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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, 1999.
( ) 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: 0-21643
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CV THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 43-1570294
(State of Incorporation) (I.R.S. Employer Identification No.)
3172 PORTER DRIVE, PALO ALTO, CALIFORNIA 94304
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (650) 812-0585
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Indicate by check whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and 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 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 approximate aggregate market value of the Common Stock held by
nonaffiliates of the Registrant, based upon the last sale price of the
Common Stock reported on the Nasdaq Stock Market was $836,355,474 as of
March 15, 2000.
The number of shares of Common Stock outstanding as of March 15, 2000
was 18,340,476.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement in connection with the
Registrant's 2000 Annual Meeting of Stockholders are incorporated herein by
reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
OVERVIEW
CV Therapeutics is a biopharmaceutical company engaged in the discovery
and development of new small molecule drugs to treat cardiovascular disease,
the leading cause of death in the United States. We currently are conducting
clinical trials for two of our drug candidates, including ranolazine, which
is in its second Phase III trial. In addition, we have several research and
preclinical development programs designed to bring additional drug
candidates into human clinical testing. Consistent with our business
strategy, we currently retain United States marketing rights to our two lead
clinical candidates, ranolazine and CVT-510.
Ranolazine for the potential treatment of angina:
Ranolazine, a potential treatment for angina, is currently in its second
Phase III trial. Angina is the heart pain, often quite debilitating, that
results from a shortage of oxygen-rich blood available to the heart relative
to the oxygen required for the amount of work the heart needs to do. For
many patients, this oxygen shortage occurs even when their hearts only need
to do the minimal work necessary to support routine activities such as
climbing stairs or carrying groceries from the car. Typically, this oxygen
shortage is the result of obstructions in the coronary arteries that prevent
proper circulation of oxygen-rich blood. According to the American Heart
Association, there were approximately 7.2 million patients in the United
States in 1998 who suffered from angina.
The key to treating angina is to bring the heart's need for oxygen into
balance with its available supply. Current pharmaceutical therapies, such as
beta blockers, calcium channel blockers and long-acting nitrates, all
achieve this result by forcing a reduction in the demand for oxygen by
forcing a lowering in one or more of heart rate, blood pressure or the
strength of contraction of the heart muscle. These patients may be unable to
tolerate further reductions in the heart rate, blood pressure and the
strength of contraction, and therefore, current therapies may prove
unsatisfactory.
We believe ranolazine balances the oxygen supply/demand equation by
causing the heart to use oxygen more efficiently. In other words, ranolazine
may allow a diseased heart to do its work with a limited supply of oxygen.
By improving the heart's oxygen efficiency, ranolazine may be able to
provide a treatment for angina without forcing a reduction in the amount of
work that the heart can do. This may allow patients to reduce their angina
without lowering heart rate, blood pressure or cardiac contraction strength,
an outcome not currently available to patients.
In August 1999, we announced initial results from the first of two
planned Phase III trials of ranolazine, our anti-anginal drug candidate. The
results of the trial, called Monotherapy Assessment of Ranolazine in Stable
Angina, or MARISA, indicated increases in patients' treadmill exercise
duration compared to placebo, the primary endpoint for this trial. These
results were statistically significant at the 99.5% or greater level, or
what is commonly referred to as p <= 0.0005. This means that, applying
widely-used statistical methods, the chance that these results could have
occurred by accident is less than 1 in 200.
In July 1999, we initiated the second of the two planned Phase III
trials, called Combination Assessment of Ranolazine in Stable Angina, or
CARISA. Should results of this trial be consistent with the results we found
in the MARISA trial, we intend to file a New Drug Application, or NDA, with
the United States Food and Drug Administration.
In May 1999, we entered into a sales and marketing agreement with
Innovex Inc., a subsidiary of Quintiles Transnational Corp. Under this
agreement, if the FDA approves ranolazine for sale in the United States,
Innovex
will hire and train a dedicated sales force for ranolazine and
assist in funding product launch and fund the first five years of sales and
marketing expenses. We will receive 100% of the revenues from sales of
ranolazine. In turn, we will pay Innovex a share of those revenues that will
not exceed 33% of sales in the first two years, and that will decline to a
maximum of 25% by the fourth and fifth years. At the end of the five-year
agreement, we can retain the sales force built by Innovex.
CVT-510 for potential heart rate reduction during atrial arrhythmias:
Our product candidate in clinical trials, CVT-510, is a potential
treatment to reduce the heart rate during atrial arrhythmias. When a patient
experiences an atrial arrhythmia, the heart beats too fast to accommodate
effective pumping of blood throughout the body. According to hospital audit
reports, atrial arrhythmias are involved in approximately 2.6 million
hospital diagnoses in the United States each year.
Current therapies to control heart rate during these episodes may entail
a number of undesirable features. Digoxin may not work quickly enough. Beta
blockers and calcium channel blockers may reduce blood pressure in patients
whose blood pressure is already dangerously low due to the arrhythmia
itself. Finally, Adenocard, the branded name of adenosine, also reduces
blood pressure and may slow heart rate for too brief a time to be effective
in treating many arrhythmias.
CVT-510 is a new small molecule that we believe may address the
shortcomings of current therapies. CVT-510 selectively stimulates the
adenosine A1 receptor, which may slow heart rate. However, unlike Adenocard,
CVT-510 does not stimulate the adenosine A2 receptor, which may lower blood
pressure. In animal studies, CVT-510 slowed heart rate immediately and for
several minutes.
The Phase I trial for CVT-510 met our previously established objectives
of providing safety and tolerability data, as well as data relating to
slowing electrical conduction in the heart. We believe these clinical data
and the results of the prior animal studies suggest that CVT-510 may act
rapidly to slow heart rate during atrial arrhythmias without decreasing
blood pressure in patients.
In December 1999, we initiated an open-label, dose-escalation Phase II
trial of CVT-510 in patients with atrial arrhythmias.
CVT-124 for the potential treatment of congestive heart failure:
In February 2000, Biogen, Inc., the licensee of our adenosine A1
receptor antagonist technology, patents and compounds, including CVT-124,
which Biogen refers to as the Adentri(TM) Program, announced that it had
successfully completed a Phase II trial of CVT-124 in patients with
moderate-to-severe congestive heart failure, or CHF. However, Biogen also
announced its intention to continue the Adentri(TM) program with a new
molecule currently in preclinical studies. Biogen also announced that it
would make a milestone payment to us.
Research and preclinical programs:
We also have a number of preclinical and research programs. Three of our
preclinical programs have late stage data. These three programs are focused
on developing novel therapies for cardiac imaging, chronic atrial
arrhythmias and restenosis.
CARDIOVASCULAR DISEASE BACKGROUND
Cardiovascular disease is the leading cause of death in the United
States, claiming more than 950,000 lives in 1997. This is more than 165% of
the number of deaths attributed to AIDS and cancer combined. The American
Heart Association estimated the total amount spent on cardiovascular
medications in the United States for 1998 at $14.8 billion.
The cardiovascular system is comprised of the heart, the blood vessels,
the kidneys and the lungs. Together, the components of the cardiovascular
system deliver oxygen and other nutrients to the tissues of the body and
remove waste products. The heart propels blood through a network of arteries
and veins. The kidneys closely regulate the blood volume and the balance of
chemicals, such as sodium, potassium and chloride, in the blood, and the
lungs put oxygen in the blood and remove carbon dioxide. To accomplish these
tasks, the cardiovascular system must maintain adequate blood flow, or
cardiac output. Cardiac output is determined by factors such as heart rate
and blood pressure, which in turn are controlled by a variety of hormones
such as adrenaline, angiotensin and adenosine. These hormones exert their
effects by binding to specific receptors on the surfaces of a variety of
cell types in the heart, lungs, blood vessels and kidneys. Any significant
disruption of this system results in cardiovascular disease.
Cardiovascular diseases, including atherosclerosis, which is the
hardening of the arteries, hypertension, which is high blood pressure, and
others, may cause permanent damage to the heart and blood vessels, leading
to CHF, angina and myocardial infarction. In 1998, in the United States,
there were 7.2 million patients with angina and 4.9 million patients with
CHF. In 1997, there were 2.6 million hospital diagnoses of acute atrial
arrhythmias in the United States. More than 20 years ago, drugs such as
nitrates, beta blockers, calcium channel blockers and ACE inhibitors were
developed to treat cardiovascular diseases. These drugs have contributed to
an increase in the survival of patients who suffer from cardiovascular
disease. However, these drugs also can cause a variety of undesirable side
effects, including fatigue, depression, impotence, headaches, palpitations
and edema. They also may lack effectiveness in various segments of the
cardiovascular market. Molecular cardiology has provided new insight into
the mechanisms underlying cardiovascular diseases, thus creating the
opportunity for improved therapies.
BUSINESS STRATEGY
The key elements of our business strategy are as follows:
Identify and develop new drugs for the treatment of cardiovascular
diseases a single therapeutic area
By being focused on one therapeutic area, cardiovascular disease, we
believe that we can be relatively efficient in our drug discovery,
development and commercialization efforts. Our concentrated focus on
cardiovascular disease may add to our efficiency, including in the following
areas:
* Research--focus is on the molecular mechanisms of the
cardiovascular system
* Regulatory--discussions are with the same FDA division
* Clinical investigators--investigators in one trial are candidates
for future trials
* Consultants--thought leaders are tapped for numerous internal
programs
* Clinical need--key employees are experienced in cardiovascular
and/or clinical science
* Sales force efficiency--detailing is to the same cardiologists
and other prescribing doctors.
Focus on small molecule drug candidates
Small molecule therapeutics can frequently be administered orally on an
outpatient basis. By contrast, to date, "large molecule" therapeutics, such
as proteins or monoclonal antibodies, can very rarely be formulated to
accommodate oral outpatient administration. In addition, our emphasis on
small molecule therapeutics means that our drug candidates can be produced
by conventional pharmaceutical manufacturing methods. We believe that
the established contract pharmaceutical manufacturing industry provides us
the opportunity to use outside production capabilities.
Commercialize products, in part, through a concentrated marketing effort
targeted to cardiologists
A focused commercialization effort can provide marketing cost
efficiencies. Patients that have severe cardiovascular conditions are
generally treated by cardiologists. In 1996, there were approximately 20,000
cardiologists in the United States. Cardiologists are generally concentrated
in metropolitan communities near major medical centers. We believe that this
small number of subspecialists is responsible for a significant portion of
the patient visits associated with prescriptions written for severe
cardiovascular conditions. These market dynamics make it possible to
approach the sales of the drugs in our pipeline with a focused sales force,
like the one to be provided for ranolazine through our sales and marketing
services agreement with Innovex, Inc.
Participate in the sales and marketing in the United States of at least
some of the drugs we develop
In the biopharmaceutical industry, a substantial percentage of the
profits generated from successful drug development are typically retained by
the entity directly involved in the sales and marketing of the drug.
Licensing our drug candidates to a third party who will complete development
and provide sales and marketing resources in exchange for a sales royalty
may reduce some of our risks. However, we believe that the risk-return
tradeoff typically favors developing and then marketing and selling products
ourselves. Therefore, a key element of our business strategy is to be
involved, when practical, in the sales and marketing of our products in the
United States. Though we may eventually become involved in direct sales and
marketing activities in other parts of the world, our initial direct efforts
will be in the United States.
PRODUCT PORTFOLIO
We have the following portfolio of product candidates:
DEVELOPMENT
PRODUCT TARGET INDICATION STATUS
------- ------ ---------- -----------
Ranolazine Fatty acid oxidation inhibition Angina Phase III
CVT-510 Adenosine A1 receptor in the heart Acute heart rate control during Phase II
atrial arrhythmias
Adentri(TM) Adenosine A1 receptor in the kidney Congestive heart failure Preclinical
CVT-3146 Adenosine A2A receptor in the heart Cardiac imaging Preclinical
CVT-2584 CDK2 Restenosis, arterial bypass graft Preclinical
CVT-2501 Adenosine A1 receptor in the heart Chronic heart rate control during Preclinical
atrial arrhythmias
CVT-2511 Fatty acid oxidation inhibition Angina Research
Cholesterol Tangier disease gene/HDL elevation Atherosclerosis Discovery
Transport
In the table, under the heading "Development Status," "Phase III"
indicates evaluation of clinical efficacy and safety within an expanded
patient population at geographically dispersed clinical trial sites. "Phase
II" indicates safety testing and initial efficacy testing in healthy
volunteers and a limited patient population. "Phase I" indicates initial
safety testing in healthy volunteers and a limited patient population.
"Preclinical" indicates lead compound selected for possible development
which meets predetermined criteria for potency, specificity,
manufacturability and pharmacologic activity in animal and/or in vitro
models. "Research" indicates lead candidate being tested against
predetermined criteria. "Discovery" indicates efforts to identify drug
candidates for further evaluation.
RANOLAZINE
Ranolazine is a new small molecule for the potential treatment of
angina. Research indicates that ranolazine may cause a partial shift in the
source of energy for the heart from fatty acid toward glucose, which is a
more oxygen efficient source of energy. We are developing ranolazine to
potentially treat angina because we believe ranolazine may significantly
improve exercise tolerance, the standard clinical measurement for angina
treatment. However, unlike current anti-anginal medicines, ranolazine may
allow blood pressure and heart rate to remain essentially unchanged, and as
a result, may have an improved tolerability profile compared to currently
available therapies. We licensed ranolazine from Syntex in March 1996.
Potential Indication Angina
Angina is heart pain. Angina sufferers often describe their pain as a
crushing, strangling and/or burning sensation in the chest. These attacks
can occur anytime or anywhere, but in most patients with angina, they are
often triggered by daily physical exertion or emotional stress.
Angina is caused when the heart muscle does not get enough
oxygen-carrying blood to meet its need, generally because of obstructions in
the coronary arteries feeding blood to the heart. These obstructions
typically are caused by a buildup of cholesterol deposits in the coronary
arteries. All the body's organs and tissues need oxygen to extract energy
from the foods we eat. The heart also needs oxygen in order to fuel its
mechanical work of pumping blood throughout the body. Angina occurs when the
blood supply cannot provide enough oxygen to meet the heart muscle's demand.
In the United States, approximately 7.2 million patients in 1998 had
angina. Based on published data, we estimate that over half of these
patients are currently being treated with multiple medications, including
nitrates, beta blockers and calcium channel blockers.
Current Approaches to Angina Treatment
Currently available drugs to treat angina include beta blockers, calcium
channel blockers, and long-acting nitrates. These drugs treat angina by
decreasing the heart's demand for oxygen by reducing the work it is asked to
perform. These drugs work by lowering heart rate, blood pressure and/or the
strength of the heart's contraction. These hemodynamic effects can limit or
prevent the use of currently available drugs in patients whose blood
pressure or cardiac function is already decreased. These effects can be
particularly pronounced when these drugs are used in combination. Additional
adverse effects include lower extremity edema associated with calcium
channel blockers, impotence and depression associated with beta blockers and
headaches associated with nitrates. Consequently, for some patients,
presently available medical treatment may not provide relief of angina
without unacceptable effects.
pFOX Inhibition A Potential New Approach by Ranolazine
Cardiac metabolism is the process by which the heart extracts the energy
it needs to pump blood from either fat or glucose by combining them with
oxygen. Under normal conditions, cardiac metabolism uses both fat and
glucose on a roughly 60% fat and 40% glucose basis. If fatty acid oxidation,
which is the combination of fatty acids and oxygen into energy, is
inhibited, cardiac metabolism shifts to utilizing more glucose. Since the
heart gets more energy from a unit of oxygen combined with glucose than it
does from that same unit of oxygen combined with fat, causing a shift in
cardiac metabolism from fat to glucose should improve cardiac efficiency.
However, a complete shift away from metabolizing fatty acids could
potentially lead to unwanted side effects. Consequently, only a partial
inhibition of fatty acid oxidation is likely to be desirable.
Research indicates that ranolazine may cause such a partial shift, and
that ranolazine may be a partial fatty acid oxidation, or pFOX, inhibitor.
Specifically, ranolazine may cause a partial, and reversible, inhibition of
fatty
acid oxidation during conditions of a shortage of oxygen. Inhibition
of fatty acid oxidation results in a shift to more glucose oxidation, which
produces more energy per unit of available oxygen. Such an improvement in
cardiac efficiency could contribute to a treatment for angina by reducing
the imbalance between oxygen demand and oxygen supply.
As a pFOX inhibitor, ranolazine potentially operates via a completely
different pathway than the existing anti-anginal drugs. Ranolazine does not
appear to work by lowering heart rate or blood pressure to reduce oxygen
demand. Rather, ranolazine may affect cardiac metabolism, the process by
which energy is extracted from glucose and fatty acids by combining them
with oxygen. Ranolazine appears to improve the efficiency of cardiac
metabolism by allowing the otherwise limited supply of oxygen to produce
more energy. This metabolic shift toward glucose metabolism and away from
fatty acid metabolism does not affect heart rate, blood pressure or the
contraction strength of the heart. Consequently, patients taking ranolazine
may be able to maintain these hemodynamic measures at or near baseline
levels, which they are unable to do if they take any of the currently
available anti-anginal medications.
The following table sets forth the mechanisms and effects of ranolazine
and anti-anginal drugs.
Heart Blood Mechanism
Rate Pressure
Ranolazine: - - Improves oxygen
pFOX Inhibitor metabolism
Beta [DOWN ARROW] [DOWN ARROW] Decreased
Blockers pump function
Calcium [DOWN ARROW] [DOWN ARROW] Decreased
Channel pump function,
Blockers vasodilation
Long-Acting [UPWARD ARROW] [DOWN ARROW] Vasodilation
Nitrates
For the above table, the data and the reflected mechanism of action
indicated for ranolazine is based on clinical trials to date. Unlike beta
blockers, calcium channel blockers and long-acting nitrates, ranolazine has
not yet been approved by the FDA as safe or effective, and clinical trials
are currently underway to confirm this hypothesis.
Ranolazine Clinical Trial Status
In August 1999, we announced initial results from our monotherapy
assessment of ranolazine in stable angina, or MARISA trial, the first of two
planned Phase III clinical trials of ranolazine in angina. MARISA was a
randomized, double-blind, placebo-controlled trial of a sustained release
formulation of ranolazine used in patients who were not receiving other
anti-anginal drugs. Patients were evaluated by treadmill exercise testing
during treatment with placebo and each of three doses of ranolazine, 500mg
twice daily, 1000mg twice daily, and 1500mg twice daily. The results of the
trial are summarized below:
* The MARISA primary endpoint was treadmill exercise duration
approximately 12 hours after the previous dose and just before
the next dose. At this time, ranolazine plasma concentrations
are at their lowest point during the dosing cycle, or at trough.
Data from 175 patients appear to show that compared to placebo,
ranolazine taken twice a day increased exercise duration at
trough plasma concentrations, at all three active doses studied.
These results were statistically significant at the 99.5% or
greater level, or what is commonly referred to as p <= 0.005.
This means that, applying widely used statistical methods, the
chance that these results could have occurred by accident is
less than 1 in 200.
* Key secondary endpoints, exercise time to onset of angina and
exercise time to the electrocardiographic appearance of ischemia
were increased at all three ranolazine doses studied compared to
placebo. These results were statistically significant at the
99.5% or greater level, or p <= 0.005.
* The lack of clinically relevant hemodynamic effects was
consistent with results observed in prior clinical trials of a
different formulation of ranolazine. While increases in exercise
duration were observed, ranolazine had no clinically meaningful
impact on heart rate or blood pressure, either at rest or
following exercise.
* Adverse events, including dizziness, asthenia or weakness, and
nausea, and the electrocardiographic changes observed in this
trial, were consistent with those observed in prior trials of a
different formulation of ranolazine. Adverse event frequency
increased as dose increased.
In July 1999, we initiated our second pivotal Phase III clinical trial,
combination assessment of ranolazine in stable angina, or CARISA. The CARISA
trial is a randomized, double-blind, placebo controlled trial of ranolazine
used in combination with other anti-anginal drugs in approximately 460
patients. Should results of this trial be consistent with the results we
found in the first Phase III trial, we intend to submit a New Drug
Application, or NDA, to the United States Food and Drug Administration.
Three Phase II trials completed by Syntex prior to 1994 indicated that
an immediate release formulation of ranolazine increased, with p < 0.05, the
exercise duration of angina patients during exercise testing at peak dosage
levels, compared to placebo. This result was observed both when ranolazine
was given alone and in combination with beta blockers or calcium channel
blockers. In these trials, ranolazine was administered on a three times
daily schedule. To achieve a more commercially attractive product with a
twice-daily dosing schedule, Syntex developed a sustained release
formulation of ranolazine which we are using in our Phase III clinical
trials. To date, ranolazine has been tested in more than 2,100 patients and
volunteers in the United States and Europe.
Commercialization of Ranolazine
In May 1999, we entered into a sales and marketing alliance with
Innovex, Inc., a subsidiary of Quintiles Transnational Corp. Under this
agreement, if ranolazine is approved for sale in the United States by the
FDA, Innovex will hire and train a dedicated sales force for ranolazine,
fund product launch and the first five years of sales and marketing
expenses. We will receive 100% of the revenues of ranolazine, and we will
pay Innovex a share of those revenues that will not exceed 33% in the first
two years of sales that will decline to a maximum of 25% by the fourth and
fifth years. Further, in exchange for giving us the option to retain this
trained sales force at the end of the contract, Innovex will receive a
royalty on sales of 7% in the sixth and 4% in the seventh years after launch.
Innovex provides sales and marketing services to the pharmaceutical
industry worldwide. As of December 31, 1999, Innovex reported that it had
3,500 sales people in various United States pharmaceutical sales teams.
CVT-510
We are developing CVT-510 for the potential acute control of heart rate.
Atrial arrhythmias are abnormally rapid heart rates which include the
conditions of atrial fibrillation, atrial flutter and paroxysmal atrial
tachycardias. CVT-510 is an adenosine A1 agonist which may act selectively
on the conduction system of the heart to slow electrical impulses. CVT-510
may offer a new approach to rapid and sustained control of acute atrial
arrhythmias by reducing heart rate without lowering blood pressure. We are
currently conducting a Phase II trial of CVT-510 in the United States in
patients with atrial arrhythmias. To date, we have retained all development
and marketing rights for CVT-510.
Potential Indication Acute Heart Rate Control During Atrial Arrhythmias
Atrial arrhythmias occur when the atria of the heart beat rapidly, or
uncontrollably, sending multiple electrical impulses to the ventricles of
the heart. An excessive increase in ventricular rate reduces the heart's
cardiac output due to inadequate filling and emptying of the left ventricle.
Potentially damaging consequences include low blood pressure and damage to
the brain, heart and other vital organs. Thus, these arrhythmias can be
life-threatening and require rapid treatment. Because of the severity of
these conditions and the need to treat patients quickly, intravenous
therapies are typically used.
In the United States, atrial arrhythmias are involved in approximately
2.6 million hospital diagnoses annually. They are a major complication of
heart attacks, heart failure and cardiac surgery. The acute treatment of
atrial arrhythmias involves slowing the heart rate. Later, when the heart
rate is controlled, additional steps can be taken to reverse the abnormal
electrical activity in the atria which underlie these arrhythmias.
Current Approaches to Acute Heart Rate Control During Atrial Arrhythmias
Current medical therapies, which include digitalis, calcium channel
blockers, beta blockers and Adenocard, aim to slow the heart to a normal
rate but have significant limitations in the acute care setting. Digitalis
is effective in controlling heart rate, but requires a long time to take
effect. This can be dangerous in patients whose condition requires prompt
heart rate control to restore normal cardiac output. Calcium channel
blockers, beta blockers and Adenocard act quickly but are themselves
associated with reductions in blood pressure and depressed cardiac function.
These drugs could potentially exacerbate the condition of patients already
experiencing cardiac dysfunction as a complication of the arrhythmia.
Furthermore, the effect of Adenocard persists only for a few seconds, and as
a result, is not indicated for treatment in patients with atrial
fibrillation or flutter.
Cardiac Conduction System
During an atrial arrhythmia, the atria of the heart beat too rapidly,
sending excessive electrical impulses to the ventricles of the heart. These
electrical impulses are initiated at a set of specialized cells in the
atria, known as the sinus node, and then run to another set of specialized
cells known as the atrio- ventricular node. It is this AV node which
controls the transmission of the electrical impulses to the ventricles.
Since the rate at which electrical impulses pass through the AV node
determines ventricular heart rate, slowing AV nodal transmission will result
in a reduction in ventricular heart rate. Since ventricular rate is a
primary determinant of cardiac output, prompt slowing of rapid AV nodal
conduction is one treatment approach to slowing the abnormally rapid heart
rate of an atrial arrhythmia.
Potential Treatment by CVT-510
CVT-510 is designed to selectively stimulate the adenosine A1 receptor.
Stimulation of the adenosine A1 receptor in the AV node slows the speed of
electrical conduction across the AV node. Data from slowing of AV nodal
conduction, in turn, reduces the number of electrical impulses that reach
the ventricle. Stimulation of the
A2 receptor may lower blood pressure.
Since CVT-510 may selectively stimulate the adenosine A1 receptor without
significantly stimulating the adenosine A2 receptor, it may be possible to
intervene immediately in the arrhythmia process without the unwanted effect
of lowering blood pressure. CVT-510 may offer cardiac patients and
clinicians alternatives to current therapies available today that are either
relatively slow to act or reduce blood pressure.
CVT-510 Clinical Trial Status
In a Phase I, open-label, dose-escalation safety trial, designed to
measure the response to CVT-510 of electrical conduction through the AV
node, we identified apparently well tolerated doses of CVT-510 which also
appear to slow AV nodal conduction. In December 1999, we initiated a
multicenter, open label, dose escalation Phase II trial of CVT-510 in
patients with atrial arrhythmias.
ADENTRI(TM) PROGRAM
Patients with congestive heart failure, or CHF, have limited heart
pumping function, and the corresponding reduction in blood flow impairs the
kidneys' ability to clear fluid wastes from the body. Current therapies tend
to negatively impact other activities of the kidneys. Preclinical studies
and clinical trials indicate that adenosine A1 receptor antagonists may
increase the kidney's ability to clear fluid wastes without decreasing other
functions of the kidneys. Thus, we believe that adenosine A1 receptor
antagonists have the potential to be a new therapy for the treatment of CHF.
We licensed the rights to our adenosine A1 receptor antagonist
technology, patents and compounds, including CVT-124, to Biogen, Inc. in
March 1997. Collectively, Biogen's efforts in this area are referred to as
the Adentri(TM) program. As a result of the agreements we signed, Biogen has
an exclusive worldwide license to develop, manufacture and commercialize
CVT-124 and any other adenosine A1 receptor antagonists developed either by
Biogen or CVT which is based on our patents or our technology. As of
February 2000, we have received $20.5 million in payments from Biogen in
connection with the Adentri(TM) program consisting of cash, an equity
investment and funding under a loan facility. As long as Biogen retains its
license for our adenosine A1 receptor antagonist technology and patents,
Biogen is responsible for funding all development and commercialization
expenses related to these compounds. Moreover, we may receive additional
milestone payments upon clinical progress and royalties.
In February 2000, Biogen announced that it had successfully completed a
Phase II trial of CVT-124 in patients with moderate-to-severe CHF. However,
Biogen also announced its intention to continue the Adentri(TM) program with a
new molecule currently in preclinical studies. Biogen also announced that
it would make a milestone payment to CVT.
Potential Indication Congestive Heart Failure
CHF occurs when the heart muscle is weakened by disease so it cannot
adequately pump blood throughout the body. As a result of this pump failure,
fluid accumulates throughout the body, including in the lungs. This results
in shortness of breath. Fluid also accumulates in the body because of
adaptations by the kidneys during CHF.
Approximately 4.9 million people in the United States in 1998 suffered
from CHF, with an estimated 400,000 new cases each year. Approximately
875,000 patients in 1995 were hospitalized in the United States with a
primary diagnosis of CHF. CHF is the leading cause of hospital admissions
among patients over 65.
Current Approaches to Treating Congestive Heart Failure
Current treatment of CHF consists of therapy designed to improve the
pumping function of the heart combined with the administration of diuretics
to eliminate excess sodium and water from the body by blocking reabsorption
in the kidneys. However, current diuretic therapies such as furosemide,
thiazides and spironolactone become less effective over time as the disease
progresses. Approximately one quarter of hospitalized CHF patients are
resistant to current intravenous diuretic therapies. The dosage for the most
commonly prescribed diuretics for CHF are often increased as the disease
progresses, which can be associated with toxic side effects. One side effect
is potassium loss, which may lead to an increased incidence of cardiac
arrhythmias if potassium is not monitored and replaced. A second side effect
is a decline in kidney function.
Potential Treatment by Adenosine A1 Receptor Antagonists
An adenosine A1 receptor antagonist blocks the action of the adenosine
A1 receptors. Since the adenosine A1 receptor plays an important role in the
kidneys to cause the kidneys to retain sodium and fluids, blocking the
action of this receptor may reduce the amount of fluid that the kidneys retain.
Clinical Trial Experience
In Phase I and Phase II trials, CVT-124 appeared to be generally well
tolerated and produced increases in urine, sodium and chloride excretion
compared to placebo. This was observed both in healthy volunteers and in
moderately severe CHF patients. Moreover, trials to date indicate that
CVT-124 may be able to treat fluid overload without an associated reduction
in the filtration function of the kidneys. Furosemide, which is currently
the most commonly used treatment for fluid overload caused by CHF, has been
shown in prior trials to be associated with a reduction in the filtration
function of the kidneys. In February 2000, Biogen announced it had
successfully completed a placebo-controlled Phase II trial evaluating
various doses of CVT-124 in comparison to, and in combination with, the
diuretic, furosemide.
Program Status
In February 2000, Biogen announced its intention to continue the
Adentri(TM) program with a new molecule currently in preclinical studies.
Prior to initiating clinical studies with a new compound, Biogen will be
required to complete its preclinical studies and to submit an IND to the FDA.
PRECLINICAL PIPELINE
Our research and development team is creating new product opportunities
through our expertise in molecular cardiology. We have preclinical research
programs in the areas of:
* cardiac imaging
* cell cycle inhibition
* cardiac conduction
* cardiac metabolism
* Tangier disease.
Cardiac Imaging Program
The goal of our cardiac imaging program is to develop new drug
candidates that are useful in cardiac imaging studies. Cardiac imaging
studies play an integral part in the detection and characterization of
coronary artery disease. Images are obtained at rest and under stress
conditions, which are created either by exercise or by the application of a
pharmacological agent.
Based on our understanding of adenosine receptor pharmacology, we expect
that a selective, short-acting adenosine A2a receptor agonist may be an
ideal coronary stressing agent for use in cardiac imaging studies. We are
developing CVT-3146 as a short-acting selective adenosine A2a receptor
agonist. Preclinical studies have shown that CVT-3146 stimulates the
adenosine A2a receptor without lowering blood pressure.
Cell Cycle Inhibition Program
The goal of our cell cycle inhibition program is to develop new
therapeutics that suppress abnormal cellular proliferation. Excessive
proliferation of cardiovascular connective tissue cells or vascular smooth
muscle cells cause the scarring and loss of function that is characteristic
of chronic diseases of the heart, blood vessels and kidneys. As part of our
drug discovery strategy, we have focused upon newly-discovered enzymes,
called cell cycle enzymes, that regulate cellular proliferation.
CVT-2584 is a new compound that selectively inhibits CDK2, a critical
cell cycle enzyme which participates in the control of the cell cycle. CDK2
has a three dimensional structure that was first determined by our academic
collaborators. It is central to cellular proliferation, and we selected it
as our first target in the cell cycle inhibition program. Animal studies
have shown substantial reduction of blockages after vascular injury.
Cardiac Conduction Program
The goal of our cardiac conduction program is to develop new
therapeutics to manage the electrical conduction system in the heart.
Electrical impulses within the heart muscle play a key role in causing the
heart muscle to sequentially expand and then contract, which is required for
the heart to pump blood throughout the body in a controlled rhythm. Failure
of this electrical system to function properly will result in a poorly
pumping heart, such as in atrial arrhythmias.
We are developing CVT-2501 for potential treatment of chronic atrial
arrhythmias. Similar to CVT-510, which is targeting the acute atrial
arrhythmia market, CVT-2501 is a selective adenosine A1 agonist; however
CVT-2501 is targeting the chronic atrial arrhythmia market. We have
conducted preclinical studies indicating that CVT-2501, when given orally,
slowed electrical impulses in the conduction tissue of the heart by
stimulating the adenosine A1 receptor.
Cardiac Metabolism Program
The goals of our cardiac metabolism program are to further characterize
the therapeutic potential of ranolazine in the treatment of indications
other than angina, and to discover new, proprietary second generation
ranolazine products. Ranolazine's mechanism of action, pFOX inhibition,
provides an opportunity for us to examine its possible role in
cardio-protection and its ability to increase the mechanical performance of
the heart.
CVT-2511 is one of several compounds that may be more potent than
ranolazine in its inhibition of fatty acid oxidation. We are evaluating a
series of compounds, including CVT-2511, for their pharmacological and
pharmaceutical properties.
Tangier Drug Discovery Program
The goal of our Tangier drug discovery program is to study the ways in
which excess cholesterol is removed from the walls of blood vessels, in an
effort to prevent or reverse the buildup of arterial plaques that cause
heart attacks. Roughly half of heart attacks occur in patients with low
levels of high density lipoproteins, known as the "good" form of
cholesterol, or HDL. Patients with the genetic disorder called Tangier
disease have virtually no HDL in their blood, and are at a greatly increased
risk for developing cardiovascular disease. CVT scientists have recently
used a new strategy combining gene expression microarrays, from our partner
Incyte, and biochemical techniques to identify the gene that is defective in
patients with Tangier disease. Having identified the gene that is
responsible for the genetic disorder in Tangier disease patients, we are now
targeting this gene as part of a drug discovery program to identify means to
increase HDL.
COLLABORATIONS AND LICENSES
We have established, and intend to establish, strategic partnerships to
expedite development and commercialization of our drug candidates. For those
programs with potential application outside of cardiovascular disease, we
intend to identify additional corporate partners. In addition, we have
licensed chemical compounds from academic collaborators and other companies.
Our collaborations and licenses currently in effect include:
Innovex
In May 1999, we entered into a sales and marketing services agreement
with Innovex. Under this agreement, if ranolazine is approved for sale in
the United States by the FDA, Innovex will fund product launch and the first
five years of sales and marketing expenses. We will receive 100% of the
revenues from sales of ranolazine, and we will pay Innovex a share of those
revenues.
The agreement calls for Innovex to conduct pre-launch activities, hire
and train a dedicated cardiology sales force to launch and promote
ranolazine, and provide post-launch marketing and sales services. To fund
pre-launch activities, Quintiles will provide us with a $10 million credit
facility at the time we file with the FDA for approval. We are required to
spend a minimum of $10 million on ranolazine pre-launch marketing activities
so long as Quintiles provides advances under the credit facility. Upon FDA
approval, Quintiles will make a $10 million milestone payment to us, which
we are obligated to use to repay any amounts outstanding under the credit
facility. Should we file for approval and draw down the credit facility, but
never receive FDA approval, we are obligated to repay the loan within 10
years of the date we received the loan.
Innovex has agreed to provide services for at least three years after
launch and to provide services in years four and five after launch if
minimum sales levels are met. The agreement also specifies the minimum
number of sales representatives and the minimum level of dollars to be spent
on marketing by Innovex during the first two years of the contract,
regardless of sales levels. The minimum size of the sales force and the
marketing expenses in year three or any subsequent year must be maintained
by Innovex as long as minimum sales levels are met.
In exchange for providing these sales and marketing services, Innovex
will receive up to an average of 33% of revenues in the first two years of
sales, declining to 30% for the third year and declining again to 25% in
years four and five. Further, in exchange for giving us the option to retain
this trained sales force at the end of the contract, Innovex will receive a
royalty on sales of 7% in the sixth and 4% in the seventh years after launch.
In connection with the agreement, Quintiles purchased 1,043,705 shares
of our common stock for a total purchase price of $5.0 million.
Biogen
In March 1997, we entered into two research collaboration and license
agreements with Biogen. The agreements grant Biogen the exclusive worldwide
right to develop and commercialize any products which are produced based on
our adenosine A1 receptor antagonist patents or technologies, including
CVT-124, for all indications. In exchange, we received a $16.0 million
payment consisting of cash, an equity investment and funding under a loan
facility. In addition, Biogen agreed to make significant milestone payments
and equity investments and provide a general purpose loan facility, all of
which are subject to achievement of clinical development and
commercialization milestones. In December 1998, Biogen released an
additional $4.5 million under the loan facility. Based on results of a
recently completed Phase II clinical trial, Biogen announced its intention
to proceed with the program, but with a backup compound, and that it will
make a milestone payment to us. Biogen will also pay royalties on any future
sales of products covered by the agreement. Biogen has control and
responsibility for conducting, funding and pursuing all aspects of the
development, submissions for regulatory approvals, manufacture and
commercialization of adenosine A1 receptor antagonist.
In connection with the agreements, Biogen purchased 669,857 shares of
common stock for a total purchase price of $7.0 million. In addition, we
received advance funding of a milestone payment covered by our technology.
Biogen may terminate the agreements for any reason upon 60 days written
notice. If Biogen terminates the agreements, all rights to the technology
will revert to us, and we will pay Biogen a small royalty on future sales of
CVT-124 or any other adenosine A1 receptor antagonist.
Incyte
In July 1998, we entered into a joint research collaboration agreement
with Incyte Pharmaceuticals, Inc. to develop a prototype gene expression
database in the area of cardiovascular biology. We will contribute our
molecular cardiology expertise and Incyte will contribute its genomics
capabilities. Incyte will own the data produced, and we will receive a
perpetual, non-exclusive license to use the data in our drug development
efforts. Each party will bear its own costs of the research.
Syntex
In March 1996, we entered into a license agreement with Syntex (U.S.A.),
Inc. to obtain United States and foreign patent rights to ranolazine for the
treatment of angina and other cardiovascular indications. Pursuant to the
agreement, Syntex provided quantities of the compound to us. The license
agreement is exclusive and worldwide except for the following countries
which Syntex licensed exclusively to Kissei Pharmaceuticals, Ltd. of Japan:
Japan, Korea, China, Taiwan, Hong Kong, the Philippines, Indonesia,
Singapore, Thailand, Malaysia, Vietnam, Myanmar, Laos, Cambodia and Brunei.
Under the license agreement, we paid an initial license fee. In
addition, we are obligated to make payments upon product approvals in the
first two major markets, but in no event later than March 31, 2005 and March
31, 2006, respectively. In addition, we will make royalty payments based on
net sales of products that utilize the licensed technology. We are required
to use commercially reasonable efforts to develop and commercialize the
product for angina. We paid $1.5 million to Syntex in 1997 in a combination
of cash and common stock.
University of Florida Research Foundation
In June 1994, we entered into a license agreement with the University of
Florida Research Foundation, Inc. ("UFRFI") under which we received
exclusive worldwide rights to develop adenosine A1 receptor antagonists for
the detection, prevention and treatment of human and animal diseases. In
consideration for the license, we paid an initial license fee and are
obligated to pay royalties based on net sales of products that utilize the
licensed
technology. CVT-124 uses this technology. Under the agreement, we
must exercise commercially reasonable efforts to develop and commercialize
one or more products covered by the licensed technology. In the event we
fail to reach certain milestones under the agreement, UFRFI may convert the
exclusive license into a non-exclusive license.
MARKETING AND SALES
Except for our sales and marketing services agreement with Innovex, we
currently have no sales or distribution capabilities, and have only very
limited marketing capabilities. We may promote our products in collaboration
with marketing partners or rely on relationships with one or more companies
with established distribution systems and direct sales forces. For example,
Innovex will provide sales and marketing for ranolazine in the United
States. For our other products, and for ranolazine at the end of the term of
our agreement with Innovex, we may elect to establish our own specialized
sales force and marketing organization to market our products to cardiologists.
MANUFACTURING
We do not currently operate manufacturing facilities for clinical or
commercial production of our proposed products. We have no experience in
manufacturing, and currently lack the resources and capability to
manufacture any of our proposed products on a clinical or commercial scale.
Accordingly, we are, and will continue to be, dependent on corporate
partners, licensees or other third parties for clinical and commercial scale
manufacturing. We are negotiating with third party manufacturers for
production of ranolazine to support the remainder of the Phase III clinical
program, product approval and commercialization.
We do have experience in the transfer of synthetic technology from
discovery to scale-up manufacturing facilities, having successfully executed
technology transfer for the manufacture of clinical supplies of one orally
administered agent and one intravenously administered agent. In addition,
prior to approval of an NDA for ranolazine, we will be required to
demonstrate to the FDA's satisfaction the equivalence of the multiple
sources of supply used in our clinical trials and their equivalence to the
product to be commercially supplied.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to our business. Our
policy is to file patent applications and to protect technology, inventions
and improvements to inventions that are commercially important to the
development of our business. The evaluation of the patentability of United
States and foreign patent applications can take several years to complete
and can entail considerable expense.
We own several issued United States patents and pending United States
and foreign patent applications relating to our technology, including
patents related to our clinical programs, ranolazine and CVT-510. A primary
patent relating to ranolazine will expire in May 2003 unless we are granted
an extension based upon the Waxman-Hatch Act, which we anticipate would
extend the patent protection for an additional five years.
In addition, we have acquired, and in turn have granted to Biogen, an
exclusive license to two United States issued patents, one United States
pending application and corresponding foreign applications related to
CVT-124. We also have acquired a license, which is exclusive in specified
territories, to four United States issued patents, and corresponding foreign
patents and patent applications related to ranolazine.
GOVERNMENT REGULATION
FDA Requirements for Drug Compounds. The research, testing, manufacture
and marketing of drug products are extensively regulated by numerous
governmental authorities in the United States and other countries. In the
United States, drugs are subject to rigorous regulation by the FDA. The
Federal Food, Drug and Cosmetic Act,
and other federal and state statutes
and regulations, govern, among other things, the research, development,
testing, manufacture, storage, recordkeeping, labeling, promotion and
marketing and distribution of pharmaceutical products. Failure to comply
with applicable regulatory requirements may subject a company to
administrative or judicially imposed sanctions such as:
* warning letters
* civil penalties
* criminal prosecution
* injunctions
* product seizure
* product recalls
* total or partial suspension of production
* FDA refusal to approve pending NDA applications or NDA
supplements to approved applications.
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include:
* preclinical laboratory tests, animal tests and formulation studies
* the submission to the FDA of an IND, which must become effective
before clinical testing may commence
* adequate and well-controlled clinical trials to establish the
safety and effectiveness of the drug for each indication
* the submission of an NDA to the FDA
* FDA review and approval of the NDA prior to any commercial sale
or shipment of the drug.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal trials to assess the potential safety and
efficacy of the product. Preclinical tests must be conducted in compliance
with Good Laboratory Practice regulations and compounds for clinical use
must be formulated according to cGMP requirements. The results of
preclinical testing are submitted to the FDA as part of an IND.
A 30-day waiting period after the filing of each IND is required prior
to the commencement of clinical testing in humans. If the FDA has not
commented on or questioned the IND within this 30-day period, clinical
trials may begin. If the FDA has comments or questions, the questions must
be answered to the satisfaction of the FDA before initial clinical testing
can begin. In addition, the FDA may, at any time, impose a clinical hold on
ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials
cannot commence or recommence without FDA authorization and then only under
terms authorized by the FDA. In some instances, the IND application process
can result in substantial delay and expense.
Clinical trials involve the administration of the investigational new
drug to healthy volunteers or patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
Good Clinical Practice, under protocols detailing the objectives of the
trial, the parameters to be used in monitoring
safety and the effectiveness
criteria to be evaluated. Each protocol must be submitted to the FDA as part
of the IND. The study protocol and informed consent information for patients
in clinical trials must also be approved by the institutional review board
at each institution where the trials will be conducted.
Clinical trials to support NDAs are typically conducted in three
sequential phases, but the phases may overlap. In Phase I, the initial
introduction of the drug into healthy human subjects or patients, the drug
is tested to assess metabolism, pharmacokinetics and pharmacological actions
and safety, including side effects associated with increasing doses. Phase
II usually involves trials in a limited patient population to:
* determine dosage tolerance and optimal dosage
* identify possible adverse effects and safety risks
* preliminarily support the efficacy of the drug in specific,
targeted indications.
If a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical trial sites. There
can be no assurance that Phase I, Phase II or Phase III testing of our
product candidates will be completed successfully within any specified time
period, if at all.
After completion of the required clinical testing, generally an NDA is
prepared and submitted to the FDA. FDA approval of the NDA is required
before marketing may begin in the United States. The NDA must include the
results of extensive clinical and other testing and the compilation of data
relating to the product's chemistry, pharmacology and manufacture. The cost
of the NDA is substantial.
The FDA has 60 days from its receipt of the NDA to determine whether the
application will be accepted for filing based on the agency's threshold
determination that the NDA is sufficiently complete to permit substantive
review. Once the submission is accepted for filing, the FDA begins an
in-depth review of the NDA. Under the FDC Act, the FDA has 180 days in which
to review the NDA and respond to the applicant. The review process is often
significantly extended by FDA requests for additional information or
clarification regarding information already provided in the submission. The
FDA typically will refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is
not bound by the recommendation of an advisory committee.
If FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue an approval letter, or, in some cases, an
approvable letter followed by an approval letter. Both letters usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA's
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As a
condition of NDA approval, the FDA may require postmarketing testing and
surveillance to monitor the drug's safety or efficacy, or impose other
conditions.
If the FDA's evaluation of the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue
a not approvable letter. The not approvable letter outlines the deficiencies
in the submission and often requires additional testing or information.
Notwithstanding the submission of any requested additional data or
information in response to an approvable or not approvable letter, the FDA
ultimately may decide that the application does not satisfy the regulatory
criteria for approval. Once granted, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or problems occur
following initial marketing.
Manufacturing. Each domestic drug manufacturing facility must be
registered with FDA. Domestic drug manufacturing establishments are subject
to periodic inspection by the FDA and must comply with cGMP. Further, we or
our third party manufacturer must pass a preapproval inspection of its
manufacturing facilities by the FDA before obtaining marketing approval of
any products. To supply products for use in the United States, foreign
manufacturing establishments must comply with cGMP and are subject to
periodic inspection by the FDA or corresponding regulatory agencies in
countries under reciprocal agreements with the FDA. Drug product
manufacturing establishments located in California must be licensed by the
State of California in compliance with local regulatory requirements, and
other states may have comparable regulations. We use and will continue to
use third party manufacturers to produce our products in clinical and
commercial quantities. There can be no guarantee that future FDA inspections
will proceed without any compliance issues requiring the expenditure of
money or other resources.
Foreign Regulation of Drug Compounds. Whether or not FDA approval has
been obtained, approval of a product by comparable regulatory authorities
may be necessary in foreign countries prior to the commencement of marketing
of the product in those countries. The approval procedure varies among
countries and can involve additional testing. The time required may differ
from that required for FDA approval. Although there are some procedures for
unified filings for some European countries with the sponsorship of the
country which first granted marketing approval, in general each country has
its own procedures and requirements, many of which are time consuming and
expensive. Thus, there can be substantial delays in obtaining required
approvals from foreign regulatory authorities after the relevant
applications are filed.
In Europe, marketing authorizations may be submitted at a centralized, a
decentralized or a national level. The centralized procedure is mandatory
for the approval of biotechnology products and provides for the grant of a
single marketing authorization which is valid in all European Union member
states. As of January 1995, a mutual recognition procedure is available at
the request of the applicant for all medicinal products which are not
subject to the centralized procedure. We will choose the appropriate route
of European regulatory filing to accomplish the most rapid regulatory
approvals. There can be no assurance that the chosen regulatory strategy
will secure regulatory approvals on a timely basis or at all.
Hazardous Materials. Our research and development processes involve the
controlled use of hazardous materials, chemicals and radioactive materials
and produce waste products. We are subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and
disposal of hazardous materials and waste products. Although we believe that
our safety procedures for handling and disposing of hazardous materials
comply with the standards prescribed by laws and regulations, the risk of
accidental contamination or injury from these materials cannot be eliminated
completely. In the event of an accident, we could be held liable for any
damages that result. This liability could exceed our resources. Although we
believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will
not be required to incur significant costs to comply with environmental laws
and regulations in the future. There can also be no assurance that our
operations, business or assets will not be materially adversely affected by
current or future environmental laws or regulations.
COMPETITION
The pharmaceutical and biopharmaceutical industries are subject to
intense competition and rapid and significant technological change. If
regulatory approvals are received, ranolazine may compete with several
classes of existing drugs for the treatment of angina, some of which are
available in generic form, including calcium channel blockers, beta blockers
and nitrates. There are also surgical treatments such as coronary artery
bypass grafting and percutaneous transluminal coronary angioplasty. However,
for those patients who do not respond adequately to existing therapies and
remain symptomatic despite maximal treatment with existing anti-anginal
drugs and who are not candidates for these surgical procedures, there is no
currently effective treatment. In refractory patients who are candidates for
these surgical procedures, there is no effective pharmacologic treatment
available. We are aware of companies which are developing products that may
compete with our other
drug candidates. For example, Kyowa Hakko Co., Ltd.,
Fujisawa Pharmaceutical, Japan and Discovery Therapeutics, Inc., are each
developing adenosine A1 receptor antagonists which could compete with
Adentri(TM). In addition, Novartis AG, GlaxoWellcome PLC, Discovery
Therapeutics and Medco Research, Inc. have adenosine A1 receptor agonists
under development which could compete with CVT-510.
We believe that the principal competitive factors in the markets for
ranolazine and CVT-510 will include:
* the length of time to receive regulatory approval
* product performance
* product price
* product supply
* marketing and sales capability
* enforceability of patent and other proprietary rights.
We believe that we and our collaborative partners are or will be
competitive with respect to these factors. Nonetheless, because our products
are still under development, our relative competitive position in the future
is difficult to predict.
RISK FACTORS
In this section, we summarize certain risks regarding our business and
industry. These risks are discussed in greater detail, and are discussed in
context, in other sections of this report.
OUR PRODUCT CANDIDATES WILL TAKE AT LEAST SEVERAL YEARS TO DEVELOP, AND
WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY DEVELOP, MARKET AND
MANUFACTURE THESE PRODUCTS.
Since our inception in 1990, we have dedicated substantially all of our
resources to research and development. We do not have any marketed products
and we have not generated any product revenue. Because all of our potential
products are in research, preclinical or clinical development, we will not
realize product revenues for at least several years, if at all.
We have not applied for or received regulatory approval in the United
States or any foreign jurisdiction for the commercial sale of any of our
products. All of our product candidates are either in clinical trials under
an Investigational New Drug, or IND, or applicable foreign authority
submission, or are in preclinical research and development. We have not
submitted an NDA to the FDA or equivalent application to any other foreign
regulatory authorities for any of our product candidates, and the products
have not been determined to be safe or effective in humans for their
intended uses.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of
any products, we must demonstrate through preclinical testing and clinical
trials that our product candidates are safe and effective for use in humans.
We will incur substantial expense for, and devote a significant amount of
time to, preclinical testing and clinical trials.
Drug discovery methods based upon molecular cardiology are relatively
new. We cannot be certain that these methods will lead to commercially
viable pharmaceutical products. In addition, some of our compounds within
our cardiac imaging, cell cycle inhibition, cardiac conduction, cardiac
metabolism and Tangier drug discovery programs are in the early stages of
research and development, and we have not submitted IND applications or
commenced clinical trials for these new compounds. We cannot be certain when
these clinical trials will commence, if at all. Because these compounds are
in the early stages of product development, we could abandon further
development efforts before they reach clinical trials.
We cannot be certain that any of our product development efforts will be
successfully completed or that any of our products will be shown to be safe
and effective. Even if we believe that any product is safe and effective, we
may not obtain the required regulatory approvals. Furthermore, we may not be
able to manufacture our products in commercial quantities or market any
products successfully.
IF WE ARE UNABLE TO SATISFY THE REGULATORY REQUIREMENTS FOR OUR CLINICAL
TRIALS, WE WILL NOT BE ABLE TO COMMERCIALIZE OUR DRUG CANDIDATES.
All of our products may require additional development, preclinical
studies, clinical trials and regulatory approval prior to commercialization.
Any delays in our clinical trials would delay market launch and would
increase our cash requirements.
We currently have only two products in clinical development: ranolazine
and CVT-510. Many factors could delay completion of our clinical trials,
including:
* slower than anticipated patient enrollment
* difficulty in obtaining sufficient supplies of clinical trial
materials
* adverse events occurring during the clinical trials.
For example, our first Phase III clinical trial of ranolazine had
challenging enrollment criteria. These criteria required patients who suffer
from angina to stop taking all of their other anti-anginal medications and
receive only placebo during segments of the clinical trial. This meant that
they received no medication to treat their angina when they received
placebo. Given the difficulty of identifying patients willing to completely
stop taking anti-anginal medications, enrollment for this trial was slower
than anticipated. We cannot assure you that enrollment for the second Phase
III trial for ranolazine will not also be delayed.
In addition, data obtained from preclinical and clinical activities are
susceptible to different interpretations, which could delay, limit or
prevent regulatory approval. Delays or rejections may be based upon many
factors, including changes in regulatory policy during the period of product
development. For example, the initial clinical trials with ranolazine used a
different formulation of ranolazine than we used in the MARISA trials and
than we are using in the CARISA trial. This means that the NDA will contain
data from trials using two different formulations and is subject to
interpretation by the FDA. An unfavorable interpretation could result in
actions by the FDA that would delay potential approval. We may be unable to
maintain our proposed schedules for IND applications and clinical protocol
submissions to the FDA, initiations of clinical trials and completions of
clinical trials as a result of FDA reviews or complications that may arise
in any phase of the clinical trial program.
Furthermore, even if our clinical trials occur on schedule, the results
may differ from those obtained in preclinical studies and earlier clinical
trials. Clinical trials may not demonstrate sufficient safety and efficacy
to obtain the necessary approvals. For example, in November 1995, based on
unfavorable efficacy data from a Phase II trial, we terminated a prior
development program.
IF WE ARE UNABLE TO SATISFY GOVERNMENTAL REGULATIONS RELATING TO THE
DEVELOPMENT OF OUR DRUG CANDIDATES, WE MAY BE UNABLE TO OBTAIN NECESSARY
REGULATORY APPROVALS TO COMMERCIALIZE OUR PRODUCTS.
The research, testing, manufacturing and marketing of drug products are
subject to extensive regulation by numerous regulatory authorities in the
United States and other countries. Failure to comply with FDA or other
applicable regulatory requirements may subject a company to administrative
or judicially imposed sanctions. These include:
* warning letters
* civil penalties
* criminal penalties
* injunctions
* product seizure or detention
* product recalls
* total or partial suspension of production
* FDA refusal to approve pending NDAs or supplements to approved
NDAs.
The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, often takes many years and can vary
substantially based upon the type, complexity and novelty of the products
involved. Furthermore, this approval process is extremely expensive and
uncertain. We cannot guarantee that any of our products under development
will be approved for marketing by the FDA. Even if regulatory approval of a
product is granted, we cannot be certain that we will be able to obtain the
labeling claims necessary or desirable for the promotion of those products.
Even if we obtain regulatory approval, we may be required to undertake
postmarketing trials. In addition, identification of side effects after a
drug is on the market or the occurrence of manufacturing problems could
cause subsequent withdrawal of approval, reformulation of the drug,
additional preclinical testing or clinical trials, changes in labeling of
the product, and additional marketing applications.
If we receive regulatory approval, we will also be subject to ongoing
FDA obligations and continued regulatory review. In particular, we or our
third party manufacturers will be required to adhere to regulations setting
forth current good manufacturing practices, known as cGMP. The regulations
require that we manufacture our products and maintain our records in a
prescribed manner with respect to manufacturing, testing and quality control
activities. Furthermore, we or our third party manufacturers must pass a
preapproval inspection of manufacturing facilities by the FDA before
obtaining marketing approval. We will also be subject to ongoing FDA
requirements for submission of safety reports and other postmarket
information.
If we receive regulatory approval and if any of our products or services
become reimbursable by a government health care program, such as Medicare or
Medicaid, we may become subject to certain federal and state health care
fraud and abuse and reimbursement laws. These laws include the federal
"Anti-Kickback Statute," "False Claims Act," and "Physician Self-Referral
Law," and their state counterparts. If and when we become subject to such
laws, our arrangements with third parties, including health care providers,
physicians, vendors, and Innovex, will need to comply with these laws as
applicable. We do not know whether our existing or future arrangements will
be found to be compliant. Violations of these statutes could result in
criminal and civil penalties and exclusion from governmental health care
programs.
OUR PRODUCTS, EVEN IF APPROVED BY THE FDA OR FOREIGN REGULATORY
AGENCIES, MAY NOT BE ACCEPTED BY PHYSICIANS, INSURERS OR PATIENTS.
If any of our products after receiving FDA or other foreign regulatory
approval fail to achieve market acceptance, our ability to become profitable
in the future will be adversely affected. We believe that market acceptance
will depend on our ability to provide acceptable evidence of safety,
efficacy and cost effectiveness. In addition, we believe market acceptance
depends on the effectiveness of our marketing strategy and the availability
of reimbursement for our products.
WE HAVE NO MARKETING OR SALES EXPERIENCE, AND IF WE ARE UNABLE TO ENTER
INTO COLLABORATIONS WITH MARKETING PARTNERS OR IF WE ARE UNABLE TO DEVELOP
OUR OWN SALES AND MARKETING CAPABILITY, WE MAY NOT BE SUCCESSFUL IN
COMMERCIALIZING OUR PRODUCTS.
We currently have no sales, marketing or distribution capability. As a
result, we depend on collaborations with third parties, such as Innovex and
Biogen, which have established distribution systems and direct sales forces.
In particular, we have entered into a sales and marketing services agreement
with Innovex with respect to ranolazine. Innovex will market and sell
ranolazine in the United States using a dedicated sales force if and when
FDA approval to market ranolazine has been granted. Commercialization of
ranolazine depends on Innovex to perform their contractual obligations.
Their failure to do so would adversely affect commercialization of
ranolazine. To the extent that we enter into co-promotion or other licensing
arrangements, our revenues will depend upon the efforts of third parties,
over which we may have little control. In addition, Biogen is responsible
for establishing marketing and sales activities for any product that results
from the Adentri(TM) program.
If we are unable to reach and maintain agreement with one or more
pharmaceutical companies or collaborative partners, we may be required to
market our products directly. We may elect to establish our own specialized
sales force and marketing organization to market our products to
cardiologists. In order to do this, we would have to develop a marketing and
sales force with technical expertise and with supporting distribution
capability. Developing a marketing and sales force is expensive and time
consuming and could delay any product launch. We cannot be certain that we
will be able to develop this capacity.
OUR BUSINESS DEPENDS ON ATTRACTING AND RETAINING COLLABORATORS AND
LICENSORS.
We may not be able to retain current or attract new corporate and
academic collaborators, licensors, licensees and others. Our business
strategy requires us to enter into various arrangements with these parties,
and we are dependent upon the success of these parties in performing their
obligations. If we fail to obtain and maintain these arrangements, the
development of our products would be delayed. We may be unable to proceed
with the development, manufacture or sale of products or we might have to
fund development of a particular product candidate internally. If we have to
fund development and commercialization of all of our products internally,
our future capital requirements will increase substantially.
The collaborative arrangements that we may enter into in the future may
place responsibility on the collaborative partner for preclinical testing
and clinical trials, manufacturing and preparation and submission of
applications for regulatory approval of potential pharmaceutical products.
We cannot control the amount and timing of resources which our collaborative
partners devote to our programs. If a collaborative partner fails to
successfully develop or commercialize any product, product launch would be
delayed. In addition, collaborators may pursue competing technologies or
product candidates.
Under our collaborative arrangements, we may also have to meet
performance milestones. If we fail to meet our obligations under our
collaborative arrangements, our collaborators could terminate their
arrangements or we could lose rights to the compounds under development. For
example, under our agreement with Innovex, we are required to launch the
product by a specific date. If we fail to reach this milestone, Innovex will
no longer be obligated to provide sales and marketing services for
ranolazine. Under our agreement with Biogen, in order for
us to receive
development milestone payments, Biogen must meet development milestones.
Under our license agreement with Syntex U.S.A., Inc., a subsidiary of Roche,
for ranolazine, we are required to make milestone payments to Syntex
following FDA approval of ranolazine and following regulatory approval of
ranolazine in Europe. These payments are due no later than March 31, 2005
and March 31, 2006, respectively.
In addition, collaborative arrangements in our industry are extremely
complex, particularly with respect to intellectual property rights. Disputes
may arise in the future with respect to the ownership of rights to any
technology developed with or by third parties. These and other possible
disagreements between us and our collaborators could lead to delays in the
collaborative research, development or commercialization of product
candidates. These disputes could also result in litigation or arbitration,
which is time consuming and expensive.
WE EXPECT TO CONTINUE TO OPERATE AT A LOSS AND MAY NEVER ACHIEVE
PROFITABILITY.
We cannot be certain that we will ever achieve and sustain
profitability. Since our inception, we have been engaged in research and
development activities. We have generated no product revenues. As of
December 31, 1999, we had an accumulated deficit of $92.7 million. The
process of developing our products requires significant additional research
and development, preclinical testing and clinical trials, as well as
regulatory approvals. These activities, together with our general and
administrative expenses, are expected to result in operating losses for the
foreseeable future.
WE MUST SECURE ADDITIONAL FINANCING TO MEET OUR FUTURE NEEDS.
We may require additional funding in order to complete our research and
development activities and commercialize any products. In the past, we have
financed our operations primarily through the sale of equity securities,
payments from our collaborators, equipment and leasehold improvement
financing and other debt financing. We have generated no product revenue,
and none is expected for at least several years. We anticipate that our
existing resources and projected interest income will enable us to maintain
our current and planned operations for at least the next 24 months. However,
we may require additional funding prior to that time.
Additional financing may not be available on acceptable terms or at all.
If we are unable to raise additional funds, we may:
* have to delay, scale back or eliminate some or all of our
research or development programs
* lose rights under existing licenses
* have to relinquish more of, or all of, our rights to product
candidates at an earlier stage of development or on less
favorable terms than we would otherwise seek
* be unable to operate as a going concern.
Our future capital requirements will depend on many factors, including:
* scientific progress in our research and development programs
* the size and complexity of our programs
* the timing, scope and results of preclinical studies and
clinical trials
* our ability to establish and maintain corporate partnerships
* 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 cost of manufacturing or obtaining preclinical and clinical
material.
There may be additional factors that could affect our need for
additional financing. Many of these factors are not within our control.
INABILITY TO COMPETE SUCCESSFULLY IN OUR MARKET WILL HARM OUR BUSINESS.
The pharmaceutical and biopharmaceutical industries, and the market for
cardiovascular drugs in particular, are intensely competitive. If regulatory
approvals are received, some of our products will compete with
well-established, proprietary and generic cardiovascular therapies that have
generated substantial sales over a number of years. Many of these therapies
are reimbursed from government health administration authorities and private
health insurers.
In addition, we are aware of companies which are developing products
that may compete in the same markets as our products. Many of these
potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and sales resources. Other
companies may succeed in developing products earlier or obtain approvals
from the FDA more rapidly than either we or our corporate partners are able
to achieve. Competitors may also develop products that are safer or more
effective than those under development or proposed to be developed by us and
our corporate partners. In addition, research and development by others
could render our technology or our products obsolete or non-competitive.
WE MAY BE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY.
Our success will depend to a significant degree on our ability to:
* obtain patents and licenses to patent rights
* maintain trade secrets
* operate without infringing on the proprietary rights of others.
We cannot be certain that patents will issue from any of our pending or
future patent applications, that any issued patent will be sufficient to
protect our technology or that we will be able to obtain extensions of
patents beyond the initial term. For example, a primary patent relating to
ranolazine will expire in May 2003 unless we are granted an extension based
upon the Waxman-Hatch Act, which we anticipate would extend the patent
protection for an additional five years.
Patent applications in the United States are maintained in secrecy until
a patent issues. As a result, we can never be certain that others have not
filed patent applications for technology covered by our pending applications
or that we were the first to invent the technology. There may be third party
patents, patent applications and other intellectual property relevant to our
products and technology which are not known to us and that block or compete
with our compounds, products or processes.
Competitors may have filed applications for, or may have received
patents and may obtain additional patents and proprietary rights relating
to, compounds, products or processes that block or compete with ours. We may
have to participate in interference proceedings declared by the Patent and
Trademark Office. These proceedings determine the priority of invention and,
thus, the right to a patent for the technology in the United States. In
addition, litigation may be necessary to enforce any patents issued to us or
to determine the scope and validity of
the proprietary rights of third
parties. Litigation and interference proceedings, even if they are
successful, are expensive to pursue, and we could use a substantial amount
of our limited financial resources in either case.
Just as it is important to protect our proprietary rights, we also must
not infringe patents issued to competitors and not breach the licenses that
might cover technology used in our potential products. If our competitors
own or have rights to technology that we need in our product development
efforts, we will need to obtain a license to those rights. If we fail to
obtain any necessary licenses, we may be unable to complete product
development.
We also rely on trade secrets to develop and maintain our competitive
position. Although we protect our proprietary technology in part by
confidentiality agreements with employees, consultants, collaborators,
advisors and corporate partners, these agreements may be breached. We cannot
assure you that these agreements will provide this meaningful protection or
adequate remedies in the event of unauthorized use or disclosure of this
information. We also cannot assure you that the parties to these agreements
will not breach them. In that event, we may not have adequate remedies for
any breach. As a result, third parties may gain access to our trade secrets,
and third parties may disclose our trade secrets and confidential technology
to the public. In addition, it is possible that our trade secrets will
otherwise become known or be discovered independently by our competitors.
Patent litigation is becoming more widespread in the biopharmaceutical
industry. Although no third party has asserted a claim of infringement
against us, we cannot assure you that third parties will not assert patent
or other intellectual property infringement claims against us with respect
to our products or technology or other matters. If they do, we may not
prevail and we may not be able to obtain any necessary licenses on
reasonable terms, if at all. Any such claims against us, with or without
merit, as well as claims initiated by us against third parties, can be
time-consuming and expensive to defend or prosecute.
WE HAVE NO MANUFACTURING EXPERIENCE AND WILL DEPEND ON THIRD PARTIES TO
MANUFACTURE OUR PRODUCTS.
We do not currently operate manufacturing facilities for clinical or
commercial production of our products under development. We have no
experience in manufacturing, and we currently lack the resources or
capability to manufacture any of our products on a clinical or commercial
scale. As a result, we are dependent on corporate partners, licensees or
other third parties for the manufacturing of clinical and commercial scale
quantities of our products.
For example, we have entered into an agreement with a third party
manufacturer for clinical scale production of an amount of ranolazine's
active pharmaceutical ingredient that we believe will be sufficient to
support the remainder of the Phase III clinical program. We cannot be
certain that we will be able to enter into an agreement for the commercial
scale manufacture of the active ingredient in ranolazine. If we are unable
to do so, our Phase III trials of ranolazine will be delayed. We have
entered into an agreement with a third party manufacturer for clinical scale
production of ranolazine tablets sufficient to support the remainder of the
Phase III clinical program and are negotiating with them for registration
and commercialization supply of ranolazine tablets. If we are unable to
negotiate an agreement to supply ranolazine tablets for registration and
commercialization, commercial launch of ranolazine may be delayed. In
addition, because we have used various manufacturers for ranolazine in
different clinical trials prior to FDA approval of ranolazine, we will be
required to demonstrate to the FDA's satisfaction the bioequivalence of the
multiple sources of ranolazine used in our clinical trials and their
bioequivalence to the product to be commercially supplied.
FAILURE TO OBTAIN ADEQUATE REIMBURSEMENT FROM GOVERNMENT HEALTH
ADMINISTRATION AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER ORGANIZATIONS
COULD MATERIALLY ADVERSELY AFFECT OUR FUTURE BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
Our ability and the ability of our existing and future corporate
partners to market and sell our products will depend in part on the extent
to which reimbursement for the cost of our products and related treatments
will be
available from government health administration authorities, private
health insurers and other organizations. Third party payors are increasingly
challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products. In addition, for sales of our products in
Europe, we will be required to seek reimbursement on a country-by-country
basis. We cannot be certain that any products approved for marketing will be
considered cost effective or that reimbursement will be available or that
allowed reimbursement in foreign countries will be adequate. In addition,
payors' reimbursement policies could adversely affect our or any corporate
partner's ability to sell our products on a profitable basis.
OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS, WHICH COULD SUBJECT US TO
SIGNIFICANT LIABILITY.
Our research and development activities involve the controlled use of
hazardous materials, including hazardous chemicals, radioactive materials
and pathogens. Accordingly, we are subject to federal, state and local laws
governing the use, handling and disposal of these materials. We may incur
significant costs to comply with additional environmental and health and
safety regulations in the future. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with
regulatory requirements, we cannot eliminate the risk of accidental
contamination or injury from these materials. In the event of an accident or
environmental discharge, we may be held liable for any resulting damages,
which may exceed our financial resources and may materially adversely affect
our business, financial condition and results of operations.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF OUR PRODUCTS HARM
PEOPLE, AND WE HAVE ONLY LIMITED PRODUCT LIABILITY INSURANCE.
The manufacture and sale of human therapeutic products involve an
inherent risk of product liability claims and associated adverse publicity.
We currently have only limited product liability insurance for clinical
trials and no commercial product liability insurance. We do not know if we
will be able to maintain existing or obtain additional product liability
insurance on acceptable terms or with adequate coverage against potential
liabilities. This type of insurance is expensive and may not be available on
acceptable terms. If we are unable to obtain or maintain sufficient
insurance coverage on reasonable terms or to otherwise protect against
potential product liability claims, we may be unable to commercialize our
products. A successful product liability claim brought against us in excess
of our insurance coverage, if any, may require us to pay substantial
amounts. This could adversely affect our results of operations and our need
for and the timing of additional financing.
THE MARKET PRICE OF OUR STOCK MAY CONTINUE TO BE HIGHLY VOLATILE.
Within the last 12 months, our common stock has traded between $3.69 and
$69.00. The market price of the shares of common stock for our company has
been and may continue to be highly volatile. Announcements may have a
significant impact on the market price of our common stock. These
announcements may include:
* results of our clinical trials and preclinical studies, or those
of our corporate partners or our competitors
* our operating results
* developments in our relationships with corporate partners
* developments affecting our corporate partners
* negative regulatory action or regulatory approval with respect
to our announcement or our competitors' announcement of new
products
* government regulations, reimbursement changes and governmental
investigations or audits related to us or to our products
* developments related to our patents or other proprietary rights
or those of our competitors
* changes in the position of securities analysts with respect to
our stock
* operating results below the expectations of public market
analysts and investors
* market conditions for biopharmaceutical or biotechnology stocks
in general
The stock market has from time to time experienced extreme price and
volume fluctuations, which have particularly affected the market prices for
emerging biotechnology and biopharmaceutical companies, and which have often
been unrelated to their operating performance. These broad market
fluctuations may adversely affect the market price of our common stock. In
addition, sales of substantial amounts of our common stock in the public
market, could lower its market price.
WE DO NOT GENERATE SUFFICIENT CASH FLOW TO PAY INTEREST AND MAKE OTHER
PAYMENTS ON CERTAIN INDEBTEDNESS.
Currently, we are not generating sufficient cash flow to pay interest
and make other payments that are required as a result of the consummation of
the sale of $196.3 million of convertible subordinated notes in March 2000.
This may require us to use a portion of the proceeds from the sale of the
notes to pay interest or borrow additional funds or sell additional equity
to meet our debt service obligation. If we are unable to satisfy our debt
service requirements, substantial liquidity problems could result, which
would negatively impact our future prospects.
DELAWARE LAW, PROVISIONS IN OUR CHARTER AND OUR RIGHTS PLAN COULD MAKE
THE ACQUISITION OF OUR COMPANY BY ANOTHER COMPANY MORE DIFFICULT.
Provisions of our certificate of incorporation may have the effect of
delaying or preventing changes in control or management or limit the price
that investors may be willing to pay for shares of our common stock. In
addition, we are subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law, which could delay a merger,
tender offer or proxy contest or make a similar transaction more difficult.
In addition, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock without stockholders' approval. The
rights of the holders of common stock will be subject to, and may be
affected by, the rights of the holders of any preferred stock that may be
issued in the future. The issuance of preferred stock could have the effect
of making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
Furthermore, in February 1999, the board of directors enacted
anti-takeover provisions, including a stockholder rights plan, or "poison
pill," and severance agreements in the event of a change of control for key
executives.
EMPLOYEES
As of February 29, 2000, we employed 83 individuals full-time, including
21 who hold doctoral degrees. Of our full-time work force, 66 employees are
engaged in or directly support research and development activities and 17
are engaged in business development, finance and administrative activities.
Our employees are not represented by a collective bargaining agreement. We
believe that our relations with our employees are good.
ITEM 2. PROPERTIES
We currently lease a 61,081 square foot building in Palo Alto,
California, of which 29,323 square feet are subleased to a third party. The
initial term of the lease expires in February 2002 with an option to renew
for five years, and the subleases are on a month-to-month basis. We believe
that this facility will be adequate to meet our needs for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock trades on the Nasdaq National Market under the symbol
"CVTX."
The following table sets forth, for the periods indicated, the high and
low price per share of the common stock on the Nasdaq National Market.
High Low
--------- ---------
Fiscal Year Ended December 31, 1997
First Quarter ended March 31, 1997 $ 10.750 $ 6.625
Second Quarter ended June 30, 1997 $ 8.875 $ 6.875
Third Quarter ended September 30, 1997 $ 10.000 $ 6.875
Fourth Quarter ended December 31, 1997 $ 12.500 $ 8.125
Fiscal Year Ended December 31, 1998
First Quarter ended March 31, 1998 $ 10.250 $ 8.250
Second Quarter ended June 30, 1998 $ 10.875 $ 8.250
Third Quarter ended September 30, 1998 $ 9.063 $ 5.750
Fourth Quarter ended December 31, 1998 $ 7.500 $ 4.250
Fiscal Year Ended December 31, 1999
First Quarter ended March 31, 1999 $ 7.250 $ 3.688
Second Quarter ended June 30, 1999 $ 6.375 $ 4.000
Third Quarter ended September 30, 1999 $ 21.000 $ 5.375
Fourth Quarter ended December 31, 1999 $ 27.875 $ 10.375
On March 15, 2000, the closing price for our common stock was $46.125
per share. As of March 15, 2000, we had approximately 145 holders of record
of our common stock.
DIVIDENDS
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain any future earnings to finance the growth and
development of our business and therefore, do not anticipate paying any cash
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this document
and also with "Management's Discussion and Analysis of Financial Condition
and Results of Operations". No dividends were declared or paid for any
periods presented.
Year Ended December 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Statements of Operations Data
Collaborative research revenue $ - $ 250 $ 2,578 $ 4,509 $ -
Operating expenses:
Research and development 12,856 7,141 10,568 14,578 20,342
General and administrative 3,402 2,917 4,169 4,158 4,659
---------- ---------- ---------- ---------- ----------
Total operating expenses 16,258 10,058 14,737 18,736 25,001
---------- ---------- ---------- ---------- ----------
Loss from operations (16,258) (9,808) (12,159) (14,227) (25,001)
Interest income 416 587 1,760 2,749 2,795
Interest and other expense (882) (1,144) (926) (1,124) (916)
---------- ---------- ---------- ---------- ----------
Net loss $(16,724) $(10,365) $(11,325) $(12,602) $(23,122)
========== ========== ========== ========== ==========
Basic and diluted net loss per share (1) $ (49.92) $ (9.83) $ (1.58) $ (1.16) $ (1.75)
========== ========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share (1) 335 1,054 7,157 10,905 13,207
========== ========== ========== ========== ==========
December 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(in thousands)
Balance Sheet Data
Cash, cash equivalents and marketable securities $ 5,569 $ 21,568 $ 38,090 $ 44,804 $ 91,257
Working capital $ 271 $ 20,278 $ 32,904 $ 40,698 $ 88,038
Total assets $ 11,448 $ 26,139 $ 42,644 $ 49,330 $ 96,907
Long-term portion of debt and capital lease obligation $ 3,402 $ 5,000 $ 5,052 $ 7,838 $ 7,855
Accumulated deficit $(35,261) $(45,626) $(56,951) $(69,553) $(92,675)
Total stockholders' equity $ 1,804 $ 18,676 $ 26,557 $ 34,738 $ 82,147
______________________
(1) See Note 1 of Notes to Consolidated Financial Statements for a
description of the shares used in calculating basic and diluted net loss per
share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Report contain forward-looking
statements which involve risks and uncertainties. Our actual results may
differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
OVERVIEW
CV Therapeutics is a biopharmaceutical company engaged in the discovery
and development of new small molecule drugs for the treatment of
cardiovascular diseases. Since our inception in December 1990, substantially
all of our resources have been dedicated to research and development. To
date, we have not generated any product revenues and do not expect to
generate any product revenues for at least several years. As of December 31,
1999, we had an accumulated deficit of $92.7 million. We expect our sources
of revenue, if any, for the next several years to consist of payments under
corporate partnerships and interest income. The process of developing our
products will require significant additional research and development,
preclinical testing and clinical trials, as well as regulatory approval.
These activities, together with our general and administrative expenses, are
expected to result in operating losses for the foreseeable future. We will
not receive product revenue unless we or our collaborative partners complete
clinical trials and successfully commercialize one or more of our products.
We are subject to risks common to biopharmaceutical companies, including
risks inherent in our research and development efforts and clinical trials,
reliance on collaborative partners, enforcement of patent and proprietary
rights, the need for future capital, potential competition and uncertainty
of regulatory approval. In order for a product to be commercialized, it will
be necessary for us and, in some cases, our collaborators, to conduct
preclinical tests and clinical trials, demonstrate efficacy and safety of
our product candidates, obtain regulatory clearances, enter into
manufacturing, distribution and marketing arrangements and obtain market
acceptance. We cannot provide assurance that we will generate revenues or
achieve and sustain profitability in the future.
RESULTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
Collaborative Research Revenues. There were no collaborative research
revenues for the year ended December 31, 1999 compared to $4.5 million for
the year ended December 31, 1998. The collaborative research revenues for
the year ended December 31, 1998 were the result of our completion of the
research component of our collaboration with Biogen during the first quarter
of 1998.
Research and Development Expenses. Research and development expenses
were $20.3 million for the year ended December 31, 1999, compared to $14.6
million for the year ended December 31, 1998. The increase in 1999 was due
to hiring additional employees to provide support for an increased level of
activity in our research, development and clinical programs, in addition to
greater external costs for the clinical programs. We expect research and
development expenses to continue to increase over the next several years as
we further expand product development efforts and clinical trials.
General and Administrative Expenses. General and administrative
expenses were $4.7 million for the year ended December 31, 1999, compared to
$4.2 million for the year ended December 31, 1998. The increase was
primarily due to an increase in outside legal expenses for a variety of
administrative and corporate development activities. We expect general and
administrative expenses to increase in the future in line with our research
and development activities, and as we advance our lead product candidate
toward approval and commercialization.
Interest Income. Interest income increased to $2.8 million for the year
ended December 31, 1999, compared to $2.7 million for the year ended
December 31, 1998. We expect that interest income will fluctuate with
average investment balances. Our average investment balance has increased as
a result of our follow-on public offering that was completed in October 1999
and our sale of convertible subordinated notes that was completed in March
2000, and therefore we expect interest income to increase at least through
December 2000.
Interest and Other Expense. Interest and other expense decreased to
$916,000 for the year ended December 31, 1999, compared to $1.1 million for
the year ended December 31, 1998. The decrease was due to a charge of
$371,000 recognized during the first quarter of 1998 related to the early
retirement of a capital lease obligation offset by a higher average loan
balance. We expect that interest and other expense will fluctuate with
average loan balances.
Taxes. We have not generated taxable income to date. At December 31,
1999, the net operating losses available to offset future taxable income for
federal and state income tax purposes were approximately $84 million and $29
million, respectively. Because we have experienced ownership changes, future
utilization of the carryforwards may be limited in any one fiscal year
pursuant to Internal Revenue Code regulations. The federal carryforwards
expire at various dates beginning in 2008 through 2019 if not utilized. The
state carryforwards expire at various dates beginning in 2000 through 2004
if not utilized. As a result of the annual limitation, a portion of these
carryforwards may expire before becoming available to reduce our federal and
state income tax liabilities.
Years Ended December 31, 1998 and 1997
Collaborative Research Revenues. Collaborative research revenues were
$4.5 million for the year ended December 31, 1998, compared to $2.6 million
for the year ended December 31, 1997. The increase was primarily the result
of $4.0 million of deferred revenue being recognized during 1998, in
conjunction with our completion of the research component of our
collaboration with Biogen.
Research and Development Expenses. Research and development expenses
were $14.6 million for the year ended December 31, 1998, compared to $10.6
million for the year ended December 31, 1997. The increase was primarily due
to increased outside service expenses associated with ranolazine clinical
trials.
General and Administrative Expenses. General and administrative
expenses were $4.2 million for the year ended December 31, 1998, which were
the same as for the year ended December 31, 1997.
Interest Income and Interest and Other Expense. Interest and other
income (expense), net increased to $1.6 million for the year ended December
31, 1998, compared to $834,000 for the year ended December 31, 1997. The
increase in 1998 was due to higher average investment balances as a result
of net proceeds of $19.6 million from our follow-on public offering of
2,575,000 shares of common stock that was completed in January 1998. The
increase was partially offset by a $303,000 charge for the early retirement
of a capital lease obligation.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through
private placements of preferred and common stock, public offerings of common
stock, equipment and leasehold improvement financing, other debt financing
and payments under corporate collaborations. In November 1996, we completed
an initial public offering and raised net proceeds of approximately $12.0
million. In March 1997, we entered into two research collaboration and
license agreements with Biogen that together resulted in cash receipts of
$16.0 million. In October 1997, we raised net proceeds of $12.3 million in a
private placement of equity securities with BB Biotech. In January 1998, we
completed a follow-on public offering and raised net proceeds of
approximately $19.6 million. In December 1998, we drew down an additional
$4.5 million under a general purpose loan facility with Biogen. As of
December 31, 1999 the outstanding balance for this note was $7,500,000.
Interest on this note is payable at prime plus one and one-half percent
(1.5%) or 9.75% at December 31, 1999, payable annually, in arrears, each
March 10th. In May 1999, we entered into a sales and marketing services
agreement with Innovex Inc. pursuant to which Innovex's parent, Quintiles
Transnational Corp., purchased 1,043,705 shares of our common stock for a
total investment of $5.0 million. In addition, we entered into two
promissory notes with Quintiles. The first promissory note in the amount of
$10.0 million may be drawn down by us at NDA filing of ranolazine. The
second promissory note shall be a cash amount to be determined after
commercial launch of ranolazine. Both notes are convertible into shares of
common stock at the option of Quintiles upon certain events. In October 1999
we completed a follow-on public offering and raised approximately $64.3
million. In March 2000, we entered into a purchase agreement pursuant to
which we sold to certain purchasers $196.3 million in aggregate principal
amount of convertible subordinated notes. The offering of the notes was made
to qualified institutional buyers under Rule 144A of the Securities Act of
1933, as amended. Interest on the notes will accrue at a rate of 4.75% per
year, subject to adjustment in certain circumstances. The notes will mature
on March 7, 2007 and will be convertible into shares of CV Therapeutics'
common stock at a conversion price of $63.84 per share, subject to
adjustment in certain circumstances. We may, at our option, redeem the notes
at any time after March 7, 2003 or earlier if our stock price reachs certain
defined levels.
Cash, cash equivalents and marketable securities at December 31, 1999
totaled $91.3 million compared to $44.8 million at December 31, 1998. The
increase was due to the receipt of $64.3 million in net proceeds from the
follow-on public offering that was completed in October 1999 and the receipt
of $5.0 million from the Quintiles stock purchase in May 1999, offset by
$21.2 million used to fund operations and $1.5 million to retire long-term
debt.
Net cash used in operations for the year ended December 31, 1999 was
$21.2 million compared to $13.9 million for the year ended December 31,
1998. The increase was primarily due to increased research and development
efforts.
As of December 31, 1999, we have invested $8.5 million in property and
equipment with the rate of investment having increased last year in line
with increased research and development efforts. This trend should continue
for the foreseeable future.
We will require substantial additional funding in order to complete our
research and development activities and commercialize any potential
products. We currently estimate that our existing resources and projected
interest income, including the proceeds from our recently completed offering
of convertible subordinated notes, will enable us to maintain our current
and planned operations for at least the next 24 months. However, we cannot
assure that we will not require additional funding prior to then or that
additional financing will be available on acceptable terms or at all.
Our forecast of the period of time through which our financial resources
will be adequate to support our operations is a forward-looking statement
that involves risks and uncertainties, and actual results could vary as a
result of a number of factors. Our future capital requirements will depend
on many factors, including scientific progress in our research and
development programs, the size and complexity of these programs, the scope
and results of preclinical studies and clinical trials, our ability to
establish and maintain corporate partnerships, 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 cost of manufacturing preclinical and clinical material
and other factors not within our control. We cannot guarantee that the
additional financing to meet our capital requirements will be available on
acceptable terms or at all. Insufficient funds may require us to delay,
scale back or eliminate some or all of our research or development programs,
to lose rights under existing licenses or to relinquish greater or all
rights to product candidates at an earlier stage of development or on less
favorable terms than we would otherwise choose or may adversely affect our
ability to operate as a going concern. If additional funds are raised by
issuing equity securities, substantial dilution to existing stockholders may
result.
YEAR 2000
Many computer systems, applications, information technologies and
equipment containing computer related components are unable to differentiate
between the year 2000 and the year 1900 because they were programmed with
two-digit, rather than four-digit, date fields. Accordingly, older computer
systems that have time-sensitive applications may not properly recognize the
year 2000 and beyond. This could cause system or equipment shut downs,
failures or miscalculations resulting in inaccuracies in computer output or
disruptions of operations, including, among other things, inaccurate
processing of financial information and/or temporary inabilities to process
transactions, manufacture products, or engage in similar normal business
activities.
We tested our key computer systems and equipment, including financial,
informational and operational systems, and determined that these systems
were largely Year 2000 compliant. We completed upgrades to the systems which
we determined were not Year 2000 compliant. To date we have experienced no
Year 2000 related problems with our information or other business systems.
In addition to risks associated with our own computer systems and
equipment, we have relationships with, and are to varying degrees dependent
upon, a large number of third parties that provide us with information,
goods and services. These include financial institutions, suppliers,
vendors, research partners and governmental entities. To date, we are not
aware of any significant Year 2000 problems encountered by our key suppliers.
The total cost of the Year 2000 systems assessment and upgrades was
funded through operating cash flows and we have expensed these costs. The
financial impact of making the required systems changes was approximately
$30,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We place our investments with high
quality issuers and, by policy, limit the amount of credit exposure to any
one issuer. We are averse to principal loss and ensure the safety and
preservation of our invested funds by limiting default, market and
reinvestment risk. We classify our cash equivalents and marketable
securities as "fixed-rate" if the rate of return on such instruments remains
fixed over their term. These "fixed-rate" investments include U.S.
government securities, commercial paper, corporate bonds, and certificates
of deposit. We classify our cash equivalents and marketable securities as
"variable-rate" if the rate of return on such investments varies based on
the change in a predetermined index or set of indices during their term.
These "variable-rate" investments primarily included money market accounts.
The table below presents the amounts and related weighted interest rates
of our investment portfolio at December 31, 1999:
Average
(in thousands) Interest Rate Cost Fair Value
------------- --------- ----------
Cash equivalents
Variable rate 5.58% $12,571 $12,571
Fixed rate 5.98% $ 6,939 $ 6,974
Marketable securities
Fixed rate 6.08% $70,858 $70,494
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Financial Statements and notes thereto appear beginning on page F-1
of this Report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item, insofar as it relates to directors
and officers, will be contained under the captions "Election of Directors",
"Management" and "Compliance with Section 16(a) of the Securities Exchange
Act of 1934" in the Company's definitive proxy statement with respect to the
Company's 2000 Annual Meeting of Stockholders (the "Proxy Statement"), and
is hereby incorporated by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Proxy
Statement under the caption "Executive Compensation," and is hereby
incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners
and Management," and is hereby incorporated by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners
and Management," and is hereby incorporated by reference thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Index to Financial Statements and Report of Ernst &Young LLP,
Independent Auditors
The Consolidated Financial Statements required by this item are
submitted in a separate section beginning on page F-1 of this report.
PAGE
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
(a)(2) Index to Financial Statements Schedules
All financial statement schedules are omitted because they are not
applicable, or the information is included in the financial statements or
notes thereto.
(a)(3) Exhibits:
EXHIBIT
NUMBER
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as amended.
3.2 Restated Bylaws of the Registrant. (1)
10.1* 1992 Stock Option Plan, as amended. (1)
10.2* 1994 Equity Incentive Plan, as amended. (6)
10.3 Non-Employee Directors' Stock Option Plan, as amended. (1)
10.4* Form of Incentive Stock Option Grant. (1)
10.5* Form of Non-Incentive Stock Option Grant. (1)
10.6 Form of Non-Statutory Stock Option Grant under Non-Employee
Directors' Stock Option Plan. (2)
10.7* Employee Stock Purchase Plan. (1)
10.8* Amended and Restated Promissory Note for $500,000 between
Registrant and Louis G. Lange, M.D., Ph.D., effective as of
September 23, 1996. (1)
10.9* Amended and Restated Promissory Note for $37,500 between
Registrant and Louis G. Lange, M.D., Ph.D., effective as of
September 23, 1996. (1)
10.10* Amended and Restated Promissory Note for $25,000 between
Registrant and Louis G. Lange, M.D., Ph.D., effective as of
September 23, 1996. (1)
10.11* Amended and Restated Promissory Note for $25,000 between
Registrant and Louis G. Lange, M.D., Ph.D., effective as of
September 23, 1996. (1)
10.15* Form of Indemnification Agreement between Registrant and its
directors and officers. (1)
EXHIBIT
NUMBER
10.16 Amended and Restated Investor Rights Agreement between
Registrant and the stockholders named therein, dated May 29,
1996. (1)
10.17 Form of Series A Preferred Stock Warrant, and amendment
thereto. (1)
10.18 Amended and Restated Series B Preferred Stock Warrant to Genta
Incorporated. (1)
10.19 Form of Series D Preferred Stock Warrant to Alex Brown & Sons
Incorporated. (1)
10.20 Form of Amended and Restated Series D Preferred Stock Warrant.
(1)
10.21 Form of Series E Preferred Stock Warrant. (1)
10.22 Series E Preferred Stock Warrant to Cooley Godward LLP. (1)
10.23 Series E Preferred Stock Warrant to Syntex (U.S.A.) Inc. (1)
10.24 Form of Common Stock Warrant exercisable immediately, dated
September 27, 1996. (1)
10.25 Form of Common Stock Warrant, dated September 17, 1996. (1)
10.26** License Agreement between Registrant and University of Florida
Research Foundation, Inc., dated June 7, 1994. (1)
10.27** Research Agreement between Registrant and University of
Florida, dated June 27, 1994. (1)
10.28** License Agreement between Registrant and Syntex (U.S.A.) Inc.,
dated March 27,1996. (1)
10.30 Lease Agreement between Registrant and Matadero Creek, dated
August 6, 1993 and addendum thereto; Letter Amendment to Lease
Agreement, dated June 30, 1994 and Second Amendment to Lease
Agreement, dated June 30, 1994. (1)
10.39** Research Collaboration and License Agreement (U.S.) between
the Registrant and Biogen, Inc., dated March 7, 1997. (3)
10.40** Research Collaboration and License Agreement (Europe) between
the Registrant and Biogen Manufacturing Ltd., dated March 7,
1997. (3)
10.41** Common Stock Purchase Agreement between the Registrant and
Biotech Manufacturing Ltd., dated March 7, 1997. (3)
10.42** Loan Agreement between the Registrant and Biotech
Manufacturing Ltd., dated March 7, 1997. (3)
10.43** Letter Agreement, dated March 7, 1997, between Registrant and
the University of Florida Research Foundation, Inc. (4)
10.44** Amendment to License Agreement, effective as of July 3, 1997,
between the Registrant and Syntex (U.S.A.), Inc.
(4)
10.45 Common Stock Purchase Agreement, dated October 7, 1997, by and
between CV Therapeutics, Inc. and Biotech Target S.A. (5)
10.47 Transition Agreement between CV Therapeutics, Inc. and Kathy
Stafford dated September 15, 1997. (5)
10.54 Amendment to Research Collaboration and License Agreement
(U.S.), dated June 12, 1998, between Biogen, Inc. and CV
Therapeutics, Inc. (7)
10.55 Amendment No. 1 to Loan Agreement, dated as of June 12, 1998,
between Biotech Manufacturing Ltd. and CV Therapeutics, Inc. (7)
EXHIBIT
NUMBER
10.56** Letter agreement regarding termination of research program of
the Research Collaboration and License Agreement, dated June
12, 1998, between Biogen, Inc. and CV Therapeutics, Inc. (7)
10.57 Executive Severance Benefits Agreement between Registrant and
Louis G. Lange, M.D., Ph.D., dated February 2, 1999. (8)
10.58 Executive Severance Benefits Agreement between Registrant and
Daniel K. Spiegelman, dated February 2, 1999. (8)
10.59 Executive Severance Benefits Agreement between Registrant and
Andrew A. Wolff, M.D., dated February 2, 1999. (8)
10.60 Executive Severance Benefits Agreement between Registrant and
Cynthia L. Clark, Esq., dated February 2, 1999. (8)
10.61 Executive Severance Benefits Agreement between Registrant and
Brent K. Blackburn, Ph.D., dated February 2, 1999. (8)
10.62 Executive Severance Benefits Agreement between Registrant and
Richard M. Lawn, Ph.D., dated February 2, 1999. (8)
10.63 Executive Severance Benefits Agreement between Registrant and
Luiz Belardinelli, M.D., dated February 2, 1999. (8)
10.64 Executive Severance Benefits Agreement between Registrant and
Stephen J. Grana, dated February 2, 1999. (8)
10.65* Stock Purchase Agreement dated May 5, 1999 between the Company
and Quintiles Transnational Corp. (9)
10.66* Sales and Marketing Services Agreement dated May 5, 1999
between the Company, Innovex Inc. and Quintiles Transnational
Corp. (9)
10.67* Loan Agreement dated May 5, 1999 between the Company and
Quintiles Transnational Corp. (9)
10.68* Security Agreement dated May 5, 1999 between the Company and
Quintiles Transnational Corp. (9)
10.69 Promissory Note dated May 5, 1999 to Quintiles in principal
amount of $10.0 million. (9)
10.70 Promissory Note dated May 5, 1999 to Quintiles Transnational
in principal amount specified therein. (9)
10.71 Amendment to Loan Agreement dated April 30, 1999 between the
Company and Biotech Manufacturing Ltd. (9)
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule for Year Ended December 31, 1999.
______________________
(1) Incorporated by reference to Exhibits filed with the Registrant's
Registration Statement on Form S-1, No. 333-12675, as amended, which became
effective November 19, 1996.
(2) Incorporated by reference to Exhibits filed with the Registrant's
Registration Statement on Form S-8, No. 333-19389, which became effective
January 8, 1997.
(3) Incorporated by reference to Exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the First Quarter 1997.
(4) Incorporated by reference to Exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the Second Quarter 1997.
(5) Incorporated by reference to Exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the Third Quarter 1997.
(6) Incorporated by reference to Exhibits filed with the Registrant's
Registration Statement on Form S-8 No. 333-44717, which became effective
January 22, 1998.
(7) Incorporated by reference to Exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the Third Quarter 1998.
(8) Incorporated by reference to Exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the First Quarter 1999.
(9) Incorporated by reference to Exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the Second Quarter 1999.
* Management contract or compensatory plan or arrangement.
** Confidential treatment has previously been granted for portions of this
exhibit.
(b) The Registrant filed no reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1999.
(c) See Exhibits listed under Item 14(a)(3).
(d) The financial statement schedules required by this Item are listed
under 14(a)(2).
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 on Form
10-K to be signed on its behalf, by the undersigned, thereunto duly
authorized, in the City of Palo Alto, County of Santa Clara, State of
California, on March 29, 2000.
CV THERAPEUTICS, INC.
By: /s/ LOUIS G. LANGE, M.D., PH.D.
-------------------------------
Louis G. Lange, M.D., Ph.D.
Chairman of the Board of CV Therapeutics
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ LOUIS G. LANGE, M.D., PH.D. Chairman of the Board & Chief March 29, 2000
- ---------------------------------- Executive Officer(Principal
Louis G. Lange, M.D., Ph.D. Executive Officer)
/s/ DANIEL K. SPIEGELMAN Chief Financial Officer March 29, 2000
- ---------------------------------- (Principal Financial and
Daniel K. Spiegelman Accounting Officer)
/s/ THOMAS L. GUTSHALL Director March 29, 2000
- ----------------------------------
Thomas L. Gutshall
/s/ BARBARA J. MCNEIL, M.D., PH.D. Director March 29, 2000
- ----------------------------------
Barbara J. McNeil, M.D., Ph.D.
/s/ COSTA G. SEVASTOPOULOS, PH.D. Director March 29, 2000
- ----------------------------------
Costa G. Sevastopoulos, Ph.D.
/s/ J. LEIGHTON READ, M.D. Director March 29, 2000
- ----------------------------------
J. Leighton Read, M.D.
/s/ ISAAC STEIN Director March 29, 2000
- ----------------------------------
Isaac Stein
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CV Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of CV
Therapeutics, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of CV Therapeutics, Inc. at December 31, 1998 and 1999, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
March 2, 2000
CV THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31,
-----------------------
1998 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 11,954 $ 20,763
Marketable securities 32,850 70,494
Other current assets 1,236 2,447
--------- ---------
Total current assets 46,040 93,704
Notes receivable from related parties 450 448
Property and equipment, net 2,664 2,676
Intangible and other assets 176 79
--------- ---------
Total Assets $ 49,330 $ 96,907
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,001 $ 1,541
Accrued liabilities 2,761 3,227
Current portion of long-term debt 1,500 500
Current portion of capital lease obligation 80 398
--------- ---------
Total current liabilities 5,342 5,666
Long-term debt 7,500 7,000
Capital lease obligation 338 855
Deferred revenue 1,000 1,000
Other liabilities 412 239
--------- ---------
Total liabilities 14,592 14,760
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none
issued and outstanding - -
Common stock, $0.001 par value, 30,000,000 shares authorized, 11,209,078
and 18,157,261 shares issued and outstanding at December 31, 1998 and
1999, respectively; at amounts paid in 105,436 175,777
Notes receivable issued for stock (108) (87)
Deferred compensation (1,049) (691)
Accumulated deficit (69,553) (92,675)
Cumulative other comprehensive income 12 (177)
--------- ---------
Total stockholders' equity 34,738 82,147
--------- ---------
Total Liabilities and Stockholders' Equity $ 49,330 $ 96,907
========= =========
See accompanying notes
CV THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended December 31,
-------------------------------------
1997 1998 1999
--------- --------- ---------
Revenues:
Collaborative research $ 2,578 $ 4,509 $ -
Operating expenses:
Research and development 10,568 14,578 20,342
General and administrative 4,169 4,158 4,659
--------- --------- ---------
Total operating expenses 14,737 18,736 25,001
--------- --------- ---------
Loss from operations (12,159) (14,227) (25,001)
Interest income 1,760 2,749 2,795
Interest and other expense (926) (1,124) (916)
--------- --------- ---------
Net loss $(11,325) $(12,602) $(23,122)
========= ========= =========
Basic and diluted net loss per share $ (1.58) $ (1.16) $ (1.75)
========= ========= =========
Shares used in computing basic and diluted
net loss per share 7,157 10,905 13,207
========= ========= =========
See accompanying notes
CV THERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(in thousands, except share and per share amounts)
Notes Cumulative
Common Stock Receivable Other Total
-------------------------- From Deferred Accumulated Comprehensive Stockholders
Shares Amount Officers Compensation Deficit Income Equity
------------ --------- ---------- ---------- --------- ----------- --------
Balances at December 31, 1996 6,184,771 $ 66,639 $ (171) $ (2,166) $(45,626) $ - $18,676
Issuance of common stock,
net of repurchases 2,273,292 18,276 - - - - 18,276
Unrealized gain on investments - - - - - 3 3
Compensation expense related to
certain stock options - 51 - - - - 51
Reduction of initial public
offering issuance costs - 58 - - - - 58
Deferred compensation
related to grants of certain
non-qualified stock options - 564 - (564) - - -
Repayment of notes receivable for
exercise of certain stock options - - 63 - - - 63
Amortization and reduction of
deferred compensation - (326) - 1,081 - - 755
Net loss - - - - (11,325) - (11,325)
------------ --------- ---------- ---------- --------- ----------- --------
Balances at December 31, 1997 8,458,063 85,262 (108) (1,649) (56,951) 3 26,557
Issuance of common stock,
net of repurchases 2,751,015 20,025 - - - - 20,025
Unrealized gain on investments - - - - - 9 9
Deferred compensation related to
grants of certain stock options - 274 - (274) - - -
Amortization and reduction of
deferred compensation - (125) - 874 - - 749
Net loss - - - - (12,602) - (12,602)
------------ --------- ---------- ---------- --------- ----------- --------
Balances at December 31, 1998 11,209,078 105,436 (108) (1,049) (69,553) 12 34,738
Issuance of common stock,
net of repurchases 6,948,183 69,972 - - - - 69,972
Unrealized loss on investments - - - - - (189) (189)
Deferred compensation related to
grants of cetain stock options - 374 - (374) - - -
Repayment of notes receivable for
exercise of certain stock options - - 21 - - - 21
Amortization and reduction of
deferred compensation - (5) - 732 - - 727
Net loss - - - - (23,122) - (23,122)
------------ --------- ---------- ---------- --------- ----------- --------
Balances at December 31, 1999 18,157,261 $175,777 $ (87) $ (691) $(92,675) $ (177) $82,147
============ ========= ========== ========== ========= =========== ========
See accompanying notes
CV THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-------------------------------------
1997 1998 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(11,325) $(12,602) $(23,122)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of deferred compensation 755 750 727
Depreciation and amortization 1,101 1,184 1,437
Issuance of capital stock and warrants for payment of license fees 544 - -
Change in assets and liabilities:
Other current assets (795) 13 (1,211)
Intangible and other assets (208) 439 99
Accounts payable 278 318 540
Accrued and other liabilities 140 1,010 293
Deferred revenue 6,009 (5,009) -
--------- --------- ---------
Net cash used in operating activities (3,501) (13,897) (21,237)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments (44,417) (27,752) (65,392)
Maturities of investments 14,609 26,365 27,246
Capital expenditures (143) (1,221) (1,136)
Notes receivable from officers and employees 125 (37) 21
--------- --------- ---------
Net cash used in investing activities (29,826) (2,645) (39,261)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under capital lease obligations - 443 1,000
Payments on capital lease obligations (788) (1,257) (165)
Borrowings under long-term debt 3,000 4,500 -
Repayments of long-term debt (15) (1,500) (1,500)
Net proceeds from issuance of common stock,
net of repurchases 17,841 20,024 69,972
--------- --------- ---------
Net cash provided by financing activities 20,038 22,210 69,307
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (13,289) 5,668 8,809
Cash and cash equivalents at beginning of year 19,575 6,286 11,954
--------- --------- ---------
Cash and cash equivalents at end of year $ 6,286 $ 11,954 $ 20,763
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 647 $ 758 $ 551
========= ========= =========
See accompanying notes
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
CV Therapeutics is a biopharmaceutical company focused on the
application of molecular cardiology to the discovery, development and
commercialization of novel small molecule drugs for the treatment of
cardiovascular disease. Since our inception in December 1990, substantially
all of our resources have been dedicated to research and development
activities, including a portion performed on behalf of collaborators.
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, CVT Adenosine Company, which was incorporated in
February 1999 in the Cayman Islands. All significant intercompany balances
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior period balances have been reclassified to conform to the
1999 presentation.
Research and Development
Research and development expenses include direct and research and
development-related overhead expenses.
Cash Equivalents and Investments
We consider all highly liquid debt investments with a maturity from date
of purchase of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market funds. All other liquid investments are
classified as marketable securities. We limit concentration of risk by
diversifying investments among a variety of issuers.
We determine the appropriate classification of investment securities at
the time of purchase and reaffirm such designation as of each balance sheet
date. At December 31, 1998 and 1999, all investment securities are
designated as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses reported in
stockholders' equity as a component of other comprehensive income (loss).
The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. The cost of securities sold is
based on the specific identification method. Realized gains and losses on
available-for-sale securities are included in the statement of operations,
if any. There have been no realized gains or losses through December 31, 1999.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and Amortization
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method
over the estimated useful lives of the respective assets, generally three to
five years. Leasehold improvements are amortized over the lesser of the
lease term or the estimated useful lives of the related assets. Debt
issuance costs are amortized over the life of the associated loan.
Revenue Recognition
Revenue under our collaborative research arrangements is recognized
based on the performance requirements of the contract. Payments received,
which are still subject to future performance requirements, are recorded as
deferred revenue until earned.
Net Loss Per Share
Effective December 31, 1997, we adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the presentation of basic earnings (loss) per share and diluted
earnings per share, if more dilutive, for all periods presented. Diluted net
loss per share has not been presented as, given our net loss position, the
result would be anti-dilutive.
In accordance with SFAS 128, basic net loss per share has been computed
using the weighted average number of shares of common stock outstanding
during the period.
Had we been in a net income position, diluted earnings per share at
December 31, 1999 would have been presented and would have included the
shares used in the computation of basic net loss per share, as well as the
dilutive effect of 1,753,000 stock options and 443,078 warrants to purchase
common stock (prior to the application of the treasury stock method).
Stock-Based Compensation
We account for stock options granted to employees using the
intrinsic-value method and, thus, recognize no compensation expense for
options granted with exercise prices equal to the fair market value of our
common stock on the date of the grant.
Deferred compensation is recorded when stock options are granted at
prices lower than the fair market value. The amount is amortized to expense
over the vesting period of the related options.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
As of January 1, 1998, we adopted Statement 130 ("SFAS 130"), "Reporting
Comprehensive Income." SFAS 130 established standards for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS 130 had no impact on our net loss or stockholders' equity. SFAS 130
requires unrealized gains or losses on our available-for-sale securities,
which prior to adoption were reported separately in stockholders' equity, to
be included in other comprehensive income. The components of comprehensive
income (loss) for the years ended December 31 are as follows:
1997 1998 1999
--------- --------- ---------
(in thousands)
Net loss $(11,325) $(12,602) $(23,122)
Unrealized gains (losses) on securities 3 9 (189)
--------- --------- ---------
Comprehensive loss $(11,322) $(12,593) $(23,311)
========= ========= =========
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which will be effective
for the year ending 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in
the balance sheet as either an asset or liability measured at its fair
value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria
are met. We believe the adoption of SFAS 133 will not have a material effect
on the financial statements, since we currently do not hold derivative
instruments or engage in hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosure of revenue
in financial statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. Management believes
that our revenue recognition policy is in compliance with the provisions of
SAB 101 and that the impact of SAB 101 will have no material effect on our
financial position or results of operations.
2. LICENSE AND COLLABORATION AGREEMENTS
University of Florida Research Foundation, Inc.
In June 1994, we entered into a license agreement with the University of
Florida Research Foundation, Inc. ("UFRFI") under which we received
exclusive worldwide rights to develop adenosine A1 receptor antagonists for
the detection, prevention and treatment of human and animal diseases. In
consideration for the license, we paid UFRFI an initial license fee and are
obligated to pay royalties based on net sales of products, which utilize the
licensed technology. Pursuant to the agreement, we must exercise
commercially reasonable efforts to develop and commercialize one or more
products covered by the licensed technology.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED)
Syntex (U.S.A.) Inc.
In March 1996, we entered into a license agreement with Syntex (U.S.A.)
Inc. ("Syntex"), which is an indirect subsidiary of Roche Holding Limited,
for the United States and foreign patent rights to a compound having the
generic name of ranolazine for products treating angina and certain other
cardiovascular indications. Pursuant to the agreement, Syntex provided
certain quantities of the compound to us. The license agreement is exclusive
and worldwide except for certain countries in Asia. As consideration for the
licensee agreement, we issued 37,500 shares of our common stock and a five
year warrant to purchase 18,750 shares of our common stock at $20.00 per
share and recognized research and development expenses of $750,000. In
addition, we are obligated to make payments based upon product approvals in
the United States and in the first major country in Europe, but in no event
later than March 31, 2005 and March 31, 2006, respectively and to make
royalty payments based on net sales of products which utilize the licensed
technology. The license agreement also sets milestones within which we must
launch products, following approval, in each country covered by the license
or lose exclusivity in such territories. We paid $1.5 million to Syntex in
1997 in a combination of cash and common stock.
Biogen
In March 1997, we entered into two research collaboration and license
agreements with Biogen, Inc. The agreements grant Biogen the exclusive
worldwide right to develop and commercialize Adentri(TM) for all indications.
In exchange, we received up-front cash payments totaling $16.0 million. Of
this amount $820,000 was recognized as revenue immediately, $7.0 million was
deferred subject to Biogen achieving specific milestones and us fulfilling
our research obligations, $5.2 million was for the purchase of 669,857
shares of our common stock and $3.0 million was funding under a credit
facility. Approximately $1.0 million of the deferred revenue was recognized
in 1997 which approximated costs for research services. In February 1998, we
terminated the research component of the agreements and, as a result,
approximately $4.0 million of deferred revenue was recognized as there were
no further research obligations related to this funding. In December 1998 we
borrowed an additional $4.5 million in connection with the final study
report from an earlier phase II study of Adentri(TM), which was jointly
prepared by us and Biogen. Under the agreements, we may receive milestone
payments ($1.0 million of which has been pre-funded by Biogen and included
in deferred revenue), equity investments, and access to a general purpose
loan facility (see Note 6) based on achievements of certain development
milestones. In addition, we will receive royalties from any future product
sales covered by the agreement. (See Note 11).
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED)
Innovex
In May 1999, we entered into a sales and marketing services agreement
with Innovex. Under this agreement, if ranolazine is approved for sale in
the United States by the FDA, Innovex will fund product launch and the first
five years of sales and marketing expenses. We will receive 100% of the
revenues from sales of ranolazine, and we will pay Innovex a share of those
revenues.
The agreement calls for Innovex to conduct pre-launch activities, hire
and train a dedicated cardiology sales force to launch and promote
ranolazine, and provide post-launch marketing and sales services. To fund
pre-launch activities, Quintiles will provide us with a $10 million credit
facility at the time we file with the FDA for approval. We are required to
spend a minimum of $10 million on ranolazine pre-launch marketing activities
so long as Quintiles provides advances under the credit facility. Upon FDA
approval, Quintiles will make a $10 million milestone payment to us, which
we are obligated to use to repay any amounts outstanding under the credit
facility. Should we file for approval and draw down the credit facility, but
never receive FDA approval, we are obligated to repay the loan within 10
years of the date we received the loan.
Innovex has agreed to provide services for at least three years after
launch and to provide services in years four and five after launch if
minimum sales levels are met. The agreement also specifies the minimum
number of sales representatives and the minimum level of dollars to be spent
on marketing by Innovex during the first two years of the contract,
regardless of sales levels. The minimum size of the sales force and the
marketing expenses in year three or any subsequent year must be maintained
by Innovex as long as minimum sales levels are met.
In exchange for providing these sales and marketing services, Innovex
will receive a fee of up to an average of 33% of revenues in the first two
years of sales, declining to 30% for the third year and declining again to
25% in years four and five. Further, in exchange for giving us the option to
retain this trained sales force at the end of the contract, Innovex will
receive a royalty on sales of 7% in the sixth and 4% in the seventh years
after launch.
In connection with the agreement, Quintiles purchased 1,043,705 shares
of our common stock for a total purchase price of $5.0 million.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
Following is a summary of available-for-sale securities at fair value.
Fair value is based on quoted market prices for these investments.
December 31,
-----------------------
1998 1999
--------- ---------
(in thousands)
Cash equivalents
Money market funds $ 11,931 $ 12,571
Commercial paper - 4,720
Corporate bonds - 2,254
--------- ---------
$ 11,931 $ 19,545
========= =========
Marketable securities
Commercial paper $ - $ 11,901
Corporate bonds 32,850 58,593
--------- ---------
$ 32,850 $ 70,494
========= =========
As of December 31, 1998 and 1999, the difference between the fair value
and the amortized cost of available-for-sale securities was insignificant.
As of December 31, 1999, we had marketable securities with maturities of
less than one year of $43.3 million and greater than one year of $27.2
million. The average contractual maturity as of December 31, 1999 was
approximately eight months, with no single investment's maturity exceeding
16 months.
4. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist of the following:
December 31,
---------------------
1998 1999
-------- --------
(in thousands)
Machinery and equipment $ 3,623 $ 4,319
Furniture and fixtures 576 629
Leasehold improvements 3,149 3,536
-------- --------
7,348 8,484
Less accumulated depreciation and amortization (4,684) (5,808)
-------- --------
$ 2,664 $ 2,676
======== ========
Property and equipment include $443,000 and $1.4 million recorded under
capital leases at December 31, 1998 and 1999, respectively. Accumulated
amortization related to leased assets totaled $30,000 and $297,000 at
December 31, 1998 and 1999, respectively (see Note 7).
Depreciation expense, including depreciation of assets under capital
leases, was $546,000, $435,000 and $608,000 for 1997, 1998 and 1999
respectively. Amortization expense, for leasehold improvements, was
$394,000, $399,000 and $516,000 for 1997, 1998 and 1999 respectively.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
December 31,
---------------------
1998 1999
-------- --------
(in thousands)
Accrued interest $ 230 $ 571
Compensation related accruals 424 952
Accrued research obligation 882 308
Other 1,225 1,396
-------- --------
$ 2,761 $ 3,227
======== ========
6. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
---------------------
1998 1999
-------- --------
(in thousands)
Biogen loan agreement at prime plus 1.5% with interest due
annually on March 10th; first $3.0 million of principal due in
equal installments beginning March 10, 2000 through February
10, 2005; remaining $4.5 million to be deducted from future royalty
payments or repaid through the issuance of common stock $ 7,500 $ 7,500
Loan at 9.0%, principal payments in equal installments
monthly through September 1, 1999. 1,500 -
-------- --------
9,000 7,500
Less current portion (1,500) (500)
-------- --------
Long-term portion $ 7,500 $ 7,000
======== ========
The carrying value of the our loans approximates fair value at December
31, 1998 and 1999. The fair value of our loans was estimated using
discounted cash flow analysis, based on the incremental borrowing rates
currently available to us for borrowings with similar terms and maturity.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
On March 7, 1997, we entered into an unsecured loan agreement with
Biotech Manufacturing in association with the Biogen Agreements (see Note
2). Under the terms of the Biotech Manufacturing loan agreement, Biotech
Manufacturing shall make available to us for general purposes an amount not
to exceed $12.0 million. Upon the effective date of the Biogen Agreements,
we drew down $3.0 million of the loan. We drew down an additional $4.5
million in December 1998 in connection with the final study report from an
earlier phase II study of Adentri(TM), which was jointly prepared by us and
Biogen. Additional funding under the terms of the loan is subject to
achievement of certain clinical developments and commercialization
milestones. We are obligated to repay $3.0 million of the current
outstanding principal portion of the credit facility, which bears interest
on the outstanding principal at a rate equal to prime plus one and one-half
percent (1.5%) (9.75% at December 31, 1999), by February 2005. The remaining
$4.5 million will be repaid through a reduction of royalties, owed by Biogen
to us, beginning eighteen months after the first commercial sale of
Adentri(TM). We, at our option, may issue common stock at fair market value as
of the date of repayment as an alternative to the royalty reduction. Upon
termination of the Biogen Agreements, or earlier, prior to repayment of the
$4.5 million through royalty reduction, we, at our option, may repay the
loan in cash or issue our common stock at fair value as of the date of
repayment.
7. LEASES
We lease certain equipment under noncancellable capital leases. A
previous capital lease was retired in March 1998. The early retirement
payment included $303,000 in excess of the recorded liability and required
the acceleration of $68,000 for the amortization of debt issuance costs
which would have otherwise been recognized over the following eighteen months.
We lease our facilities under noncancellable operating leases. The
facilities lease expires February 2002 and includes an option to renew the
lease for an additional five years. In April 1999 and May 1999, we entered
into two month to month sublease agreements whereby we leased excess space
to a separate company. In October 1999, we sent a notice to this company
terminating the month to month sublease agreement entered into in May 1999.
Following is a schedule of future minimum lease payments at December 31,
1999:
Operating Capital
Leases Leases
-------- -------
(in thousands)
Year ending December 31,
2000 $ 1,278 $ 495
2001 1,297 495
2002 215 436
-------- -------
Total minimum payments $ 2,790 1,426
========
Less amount representing interest (173)
-------
Present value of future lease payments 1,253
Less current portion (398)
-------
Long-term portion $ 855
=======
Rent expense, net of sublease rentals, for the years ended December 31,
1997, 1998, and 1999 was $339,000, $396,000 and $409,000, respectively.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
From 1992 through 1999, we issued loans to certain of our officers and
employees related to relocation, purchases of stock and other purposes of
which loans aggregating $571,000 and $547,000 were outstanding at December
31, 1998 and 1999, respectively. These loans bear interest at 4.51% to 6.53%
per annum. The amounts are repayable on various dates through January 1,
2004. As of December 31, 1998 and 1999, loans for $108,000 and $87,000
respectively, related to the purchase of common stock, have been included in
stockholders' equity.
9. STOCKHOLDERS' EQUITY
Employee Stock Purchase Plan
In September 1996, the board of directors adopted the Employee Stock
Purchase Plan (the "Purchase Plan") covering an aggregate of 150,000 shares
of our common stock. The Purchase Plan is designed to allow eligible
employees of ours or an affiliate of ours to purchase shares of our common
stock at quarterly intervals through their periodic payroll deductions,
which may not exceed 15 percent of any employee's compensation, at a price
not less than the lesser of an amount equal to 85 percent of the fair market
value of our common stock at quarterly dates within the offering period or
an amount equal to 85 percent of the fair market value of our common stock
on the purchase date. Employees may end their participation in the offering
at any time during the offering period, and participation ends automatically
on termination of employment with us. We have issued 108,418 shares under
the Purchase Plan through December 31, 1999.
Stock Option Plans
We reserved 345,000 shares of common stock for issuance under our
amended and restated 1992 Stock Option Plan, which provides for common stock
options to be granted to employees, consultants, officers, and directors.
The board of directors will not grant additional options under the 1992
Stock Option Plan.
We reserved 1,800,000 shares of common stock for issuance under our
amended and restated 1994 Equity Incentive Plan. The Equity Incentive Plan
provides for common stock options to be granted to employees of and
consultants to us and our affiliates. The Plan allows for the grant of
incentive stock options, non-statutory stock options, stock bonuses, and
rights to purchase restricted stock and stock appreciation rights. Options
and rights granted under this plan expire no later than 10 years from the
date of grant. The exercise price of each incentive stock option shall be
not less than 100% of the fair market value of the stock subject to the
option on the date the option is granted. The exercise price of each
non-statutory option shall be not less than 85% of the fair market value of
the stock subject to the option on the date the option is granted. The
vesting provisions of individual options may vary but in each case will
provide for vesting of at least 20% of the total number of shares subject to
the option per year.
Our Non-Employee Directors' Stock Option Plan was amended and restated
in 1996 to allow the granting of up to 250,000 shares of common stock to our
directors who are not otherwise an employee of, or consultant of ours or any
affiliate of ours. Options granted under this plan expire no later than 10
years from the date of grant. The exercise price of each option shall be the
fair market value of the stock subject to such option on the date such
option is granted. The options generally vest in increments over a period of
three years from the date of grant.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity under all option plans:
Outstanding Options
-----------------------------------------------------
Shares Number Weighted
Available of Price per Average
for Grant Shares Share Exercise Price
------- ------- ---------------- ---------
(in thousands, except per share amounts)
Balance at December 31, 1996 473 808 $0.80 - $ 2.50 $2.18
Shares authorized 1,000 - - -
Options granted (447) 447 $6.88 - $10.88 $8.33
Options forfeited 52 (52) $0.80 - $ 8.50 $2.89
Options exercised - (126) $0.80 - $ 2.50 $1.72
------- -------
Balance at December 31, 1997 1,078 1,077 $0.80 - $10.88 $4.75
Options granted (533) 533 $4.50 - $10.50 $9.03
Options forfeited 116 (116) $0.80 - $10.00 $5.20
Options exercised - (79) $0.80 - $ 8.50 $2.45
------- -------
Balance at December 31, 1998 661 1,415 $0.80 - $10.88 $6.45
Options granted (472) 472 $3.94 - $15.88 $7.41
Options forfeited 52 (52) $2.00 - $10.88 $6.16
Options exercised - (82) $0.80 - $ 9.88 $3.45
------- -------
Balance at December 31, 1999 241 1,753 $0.80 - $15.88 $6.86
======= =======
The following table summarizes information about stock options
outstanding at December 31, 1999:
Outstanding Options
- -----------------------------------------------------------------------------------------------------------
Weighted Exercisable Options
Average --------------------------
Shares Remaining Weighted Number of Weighted
Outstanding Contractual Life Average Exercise Shares Average Exercise
Range of Exercise Prices (in thousands) (in years) Price (in thousands) Price
- ------------------------ ------- ----- ------ ------ -------
$0.80 - $ 4.16 467 6.5 $ 2.53 424 $ 2.53
$4.50 - $ 7.50 532 8.6 $ 6.41 140 $ 7.36
$7.75 - $ 9.25 556 8.1 $ 9.01 228 $ 8.93
$9.38 - $15.88 198 8.9 $12.24 77 $10.35
------- ------
$0.80 - $15.88 1,753 7.9 $ 6.86 869 $ 5.68
======= ======
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
Pro Forma Information--Stock-Based Compensation
We have elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations, in accounting for our employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123") requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, if the exercise price
of our employee stock options equals the fair market value of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required
by SFAS 123 for awards granted after December 31, 1994 as if we had
accounted for our stock-based awards to employees under the fair value
method of SFAS 123. The fair value of our stock-based awards to employees
was estimated using a Black-Scholes option pricing model. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input of
highly subjective assumptions including the expected stock price volatility.
Because our stock-based awards to employees have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in our opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of our stock-based awards to
employees. The fair value of our stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
Options
--------------------
1997 1998 1999
---- ---- ----
Expected life (years) 4.6 5.1 5.1
Expected volatility .67 .54 .60
Risk-free interest rate 6.3% 5.5% 5.5%
For pro forma purposes, the estimated fair value of our stock-based
awards to employees is amortized over the options' vesting period. Our pro
forma information follows (in thousands except for loss per share information):
1997 1998 1999
--------- --------- ---------
Net loss:
As reported $(11,325) $(12,602) $(23,122)
========= ========= =========
Pro forma $(12,225) $(13,691) $(24,336)
========= ========= =========
Net loss per share:
As reported $ (1.58) $ (1.16) $ (1.75)
========= ========= =========
Pro forma $ (1.71) $ (1.25) $ (1.84)
========= ========= =========
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
The weighted-average fair value of options granted with exercise prices
at and below fair value of our common stock during 1997, 1998 and 1999 were:
1997 1998 1999
------ ------ ------
Fair value at grant: $5.34 $4.73 $4.18
Below fair value at grant date: $5.39 $ - $ -
Warrants
The following table summarizes warrants to purchase our common stock
which were issued in connection with various financing, lending and
equipment lease arrangements as of December 31, 1999:
Exercise Number of
Date of Issuance Price Shares Expiration Date
---------------- -------- --------- ---------------
April 1993 $25.00 100,000 April 2003
April 1995 $ 8.90 40,000 April 2005
September and November 1995 $20.00 196,078 September 2000
December 1995 $20.00 3,750 December 2000
March 1996 $20.00 18,750 September 2000
September 1996 $20.00 84,500 September 2001
---------
Total 443,078
=========
We have reserved 443,078 shares of our common stock for issuance upon
the exercise of the above warrants.
Stockholders Rights Plan
In February 1999, we announced that the board of directors approved the
adoption of a Stockholders Rights Plan under which all stockholders of
record as of February 23, 1999 received and all stockholders receiving newly
issued shares after that date have or will receive rights to purchase shares
of a new series of preferred stock.
The Rights Plan is designed to enable all CVT shareholders to realize
the full value of their investment and to provide for fair and equal
treatment for all stockholders in the event that an unsolicited attempt is
made to acquire CVT. The adoption of the Rights Plan is intended as a means
to guard against abusive takeover tactics and was not in response to any
particular proposal.
The rights were distributed as a non-taxable dividend and will expire in
ten years from the Record Date. The rights will be exercisable only if a
person or group acquires 20 percent or more of the CVT common stock or
announces a tender offer of CVT's common stock. If a person acquires 20
percent or more of CVT's stock, all rightsholders except the buyer will be
entitled to acquire CVT common stock at discount. The effect will be to
discourage acquisitions of more than 20 percent of CVT's common stock
without negotiations with the Board.
CV THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $84 million and $29 million, respectively. We
also had federal and California research and development tax credit
carryforwards of approximately $2.8 million and $1.6 million. The federal
net operating loss and credit carryforwards will expire at various dates
beginning in the year 2008 through 2019, if not utilized. The state of
California net operating loss carryforwards will expire at various dates
beginning in the year 2000 through 2004, if not utilized.
Utilization of the federal and state net operating losses and credit
carryforwards may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and the amount used for income tax purposes. Significant
components of our deferred tax assets are as follows at December 31:
1998 1999
--------- ---------
(in thousands)
Net operating loss carryforwards $ 22,210 $ 30,310
Research credits (expiring 2008-2019) 3,580 4,520
Capitalized research and development 2,610 3,490
Other, net 1,590 1,890
--------- ---------
Total deferred tax assets 29,990 40,210
Valuation allowance for deferred tax assets (29,990) (40,210)
--------- ---------
Total $ - $ -
========= =========
The valuation allowance increased by $4.9 million and $6.3 million
during the years ended December 31, 1997, and 1998, respectively.
11. SUBSEQUENT EVENTS (UNAUDITED)
In February 2000, Biogen announced that it had successfully completed a
Phase II trial of CVT-124 in patients with moderate-to-severe CHF. However,
Biogen also announced its intention to continue the Adentri(TM) program with a
new molecule currently in preclinical studies. Biogen also announced that it
would make a milestone payment to CVT.
In March 2000 we entered into a purchase agreement pursuant to which we
sold to certain purchasers $196.3 million in aggregate principal amount of
convertible subordinated notes. The offering of the notes was made to
qualified institutional buyers under Rule 144A of the Securities Act of
1933, as amended. Interest on the notes will accrue at a rate of 4.75% per
year, subject to adjustment in certain circumstances. The notes will mature
on March 7, 2007 and will be convertible into shares of CV Therapeutics'
common stock at a conversion price of $63.84 per share, subject to
adjustment in certain circumstances. We may, at our option, redeem the notes
at any time after March 7, 2003 or earlier if our stock prices reach certain
defined levels.