadening our development efforts to include new drug discovery and
development. The accessibility and widespread use of the new technologies of
combinatorial chemistry and ultra high throughput screening provide an
opportunity for us to participate in drug discovery. Our approach to drug
discovery is identifying novel compounds that are of strategic interest to us,
with IN VITRO and IN VIVO biological activity in the therapeutic areas of pain
management and central nervous system disorders.
7
SUBSIDIARIES
In 1994, we established and independently financed BioSepra Inc. as a
subsidiary through an initial public offering of its common stock. From 1994 to
1999, the company operated as BioSepra Inc., developing proprietary microsphere
beads used as chromatography media in the production of pharmaceuticals. In
February 1999, BioSepra determined that it would refocus on embolotherapy, which
is the occlusion of the blood supply to fibroids and vascular defects. BioSepra
sold its chromatography business and acquired a 51% interest in French-based
BioSphere Medical, S.A., referred to as BioSphere France, with an option to
purchase the remaining 49% interest, and changed its corporate name to BioSphere
Medical, Inc. The acquisition enabled BioSphere to gain ownership of product
know-how and European regulatory approval of Embosphere-Registered Trademark-
Microspheres. As of December 31, 1999, our ownership of BioSphere was
approximately 64%. On February 4, 2000, BioSphere announced that it had
completed a $5,900,000 private placement of common stock and warrants. As a
result of this transaction, our ownership of BioSphere decreased to
approximately 59%. On July 31, 2000, BioSphere sold approximately $13,000,000 of
its common stock in a private placement. Of this amount, we purchased
approximately $5,000,000 of BioSphere common stock. As a result of the
transaction, our ownership of BioSphere decreased to approximately 56%. At
December 31, 2000, our ownership in BioSphere was approximately 55%.
Embosphere-Registered Trademark- Microspheres, BioSphere's lead product, are
precisely calibrated, spherical, hydrophilic, micro-porous beads made of a
cross-linked acrylic co-polymer, that are embedded with gelatin. BioSphere
believes that Embosphere Microspheres may potentially have certain competitive
advantages over first-generation embolization products because they eliminate
aggregation in the catheter, unwanted proximal embolization and unpredictable
distal embolization due to particle fragmentation, common with first-generation
products. Clinical results in Europe achieved over six years highlight the
potential advantages of Embosphere technology. At least one clinical study of
pre-surgical embolization of brain tumors has suggested that Embosphere
Microspheres have the capacity to achieve a more controlled and targeted
embolization than first generation embolization products, thus minimizing blood
loss.
In April 2000, BioSphere received clearance from the FDA for embolization of
hypervascularized tumors and arteriovenous malformations. BioSphere recently
commenced Phase II clinical testing under an investigational device exemption to
support FDA clearance for specific product promotion in uterine artery
embolization indications using Embosphere Microspheres. An investigational
device exemption is a regulatory exemption granted by the FDA to medical device
manufacturers for the purpose of conducting clinical studies. BioSphere intends,
pending FDA clearance for this indication, to promote Embosphere Microspheres
for the treatment of uterine fibroids. BioSphere does not anticipate receiving
this clearance before 2002, if at all.
BioSphere received CE Mark approval of its Embosphere Microspheres product
in the EU in 1997. CE Mark approval is a certification granted by European
regulatory bodies, or by some manufacturers with satisfactory quality systems,
that substantiates the compliance of products with specific standards of quality
and/or safety. This approval is generally required prior to the
commercialization of a medical device in the EU. In January 2000, BioSphere
received marketing approval of its Embosphere Microspheres product in Australia
and Canada.
During the year ended December 31, 2000, BioSphere continued the
implementation of its strategic plan to develop Embosphere Microspheres for the
treatment of hypervascularized tumors and arteriovenous malformations.
BioSphere's revenue is primarily generated from product sales of Embosphere
Microspheres in the United States, EU, Australia and Canada. Other revenue
includes the sale of barium and other ancillary products manufactured by
BioSphere or by third parties.
8
RELATED PARTY
HEMASURE
In 1994, we established and independently financed HemaSure Inc. as a
subsidiary. Through two public offerings of HemaSure's common stock, HemaSure
was initially a subsidiary, and ultimately became a related party of Sepracor.
HemaSure has been applying its proprietary filtration technology to develop
products to increase the safety of donated blood and to improve certain blood
collection and transfusion procedures. In February 1999, we invested $2,000,000
in HemaSure in exchange for 1,333,334 shares of HemaSure common stock and
warrants to purchase approximately 667,000 additional shares of HemaSure common
stock. As a result of these transactions, our ownership of HemaSure became
approximately 42% as of February 1999.
In May 1999, HemaSure completed a private placement financing with COBE
Laboratories, Inc., referred to as COBE Labs, a wholly-owned subsidiary of
Gambro AB. COBE Labs purchased 4,500,000 shares of HemaSure common stock for an
aggregate purchase price of $9,000,000. The agreement also provided COBE Labs
with an option to purchase an additional $3,000,000 of HemaSure common stock,
which it exercised in October 1999. As a result of these transactions, our
ownership of HemaSure was reduced to approximately 27%,
In March 2000, HemaSure sold 3,730,000 shares of its common stock in a
private placement, thereby reducing our ownership to approximately 22%.
In September 2000, HemaSure repaid a $5,000,000 line of credit, which we had
guaranteed. As a result, we recorded a $5,000,000 equity in investee gain and
removed the corresponding liability for the loan guarantee in 2000. In addition,
we also recorded ($1,499,000) as our share of HemaSure's loss for the year ended
December 31, 2000. At December 31, 2000, our investment in HemaSure was recorded
at zero and our ownership remained at approximately 22%.
In February 2001, HemaSure signed an asset purchase agreement with Whatman
plc. Under the terms of the agreement, Whatman has agreed to purchase all of
HemaSure's assets, except for cash, cash equivalents and marketable securities
and to assume all of the liabilities of HemaSure, subject to certain exceptions
as defined in the agreement. Closing of the transaction is subject to certain
conditions, including approval of HemaSure's stockholders.
9
INVESTMENT IN VERSICOR
Versicor Inc. was formed as a majority-owned subsidiary of Sepracor in
May 1995 to develop novel drug candidates principally for the treatment of
infectious diseases. In December 1997, Versicor announced the completion of a
private equity financing for approximately $22,000,000. Following this
financing, we had an approximately 22% equity ownership in Versicor.
In 1999, Versicor completed various transactions resulting in the issuance
of several series of preferred stock, and as a result, our ownership of Versicor
was reduced to approximately 10%. In April 1999, we changed our accounting for
our investment in Versicor from the equity method of accounting to the cost
method.
In August 2000, Versicor completed an initial public offering of its common
stock. As of December 31, 2000, we own 1,593,750 shares, or approximately 7%, of
Versicor's outstanding common stock. We consider our investment in Versicor as
an available-for-sale security and as such have marked-to-market our investment
at the December 31, 2000 market price of $8.625 per share, which resulted in us
recording an unrealized gain of $10,688,000 as a separate component of
stockholder's equity.
RESEARCH AND DEVELOPMENT
Our research and development activities are primarily directed toward
discovering and developing potentially improved versions of widely-prescribed
drugs.
Our total research and development expenses were $170,759,000, $122,400,000
and $61,797,000, for 2000, 1999 and 1998, respectively. BioSphere's portion of
total research and development expenses was $2,517,000, $968,000 and $34,000 in
2000, 1999 and 1998, respectively. Collaborative research and development
revenues totaled $3,573,000, $2,390,000 and $4,761,000 in 2000, 1999 and 1998,
respectively.
In 2001, we expect research and development expenditures to increase
significantly over 2000, as we seek to further develop our portfolio of
pharmaceuticals and drug candidates.
MARKETING AND SALES
We market and sell our products through arrangements with corporate
marketing partners, outlicensing of product rights in exchange for royalties,
and through our direct and third party sales forces. We believe that corporate
partnering arrangements allow us to use the partner's marketing expertise to
market our drug candidates more quickly. We currently have agreements with
Schering, Aventis (formerly HMRI and RPR), Janssen and UCB. In each of these
agreements, we are dependent upon the efforts, including marketing and sales
efforts of our partners, and these efforts may not be successful.
We have established a direct sales force consisting of representatives and
technical specialists to market our single isomer of albuterol, XOPENEX, which
we introduced in 1999. Our sales representatives present XOPENEX to physicians.
Our technical specialists act as a resource to provide physicians with relevant
information regarding our products. Our direct sales force has grown to
approximately 170, as of December 31, 2000.
We have also established a contract sales arrangement with Abbott's Ross
Products Division, which promotes XOPENEX to pediatricians in the United States
through its sales force of over 500 professionals. In 2000, we terminated a
contract sales arrangement with Innovex, a division of Quintiles Transnational
Corporation.
As we continue to enter into co-promotion arrangements or market and sell
additional products directly, we will need to significantly expand our direct
sales force, which will require significant
10
management and financial resources. Our business and future operating results
will depend in significant part upon our ability to attract and retain skilled
sales and marketing personnel. Competition for this personnel is intense, and we
may not be successful in attracting or retaining personnel. We may not be
successful in building a marketing staff or sales force, establishing a
marketing staff or sales force may not be cost-effective and our sales and
marketing efforts may not be successful.
Royalty revenue received from Lilly and product sales to McKesson
represented 28% and 16%, respectively, of our revenues in 2000. No other
customer accounted for more than 10% of our revenues in 2000.
In 2001, we expect marketing and sales expenditures to increase
significantly over 2000, as we increase activities relating to sales and
marketing of XOPENEX, the anticipated commercialization of SOLTARA-TM- brand
norastemizole and efforts relating to corporate partnering arrangements.
MANUFACTURING
We prepare our drug compounds primarily at our laboratories in Marlborough,
Massachusetts. We also own and operate a current GMP-compliant 39,000 square
foot fine chemical manufacturing facility in Windsor, Nova Scotia, which we
believe has sufficient capacity to support the production of our drugs in
quantities required for our clinical trials. If additional product candidates of
ours become approved for sale, we will need to either manufacture the drugs
ourself or license the manufacturing and marketing rights to third parties.
While we believe that we have the capability to scale up our manufacturing
process to support the production in commercial quantities of certain of the
drugs that we intend to market and sell directly, the production of a
substantial portion of those drugs must be contracted out to third-party
manufacturers.
Automatic Liquid Packaging, which is a division of Cardinal Health, Inc., is
currently the sole finished goods manufacturer of our product XOPENEX. If
Automatic Liquid Packaging experiences delays or difficulties in producing,
packaging or delivering XOPENEX, our XOPENEX sales and our reputation could be
adversely affected. Furthermore, if we are required to change manufacturers, we
will be required to verify that the new manufacturer maintains facilities and
procedures that comply with all applicable regulations and guidelines. The
delays associated with the verification of a new manufacturer could negatively
affect our ability to produce XOPENEX in a timely manner or within budget. Prior
to December 31, 2001, we are obligated to purchase from ChiRex Inc., a Delaware
corporation, all of the pharmaceutical active ingredients, other than commercial
quantities that we are capable of producing at our Nova Scotia manufacturing
plant, of those drugs that we intend to directly market and sell, subject to
certain pricing, supply and quality control conditions.
COMPETITION
Our principal competitors are generic drug companies that seek to market the
racemic mixture of a compound following expiration of the innovator's
composition-of-matter patent and pharmaceutical companies that develop new
patented therapies to treat the disease indications that we are targeting. We
expect that these companies will seek to compete against our products with lower
pricing, which could adversely affect the prices we charge. In addition, any
drug developed by us is likely to encounter competition from the original
brand-name parent drug, potentially in a generic form, following expiration of
the innovator's composition-of-matter patent. Many competitors and potential
competitors have substantially greater resources, manufacturing and marketing
capabilities, research and development staff and production facilities than us
and our subsidiaries.
In our ICE program, we expect to compete primarily by obtaining use patents
on the single-isomer or active-metabolites of existing, widely-sold drugs and by
establishing, through preclinical and clinical tests, that such single-isomer or
active-metabolite compounds offer benefits over the parent compounds,
11
such as reduced side effects, improved therapeutic efficacy, new indications or
improved dosage forms. Any such patents obtained by us, if valid and
enforceable, should exclude others from marketing the compound for the
indications claimed in our issued use patents.
GOVERNMENT REGULATION
We, our collaboration partners and our customers are required to obtain the
approval of the FDA and similar health authorities in foreign countries to test
clinically and sell commercially pharmaceuticals and biopharmaceuticals for
human use.
Human therapeutics are generally subject to rigorous preclinical and
clinical testing. The standard process required by the FDA before a drug may be
marketed in the U.S. includes:
- preclinical laboratory tests of toxicity and, often, carcinogenicity;
- submission to the FDA of an application for an IND, which must be approved
before human clinical trials may commence;
- adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug for its intended indication;
- submission to the FDA of an NDA; and
- FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
In the past, we have attempted to shorten the regulatory approval process of our
drug candidates by relying on preclinical and clinical toxicology data already
on file with the FDA with respect to the parent drug.
Typically, clinical evaluation involves a three-phase process. In Phase I,
the initial introduction of the drug to humans, the drug is tested for safety,
or adverse effects, dosage tolerance, absorption, distribution, metabolism and
excretion. Phase II involves studies in a limited patient population to:
- determine the efficacy of the drug for specific targeted indications;
- determine dosage tolerance and optimal dosage; and
- identify possible adverse effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to evaluate
further clinical efficacy and to test further for safety within an expanded
patient population at geographically dispersed clinical study sites. The process
of completing clinical testing, obtaining FDA regulatory approval and commencing
commercial marketing is likely to take a number of years. We may not
successfully complete Phase I, Phase II or Phase III testing within any
specified time period, if at all, with respect to any of our products subject to
this testing. Furthermore, the FDA may not accept our evidence that a particular
product meets our claims of superiority.
FDA regulations pertain not only to healthcare products, but also to the
processes and production facilities used to produce such products. Although we
have designed the required areas of our U.S. facility to conform to current GMP,
the FDA will not review the facilities for compliance until we produce a product
for which we are seeking FDA commercial approval. Environmental legislation
provides for restrictions and prohibitions on releases or emissions of various
substances produced in, and waste by-products from, our operations.
The FDA also imposes requirements relating to the marketing of drug products
after approval, including requirements relating to the promotion of drug
products to buyers and to the reporting to the FDA of adverse drug experiences
known to companies holding approved applications. Our failure to
12
adhere to these requirements could lead to regulatory action by the FDA.
Information reported to the FDA in compliance with these requirements could
cause the FDA to withdraw drug approval or to require modification of labeling,
for example to add warnings or contraindications. The FDA has the statutory
authority to seek judicial remedies and sanctions and to take administrative
corrective action for violation of these and other FDA requirements and
standards.
BioSphere faces similar regulatory requirements before it can market and
sell Embosphere-Registered Trademark- Microspheres in the United States.
Approvals must be received by the FDA and these necessary approvals may not be
obtained within a reasonable period of time, if at all. Any difficulty or delay
in commercializing Embosphere Microspheres could harm the ability to generate
revenues in the future.
PATENTS AND PROPRIETARY TECHNOLOGY
We and our affiliates and subsidiaries have filed patent applications in the
United States and selected other countries relating to the use of, and
compositions containing, single-isomer or metabolite compounds, chiral synthesis
and separations and membrane affinity separations. In addition, we have licensed
from third parties certain rights under various patents and patent applications.
To the extent that we invent or discover a new, useful and non-obvious
invention and file a U.S. patent application for such invention, a composition
or method-of-use patent may be issued. We have been issued U.S. patents on the
use of single-isomers or active-metabolites of currently marketed drugs. We are
currently pursuing a policy of aggressively seeking patent protection for the
use of single-isomers and active metabolites of certain existing drugs.
Many of the compounds that we are investigating or developing may be subject
to composition-of-matter or other patents held by third parties.
There may be foreign equivalents to these third party patents, the scope and
expiration of which may vary from country to country. Even if we are issued a
patent for the use of a single-isomer or active-metabolite that is currently
claimed by one or more third party patents, products based on any such patent
issued to us may not be sold until all of such third party patents expire unless
a license is obtained to such third party patents or such third party patents
are determined to be invalid, unenforceable, or not infringed by a court of
proper jurisdiction. In addition, there may be pending additional third party
patent applications covering our drugs in development which, if issued, may
preclude the sale of the drug.
BioSphere holds several patents and patent applications. The patent
positions of companies in the biopharmaceutical industry are highly uncertain,
involve complex legal and factual questions and recently have been the subject
of much litigation. A significant number of patents have been applied for by and
issued to other companies in BioSphere's industry, and other companies may have
filed applications for, may have been issued patents for, or may obtain
additional patents and proprietary rights relating to products competitive with
those of BioSphere.
In addition, BioSphere's products may give rise to claims that they infringe
the proprietary rights of others. Any license required under any such patents or
rights may not be made available on terms acceptable to BioSphere, if at all. If
BioSphere does not obtain these licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring these licenses could be
precluded. Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to BioSphere, to protect trade secrets
or know-how owned by BioSphere, or to determine the scope and validity of the
proprietary rights of others, and could result in substantial costs to and
diversion of effort by, and may have a material adverse impact on BioSphere.
13
EMPLOYEES
On February 1, 2001, we and our wholly-owned subsidiaries, excluding
BioSphere, employed 499 persons. Of these 499 employees, 186 were primarily
engaged in research, development and engineering activities, 35 were primarily
engaged in manufacturing, 170 were engaged in direct sales and the remainder
were primarily engaged in marketing, sales administration, finance and
accounting.
On February 1, 2001 BioSphere employed 67 persons.
ITEM 2. PROPERTIES.
Our facilities are located in Marlborough, Massachusetts and Windsor, Nova
Scotia. In Massachusetts, we lease a total of 122,292 square feet of space in
three buildings. Approximately 5,000 square feet is devoted to manufacturing
operations and the remainder to research and development and administration. The
three leases currently in effect extend to October 2001 for 21,000 square feet,
June 2007 for 32,477 square feet and June 2007 for 68,815 square feet. In Nova
Scotia, our primary manufacturing location is a 39,000 square-foot fine chemical
manufacturing facility located on a four-acre site in Windsor, Nova Scotia. We
acquired the facility in March 1994. Production at the Nova Scotia facility
began in February 1995.
In January 2001, we signed a lease to occupy approximately 192,600 square
feet of office and research and development space in a facility to be built in
Marlborough, Massachusetts. The lease, which is contingent upon the completion
of the building, will include an option for us to lease two additional buildings
that will be constructed on the same site. We will finance the construction of
the initial building through a loan to the developer of the site and will have a
right to buy the entire campus outright beginning in June 2002. Occupancy is
expected to occur in June 2002.
BioSphere's facilities are located in Rockland, Massachusetts and Louvres
and Roissy, France. In Massachusetts, BioSphere leases approximately 14,000
square feet of office and laboratory space pursuant to a lease for a term of
five years, expiring in March 2005. At its facility in Louvres, France,
BioSphere leases approximately 10,000 square feet of office, laboratory and
manufacturing space. This lease exprires in June 2001. In December 2000,
BioSphere signed a lease to occupy approximately 18,150 square feet of
manufacturing and office space in Roissy, France. The facility is being
renovated, and BioSphere expects to move all French operations to the new
facility sometime in 2001. The duration of this new lease is ten years.
ITEM 3. LEGAL PROCEEDINGS.
SEPRACOR
Currently Sepracor is not party to any material legal proceedings.
BIOSPHERE
On February 7, 2001, BioSphere, along with its subsidiary, BSMD Ventures,
Inc., filed a complaint for declaratory judgment in the United States District
Court for the District of Delaware against Artes Medical USA, Inc. The complaint
seeks a declaration that United States Patent No. 5,344,452, which we refer to
as the '452 patent, which Artes claims to have the right to enforce, is invalid
and not infringed by BioSphere and BSMD Ventures. The '452 patent relates to
"implant(s) based on a biocompatible solid in powder form, in particular a
plastic". In addition, Artes filed a complaint against BioSphere in the United
States District Court for the Central District of California (Los Angeles). The
complaint claims that BioSphere is liable for infringement, inducement of
infringement and contributory infringement of the '452 patent. Artes seeks
monetary damages as compensation for the alleged infringement and a permanent
injunction against the alleged infringing activity. Artes apparently asserts
that all of BioSphere's microsphere-related products, including its Embosphere
Microspheres, HepaSphere SAP Microspheres and MatrX Microspheres infringe the
'452 patent.
14
BioSphere believes Artes' claims are without merit and BioSphere intends to
vigorously defend these claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our security holders, through
solicitation of proxies or otherwise, during the last quarter of the year ended
December 31, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of our current
executive officers as of December 31, 2000.
NAME AGE POSITION
- ---- -------- --------
Timothy J. Barberich................... 53 Chairman, Chief Executive Officer
William J. O'Shea...................... 51 President, Chief Operating Officer
David P. Southwell..................... 40 Executive Vice President; Chief Financial Officer and
Secretary
Paul D. Rubin, M.D..................... 47 Executive Vice President, Drug Development and ICE
Research
Robert F. Scumaci...................... 41 Executive Vice President, Finance and Administration
and Treasurer
James R. Hauske, Ph.D.................. 47 Senior Vice President, Discovery
Douglas E. Reedich, Ph.D............... 43 Senior Vice President, Legal Affairs and Chief Patent
Counsel
MR. BARBERICH, a founder of Sepracor, has been a director of Sepracor and
our Chief Executive Officer since our organization in 1984. Mr. Barberich also
served as President of Sepracor from 1984 to October 1999. Prior to founding
Sepracor, Mr. Barberich served in a number of executive and managerial
capacities at Millipore Corporation, which he joined in 1973. Most recently,
prior to founding Sepracor, Mr. Barberich served as Vice President and General
Manager of Millipore's Medical Products Division and as General Manager of
Millipore's Laboratory Products Division. Mr. Barberich is Chairman of the Board
of Directors of HemaSure and is a director of BioSphere and Versicor.
MR. O'SHEA has served as President and Chief Operating Officer of Sepracor
since October 1999. Prior to joining Sepracor, Mr. O'Shea was Senior Vice
President of Sales and Marketing and Medical Affairs for Zeneca Pharmaceuticals,
a business unit of Zeneca, Inc. Mr. O'Shea joined Zeneca in the U.K. in 1975 and
held management positions in the U.K. and the U.S. in the areas of international
sales and marketing.
MR. SOUTHWELL has served as Executive Vice President, Chief Financial
Officer of Sepracor since October 1995 and served as Senior Vice President and
Chief Financial Officer of Sepracor from July 1994 to October 1995. From
August 1988 until July 1994, Mr. Southwell was associated with Lehman
Brothers Inc., a securities firm, in various positions with the investment
banking division, most recently in the position of Vice President.
Mr. Southwell is a director of BioSphere.
DR. RUBIN has served as Executive Vice President, Drug Development and ICE
Research of Sepracor since January 1999. He was Senior Vice President, Drug
Development of Sepracor from April 1996 until January 1999. He was formerly Vice
President and Worldwide Director of Clinical Pharmacology for Glaxo-Wellcome, a
pharmaceutical company, from 1993 until 1996 and Vice President, Immunology and
Metabolic Disease for Abbott Laboratories, a pharmaceutical company, from 1987
until 1993. Dr. Rubin was responsible for early clinical development of
Glaxo-Wellcome's
15
entire portfolio. While at Abbott Laboratories, Dr. Rubin was responsible for
the development of the 5-lipoxygenase inhibitor, zileuton. Dr. Rubin is a
director of Endorex Corp.
MR. SCUMACI has served as Executive Vice President, Finance and
Administration since February 2001 and Treasurer of Sepracor since March 1996.
He was Senior Vice President, Finance and Administration from March 1996 to
February 2001 and was Vice President and Controller of the Company from
March 1995 until March 1996. From 1987 to 1994, Mr. Scumaci was employed by
Ares-Serono Group, a multinational pharmaceutical company, most recently as Vice
President, Finance and Administration of North American Operations. Previously,
he was associated with Revlon and Coopers & Lybrand in various finance and
accounting capacities.
DR. HAUSKE has served as Senior Vice President, Discovery of Sepracor since
October 1995. Prior to joining the Company, from June 1994 to October 1995,
Dr. Hauske was employed by Arris Pharmaceuticals, a pharmaceutical company, as
Director of Combinatorial Chemistry and Receptor Chemistry. Before joining Arris
Pharmaceuticals, Dr. Hauske worked for Pfizer Central Research in Groton,
Connecticut. While, at Pfizer, Dr. Hauske was a member of the project management
team that discovered Pfizer's azamacrolide antibacterial,
Zithromax-Registered Trademark-.
DR. REEDICH has served as Senior Vice President, Legal Affairs and Chief
Patent Counsel of Sepracor since January 1999 and has served as Sepracor's Chief
Patent Counsel since June 1995. From October 1987 to June 1995, he was employed
by 3M Company ("3M"), most recently as patent counsel for 3M's Pharmaceuticals
Division.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference from our 2000 Annual Report to Stockholders (the
"2000 Annual Report") under the headings "Supplemental Stockholder
Information--Price Range of Common Stock" and "Supplemental Stockholder
Information--Dividend Policy."
We did not sell any equity securities during the quarter ended December 31,
2000 that were not registered under the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from our 2000 Annual Report under the heading
"Sepracor Inc. Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from our 2000 Annual Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Incorporated by reference from our 2000 Annual Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements filed as part of this Annual Report on Form 10-K
are incorporated by reference from our 2000 Annual Report under the heading
"Consolidated Financial Statements" and the notes thereto and are listed under
Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial disclosure
matters.
PART III
ITEMS 10-13.
The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from our definitive proxy statement for our 2001
Annual Meeting of Stockholders. Such information will be contained in the
sections of such proxy statement captioned "Stock Ownership of Certain
Beneficial Owners and Management", "Proposal 1--Election of Directors", "Board
and Committee Meetings", "Compensation for Directors", "Compensation of
Executive Officers", "Certain Relationships and Related Transactions",
"Employment Agreements" and "Section 16(a) Beneficial Ownership Reporting
Compliance." Information regarding our executive officers is also furnished in
Part I of this Annual Report on Form 10-K under the heading "Executive Officers
of the Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are included or incorporated by reference from the
2000 Annual Report.
1. The following financial statements (and related notes) of the Company are
incorporated by reference from the 2000 Annual Report:
PAGE* PAGE**
-------- --------
Report of Independent Accountants........................... 24* 20**
Consolidated Balance Sheets at December 31, 2000 and 1999... 25* 21**
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999, and 1998......................... 26* 22**
Consolidated Statements of Stockholders' Equity (deficit)
and Comprehensive Income for the Years Ended December 31,
2000, 1999, and 1998...................................... 27* 23**
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999, and 1998......................... 28* 24**
Notes to the Consolidated Financial Statements.............. 29* 25**
- ------------------------
* Refers to page number of the 2000 Annual Report. The consolidated financial
statements (and related notes) are incorporated by reference from the 2000
Annual Report.
** Refers to page number of the Selected Portions of the 2000 Annual Report to
Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K.
17
2. The schedule listed below and the Report of Independent Accountants on
Financial Statement Schedule are filed as part of this Annual Report on
Form 10-K:
Report of Independent Accountants on Financial Statement
Schedule.................................................. S-1
Schedule II-Valuation and Qualifying Accounts............... S-2
All other schedules are omitted as the information required is inapplicable
or the information is presented in the consolidated financial statements or the
related notes.
3. The Exhibits listed in the Exhibit Index immediately preceding the Exhibits
filed as a part of this Annual Report on Form 10-K.
(b) No current reports on Form 8-K were filed by the Company during the quarter
ended December 31, 2000;
The following trademarks are mentioned in this Annual Report on Form 10-K:
Sepracor, ICE, XOPENEX and SOLTARA are trademarks of Sepracor. BioSphere and
Embosphere are trademarks of BioSphere. HemaSure is a trademark of HemaSure.
This Annual Report on Form 10-K also contains trademarks of other companies.
18
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.
SEPRACOR INC.
By: /s/ TIMOTHY J. BARBERICH
-----------------------------------------
Timothy J. Barberich
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: March 27, 2001
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ TIMOTHY J. BARBERICH Chairman, Chief Executive
-------------------------------------- Officer and Director March 27, 2001
Timothy J. Barberich (Principal Executive Officer)
Executive Vice President, Chief
/s/ DAVID P. SOUTHWELL Financial Officer and
-------------------------------------- Secretary (Principal March 27, 2001
David P. Southwell Financial Officer)
Executive Vice President,
/s/ ROBERT F. SCUMACI Finance and Administration
-------------------------------------- and Treasurer (Principal March 27, 2001
Robert F. Scumaci Accounting Officer)
/s/ JAMES G. ANDRESS
-------------------------------------- Director March 27, 2001
James G. Andress
/s/ DIGBY W. BARRIOS
-------------------------------------- Director March 27, 2001
Digby W. Barrios
/s/ ROBERT J. CRESCI
-------------------------------------- Director March 27, 2001
Robert J. Cresci
/s/ KEITH MANSFORD
-------------------------------------- Director March 27, 2001
Keith Mansford
-------------------------------------- Director
James F. Mrazek
/s/ ALAN A. STEIGROD
-------------------------------------- Director March 27, 2001
Alan A. Steigrod
19
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Sepracor Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 26, 2001, except as to the information in Note V for which
the date is February 28, 2001 appearing on page 24 of the 2000 Annual Report to
Stockholders of Sepracor Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, based upon our audits and the
reports of other auditors, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 26, 2001, except as to the information in
Note V for which the date is February 28, 2001
S-1
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ---------- ------------- ----------
Year ended December 31, 2000
Accounts Receivable Reserves......... $164,669 $ 59,327 $162,148 $ (8,000) $378,144
Year ended December 31, 1999
Accounts Receivable Reserves......... $ -- $174,853 $ -- $(10,184) $164,669
Year ended December 31, 1998
Accounts Receivable Reserves(2)...... $ -- $ -- $ -- $ -- $ --
- ------------------------
(1) Collections and bad debt write-offs.
(2) 1998 reserves were restated to zero due to discontinued operations of
BioSphere Medical, Inc.
S-2
EXHIBIT NO. EXHIBIT INDEX DESCRIPTION
- --------------------- ------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Registrant, as
amended.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 (1) Specimen Certificate for shares of Common Stock, $.10 par
value, of the Registrant.
4.2 (7) Global 7% Convertible Subordinated Debenture payable to Cede
& Co. due 2005.
4.3 (9) Form of 5% Convertible Subordinated Debenture due 2007.
(*) 10.1 (8) The Registrant's 1991 Amended and Restated Stock Option
Plan.
(*) 10.2 (7) The Registrant's 1991 Director Stock Option Plan, as amended
and restated.
(*) 10.3 (4) The Registrant's 1996 Employee Stock Purchase Plan, as
amended and restated.
(*) 10.4 (5) The Registrant's 1997 Stock Option Plan.
(*) 10.5 (7) The Registrant's 1998 Employee Stock Purchase Plan.
(*) 10.6 (8) The Registrant's 1999 Director Stock Option Plan.
10.7 (3) Lease as to Marlboro Industrial Park, dated December 12,
1995, between Valerie A. Colbert, Trustee of Second
Marlboro Development Trust under Declaration of Trust dated
September 15, 1972, and the Registrant (the "Marlboro
Lease").
10.8 (5) First Amendment to Marlboro Lease, dated February 1, 1997,
and Second Amendment to Marlboro Lease, dated July 1, 1997.
10.9 (7) Technology Transfer and License Agreement dated as of
January 1, 1994, between the Registrant and BioSepra Inc.
10.10(7) Technology Transfer and License Agreement dated as of
January 1, 1994, between the Registrant and HemaSure Inc.
10.11(7) Technology Transfer and License Agreement, effective
January 1, 1995, between the Registrant and SepraChem Inc.
(*) 10.12(2) Letter Agreement, dated June 10, 1994, between the
Registrant and David Southwell.
(*) 10.13(4) Letter Agreement, dated February 23, 1996, between the
Registrant and Paul D. Rubin.
(*) 10.14(4) Letter Agreement, dated February 23, 1995, between the
Registrant and Robert F. Scumaci.
10.15(5)+ Agreement, dated as of December 5, 1997, by and between the
Registrant and Schering-Plough Ltd.
10.16(5)+ License Agreement, dated January 30, 1998, by and between
the Registrant and Janssen Pharmaceutica N.V.
10.17(6)+ Norcisapride Development and License Agreement, dated as of
July 20, 1998, between Janssen Pharmaceutica N.V. and the
Registrant.
10.18(7)+ Exclusive License Agreement by and between Eli Lilly and
Company and the Registrant dated December 4, 1998.
10.19(7) Indenture, dated as of December 15, 1998, between the
Registrant and The Chase Manhattan Bank, as trustee,
relating to the 7% Convertible Subordinated Debentures due
2005.
10.20(7) Registration Rights Agreement, dated as of December 10,
1998, by and among the Registrant, Morgan Stanley & Co.
Incorporated and Salomon Smith Barney, Inc.
10.21(8) Assignment Agreement, dated as of August 25, 1999, by and
between the Registrant and Georgetown University.
10.22(8) Registration Rights Agreement, dated as of August 25, 1999,
by and between the Registrant and Georgetown University.
10.23(9) Indenture, dated as of February 14, 2000, between the
Registrant and the Chase Manhattan Bank, as trustee,
relating to the 5% Convertible Subordinated Debentures due
2007.
10.24(9) Registration Rights Agreement, dated as of February 8, 2000,
by and among the Registrant and Deutsche Bank
Securities Inc.
10.25(9) Second Amended and Restated Revolving Credit Agreement Among
Fleet National Bank, Sepracor Inc. and BioSphere
Medical, Inc. dated as of December 22, 1999, as amended on
February 14, 2000.
EXHIBIT NO. EXHIBIT INDEX DESCRIPTION
- --------------------- ------------------------------------------------------------
10.26(9)+ License Agreement, dated August 31, 1999, by and between the
Registrant and Hoechst Marion Roussel, Inc.
10.27(9)+ EX-US License Agreement, dated August 31, 1999, by and
between the Registrant and Hoechst Marion Roussel, Inc.
10.28(9)+ License and Assignment Agreement, dated September 30, 1999,
by and between the Registrant and Rhone-Poulenc Rorer SA.
10.29(9)+ License Agreement, dated May 27, 1999, by and between UCB
Farchim S.A. and the Registrant.
10.30(9)+ Co-Promotion Agreement, dated as of November 18, 1999, by
and between Ross Products Division of Abbott
Laboratories Inc. and the Registrant.
(*) 10.31(9) Summary of Plan regarding "Parachute Payments" and
Section 280G Gross-Up Payments.
(*) 10.32 The Registrant's 2000 Stock Incentive Plan.
13 Selected portions of the 2000 Annual Report to Stockholders
(which shall be deemed filed only with respect to those
portions specifically incorporated by reference herein).
21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Arthur Andersen LLP.
99 Report of Arthur Andersen LLP.
- ------------------------
(*) Management contract or compensatory plan or arrangement filed as an exhibit
to this Form pursuant to Item 14(c) of Form 10-K.
(+) Confidential treatment granted as to certain portions.
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 33-41653).
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(6) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.
(7) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(8) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999.
(9) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.