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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended July 31, 2001
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ___________
Commission file number: 0-27756
________________
ALEXION PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3648318
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
352 Knotter Drive, Cheshire Connecticut 06410
(Address of Principal Executive Offices) (Zip Code)
203-272-2596
(Registrant's telephone number, including area code)
________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.0001
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates
of the registrant, based upon the last sale price of the Common Stock reported
on the National Association of Securities Dealers Automated Quotation (NASDAQ)
National Market System on October 24, 2001, was approximately $321,829,000.
The number of shares of Common Stock outstanding as of October 24, 2001
was 18,110,801.
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PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS
THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS ARE BASED ON
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY'S INDUSTRY,
MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE BY THE COMPANY'S MANAGEMENT.
WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
SET FORTH HEREIN UNDER "IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS,"
ATTACHED HERETO AS EXHIBIT 99, AS WELL AS THOSE NOTED IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES
NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD
CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE
COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION.
Item 1. BUSINESS.
Overview
We seek to develop pharmaceutical products for the treatment of heart
disease, inflammation, diseases of the immune system and cancer in humans.
During the fiscal years ended July 31, 2001, 2000, and 1999, we spent $38.8
million, $40.2 million, and $23.7 million, respectively, on research and
development activities excluding acquisition related non-cash charges for
in-process research and development and amortization of purchased intangibles.
Our two lead product candidates are genetically altered antibodies that target
specific diseases that arise when the human immune system induces undesired
inflammation in the human body. Antibodies are proteins that bind to specific
targets and are used by the immune system to protect the body.
Our two lead product candidates are designed to block components of the
human immune system that cause undesired inflammation while allowing beneficial
components of the immune system to remain functional. Our two lead product
candidates are "humanized" antibodies, designed to block the inflammatory
effects of the components of the immune system known as "complement." A
humanized antibody is an antibody genetically altered to minimize or avoid an
immune response in humans. Our two lead product candidates are:
. Pexelizumab. We completed a Phase IIb trial for the treatment
of acute inflammation caused by the trauma of heart and lung
bypass procedures during open heart surgery, and we are
enrolling patients in two Phase II heart attack trials. We are
developing pexelizumab in collaboration with Procter & Gamble
Pharmaceuticals; and
. 5G1.1. We completed a Phase II trial for the chronic treatment
of rheumatoid arthritis or RA and a Phase I pilot trial for
psoriasis. We are enrolling patients in Phase II trials for
the treatment of membranous nephritis and lupus nephritis, and
in a Phase I pilot trial for bullous pemphigoid. We have
completed enrollment in a Phase
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I pilot trial in dermatomyositis patients. On-going 12-month
extension studies in RA and membranous nephritis will help us
assess long-term safety. We are developing 5G1.1 ourselves.
In September 2000, we acquired Prolifaron, Inc., through a merger with
Alexion Antibody Technologies, Inc. (AAT), a newly created, wholly owned
subsidiary of Alexion. Prolifaron was a biopharmaceutical company that possessed
extensive research expertise and technologies in the area of creating fully
human antibodies from libraries containing billions of human antibody genes.
In addition to our antibody product candidates which inhibit the
inflammatory effects of complement and our technology programs focusing on human
antibody discovery and development, we are developing products to block the
harmful effects of a component of the immune system known as "T-cells" in
pre-clinical studies. We call these products "apogens." We targeted our first
apogen product candidate, known as MP4, for the treatment of patients with
multiple sclerosis. We are also developing methods of blocking the human immune
system to permit the use of cells and organs from non-human species in the
treatment of diseases in humans. This product development program with
genetically altered pig cells is initially targeting the treatment of patients
with Parkinson's disease and patients with spinal cord injury.
The Immune System
The human immune system defends the body from attack or invasion by
infectious agents or pathogens. This is accomplished through a complex system of
proteins and cells, primarily complement proteins, antibodies and white blood
cells, each with a specialized function. Under normal circumstances, complement
proteins, together with antibodies and white blood cells, act to protect the
body by removing:
. harmful microorganisms;
. cells containing foreign proteins known as antigens; and
. disease-causing combinations of antigens and antibodies known
as immune complexes.
When activated by stimuli, the immune system triggers a series of
enzymatic and biochemical reactions called the complement cascade that results
in an inflammatory response. This inflammatory response is one of the immune
system's weapons against foreign pathogens or otherwise diseased tissue.
However, under certain circumstances, the complement cascade may be activated
inappropriately to direct an inflammatory response at healthy tissue, which may
result in acute and chronic inflammatory conditions.
Common heart diseases and procedures in which the complement cascade is
activated include:
. cardiopulmonary bypass surgery;
. myocardial infarction or heart attack;
. unstable angina or painful chest pains associated with an
insufficient blood supply to the heart;
. angioplasty or procedures for opening up narrowed or blocked
arteries that supply the heart; and
. stroke and other peripheral vascular or blood circulatory
diseases.
Common autoimmune diseases in which the complement cascade is activated
include:
. rheumatoid arthritis;
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. kidney diseases;
. lupus;
. inflammatory bowel diseases;
. inflammatory skin disorders; and
. multiple sclerosis.
T-cells, a type of white blood cell, play a critical role in the normal
immune response by recognizing cells containing antigens and initiating the
immune response. This response results in T-cells:
. attacking the antigen-containing tissue; and
. directing the production of antibodies by white blood cells to
eliminate the antigen-bearing foreign organism.
In autoimmune diseases, T-cells may mistakenly attack healthy host
tissue and may cause an inflammatory response resulting in tissue destruction.
In the case of multiple sclerosis, this may cause paralysis due to destruction
of nerve fibers in the brain.
Product Development Programs
We have focused our product development programs on anti-inflammatory
therapeutics for diseases for which we believe current treatments are either
non-existent or inadequate. Currently available drugs for certain autoimmune,
cardiovascular and neurologic or nervous system diseases, in which the immune
system attacks the patient's own tissue, broadly suppress the entire immune
system, and may also cause potentially severe side effects. Our lead product
candidates, which are genetically altered antibodies known as C5 Complement
Inhibitors, are designed to selectively block the production of
inflammation-causing proteins in the complement cascade. We believe that
selective suppression of this immune response may provide a significant
therapeutic advantage relative to existing therapies.
Additionally, we are developing selective T-cell inhibitors known as
apogens and UniGraft xenotransplants or use of non-human cells and tissues for
neurologic or nervous systems disorders.
Our product candidates are as follows:
Product candidate Technology Indication Status
----------------- ---------- ---------- ------
Pexelizumab C5 Complement Inhibitor Cardiopulmonary bypass Phase IIb trial completed
(single chain antibody)
Myocardial infarction
(1) Thrombolysis -a) Phase II trial ongoing
(2) PTCA -b) Phase II trial ongoing
5G1.1 C5 Complement Inhibitor Rheumatoid arthritis Phase II trial completed
(antibody)
Membranous nephritis Phase II trial ongoing
Lupus Nephritis Phase II trial ongoing
Psoriasis Phase Ib trial completed
-4-
Dermatomyositis Phase Ib trial enrollment
completed
Bullous Pemphigoid Phase Ib trial ongoing
MP4 Apogen Multiple sclerosis Pre-clinical
UniGraft-SCI Cell replacement Spinal cord injury Pre-clinical
UniGraft-PD Cell replacement Parkinson's disease Pre-clinical
(a- dissolving clots that block heart vessels
(b- percutaneous transluminal coronary angioplasty or PTCA, a
procedure for opening up narrowed or blocked arteries that supply
blood to the heart
C5 Complement Inhibitors
Complement proteins are a series of inactive proteins circulating in
the blood. When activated by stimuli, including those associated with both acute
and chronic inflammatory disorders, these inactive complement proteins are split
by enzymes known as convertases into activated byproducts through the complement
cascade.
Some of these byproducts, notably C3b, are helpful in fighting
infections and inhibiting autoimmune disorders. However, the byproducts
generated by the cleavage of C5, known as C5a and C5b-9, generally cause harmful
inflammation. The inflammatory byproducts of C5 cause:
. activation of white blood cells;
. attraction of white blood cells;
. production of injurious hormones including tumor necrosis
factor-alpha;
. activation of blood vessel-lining cells called endothelial
cells, allowing leakage of white blood cells into tissue; and
. activation of blood-clotting cells called platelets.
The following diagram describes the complement cascade:
[diagram]
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[GRAPHIC APPEARS HERE]
Because of the generally beneficial effects of the components of the
complement cascade prior to C5 and the greater inflammatory disease-promoting
effects of the cleavage products of C5, we have identified C5 as a potentially
effective anti-inflammatory drug target. Our first two C5 Inhibitors
specifically and tightly bind to C5 blocking its cleavage into harmful
byproducts and are designed to inhibit subsequent damage from the inflammatory
response.
In laboratory and animal models of human disease, we have shown that
the administration of C5 Inhibitor, as compared to placebo, is effective in:
. preventing inflammation during cardiopulmonary bypass;
. reducing heart tissue damage during myocardial infarction;
. reducing brain damage in cerebral ischemia or reduced blood
flow to brain tissue;
. enhancing survival in a model of lupus; and
. preserving kidney function in nephritis or inflammation of
kidney tissue.
In addition, in human clinical trials, we have shown that C5 Inhibitors
may be associated with reduction of:
. inflammation during cardiopulmonary bypass surgery;
. heart tissue damage during cardiopulmonary bypass surgery;
. new cognitive or mental faculty deficits after cardiopulmonary
bypass surgery;
. an objective measure of disease activity in rheumatoid
arthritis patients; and
. the incidence of proteinuria or abnormal loss of substantial
amounts of protein in a patient's urine in lupus patients.
C5 Inhibitor Immunotherapeutic Product Candidates
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We are developing one of our two lead C5 Inhibitor product candidates,
pexelizumab, for the treatment of inflammation related to acute cardiovascular
diseases and procedures. Our initial indications for pexelizumab are
cardiopulmonary bypass surgery, myocardial infarction utilizing thrombolysis,
and myocardial infarction utilizing PTCA. We are developing our other C5
Inhibitor product candidate, 5G1.1, for the treatment of inflammation related to
chronic autoimmune disorders. The initial indications for which we have pursued
clinical development activities for 5G1.1 are rheumatoid arthritis, membranous
nephritis, lupus nephritis, dermatomyositis, bullous pemphigoid, and psoriasis.
The selection of these eight indications is based upon our belief that each
represents a clinical condition which is:
. closely tied to the production of activated complement
byproducts;
. characterized by clear development pathways;
. inadequately treated by current therapies; and
. associated with substantial health care costs.
To date, pexelizumab and 5G1.1 have been observed to be safe and well
tolerated in completed and ongoing clinical trials in which over 2,700
individuals were treated with either C5 Inhibitor or placebo.
Pexelizumab
Pexelizumab is a humanized, single chain antibody that has been shown
to block complement activity for up to 20 hours after a single injection at the
doses tested and is designed for the treatment of acute inflammatory conditions.
In January 1999, we entered into a collaboration arrangement with Procter &
Gamble to develop and commercialize pexelizumab. Under this collaboration, we
expect to pursue the development of pexelizumab for the treatment of
inflammation caused by various acute cardiovascular indications and procedures
such as cardiopulmonary bypass surgery, myocardial infarction and angioplasty.
Procter & Gamble has agreed to fund clinical development and manufacturing costs
relating to pexelizumab for these indications.
Cardiopulmonary Bypass Surgery
In cardiopulmonary bypass surgery, blood is diverted from a patient's
heart and lungs to a cardiopulmonary, heart-lung, bypass machine in the
operating room. The machine adds oxygen to the blood and circulates the
oxygenated blood to the organs in the patient's body. Significant side effects
of CPB or cardiopulmonary bypass surgery include tissue damage and excessive
bleeding during and after the procedure. We believe these side effects may
result from the activation of the complement cascade when the patient's blood
comes into contact with the plastic lining of the machine and when insufficient
blood flows through the heart as a result of the procedure and after blood flow
through the heart is reintroduced following completion of the procedure.
Activated complement byproducts may be increased by over 1000% in patients
undergoing CPB. The inflammation is also characterized by the activation of
leukocytes, a type of white blood cell, and platelets, cells responsible for
clotting. We believe that this leukocyte activation is associated with impaired
lung, heart, brain and kidney function. We further believe that platelet
activation and subsequent platelet dysfunction during the procedure impair a
patient's ability to stop the bleeding that occurs after extensive surgery.
Pexelizumab is designed to rapidly penetrate the patient's tissues and
to inhibit complement activation in patients immediately before, during and
after cardiopulmonary bypass in order to reduce the cardiovascular and brain
tissue damage and bleeding complications. We believe inhibition of the
inflammatory response may reduce:
. the incidence of death;
. the incidence of heart tissue damage;
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. the incidence of stroke or blockage of blood vessels in brain;
. post-operative or after surgery complications;
. the time spent by patients in the intensive care unit or ICU;
. the scope of required treatments associated with CPB; and
. the need for blood transfusions.
The American Heart Association estimates that in 1997, approximately
600,000 cardiopulmonary bypass operations were performed in the United States.
Currently, products utilized in patients undergoing cardiopulmonary bypass are
designed to enhance the coagulation of blood so as to reduce the need for blood
transfusions. However, we believe these products have little beneficial effect
on the heart and brain inflammatory complications associated with the surgery.
Our pre-clinical studies indicated that C5 Inhibitors can prevent
activation of platelets and leukocytes and the subsequent inflammatory response
that occurs during the circulation of human blood in a closed-loop
cardiopulmonary bypass machine. These pre-clinical studies additionally
indicated that administration of a C5 Inhibitor may reduce cardiac damage
associated with reduced heart blood flow.
Clinical Trials - CPB
In January 1999, we commenced dosing in a Phase IIb clinical trial with
pexelizumab in patients undergoing coronary artery bypass graft surgery with or
without accompanying valve surgery during CPB. The objective of this
multi-center, double-blinded, randomized, placebo-controlled study was to assess
the safety and effectiveness of pexelizumab in these patients. After completion
of this trial, preliminary results from this trial were released in January 2001
which suggested that pexelizumab blocked complement, reduced inflammation and
appeared to be safe and well-tolerated. Some patients in the trial experienced
serious adverse events which included irregular heartbeat, infection, right
heart failure and internal bleeding. The most common adverse events were
irregular heartbeat, nausea and anemia. The primary therapeutic, exploratory
pre-set goal of the trial, referred to as the primary endpoint, was not
achieved. However, in the pre-specified population that included approximately
90% of the patient population, the 800 patients who had coronary artery bypass
graft surgery, or CABG, without valve surgery, those that received pexelizumab
at the highest dose level experienced a significant reduction in larger
post-surgical heart attacks.
We are currently evaluating the data from this trial. If our final
analysis is positive, and if the FDA agrees with the analysis, we expect to
initiate a Phase III trial of the safety and effectiveness of pexelizumab. We
expect that this trial would focus on treating patients undergoing CABG along
with CPB, and would be conducted with Procter & Gamble, our partner in the
development and commercialization of pexelizumab.
Acute Myocardial Infarction
Myocardial infarction is an acute cardiovascular disorder in which the
coronary arteries, the blood vessels that supply nutrients to the heart muscle,
are blocked to such an extent that the flow of blood is insufficient to supply
enough oxygen and nutrients to keep the heart muscle alive. With insufficient
supply of blood, oxygen, and nutrients, the heart muscle may subsequently
infarct or die. Upon the reduction in blood flow in the coronary artery, a
complex cascade of inflammatory events involving complement proteins, platelets
and leukocytes and their secreted factors, and endothelial cells, commences
within the blood vessel. In patients suffering a myocardial infarction,
activated complement byproducts are significantly elevated. This severe
inflammatory response targeting the area of insufficient blood flow to cardiac
muscle is associated with subsequent death of heart muscle. Restoration of blood
flow is also associated with an additional inflammatory reaction with an
accompanying production of activated complement byproducts. In addition to the
high incidence of sudden cardiac death at the onset, severe complications
associated with the initial survival of an acute myocardial
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infarction include congestive heart failure, stroke, and death. The American
Heart Association estimates that approximately 1.1 million people in the United
States will have a heart attack in 2000.
We are developing pexelizumab to inhibit inflammation associated with
complement activation in order to reduce the extent of death of heart muscle in
patients suffering an acute myocardial infarction. In contrast, most drugs
currently being developed or on the market to treat myocardial infarction are
designed to improve blood flow through the heart, rather than treating the
damaging effects of inflammation caused by myocardial infarction. We and our
scientific collaborators have performed pre-clinical studies in rodents which
have demonstrated that administration of a C5 Inhibitor during periods of
insufficient supply of blood to the heart muscle and prior to restoration of
normal flow to the heart muscle significantly reduced the extent of subsequent
death of heart muscle compared to control animal studies. Additionally,
administration of a C5 Inhibitor significantly reduced the extent of cardiac
damage associated with reduced heart blood flow without subsequent restoration
of blood flow.
Clinical Trials - Acute Myocardial Infarction
In October 1998, we commenced dosing subjects in a Phase I clinical
trial in healthy individuals that was designed to evaluate dosing regimens for
subsequent cardiopulmonary bypass and myocardial infarction clinical trials. We
have used the results of this trial to select dosing regimens for subsequent
clinical trials in acute myocardial infarction and CPB patients. The results of
this trial indicated that pexelizumab was well tolerated at doses more than
three times as high as had been previously administered. We are conducting two
Phase II clinical trials, each one designed to enroll approximately 1,000
patients, with our collaborator Procter & Gamble, that test the safety and
effectiveness of pexelizumab for the treatment of acute inflammation in patients
suffering an acute myocardial infarction.
5G1.1
5G1.1 is a humanized antibody that blocks complement activity for one
to two weeks at the doses tested and is designed for the chronic treatment of
autoimmune diseases such as rheumatoid arthritis and nephritis. 5G1.1 is not
included in the collaboration with Procter & Gamble, and we have retained full
rights to 5G1.1.
Rheumatoid Arthritis
Rheumatoid arthritis is a chronic autoimmune disease directed at
various organ and tissue linings, including the lining of the joints, causing
inflammation and joint destruction. Clinical signs and symptoms of the disease
include weight loss, joint pain, morning stiffness and fatigue. Further, the
joint destruction can progress to redness, swelling and pain with frequent and
severe joint deformity. Diagnostic procedures, which may include obtaining a
sample of joint fluid, routinely demonstrate substantial elevations in the
levels of activated complement byproducts in the joint fluid of affected
rheumatoid arthritis patients. Rheumatoid arthritis is generally believed to be
caused by different types of white blood cells, including T-cells, which both
directly attack the patient's joints and also activate B-cells, another type of
white blood cell, to produce antibodies which activate complement proteins in
the joint leading to inflammation with subsequent tissue and joint destruction.
It is estimated that more than 2.0 million people are currently affected by
rheumatoid arthritis in the United States.
We are developing 5G1.1 for the treatment of patients with chronic
inflammatory diseases, including rheumatoid arthritis. We have performed
pre-clinical studies in rodent models of rheumatoid arthritis which have shown
that C5 Inhibitor administration, as compared to placebo-treated subjects:
. reduced the swelling in joints;
. prevented the onset of erosion of joints;
. reduced the inflammatory white blood cell infiltration into
the joints;
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. prevented the spread of disease to additional joints;
. blocked the onset of clinical signs of rheumatoid arthritis; and
. reduced established disease.
Currently, there are a large number of anti-inflammatory drugs under
development or on the market for the treatment of patients with rheumatoid
arthritis. These drugs include non-steroidal anti-inflammatory drugs, and their
more recent analog the COX-2 inhibitors, which generally treat the symptoms of
the disease, but do not alter disease progression. There are also several
currently available drugs that are disease-modifying agents, but these are
associated with undesirable side effects. Recently, tumor necrosis factor, or
TNF, inhibitors have been approved or are under development to reduce the
inflammatory response. TNF is one of the many injurious substances that may be
generated downstream of the complement cascade. In contrast to single agent
inhibitors like TNF inhibitors, by acting at C5 of the complement cascade, we
expect 5G1.1 both to block complement activation and reduce the production of
many of these downstream harmful substances. Because of this dual action, we
believe that 5G1.1 may provide a more potent anti-inflammatory effect.
Clinical Trials - Rheumatoid Arthritis
In December 1997, we filed an IND with the FDA for 5G1.1 in the
treatment of rheumatoid arthritis patients. In our early clinical trials, single
doses of 5G1.1 were safe and well tolerated in the study populations as compared
to placebo, showed dose-dependent reduction in complement activity in the study
subjects, and showed a reduction in C-reactive protein blood levels in the study
subjects. C-reactive protein is considered by many physicians to be the most
objective component of the American College of Rheumatology's definition of
efficacy criteria for rheumatoid arthritis drug trials. Biological and clinical
results from our Phase I/II trial demonstrated that 50% of rheumatoid arthritis
patients receiving 8.0 mg/kg of 5G1.1 achieved an ACR 20 score, a measure of
clinical benefit, as compared to 10% of placebo-treated patients.
We completed our first Phase II clinical trial testing the safety and
effectiveness of repetitive dosing of 5G1.1 in patients with rheumatoid
arthritis. Results showed that 5G1.1 appeared to be safe and well tolerated in
patients in this trial. The most commonly observed adverse events were nausea
and diarrhea. The results of this study suggested a significant three-month
efficacy as measured by ACR 20 criteria for the active arm with a dosage regimen
starting with five weekly loading doses followed by monthly intravenous or IV
administration, compared to placebo. The primary endpoint, or therapeutic
pre-set goal, for this trial was met by the group of patients who received this
mid-level dosing regimen of 5G1.1. Patients who received higher or lower doses
of 5G1.1 in the clinical trial, did not achieve the primary endpoint. Our
six-month safety data from this clinical trial showed that 5G1.1 appeared to be
safe and well tolerated in this study population. Our on-going 12-month open
label extension studies in RA and membranous nephritis will help us assess
long-term safety.
We are planning to initiate two Phase IIb RA studies, one of which we
expect may serve as a pivotal study if we obtain strong efficacy and safety
results.
Membranous Nephritis
The kidneys are responsible for filtering blood to remove toxic
metabolites or breakdown by-products and maintaining the minerals and proteins
in the blood that are required for normal metabolism. Each kidney consists of
millions of individual filtering units, or glomeruli. When glomeruli are
damaged, the kidney can no longer adequately maintain its normal filtering
function. This may result in the build-up of toxins in the blood and the loss of
valuable minerals and proteins in the urine. Clinically severe nephritis, or
kidney inflammation, is found in many patients suffering from lupus and other
autoimmune diseases. This condition occurs when more than 90% of the kidney is
destroyed by disease. Kidney failure is frequently associated with:
. hypertension;
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. strokes;
. infections;
. anemia;
. heart, lung and joint inflammation;
. coma; and
. death.
Many forms of damage to the glomeruli are mediated by the immune system,
particularly by antibodies and activated complement proteins. Membranous
nephritis is a form of kidney inflammation that is believed to be caused by a
chronic autoimmune disorder that targets the kidney. We estimate that there are
approximately 100,000 people currently afflicted with membranous nephritis in
the United States.
Membranous nephritis is characterized by kidney inflammation and
dysfunction that may eventually progress to kidney failure. Diagnostic criteria
for membranous nephritis include kidney biopsies that may demonstrate the
presence of antibodies and activated complement byproducts in the kidneys of
affected patients. The subsequent kidney inflammation leads to the abnormal loss
of substantial amounts of protein in the patient's urine; this condition is
known as proteinuria and is recognized as an objective measurement of kidney
disease. Loss of protein in the urine disturbs the normal control of water in
the blood vessels and also is believed to directly further injure the kidney.
Moreover, clinical studies by others have shown that the degree of proteinuria
is associated with the incidence of subsequent kidney failure. Additional
clinical signs associated with proteinuria may include:
. abnormally low levels of protein in the blood;
. a propensity for abnormal blood clotting;
. abnormal lipid or fat elevations; and
. substantial swelling in the abdomen, under the skin and in the legs.
Current therapies for membranous nephritis include potentially toxic drugs
more frequently used in other indications such as cancer. These drugs generally
act to suppress broadly the proliferation of many types of cells, including
white blood cells. We believe that the use of such therapies is generally
limited due to their unfavorable side effects. Even with current therapies, in
such a severe disease population more than 30% of the patients are expected to
progress to renal or kidney failure, which may require dialysis or
transplantation. In contrast, 5G1.1 directly targets the inhibition of
deleterious complement activation. We believe 5G1.1 may exert more selective and
effective anti-inflammatory activity without the adverse effects associated with
current therapies.
We have performed pre-clinical studies in rodent models of nephritis and
observed that C5 Inhibitor administration, as compared to placebo-treated
subjects, substantially reduced:
. scarring of the kidney;
. breakdown of kidney tissue into the urine;
. clogging of the kidney filtering units; and
. proteinuria.
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Clinical Trials - Membranous Nephritis
We are developing 5G1.1 for a group of kidney and kidney-related chronic
autoimmune disorders, which include membranous nephritis, lupus nephritis, and
lupus. Our strategy is to develop 5G1.1 in kidney disease by initially obtaining
safety data in the more readily available lupus patient population and then to
commence efficacy trials in patients with a kidney disorder known as membranous
nephritis. We are initially starting Phase II trials with 5G1.1 for the
treatment of membranous nephritis patients because of the more uniform clinical
presentations of membranous nephritis patients as compared to lupus patients. We
then intend to expand our efforts to conduct advanced clinical trials in other
kidney diseases and lupus.
In June 1999, we announce the results of our initial Phase I single-center
clinical trial in 24 lupus patients receiving a single bolus administration of
5G1.1. This trial showed that a single dose of 5G1.1 was safe and well
tolerated, reduced complement activity in a dose-dependent manner, and a single
8.0 mg/kg dose significantly lowered the incidence of proteinuria.
In August 1999, we commenced a Phase II multi-center, double-blinded,
randomized, placebo-controlled clinical safety and efficacy trial with multiple
doses of 5G1.1 at two to four week dosing intervals that is intended to enroll
approximately 120 membranous nephritis patients.
In February 2000, we announced that the FDA designated Fast Track status
for development of 5G1.1 for the treatment of patients with membranous
nephritis. This designation provides for expedited development and application
review for approval of a drug through the FDA.
Lupus
Lupus is an autoimmune disorder that damages the brain, lungs, heart,
joints and especially the kidneys. In lupus, antibodies deposit within
particular organs causing complement activation, inflammation and tissue
destruction. For decades, clinical studies by others have demonstrated the
presence of complement activation in lupus patients undergoing flares. Studies
have further shown an abundant deposition of activated complement proteins with
localized inflammation in tissue biopsies from kidney or other tissues in lupus
patients. The Lupus Foundation estimates that approximately 1.4 million people
in the United States have lupus. Further, up to one-half of individuals
estimated to be afflicted with lupus have nephritis. Although lupus may affect
people of either gender, women are 10 to 15 times more likely to suffer from the
disease than men.
Patients with active lupus may have a broad range of symptoms related to
the antibody and activated complement deposition and inflammation. Inflammation
of the brain may cause seizures and other neurologic abnormalities. Inflammation
of the heart may cause heart failure or sudden death. Lung inflammation causes
shortness of breath. Lupus may also cause swollen joints and arthritis. One of
the most common complications associated with lupus, however, is kidney disease,
which often leads to kidney failure requiring dialysis or transplantation.
Current therapies generally act to suppress broadly the proliferation of
many types of cells, including white blood cells. In contrast, 5G1.1 directly
targets the inhibition of deleterious complement activation. We believe 5G1.1
may exert more selective and effective anti-inflammatory activity without the
adverse effects associated with current therapies.
We are developing 5G1.1 for the prevention and treatment of inflammation in
lupus patients. We have performed pre-clinical studies in a rodent model of
lupus. In this chronic rodent model that spontaneously develops a disease
similar to lupus, substantially more animals treated with a C5 Inhibitor
survived as compared to untreated control animals.
Clinical Trials - Lupus
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We filed an IND with the FDA in late December 1997 for 5G1.1 in the
treatment of patients suffering from lupus and began a Phase I clinical trial in
lupus patients in July 1998. As discussed above, in the Clinical Trials section
of Membranous Nephritis, we announced results of a 24 patient, placebo-
controlled clinical study in June 1999. This trial showed that a single dose of
5G1.1 was safe and well tolerated, reduced complement activity in a dose-
dependent manner, and a single 8.0 mg/kg dose significantly lowered the
incidence of proteinuria.
In June 2001, we announced the commencement of a Phase II 5G1.1 trial for
lupus nephritis. This trial is expected to enroll approximately 40 lupus
nephritis patients at several clinical sites in the United States and is
designed to test the safety and biological efficacy of chronic administration of
5G1.1 for up to six months. The National Institute of Health has awarded an
approximately $1.0 million grant to the University of Colorado Health Sciences
Center to fund this multi-center Phase II study of 5G1.1 in patients with lupus
nephritis.
Psoriasis, Dermatomyositis, and Pemphigoid
In addition to the above disease indications, we filed INDs for, and
commenced Phase I pilot clinical trials with, 5G1.1 in patients afflicted with
the chronic, autoimmune disorders psoriasis, bullous pemphigoid, and
dermatomyositis. Psoriasis is life-long autoimmune disorder in which the immune
system attacks the patient's skin, which may cause red, painful and disfiguring
scaling in the affected areas. According to the National Centers for Health
Statistics, psoriasis afflicts approximately 3 million peoples in the U.S. with
an estimated 2 million physician visits a year. Bullous pemphigoid is an
autoimmune disorder in which the immune system attacks the patient's skin, which
may cause extensive and striking blistering and is associated with one-year
mortality rates of between 20 - 40%. According to published reports,
approximately 2,500 new cases of pemphigoid are expected to be diagnosed each
year in the U.S., providing an estimated prevalence of approximately 25,000
patients. Dermatomyositis is an autoimmune disorder in which the immune system
attacks the patients' muscles and skin, which may cause extensive rash and
progressive and severe muscle weakness, pain and fatigue. According to the
Muscular Dystrophy Association, approximately 2,000 - 3,000 new cases of
dermatomyositis are diagnosed each year in the U.S., with an estimated
prevalence of approximately 5,000 - 20,000 patients.
Clinical Trials - Psoriasis, Dermatomyositis, and Pemphigoid
We are testing 5G1.1 in two separate pilot Phase I clinical trials in
patients suffering from dermatomyositis, a severe inflammatory muscle disorder,
and bullous pemphigoid, a severe inflammatory skin disorder. We recently
completed a Phase I clinical trial to investigate the safety of 5G1.1 in
psoriasis patients. 5G1.1 appeared to be safe and well tolerated in this
patient population. According to a standard measure of disease activity, 5G1.1
treatment did not influence the outcome of psoriasis in this trial.
In October 2000, we announced that the FDA granted Orphan Drug status for
development of 5G1.1 for the treatment of patients with dermatomyositis. The
Orphan Drug designation provides Alexion with market exclusivity for 5G1.1 for
this indication for seven years from the drug's approval date.
Antibody Discovery Technology Platform
Combinatorial Human Antibody Library Technologies
In order to expand our pipeline of potential antibody therapeutics, in
September 2000, we acquired Prolifaron, Inc., a privately held biopharmaceutical
company, through a merger with our newly organized, wholly owned subsidiary,
Alexion Antibody Technologies, Inc. (AAT). AAT possesses extensive research
expertise and technologies in the area of creating fully human antibodies from
libraries containing billions of human antibody genes.
AAT's goal is to develop new fully human therapeutic antibodies addressing
multiple disease areas, including autoimmune and inflammatory disorders, cancer
and infectious disease. AAT's technologies involve
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the generation of diverse libraries of human antibodies derived from patients'
blood samples, and the screening of these libraries against a wide array of
potential drug targets. We believe that these technologies may be optimally
suited to the rapid generation of novel, fully human, therapeutic antibodies
directed at validated clinical targets. To date, we have focused on identifying
antibodies which may be therapeutically effective in different autoimmune or
inflammatory disorders, cancer, and infectious diseases. In addition, we believe
that these technologies could permit the pre-clinical validation of new gene
targets that are coming out of the international effort to sequence the human
genome. We also believe that these technologies might provide new therapeutic
antibodies when the libraries are screened against certain of these new gene
targets.
In May 2001, we announced the results of a pre-clinical study of a new
class of therapeutic antibodies that accelerated the return to normal platelet
levels in an animal model of bone marrow toxicity commonly found in cancer
patients. Antibodies in this new class function as agonists that stimulate
their cell target, rather than blocking it, and were created using a rational
design and selection process utilizing proprietary technology developed at AAT.
This new class of antibody agonists is designed to selectively bind to the c-Mpl
receptor on the surface of platelet precursors and then to stimulate platelet-
specific proliferation and differentiation both in vitro and in vivo.
Pre-Clinical Programs
Apogen T-Cell Immunotherapeutic Technology and Product Candidates
MP4
MP4 is a recombinant or genetically-modified protein consisting of parts of
two brain-derived proteins. These two proteins are believed to be major targets
of disease-causing T-cells in patients with multiple sclerosis. MP4 is designed
to bind specifically to, and eliminate, the small population of T-cells in
multiple sclerosis patients which are responsible for attacking the patient's
brain cells, while leaving the vast majority of uninvolved T-cells unaffected.
In addition, MP4 is designed to induce other white blood cells to suppress other
inflammatory cells.
In February 1998, we filed an IND with the FDA for MP4 for the treatment of
patients suffering from multiple sclerosis. The FDA has accepted a plan for a
Phase I clinical trial of MP4. We will determine whether we will conduct this
trial or continue to develop MP4. We may seek to license our rights to MP4 or
to otherwise collaborate with a partner in its development.
UniGraft Xenotransplantation Technologies Program
Most transplant procedures today are whole organ transplants. We believe
that there is a far greater number of patients with medical disorders, such as
Parkinson's disease and spinal cord injury, that are caused by the functional
loss of highly specialized cells. The number of these patients is likely to grow
due to both the aging of the population, with subsequent increase in the
incidence of degenerative diseases, and with the increasing incidence of trauma.
Therefore, cell transplantation could be an important benefit to a large number
of previously untreated, or severely under-treated patients suffering from
severe medical disorders. However, since there are no human donors of such
specialized cells, there is currently no available supply of such cells for
replacement therapy. Further, the immune system prevents the transplantation of
cells from other species, known as xenografts, as they are recognized by the
immune system as foreign and they are rejected. We are developing a portfolio of
UniGraft anti-rejection technologies designed to permit the therapeutic
transplantation of such cells without rejection.
Although approximately 21,000 people received whole organ transplants in
the United States in 1999, there are many times that number of patients who have
disorders that may be amenable to cell or tissue transplantation. It is
estimated that this broader population includes approximately 200,000 patients
suffering from spinal cord injury and 1.0 million individuals with Parkinson's
disease. In particular, we believe that use of a safe and effective cell
transplantation therapy for patients with spinal cord injury or Parkinson's
disease would
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represent major therapeutic advances. We are developing a portfolio of UniGraft
anti-rejection technologies designed to permit the therapeutic transplantation
of such cells without rejection.
Neurologic Cell Transplantation
We have developed methods of blocking the immune system which are designed
to permit the replacement of damaged human brain cells and other neurologic
cells with potentially highly therapeutic genetically modified porcine or pig
cells.
Rejection of non-human tissue by patients is generally believed to occur in
two stages:
. the hyperacute phase, which is very rapid, extending from minutes to
hours; and
. the acute phase, which is somewhat less rapid, extending from days to
months.
Hyperacute rejection is generally believed to be mediated by naturally-
occurring antibodies in the patient, most of which target a sugar antigen
uniquely present on the surface of non-human tissue but not on the patient's own
tissue. After binding to the foreign tissue, these antibodies stimulate the
activation of the recipient's inactive complement proteins on the surface of the
donor tissue with subsequent destruction of the donor tissue. Subsequently,
acute rejection of xenografts is generally believed to be mediated by white
blood cells.
We are designing UniGraft cell products to resist complement/antibody-
mediated hyperacute rejection. We have commenced pre-clinical studies employing
the UniGraft technologies during transplantation of genetically modified and
proprietary porcine cells that are resistant to destruction by human complement
proteins. We are currently focusing our anti-rejection and molecular engineering
technologies primarily on the development of UniGraft cells to treat Parkinson's
disease and injuries to the spinal cord. We are currently performing pre-
clinical studies in the spinal cord injury and Parkinson's disease programs and
optimizing manufacturing methods of the genetically modified pig cells.
Grants from Advanced Technology Program and National Institute of Standards and
Technology
In November 1997, both ourselves and United States Surgical Corporation
("US Surgical", a division of Tyco International, Ltd.) were awarded a three-
year $2.0 million cooperative agreement from the National Institute of Standards
and Technology or NIST under its Advanced Technology Program for funding a joint
xenotransplantation project. In February 1999, this funding was amended to a
single company award to us with our reacquisition of the rights to all aspects
of our xenotransplantation program from US Surgical which had been acquired by
Tyco International Ltd. As of July 31, 2001, this award has been completed.
In October 1998, we were granted our third award under this program, a
three-year grant supporting product development within our neurologic disorder
transplantation program. Through the program, we may receive up to approximately
$2.0 million over three years to support our UniGraft program to develop a
spinal cord injury product within our neurologic disorder xenotransplantation
program. Through July 31, 2001, we had received approximately $1.2 million under
this award.
In November 1999, we were granted our fourth award under this program, a
three-year grant supporting product development within our UniGraft program.
Through the program, we may receive up to approximately $2.0 million over three
years to support our production of UniGraft products. Through July 31, 2001, we
had received approximately $442,000 under this award.
Strategic Alliance with Procter & Gamble
In January 1999, we entered into an exclusive collaboration with Procter &
Gamble to develop and commercialize pexelizumab. Under this collaboration, we
expect to initially pursue the development of pexelizumab for the treatment of
inflammation caused by cardiopulmonary bypass surgery, myocardial infarction
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or heart attack, and angioplasty. Under the current agreement, Procter & Gamble
is expected to fund clinical development and manufacturing costs relating to
pexelizumab for these indications. Additionally, under this agreement, Procter &
Gamble has contracted to pay us up to $95 million in payments, which included a
one-time non-refundable up-front license fee, as well as milestone and research
and development support payments. In addition, we will receive royalties on
worldwide sales of pexelizumab for all indications. We also have a preferred
position relative to third-party manufacturers to manufacture pexelizumab
worldwide. We share co-promotion rights with Procter & Gamble to market
pexelizumab in the United States, and have granted Procter & Gamble the
exclusive rights to sell, market and distribute pexelizumab outside of the
United States. Through July 31, 2001, we received proceeds of $44.8 million from
Procter & Gamble, including a non-refundable up-front license fee of $10.0
million and $34.8 million in research and development support payments.
Manufacturing
We obtain drug product to meet our requirements for clinical studies using
both internal and third-party contract manufacturing capabilities. We have a
pilot manufacturing plant suitable for the fermentation and purification of
certain of our recombinant compounds for clinical studies. Our pilot plant has
the capacity to manufacture under cGMP or current good manufacturing practices
regulations. We have also secured the production of clinical supplies of certain
other recombinant products through third-party manufacturers. In each case, we
have contracted product finishing, vial filling, and packaging through third
parties. Procter & Gamble is responsible for securing commercial supplies of
pexelizumab.
To date, we have not invested in the development of commercial
manufacturing capabilities. Although we have established a pilot manufacturing
facility for the production of material for clinical trials for some of our
potential products, we do not have sufficient capacity to manufacture more than
one drug candidate at a time or to manufacture our drug candidates for later
stage clinical development or commercialization. In the longer term, we may
contract the manufacture of our products for commercial sale or may develop
large-scale manufacturing capabilities for the commercialization of some of our
products. The key factors which will be given consideration when making the
determination of which products will be manufactured internally and which
through contractual arrangements will include the availability and expense of
contracting this activity, control issues and the expertise and level of
resources required for us to manufacture products. In addition, as our product
development efforts progress, we expect that we will need to hire additional
personnel skilled in product testing and regulatory compliance.
Sales and Marketing
We currently have no sales, marketing, or distribution capabilities. We
will need to establish or contract these capabilities to commercialize
successfully any of our drug candidates. 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. Under
our current collaboration agreement, Procter & Gamble is obligated to sell,
market and distribute pexelizumab for all approved indications worldwide. We
share with Procter & Gamble co-promotion rights for pexelizumab in the United
States. For other future drug products, as well as for pexelizumab in the United
States, we may elect to establish our own specialized sales force and marketing
organization to market our products.
Patents and Proprietary Rights
Patents and other proprietary rights are important to our business. Our
policy is to file patent applications to protect technology, inventions and
improvements to our technologies that are considered important to the
development of our business. We also rely upon our trade secrets, know-how, and
continuing technological innovations to develop and maintain our competitive
position, as well as patents that we have licensed or may license from other
parties.
We have filed several U.S. patent applications and international
counterparts of certain of these applications. In addition, we have licensed
several additional U.S. and international patents and patent
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applications. Of our owned and licensed patents and patent applications as of
July 31, 2001, 18 relate to technologies or products in the C5 Inhibitor
program, 8 relate to the Apogen program, 33 relate to the UniGraft program, 11
relate to the recombinant human antibody program and 1 relates to the high
throughput compound screening program. We will owe royalties and other fees to
the licensors of some of those patents and patent applications in connection
with the commercial manufacture and sale of our expected product candidates,
including, pexelizumab and 5G1.1.
Our success will depend in part on our ability to obtain United States and
international patent protection for our products and development programs, to
preserve our trade secrets and proprietary rights, and to operate without
infringing on the proprietary rights of third parties or having third parties
circumvent our rights. Because of the length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the health care industry has traditionally placed considerable
importance on obtaining patent and trade secret protection for significant new
technologies, products and processes.
We are aware of broad patents owned by third parties relating to the
manufacture, use, and sale of recombinant humanized antibodies, recombinant
humanized single-chain antibodies, recombinant human antibodies, recombinant
human single-chain antibodies, and genetically engineered animals. Many of our
product candidates are genetically engineered antibodies, including recombinant
humanized antibodies, recombinant humanized single chain antibodies, recombinant
human antibodies, and recombinant human single chain antibodies, and other
products are tissues from animals. We have received notices from the owners of
some of these patents in which the owners claim that some of these patents may
be relevant to the development and commercialization of some of our drug
candidates. With respect to certain of these patents which we believe are
relevant for the expeditious development and commercialization of certain of our
products as currently contemplated, we have acquired licenses. With regard to
certain other patents, we have either determined in our judgment that our
products do not infringe the patents or we can license such patents on
commercially reasonable terms or we have identified and are testing various
approaches which we believe should not infringe the patents and which should
permit commercialization of our products.
It is our policy to require our employees, consultants, members of our
scientific advisory board, and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or collaborations with us. These agreements generally provide that
all confidential information developed or made known during the course of
relationship with us is to be kept confidential and not to be disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
Government Regulation
The pre-clinical studies and clinical testing, manufacture, labeling,
storage, record keeping, advertising, promotion, export, and marketing, among
other things, of our proposed products are subject to extensive regulation by
governmental authorities in the United States and other countries. In the United
States, pharmaceutical products are regulated by the FDA under the Federal Food,
Drug, and Cosmetic Act and other laws, including, in the case of biologics, the
Public Health Service Act. At the present time, we believe that our currently
anticipated products will be regulated by the FDA as biologics.
The steps required before a novel biologic may be approved for marketing in
the United States generally include:
(1) pre-clinical laboratory tests and in vivo, or within a living
organism, pre-clinical studies;
(2) the submission to the FDA of an IND for human clinical testing, which
must become effective before human clinical trials may commence;
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(3) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product;
(4) the submission to the FDA of a biologics license application or BLA;
and
(5) FDA review and approval of such application.
The testing and approval process requires substantial time, effort and
financial resources. Prior to and following approval, if granted, the
establishment or establishments where the product is manufactured are subject to
inspection by the FDA and must comply with cGMP requirements enforced by the FDA
through its facilities inspection program. Manufacturers of biological materials
also may be subject to state regulation.
Pre-clinical studies include animal studies to evaluate the mechanism of
action of the product, as well as animal studies to assess the potential safety
and efficacy of the product. Pre-clinical safety tests must be conducted in
compliance with FDA regulations regarding good laboratory practices and
compounds used for clinical trials must be produced according to applicable cGMP
requirements. The results of the pre-clinical tests, together with manufacturing
information and analytical data, are submitted to the FDA as part of an IND,
which must become effective before human clinical trials may be commenced. The
IND will automatically become effective 30 days after receipt by the FDA, unless
the FDA before that time requests an extension to review or raises concerns
about the conduct of the trials as outlined in the application. In such latter
case, the sponsor of the application and the FDA must resolve any outstanding
concerns before clinical trials can proceed. We cannot assure you that
submission of an IND will result in FDA authorization to commence clinical
trials.
Clinical trials involve the administration of the investigational product
to healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail many items, including:
. the objectives of the study;
. the parameters to be used to monitor safety; and
. the efficacy criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the IND. Further,
each clinical study at each clinical site must be reviewed and approved by an
independent institutional review board, prior to the recruitment of subjects.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap and different trials may be initiated with the same drug
within the same phase of development in similar or differing patient
populations. In Phase I, the initial introduction of the drug into human
subjects, the drug is tested for safety and, as appropriate, for absorption,
metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics.
Phase II usually involves studies in a limited patient population to:
. evaluate preliminarily the efficacy of the drug for specific, targeted
indications;
. determine dosage tolerance and optimal dosage; and
. identify possible adverse effects and safety risks.
Phase III trials are undertaken to further evaluate clinical efficacy of a
specific endpoint and to test further for safety within an expanded patient
population at geographically dispersed clinical study sites. Phase I, Phase II
or Phase III testing may not be completed successfully within any specific time
period, if at all, with respect to any products being tested by a sponsor.
Furthermore, the FDA may suspend clinical trials at any time
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on various grounds, a finding that the subjects or patients are being exposed to
an unacceptable health risk.
The results of the pre-clinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA as part of a BLA requesting approval for the marketing of
the product. The FDA will occasionally convene an Advisory Panel of experts to
review and recommend a non-binding course of action regarding a sponsor's BLA
requests. The FDA may deny approval of the application if applicable regulatory
criteria are not satisfied, or if additional testing or information is required.
Post-marketing testing and surveillance to monitor the safety or efficacy of a
product may be required. FDA approval of any application may include many delays
or never be granted. Moreover, if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if safety or manufacturing problems
occur following initial marketing. Among the conditions for approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to cGMP requirements. These requirements must
be followed at all times in the manufacture of the approved product. In
complying with these requirements, manufacturers must continue to expend time,
monies and effort in the area of production and quality control to ensure full
compliance.
Both before and after the FDA approves a product, the manufacturer and the
holder or holders of the BLA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the pre-clinical and clinical testing process, the review process, or
at any time afterward, including after approval, may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or the BLA holder.
In addition, later discovery of previously unknown problems may result in
restrictions on a product, its manufacturer, or the BLA holder, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development.
For clinical investigation and marketing outside the United States, we are
also subject to foreign regulatory requirements governing human clinical trials
and marketing approval for drugs. The foreign regulatory approval process
includes all of the risks associated with FDA approval set forth above as well
as country-specific regulations.
No xenotransplantation-based therapeutic product has been approved for sale
by the FDA. The FDA has not yet established definitive regulatory guidelines for
xenotransplantation, but has proposed interim guidelines in an attempt to reduce
the risk of contamination of transplanted organ and cellular products with
infectious agents. Definitive guidelines in the United States may never be
issued, if at all. Current companies involved in this field, including
ourselves, may not be able to comply with any final and definitive federal
guidelines that may be issued.
Competition
Currently, many companies, including major pharmaceutical and chemical
companies as well as specialized biotechnology companies, are engaged in
activities similar to our activities. Universities, governmental agencies and
other public and private research organizations also conduct research and may
market commercial products on their own or through joint ventures. These
companies and organizations are in the United States, Europe and elsewhere.
Many of these entities may have:
. substantially greater financial and other resources;
. larger research and development staffs;
. lower labor costs; and/or
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. more extensive marketing and manufacturing organizations.
Many of these companies and organizations have significant experience in
pre-clinical testing, human clinical trials, product manufacturing, marketing
and distribution and other regulatory approval procedures. They may also have a
greater number of significant patents and greater legal resources to seek
remedies for cases of alleged infringement of their patents by us to block,
delay, or compromise our own drug development process.
We compete with large pharmaceutical companies that produce and market
synthetic compounds and with specialized biotechnology firms in the United
States, Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Many biotechnology companies have focused their developmental efforts in the
human therapeutics area, and many major pharmaceutical companies have developed
or acquired internal biotechnology capabilities or have made commercial
arrangements with other biotechnology companies. A number of biotechnology and
pharmaceutical companies are developing new products for the treatment of the
same diseases being targeted by us; in some instances these products have
already entered clinical trials or are already being marketed. Other companies
are engaged in research and development based on complement proteins, T-cell
therapeutics, gene therapy and xenotransplantation.
Each of Avant Immunotherapeutics, Inc., Millennium Pharmaceuticals, Inc.,
Tanox, Inc., Abbott Laboratories, Baxter International Inc., Gliatech Inc.,
Neurogen Corporation, and Biocryst Pharmaceuticals Inc. has publicly announced
intentions to develop complement inhibitors to treat diseases related to trauma,
inflammation or certain brain or nervous system disorders. Avant has initiated
clinical trials for a proposed complement inhibitor to treat acute respiratory
distress syndrome, myocardial infarction, lung transplantation, and in infants
and adults undergoing heart and/or lung bypass procedures. We are aware that
Pfizer, Inc., GlaxoSmithKline plc, and, Merck & Co., Inc. are also attempting to
develop complement inhibitor therapies. We believe that our potential C5
Inhibitors differ substantially from those of our competitors due to our
compounds' demonstrated ability to specifically intervene in the complement
cascade at what we believe to be the optimal point so that the disease-causing
actions of complement proteins generally are inhibited while the normal disease-
preventing functions of complement proteins generally remain intact as do other
aspects of immune function.
We further believe that, under conditions of inflammation, a complement
inhibitor compound which only indirectly addresses the harmful activity of
complement may be bypassed by pathologic mechanisms present in the inflamed
tissue. Each of Bayer AG, Immunex Corp., Pharmacia & Upjohn Inc. and Rhone-
Poulenc SA sells a product which is used clinically to reduce surgical bleeding
during cardiopulmonary bypass surgery, but has little beneficial effect on other
significant inflammatory morbidities associated with cardiopulmonary bypass
surgery. We believe that each of these drugs does not significantly prevent
complement activation and subsequent inflammation that lead to organ damage and
blood loss during cardiopulmonary bypass surgery, but instead each drug attempts
to reduce blood loss by shifting the normal blood thinning/blood clotting
balance in the blood towards enhanced blood clotting.
Nextran Inc., a subsidiary of Baxter International Inc., and Imutran Ltd.,
a wholly-owned subsidiary of Novartis Pharma AG, are seeking to develop pig cell
xenograft technology. Novartis Pharma AG is also collaborating with
Biotransplant Inc. to commercially develop xenograft organs in a joint venture
known as Immerge, Inc. We are aware that Diacrin Inc. and Genzyme Tissue
Repair, Inc. are working in this field.
Each of Cambridge Antibody Technology, PLC, MorphoSys AG, and Dyax
Corporation have publicly announced intentions to develop therapeutic
genetically altered human antibodies from libraries of human antibody genes.
Additionally, each of Abgenix, Inc. and Medarex, Inc. have publicly announced
intentions to develop therapeutic genetically altered human antibodies from mice
that have been bred to include some human antibody genes.
Employees
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As of October 1, 2001, we had 140 full-time employees, of which 123
were engaged in research, development, manufacturing, and clinical development,
and 17 in administration and finance. Doctorates are held by 42 of our
employees. Each of our employees has signed a confidentiality agreement.
Item 2. PROPERTIES.
Facilities
We lease our headquarters and research and development facilities in
Cheshire, Connecticut, where we relocated in November 2000. The lease has a term
of ten years and six months. At this site, we lease a total of approximately
82,000 square feet of space, which includes approximately 62,000 square feet
related to research and laboratories. We have incurred initial leasehold
improvements aggregating approximately $4.8 million. In addition, we are paying
a pro rata percentage of real estate taxes and operating expenses. Our pilot
manufacturing plant, which may be used for producing compounds for some of our
current and anticipated clinical trials, is expected to remain in New Haven,
Connecticut encompassing approximately 30,000 square feet of labs and offices.
We are currently negotiating a longer-term arrangement for this facility. We
believe our new facilities and our pilot manufacturing facility will be adequate
for our ongoing current clinical activities. Alexion Antibody Technologies, Inc.
leases approximately 7,500 square feet of labs and office space in San Diego,
California.
Item 3. LEGAL PROCEEDINGS.
We are not a party to any material legal proceeding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The executive officers and key employees of the Company and their respective
ages and positions with the Company as of October 1, 2001 were as follows:
Name Age Position with Alexion
---- --- ---------------------
Leonard Bell, M.D................................... 43 President, Chief Executive Officer, Secretary,
Treasurer, Director
David W. Keiser..................................... 50 Executive Vice President, Chief Operating
Officer
Stephen P. Squinto, Ph.D............................ 45 Executive Vice President and Head of Research
Katherine S. Bowdish, Ph.D.......................... 44 Senior Vice President of Antibody Discovery,
President of Alexion Antibody Technologies
Samuel S. Chu, Ph.D................................. 51 Vice President of Process Sciences and
Manufacturing
Thomas I.H. Dubin, J.D.............................. 39 Vice President and General Counsel
Barry P. Luke....................................... 43 Vice President of Finance and Administration,
Assistant Secretary
Christopher F. Mojcik, M.D., Ph.D................... 41 Vice President of Clinical Development
Nancy Motola, Ph.D.................................. 48 Vice President of Regulatory Affairs and
Quality Assurance
Scott A. Rollins, Ph.D.............................. 38 Vice President of Drug Development and
Project Management
Russell P. Rother, Ph.D............................. 40 Vice President of Discovery Research
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Daniel N. Caron..................................... 38 Senior Director of Operations and Engineering
William Fodor, Ph.D................................. 43 Senior Director of Xenotransplantation
Leonard Bell, M.D. is the principal founder of Alexion, and has been a
director of Alexion since February 1992 and the Company's President and Chief
Executive Officer, Secretary and Treasurer since January 1992. From 1991 to
1992, Dr. Bell was an Assistant Professor of Medicine and Pathology and
co-Director of the program in Vascular Biology at the Yale University School of
Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the Yale-New
Haven Hospital and an Assistant Professor in the Department of Internal Medicine
at the Yale University School of Medicine. Dr. Bell was a recipient of the
Physician Scientist Award from the National Institutes of Health and
Grant-in-Aid from the American Heart Association as well as various honors and
awards from academic and professional organizations. His work has resulted in
more than 20 scientific publications and three patent applications. Dr. Bell is
a director of The Medicines Company, and Connecticut United for Research
Excellence, Inc. He also served as a director of the Biotechnology Research and
Development Corporation from 1993 to 1997. Dr. Bell received his A.B. from Brown
University and M.D. from Yale University School of Medicine. Dr. Bell is
currently an Adjunct Assistant Professor of Medicine and Pathology at Yale
University School of Medicine.
David W. Keiser has been Executive Vice President and Chief Operating
Officer of Alexion since July 1992. From 1990 to 1992, Mr. Keiser was Senior
Director of Asia Pacific Operations for G.D. Searle & Company Limited, a
manufacturer of pharmaceutical products. From 1986 to 1990, Mr. Keiser was
successively Licensing Manager, Director of Product Licensing and Senior
Director of Product Licensing for Searle. From 1984 to 1985, Mr. Keiser was New
Business Opportunities Manager for Mundipharma AG, a manufacturer of
pharmaceutical products, in Basel, Switzerland where he headed pharmaceutical
licensing and business development activities in Europe and the Far East. From
1978 to 1983, he was Area Manager for F. Hoffmann La Roche Ltd., a manufacturer
of pharmaceutical products, in Basel, Switzerland. Mr. Keiser received his B.A.
from Gettysburg College.
Stephen P. Squinto, Ph.D. is a founder of Alexion and has been
Executive Vice President and Head of Research since August 2000. He has held the
positions of Senior Vice President and Chief Technical Officer from March 1998
to July 2000, Vice President of Research, Molecular Sciences, from August 1994
to March 1998, Senior Director of Molecular Sciences from July 1993 to July
1994, and Director of Molecular Development from 1992 to July 1993. From 1989 to
1992 Dr. Squinto held various positions at Regeneron Pharmaceuticals, Inc. most
recently serving as Senior Scientist and Assistant Head of the Discovery Group.
From 1986 to 1989, Dr. Squinto was an Assistant Professor of Biochemistry and
Molecular Biology at Louisiana State University Medical Center. Dr. Squinto's
work has led to over 70 scientific papers in the fields of gene regulation,
growth factor biology and gene transfer. Dr. Squinto's work is primarily in the
fields of regulation of eukaryotic gene expression, mammalian gene expression
systems and growth receptor and signal transduction biology. Dr. Squinto also
serves as a Director of the BRDC since 1997. Dr. Squinto received his B.A. in
Chemistry and Ph.D. in Biochemistry and Biophysics from Loyola University of
Chicago.
Katherine S. Bowdish, Ph.D. has been Senior Vice President of Antibody
Discovery since August 2001 and was Vice President of Antibody Discovery from
September 2000 upon joining the Company. Dr. Bowdish has also been President of
Alexion Antibody Technologies, Inc., a wholly-owned subsidiary of the Company,
since September 2000. Dr. Bowdish was a co-founder and Chief Scientific Officer
and Executive Vice President of Prolifaron, Inc. Prolifaron, a San Diego,
California based antibody engineering company was merged into Alexion Antibody
Technologies, Inc. in September 2000. From 1997 to 1998, and the Chief Executive
Officer and Chief Scientific Officer of Prolifaron from 1998 to 2000. Dr.
Bowdish previously held positions at The Scripps Research Institute, Monsanto,
and Rockefeller University. Dr. Bowdish is an internationally recognized expert
in the field of antibody engineering and has 19 years of experience in
biotechnology research. Dr. Bowdish received her B.S. degree in biology from the
College of William and Mary, M.A. degree in cell biology from Columbia
University, and Ph.D. degree in genetics from Columbia University.
-22-
Samuel S. Chu, Ph.D. has been Vice President of Process Sciences and
Manufacturing since September 2000. Before joining Alexion Dr. Chu was Director
of the Biotech Development and Pilot Plant, Bio-Chemistry Division operations at
Bristol-Meyers Squibb, Co from 1993 to 2000. From 1990 to 1993 Dr. Chu was an
Associate Director of Product Development and Scale-up at Lederle-Praxis
Biologicals, a division of American Cyanamid. From 1985 to 1990 Dr. Chu was the
Associate Director of Product Development and Scale-up at Praxis Biologics. Dr.
Chu received his B.S. from National Chung-Hsing University, M.S. from Illinois
Institute of Technology, and Ph.D. degree from the University of Toronto.
Thomas I.H. Dubin, J.D. joined the Company in January 2001 as Vice
President and General Counsel. From February 1999 to September 2000 he served as
Vice President, General Counsel and Secretary for ChiRex Inc., a NASDAQ-traded
international corporation providing advanced process development services and
specialty manufacturing to the pharmaceutical industry, which in September 2000
was acquired by and merged into Rhodia. From 1992 to 1999, Mr. Dubin held
various positions with Warner-Lambert Company, including Assistant General
Counsel, Pharmaceuticals. Prior to his tenure with Warner-Lambert, Mr. Dubin was
a corporate attorney for five years with Cravath, Swaine & Moore in New York.
Mr. Dubin received his J.D. from New York University and his B.A., cum laude,
from Amherst College.
Barry P. Luke has been Vice President of Finance and Administration
since September 1998 and Senior Director of Finance and Administration of
Alexion from August 1995 to September 1998 and prior thereto as Director of
Finance and Accounting of the Company from May 1993. From 1989 to 1993, Mr. Luke
was Chief Financial Officer, Secretary and Vice President-Finance and
Administration at Comtex Scientific Corporation, a publicly held distributor of
electronic news and business information. From 1985 to 1989, he was Controller
and Treasurer of Softstrip, Inc., a manufacturer of computer peripherals and
software. From 1980 to 1985, Mr. Luke was employed by General Electric Company
where he held positions at GE's Corporate Audit Staff after completing GE's
Financial Management Program. Mr. Luke received a B.A. in Economics from Yale
University and an M.B.A. in management and marketing from the University of
Connecticut.
Christopher F. Mojcik, M.D., Ph.D. has been Vice President of Clinical
Development since August 2000. Since joining the Alexion in July 1998 to July
2000, Dr. Mojcik was Senior Director of Clinical Development. From 1996 until
July 1998, he was an Associate Director in the Metabolics/Rheumatics Department
at Bayer Corporation's Pharmaceuticals Division. Dr. Mojcik was responsible for
Phase II and III development of certain arthritis programs and certain Phase IV
programs in cardiopulmonary bypass. From 1993 to 1996, he was a Senior Staff
Fellow in the Cellular Immunology Section of the Laboratory of Immunology in the
NIAID at the NIH. From 1991 to 1993, he completed his Fellowship in Rheumatology
in the National Institute of Arthritis and Musculoskeletal and Skin Diseases at
the NIH. He received his B.A. from Washington University in St. Louis, Missouri,
and his M.D. and Ph.D. from the University of Connecticut.
Nancy Motola, Ph.D. has been the Vice President of Regulatory Affairs
and Quality Assurance since 1998. From 1991 to 1998, Dr. Motola served as
Assistant, Associate and then Deputy Director, Regulatory affairs for the Bayer
Corporation Pharmaceuticals Division where she was responsible for regulatory
aspects of product development programs for cardiovascular, neuroscience,
metabolic and oncology drugs and included drugs targeting arthritis, cardiac
disorders, stroke and cognitive dysfunction. Dr. Motola has been responsible for
the filing of numerous INDs, other regulatory submissions and has filed New Drug
Applications for marketing approval resulting in three currently marketed drugs.
Dr. Motola held regulatory affairs positions of increasing responsibility at
Abbott Laboratories from 1989 to 1991 and at E.R. Squibb and Sons, Inc. from
1983 to 1989. She also served as past Chairperson of the Regulatory Affairs
Section of the American Association of Pharmaceuticals Scientists. Dr. Motola
received her B.A. from Central Connecticut State University and M.S. and Ph.D.
degrees in medical chemistry from the University of Rhode Island.
Scott A. Rollins, Ph.D. is a co-founder of Alexion and has been Vice
President of Drug Development and Project Management since August 2000. Dr.
Rollins was Senior Director of Project Management and Drug Development from
August 1999 to July 2000, Senior Director of Complement Biology from 1997 to
1999, Director of Complement Biology from 1996 to 1997, Principal Scientist from
1994 to 1996, and Staff Scientist from 1992 to 1994. Since 1994, Dr. Rollins has
been responsible for the pre-clinical development of our anti-
-23-
inflammatory compound 5G1.1-SC. Since 1999, Dr. Rollins has been additionally
responsible for the project management functions of 5G1.1-SC, currently under
joint development with Procter & Gamble Pharmaceuticals. Prior to 1992, Dr.
Rollins was a postdoctoral research fellow in the Department of Immunobiology at
Yale University School of Medicine. Dr. Rollins' work has led to over 50
scientific papers and patents in the fields of complement biology. He received
his B.S. in Cytotechnology and Ph.D. in Microbiology and Immunology from the
University of Oklahoma Health Sciences Center.
Russell P. Rother, Ph.D. has been Vice President of Discovery Research
since August 2001, Senior Director of Discovery Research from 1999 to 2001,
Director of Gene Technologies from 1996 to 1999, Senior Staff Scientist from
1994 to 1996 and Staff Scientist from 1992 to 1994. As one of the original
scientists at Alexion, Dr. Rother has played a critical role in the engineering
and development of Alexion's current antibody therapeutics and continues to lead
discovery efforts in the identification of new targets. Prior to 1992, Dr.
Rother was a Postdoctoral Research Fellow in the Department of Immunobiology at
Yale University School of Medicine. Dr. Rother's work has led to over 30
scientific papers and issued patents in the fields of gene therapy, autoimmunity
and complement biology. Dr. Rother received a B.S. in Biology from Southwestern
Oklahoma State University and a Ph.D. in Microbiology and Immunology from the
University of Oklahoma Health Sciences Center in conjunction with the Oklahoma
Medical Research Foundation.
Daniel N. Caron has been Senior Director of Operations and Engineering
since 1998. After joining the Company in 1992, Mr. Caron was Operations Manager
from 1992 to 1993, Senior Operations Manager from 1993 to 1996, and Director of
Operations from 1996 to 1998. Mr. Caron has been responsible for managing the
engineering, build-out, validation and maintenance of all of the Company's
research, manufacturing, and administrative facilities. Prior to 1992, Mr. Caron
was a research scientist at Imclone Systems, Inc., a biopharmaceutical firm. Mr.
Caron received his B.A. in Biology from Adelphia University and M.S. in
Biomedical Engineering from Polytechnic University of New York.
William Fodor, Ph.D. has been Senior Director of Xenotransplantation
since 1997. After joining Alexion in 1992, Dr. Fodor was a Staff Scientist from
1992 to 1994, Principal Scientist from 1994 to 1996, and Director of
Xenotransplantation from 1996 to 1997. Dr. Fodor has been responsible for
managing the pre-clinical development and manufacturing of our
xenotransplantation product candidates. Prior to 1992, Dr. Fodor was a
postdoctoral research fellow in the Section of Immunobiology at Yale University
School of Medicine and at Biogen, Inc., a biopharmaceutical firm. Dr. Fodor's
work has led to over 30 scientific papers and patents in the fields of
immunobiology and molecular biology. Dr. Fodor received his B.S. in Genetics and
Ph.D. in Molecular Genetics from Ohio State University.
-24-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock is quoted on The Nasdaq National Market under the symbol
"ALXN." The following table sets forth the range of high and low sales prices
for our common stock on The Nasdaq National Market for the periods indicated
since August 1, 1998.
Fiscal 1999 High Low
----------- ---- ---
First Quarter
(August 1, 1998 to October 31, 1998).......................... $ 10.25 $ 5.50
Second Quarter
(November 1, 1998 to January 31, 1999)........................ $ 17.75 $ 8.38
Third Quarter
(February 1, 1999 to April 30, 1999).......................... $ 14.25 $ 8.38
Fourth Quarter
(May 1, 1999 to July 31, 1999)................................ $ 12.75 $ 8.75
Fiscal 2000 High Low
----------- ---- ---
First Quarter
(August 1, 1999 to October 31, 1999).......................... $ 16.25 $10.00
Second Quarter
(November 1, 1999 to January 31, 2000)........................ $ 50.13 $12.75
Third Quarter
(February 1, 2000 to April 30, 2000).......................... $119.88 $34.81
Fourth Quarter
(May 1, 2000 to July 31, 2000)................................ $ 84.50 $30.50
Fiscal 2001 High Low
----------- ---- ---
First Quarter
(August 1, 2000 to October 31, 2001).......................... $118.63 $64.00
Second Quarter
(November 1, 2000 to January 31, 2001)........................ $112.00 $42.75
Third Quarter
(February 1, 2001 to April 30, 2001).......................... $ 54.50 $16.88
Fourth Quarter
(May 1, 2001to July 31, 2001)................................. $ 29.99 $18.50
As of October 23, 2001, we had 141 stockholders of record of our common
stock and an estimated 4,000 beneficial owners. The closing sale price of our
common stock on October 23, 2001 was $17.83 per share.
In March 2000, we completed a $120 million private placement of our
5.75% Convertible Subordinated Notes due March 15, 2007. The notes bear interest
semi-annually on September 15 and March 15 of each year, beginning September 15,
2000. The holders of the notes may convert all or a portion of the notes into
common stock at any time on or before March 15, 2007 at a conversion price of
$106.425 per share. The notes were offered to qualified institutional buyers
under the exemption from registration provided by Rule 144A under the Securities
Act of 1933, as amended, and to persons outside the United States under
Regulation S under the Securities Act. We incurred issuance costs related to
this offering of approximately $4.0 million, including discounts to J.P. Morgan
& Co., U.S. Bancorp Piper Jaffray, Chase H&Q and Warburg Dillon Read LLC, the
-25-
initial purchasers of the notes. The costs are being amortized into interest
expense over the seven-year term of the notes.
In October 2000, we filed a shelf registration statement to offer up to
$300 million of equity securities. On November 1, 2000, we sold 2.3 million
shares of common stock at a price of $90.75 per share resulting in net proceeds
of approximately $208.5 million, net of fees and other expenses of approximately
$201,000 related to the transaction.
DIVIDEND POLICY
We have never paid cash dividends. We do not expect to declare or pay
any dividends on our common stock in the foreseeable future. We intend to retain
all earnings, if any, to invest in our operations. The payment of future
dividends is within the discretion of our board of directors and will depend
upon our future earnings, if any, our capital requirements, financial condition
and other relevant factors.
-26-
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in thousands, except per share data)
Fiscal Year Ended July 31,
-----------------------------------------------------
Consolidated Statements of Operations Data:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Contract research revenues................................. $ 11,805 $ 21,441 $ 18,754 $ 5,037 $ 3,811
--------- -------- -------- ------- -------
Operating expenses:
Research and development................................ 38,871 40,187 23,710 12,323 9,079
General and administrative.............................. 7,135 4,175 2,953 2,666 2,827
In-process research and development (IPRD).............. 21,000 - - - -
Amortization of goodwill (GW)........................... 2,901 - - - -
--------- -------- -------- ------- -------
Total operating expenses................................... 69,907 44,362 26,663 14,989 11,906
--------- -------- -------- ------- -------
Operating loss............................................. (58,102) (22,921) (7,909) (9,952) (8,095)
Other income, net.......................................... 10,177 2,694 1,514 2,087 843
--------- -------- -------- ------- -------
Loss before cumulative effect of SAB 101................... (47,925) (20,227) (6,395) (7,865) (7,252)
Cumulative effect of adoption of SAB 101................... (9,118) - - - -
--------- -------- -------- ------- -------
Net Loss................................................... $ (57,043) $(20,227) $ (6,395) $(7,865) $(7,252)
Preferred Stock dividends................................. - - - (900) -
-------- -------- -------- ------- ------
Net loss applicable to common shareholders................. $ (57,043) $(20,227) $ (6,395) $(8,765) $(7,252)
========= ======== ======== ======= =======
Basic and diluted net loss per common share................ $ (3.28) $ (1.45) (0.57) $ (0.87) $ (0.97)
========= ======== ======== ======= =======
Shares used in computing net loss per common share......... 17,371 13,914 11,265 10,056 7,451
========= ======== ======== ======= =======
As of July 31,
------------------------------------------------------
Consolidated Balance Sheet Data: 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Cash, cash equivalents, and marketable securities.............. $355,274 $174,529 $28,328 $37,494 $22,749
Total current assets........................................... 362,747 180,080 35,662 37,840 22,981
Total assets................................................... 400,259 192,702 44,374 42,085 24,260
Notes payable, less current portion............................ 3,920 3,920 4,383 832 -
Convertible subordinated notes................................. 120,000 120,000 - - -
Total stockholders' equity..................................... 260,408 61,604 33,301 39,190 21,846
-27-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This report contains forward-looking statements which involve risks and
uncertainties. Such statements are subject to certain factors which may cause
our plans and results to differ significantly from plans and results discussed
in forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in "Important
Factors Regarding Forward-Looking Statements" attached hereto as Exhibit 99.
Overview
We are engaged in the discovery and development of therapeutic products
aimed at treating patients with a wide array of severe disease states, including
cardiovascular and autoimmune disorders, inflammation and cancer. Since our
inception in January 1992, we have devoted substantially all of our resources to
drug discovery, research, product and clinical development. Additionally,
through our wholly owned subsidiary, Alexion Antibody Technologies, Inc. or AAT,
we are engaged in discovering and developing a portfolio of additional antibody
therapeutics targeting severe unmet medical needs.
We are currently examining our two lead antibody product candidates in
eight clinical development programs. One of our antibody product candidates,
pexelizumab, is an antibody fragment being developed in collaboration with
Procter & Gamble Pharmaceuticals, and has completed a Phase IIb study in CPB or
cardiopulmonary bypass surgery patients undergoing CABG or coronary artery
bypass graft surgery. Pending FDA or Food and Drug Administration discussions,
we expect to initiate a Phase III efficacy trial with pexelizumab in CPB
patients at the earliest possible opportunity. Also in collaboration with
Procter & Gamble, we are currently conducting two additional large Phase II
studies with pexelizumab in acute myocardial infarction or heart attack
patients: one study in patients receiving thrombolytic therapy, a procedure for
dissolving clots that block heart vessels, and the other in patients receiving
angioplasty, a procedure for opening up narrowed or blocked arteries that supply
blood to the heart. In September 2000, the FDA granted Fast Track status for the
development of pexelizumab in CPB.
Our other lead antibody product candidate, 5G1.1, is in clinical
development for the treatment of a variety of chronic autoimmune diseases. We
initiated a Phase II study in lupus nephritis, a kidney disease, and a separate
Phase II study in membranous nephritis, a kidney disease, is ongoing. We
completed a Phase II clinical study in rheumatoid arthritis or RA patients and
we are planning to initiate two Phase IIb RA studies, one of which we expect may
serve as a pivotal study if we obtain strong efficacy and safety results.
In both rheumatoid arthritis and membranous nephritis, enrollment has
commenced in additional 12-month open-label extension studies to test long-term
safety. In addition, we have two separate on-going early stage clinical programs
to study 5G1.1 in patients with dermatomyositis, a muscle disorder, and bullous
pemphigoid, a severe inflammatory skin disorder. In October 2000, the FDA
granted us Orphan Drug status for the development of 5G1.1 for the treatment of
dermatomyositis. We recently completed a Phase I pilot safety trial of 5G1.1 in
psoriasis patients.
To date, we have not received any revenues from the sale of products. We
have incurred operating losses since our inception. As of July 31, 2001 we had
an accumulated deficit of $124.3 million. We expect to incur substantial and
increasing operating loses for the next several years due to expenses associated
with:
. product research and development;
. pre-clinical studies and clinical testing;
. regulatory activities;
. manufacturing development, scale-up and commercial manufacturing;
and
-28-
. developing a sales and marketing force.
In September 2000, we acquired Prolifaron, Inc. a privately held
biopharmaceutical company located in San Diego, California, through the issuance
of common stock and fully vested options having an aggregate fair value of
approximately $43.9 million at the date of acquisition. Prolifaron was
developing therapeutic antibodies addressing multiple diseases, including
cancer. The acquisition was in the form of a merger between our new wholly owned
subsidiary of Alexion to form Alexion Antibody Technologies, Inc., and
Prolifaron. We accounted for the acquisition of Prolifaron using the purchase
method of accounting. Through AAT0, we have developed important additional
capabilities to discover and develop additional antibody product candidates for
the treatment of inflammatory diseases and cancer.
In October 2000, we contributed technology to help form a new company,
Arradial Inc., which is aimed at commercializing our novel, desktop
silicon-based microarray assay technology. The technology is expected to have
applications in genomics and drug discovery. We are a minority shareholder of
Arradial, Inc.
We plan to develop and commercialize on our own those product
candidates for which the clinical trials and marketing requirements can be
funded by our own resources. For those products which require greater resources,
our strategy is to form corporate partnerships with major pharmaceutical
companies for product development and commercialization.
Results of Operations
Fiscal Years Ended July 31, 2001, 2000, and 1999
We earned contract research revenues of $11.8 million, $21.4 million, and
$18.8 million for the fiscal years ended July 31, 2001, 2000, and 1999,
respectively. The decrease in revenues in fiscal year 2001 as compared to 2000
was primarily due to lower contract research revenues resulting from the
completion of the Phase II pexelizumab CPB study related to our collaborative
research and development agreement with Procter & Gamble. The increase in
revenues in fiscal year 2000 as compared to 1999 was primarily due to the
increased contract revenues from our collaborative research and development
agreement with Procter & Gamble.
During fiscal year 2001, we incurred research and development expenses of
$38.9 million, excluding non-cash charges related to our acquisition of
Prolifaron. These non-cash charges included the in-process research and
development charge of $21 million and the amortization of goodwill or purchased
intangibles of $2.9 million. For fiscal years 2000 and 1999, we incurred
research and development expenses of $40.2 million and $23.7 million,
respectively. The decrease in research and development expenses for fiscal 2001
as compared to 2000 was primarily attributable to lower clinical manufacturing
and clinical trial costs associated with the completion of the Phase II
pexelizumab CPB study. These lower costs were offset by increased costs from
clinical trials, manufacturing development, and manufacturing of our other lead
C5 Inhibitor product candidate, 5G1.1, and the consolidated on-going research
and development costs of AAT which was formed through the September 2000
acquisition of Prolifaron. The increase in research and development costs for
fiscal 2000 as compared to 1999 was primarily attributable to the on-going
clinical trials of our lead C5 Inhibitor product candidates and the cost of
manufacturing development and manufacturing of our C5 Inhibitors for our
clinical trials.
Our general and administrative expenses were $7.1 million, $4.2 million and
$3.0 million for fiscal years 2001, 2000, and 1999, respectively. The increase
in general and administrative expenses in fiscal 2001 as compared to 2000 was
principally due to increased personnel and professional fees as well as higher
facilities expenses resulting from our relocation and expansion of our
operations to support its growth, including our acquisition of Prolifaron. The
increase in fiscal 2000 as compared to 1999 was principally due to higher
payroll-related costs, as well as higher facilities expenses related to
increased rent expense and professional fees related to public relations and
patent/legal costs.
-29-
Total operating expenses were substantially higher in the twelve months
ended July 31, 2001 due principally to the one-time non-cash in-process research
and development charge of $21.0 million and the non-cash amortization of
goodwill of $2.9 million resulting from the September 2000 acquisition of
Prolifaron.
Other income, net, was $10.1 million, $2.7 million, and $1.5 million
for fiscal years 2001, 2000, and 1999, respectively. The increase in fiscal year
2001 as compared to 2000 was due to increased interest income from higher cash
balances resulting from the $208.5 million of net proceeds received from the
sale of common stock in November 2000. The increase in other income, net, for
fiscal 2000 as compare to 1999 was due to increased interest income from higher
cash balances resulting from the net proceeds obtained from the issuance of $120
million of subordinated convertible notes in March 2000.
During fiscal year 2001, we recorded a $9.1 million non-cash charge
that is related to the cumulative change in accounting principle per the
adoption of Staff Accounting Bulletin No. 101 or SAB 101. We were required to
adopt SAB 101 no later than July 31, 2001. We elected to adopt SAB 101 in the
quarter ended April 30, 2001 and recognized the non-cash cumulative effect
adjustment of $9.1 million as of August 1, 2000.
As a result of the above factors, we incurred net losses of $57.0
million, $20.2 million, and $6.4 million for fiscal years ended July 31, 2001,
2000, and 1999, respectively. Shown below are our statements of operations for
fiscal years ended 2001, 2000, and 1999. Excluding the impact of the non-cash
charges resulting from our acquisition of Prolifaron, we incurred a pro forma
net loss of $24.0 million for the fiscal year ended July 31, 2001.
Twelve months ended July 31,
(amounts in 000s, except per share data) -----------------------------------------------------
2001 2001 2000 1999
---- ---- ---- ----
pro forma -a)
Contract Research Revenues $ 11,805 $ 11,805 $ 21,441 $18,754
-------- -------- -------- -------
Operating Expenses:
Research and development 38,871 38,871 40,187 23,710
General and administrative 7,135 7,135 4,175 2,953
In-process research & development (IPRD) - 21,000 - -
Amortization of goodwill (GW) - 2,901 - -
-------- -------- -------- -------
Total operating expenses 46,006 69,907 44,362 26,663
-------- -------- -------- -------
Operating Loss (34,201) (58,102) (22,921) (7,909)
Other Income, net 10,177 10,177 2,694 1,514
-------- -------- -------- -------
Loss before cumulative effect of SAB 101 (24,024) (47,925) (20,227) (6,395)
Cumulative effect of adoption of SAB 101 - (9,118) - -
-------- -------- -------- -------
Net Loss $(24,024) $(57,043) $(20,227) $(6,395)
======== ======== ======== =======
Net Loss per share $ (1.38) $ (3.28) $ (1.45) $ (0.57)
======== ======== ======== =======
(a - excludes non-cash IPRD, Amortization of GW, and Cumulative effect
of adoption of SAB 101
Liquidity and Capital Resources
-30-
Since our inception in January 1992, we have financed our operations and
capital expenditures principally through private placements of our common and
preferred stock, an initial public offering of our common stock and subsequent
follow-on offerings, convertible subordinated notes, other debt financing,
payments under corporate collaborations and grants, and equipment and leasehold
improvements financing.
In October 2000, we filed a shelf registration statement to offer up to
$300 million of equity securities. On November 1, 2000, we sold 2.3 million
shares of our common stock at a price of $90.75 per share resulting in net
proceeds to us of approximately $208.5 million, net of fees and other expenses
of approximately $201,000 related to the transaction.
In March 2000, we completed a $120 million private placement of our 5.75%
Convertible Subordinated Notes due March 15, 2007. The notes bear interest semi-
annually on September 15 and March 15 of each year, beginning September 15,
2000. The holders may convert all or a portion of the notes into common stock at
any time on or before March 15, 2007 at a conversion price of $106.425 per
share. We incurred issuance costs related to this offering of approximately $4.0
million, which are being amortized into interest expense over the seven-year
term of the notes. In May 2000, pursuant to a registration rights agreement, we
filed a registration statement under the Securities Act of 1933 with the SEC to
register resales of the notes and the shares of common stock into which the
notes are convertible.
In November 1999, we sold 3.415 million shares of common stock at a price
of $14.00 per share in a follow-on public offering, resulting in net proceeds to
us of approximately $44.4 million.
In February 1999, we acquired the manufacturing assets, principally land,
buildings and laboratory equipment, for the xenotransplantation program
developed by US Surgical. We financed the purchase of the manufacturing assets
through a $3.9 million term note payable to US Surgical. Interest is 6.0% per
annum and is payable quarterly. The principal balance under the note is due in
May 2005. Security for this term note is the manufacturing assets that we
purchased.
As of July 31, 2001, our cash, cash equivalents, and marketable securities
totaled $355.3 million. At July 31, 2001, our cash and cash equivalents
consisted of $135.2 million that we hold in short-term highly liquid investments
with original maturities of less than three months. The increase in cash, cash
equivalents and marketable securities as compared to July 31, 2000 was due to
the increase in available cash resulting from our follow-on public offering of
our common stock in November 2000. As of July 31, 2001, we have invested $20.0
million in property and equipment to support our research and development
efforts. We anticipate our research and development expense will increase
significantly for the foreseeable future to support our clinical and
manufacturing development of our product candidates.
We lease our headquarters and research and development facility in
Cheshire, Connecticut that we relocated to in November 2000. The lease has a
term of ten years and six months. At this site, we lease a total of 82,000
square feet of space, which includes approximately 62,000 square feet related to
research and laboratories. We have incurred initial leasehold improvements
aggregating approximately $4.8 million. In addition, we are paying a pro rata
percentage of real estate taxes and operating expenses. Our pilot manufacturing
plant, which may be used for producing compounds for some of our current and
anticipated clinical trials, is expected to remain in New Haven, Connecticut and
encompasses approximately 30,000 square feet of labs and offices. We are
currently negotiating a longer-term arrangement for the facilities in New Haven,
Connecticut. We believe our new space and our pilot manufacturing facility will
be adequate for our current ongoing activities. Alexion Antibody Technologies,
Inc., our wholly-owned subsidiary, leases approximately 7,500 square feet of
labs and office space in San Diego, California.
Procter & Gamble has agreed to fund clinical development and manufacturing
of pexelizumab, initially for use in cardiopulmonary bypass surgery, myocardial
infarction and angioplasty. The Procter & Gamble collaboration does not involve
any of our other product candidates.
We anticipate that our existing available capital resources together with
the anticipated funding from our
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collaboration agreement with Procter and Gamble, as well as the addition of our
interest and investment income earned on available cash and marketable
securities should provide us adequate resources to fund our operating expenses
and capital requirements as currently planned for at least the next thirty-six
months. Our future capital requirements will depend on many factors, including:
. progress of our research and development programs;
. progress and results of clinical trials;
. time and costs involved in obtaining regulatory approvals;
. costs involved in obtaining and enforcing patents and any necessary
licenses;
. dependence on Procter & Gamble for performance of development and
commercial matters related to pexelizumab;
. delays in development of or changes in status of commercial
relationships;
. delays in developing or arranging satisfactory manufacturing capability;
. costs of manufacturing scale-up and commercial manufacturing;
. our ability to establish marketing and sales capabilities; and
. our ability to establish development and commercialization
relationships.
We expect to incur substantial additional costs, for:
. research;
. pre-clinical studies and clinical testing;
. manufacturing process development;
. additional capital expenditures related to personnel, and facilities
expansion;
. clinical and commercial manufacturing requirements, and;
. marketing and sales.
If and when we achieve contractual milestones related to product
development and product license applications and approvals, additional payments
would be required if we elect to continue and maintain our licenses with our
licensors, aggregating up to $15.9 million. Furthermore, we will owe royalties
to parties we have licensed intellectual property from in connection with the
sale of our products. In addition to funds we may receive from our collaboration
with Procter & Gamble, we will need to raise or generate substantial additional
funding in order to complete the development and commercialization of our
product candidates. Our additional financing may include public or private debt
or equity offerings, equity line facilities, bank loans and/or collaborative
research and development arrangements with corporate partners. There can be no
assurance that funds will be available on terms acceptable by us, if at all, or
that discussions with potential strategic or collaborative partners will results
in any agreements on a timely basis, if at all. The unavailability of additional
financing could require us to delay, scale back or eliminate certain research
and product development programs or to license third parties to commercialize
products or technologies that we would otherwise undertake ourselves, any of
which could have a material adverse effect.
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For tax reporting purposes, as of July 31, 2001, we had approximately $97.6
million of federal net operating loss carryforwards, which expire through 2021
and $10.0 million of tax credit carryforwards, which expire commencing in fiscal
2008. Provisions of the Tax Reform Act of 1986 may limit our ability to utilize
net operating loss and tax credit carryforwards in any given year if certain
events occur, including a provision relating to cumulative changes in ownership
interests in excess of 50% over a three-year period. We believe that we have
triggered these limitation provisions.
Recently issued accounting standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", which together significantly change the accounting and disclosures
required for these activities and related assets. The primary changes resulting
from these standards consist of the cessation of the "pooling of interests"
method of accounting and how goodwill and intangible assets will be segregated,
amortized (or not amortized), reviewed for impairment (if any), and disclosed
within the footnotes to financial statements. Our adoption of SFAS No. 141 will
have no impact on the historical financial statements.
We elected to adopt SFAS No. 142 effective August 1, 2001. The adoption of
SFAS No. 142 will cause the amortization as it relates to the $23.2 million of
goodwill acquired in connection with acquisition of Prolifaron to cease at this
date. Prior to the adoption of this standard, this annual amortization was
expected to be approximately $3.3 million annually over a seven-year period. On
a prospective basis, this goodwill is subject to annual impairment reviews, and,
if conditions warrant, interim reviews based upon its estimated fair value.
Impairment charges, if any, will be recorded as a component of operating
expenses in the period in which the impairment is determined. We have not yet
determined whether an impairment charge, if any, would need to be recorded as a
result of the adoption of this standard.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Financial Instruments and for Hedging
Activities" which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. SFAS No. 133
was effective for fiscal years beginning after June 15, 1999. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Financial Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133 - an
Amendment of SFAS No. 133" for the sole purpose of updating the effective date
of adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 did not have an impact on our results of operations or
financial condition as we do not currently hold derivative financial instruments
and do not engage in hedging activities.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We account for our marketable securities in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). All of the cash equivalents and
marketable securities are treated as available-for-sale under SFAS 115.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell
securities which have seen a decline in market value due to changes in interest
rates. Our marketable securities are held for purposes other than trading and we
believe that we currently have no material adverse market risk exposure. The
marketable securities as of July 31, 2001, had maturities of less than two
years. The weighted-average interest rate on marketable securities at July 31,
2001 and 2000 was 4.2% and 6.9%, respectively. The fair value of marketable
securities held at July 31, 2001 was $220.1 million.
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At July 31, 2001, we had aggregate fixed rate debt of approximately $124
million. If interest rates associated with this debt were increased 10%, a
corresponding increase in our annual interest expense of approximately $700,000
would occur.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data of the Company
required in this item are set forth at the pages indicated in Item 14(a)(1).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.
Set forth below is certain information regarding our executive officers,
directors and key employees:
Name Age Position with Alexion
---- --- ---------------------
John Fried, Ph.D.(1)(2)(3).............. 71 Chairman of the board of directors
Leonard Bell, M.D.(3)................... 43 President, Chief Executive Officer, Secretary,
Treasurer, Director
David W. Keiser......................... 50 Executive Vice President, Chief Operating
Officer
Stephen P. Squinto, Ph.D................ 45 Executive Vice President and Head of Research
Katherine S. Bowdish, Ph.D.............. 44 Vice president of Antibody Discovery,
President of Alexion Antibody Technologies
Samuel S. Chu, Ph.D..................... 51 Vice President of Process Sciences and
Manufacturing
Thomas I.H. Dubin, J.D.................. 39 Vice President and General Counsel
Barry P. Luke........................... 43 Vice President of Finance and Administration,
Assistant Secretary
Nancy Motola, Ph.D...................... 48 Vice President of Regulatory Affairs and
Quality Assurance
Christopher F. Mojcik, M.D., Ph.D....... 41 Vice President of Clinical Development
Scott A. Rollins Ph.D................... 38 Vice President of Drug Development Project
Management
Russell P. Rother Ph.D.................. 40 Vice President of Discovery Research
Daniel N. Caron (4)..................... 38 Senior Director of Operations and Engineering
William L. Fodor Ph.D. (4).............. 43 Senior Director of Xenotransplantation
Jerry T. Jackson (2).................... 60 Director
Max Link, Ph.D.(1)(2)(3)................ 61 Director
Joseph A. Madri Ph.D.,M.D............... 55 Director
R. Douglas Norby (1).................... 66 Director
Alvin S. Parven (2)..................... 61 Director
(1) Member of our Audit Committee of the Board of Directors.
(2) Member of our Compensation Committee of the Board of Directors.
(3) Member of our Nominating Committee of the Board of Directors.
(4) Key employee.
Each director will hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualified or until
his or her earlier resignation or removal. Each officer serves at the discretion
of the board of directors. Drs. Bell and Squinto and Mr. Keiser are each a party
to an employment agreement with us.
John H. Fried, Ph.D. has been the Chairman of our board of directors of
Alexion since April 1992. Since 1992, Dr. Fried has been President of Fried &
Co., Inc., a health technology venture firm. Dr. Fried was a director of Syntex
Corp., a life sciences and health care company, from 1982 to 1994 and he served
as Vice Chairman of Syntex from 1985 to January 1993 and President of the Syntex
Research Division from 1976 to
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1992. Dr. Fried has originated more than 200 U.S. Patents and has authored more
than 80 scientific publications. Dr. Fried received his B.S. in Chemistry and
Ph.D. in Organic Chemistry from Cornell University.
Biographical details of the following persons are incorporated by reference
herein to the section of this Report in Part I, Item 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS. entitled "EXECUTIVE OFFICERS AND KEY EMPLOYEES OF
THE COMPANY": Leonard Bell, M.D, David W. Keiser, Stephen P. Squinto, Ph.D.,
Katherine S. Bowdish, Ph.D., Samuel S. Chu, Ph.D., Thomas I.H. Dubin, J.D.,
Barry P. Luke, Christopher F. Mojcik, M.D., Ph.D., Nancy Motola, Ph.D., Scott A.
Rollins, Ph.D., Russell P. Rother, Ph.D., Daniel N. Caron, and William Fodor,
Ph.D.
Jerry T. Jackson has been a director of Alexion since September 1999. He
was employed by Merck & Co. Inc., a major pharmaceutical company, from 1965
until his retirement in 1995. During this time, he had extensive experience in
sales, marketing and corporate management, including joint ventures. From 1993
until 1995, Mr. Jackson served as Executive Vice President of Merck with broad
responsibilities for numerous operating groups including Merck's International
Human Health, Worldwide Human Vaccines, the AgVet Division, Astra/Merck U.S.
Operations, as well as worldwide marketing. During 1993, he was also President
of the Worldwide Human Health Division. He served as Senior Vice President of
Merck from 1991 to 1992 responsible for Merck's Specialty Chemicals and
previously, he was President of Merck's Sharp & Dohme International. Mr. Jackson
serves as a director of Cor Therapeutics, Inc. and M.D. Edge, Inc. Mr. Jackson
received his B.A. from University of New Mexico.
Max Link, Ph.D. has been a director of Alexion since April 1992. From May
1993 to June 1994, Dr. Link was Chief Executive Officer of Corange (Bermuda),
the parent company of Boehringer Mannheim Therapeutics, Boehringer Mannheim
Diagnostics and DePuy Orthopedics. From 1992 to 1993, Dr. Link was Chairman of
the Board of Sandoz Pharma, Ltd., a manufacturer of pharmaceutical products.
From 1987 to 1992, Dr. Link was the Chief Executive Officer of Sandoz Pharma and
a member of the Executive Board of Sandoz, Ltd., Basel. Prior to 1987, Dr. Link
served in various capacities with the United States operations of Sandoz,
including as President and Chief Executive Officer. Dr. Link is also a director
of Access Pharmaceuticals, Inc., Discovery Labs, Inc., Protein Design Labs,
Inc., Human Genome Sciences, Inc., and Cell Therapeutics, Inc., each a publicly
held pharmaceutical company, as well as Celsion Corporation and Sulzer Medica,
Ltd.
Joseph A. Madri, Ph.D., M.D. is a founder of Alexion and has been a
director of Alexion since February 1992. Since 1980, Dr. Madri has been on the
faculty of the Yale University School of Medicine and is currently a Professor
of Pathology. Dr. Madri serves on the editorial boards of numerous scientific
journals and he is the author of over 175 scientific publications. Dr. Madri
works in the areas of regulation of angiogenesis, vascular cell-matrix
interactions, cell-cell interactions, lymphocyte-endothelial cell interactions
and endothelial and smooth muscle cell biology and has been awarded a Merit
award from the National Institutes of Health. Dr. Madri received his B.S. and
M.S. in Biology from St. John's University and M.D. and Ph.D. in Biological
Chemistry from Indiana University.
R. Douglas Norby has been a director of Alexion since September 1999. Since
January 2001, Mr. Norby has been Senior Vice President and Chief Financial
Officer of Novalux, Inc. From 1996 until December 2000, Mr. Norby he served as
Executive Vice President and Chief Financial Officer of LSI Logic Corporation, a
semiconductor company, and he has also served on the Board of LSI. From
September 1993 until November 1996, he served as Senior Vice President and Chief
Financial Officer of Mentor Graphics Corporation, a software company. Mr. Norby
served as President of Pharmetrix Corporation, a drug delivery company, from
July 1992 to September 1993, and from 1985 to 1992, he was President and Chief
Operating Officer of Lucasfilm, Ltd., an entertainment company. From 1979 to
1985, Mr. Norby was Senior Vice President and Chief Financial Officer of Syntex
Corporation, a pharmaceutical company. Mr. Norby received a B.A. in Economics
from Harvard University and an M.B.A. from Harvard Business School.
Alvin S. Parven has been a director of Alexion since May 1999. Since 1997,
Mr. Parven has been President of ASP Associates, a management and strategic
consulting firm. From 1994 to 1997, Mr. Parven was
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Vice President at Aetna Business Consulting, reporting to the Office of the
Chairman of Aetna. From 1987 to 1994, Mr. Parven was Vice President, Operations
at Aetna Health Plans. Prior to 1987, he served in various capacities at Aetna
including Vice President, Pension Services from 1983 to 1987. Mr. Parven
received his B.A. from Northeastern University.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
The information concerning our directors regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 required by this Item will be set
forth in our definitive Proxy Statement, to be filed within 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K, and is
incorporated by reference to our Proxy Statement.
Item 11. EXECUTIVE COMPENSATION.
The information required by this Item will be set forth in our definitive
Proxy Statement, to be filed within 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and is incorporated by reference to
our Proxy Statement.
Item 12. SECURITY OWNERSCHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of October 1, 2001, except as
otherwise noted in the footnotes: (1) each person known by us to own
beneficially more than 5% percent of our outstanding common stock; (2) each
director and each named executive officer; and (3) all directors and executives
of Alexion as a group.
Number of Shares Percentage of
Name and Address Beneficially Owned Outstanding Shares
of Beneficial Owner (1) (2) of Common Stock
----------------------- ------------------- --------------------
OppenheimerFunds, Inc.
Two World Trade Center, 34th Floor
New York, NY 10048-0203 (3)................................... 2,000,000 11.0%
Fidelity Management & Research Company
82 Devonshire Street
Boston, MA 02109 (4).......................................... 1,833,269 10.1%
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154-0010 (5)................................... 1,373,400 7.6%
OrbiMed Advisors, LLC
41 Madison Avenue, 40/th/ Floor
New York, NY 10010 (6)........................................ 950,000 5.2%
Leonard Bell, M.D. (7)......................................... 772,016 4.1%
Stephen P. Squinto, Ph.D. (8).................................. 225,590 1.2%
David W. Keiser (9)............................................ 225,436 1.2%
John H. Fried, Ph.D. (10)...................................... 106,670 *
Joseph Madri, Ph.D., M.D. (11)................................. 64,134 *
Max Link, Ph.D. (12)........................................... 32,157 *
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Percentage of
Number of Shares Outstanding
Name and Address Beneficially Owned Shares of
of Beneficial Owner (1) (2) Common Stock
----------------------- -------------------- ---------------
Christopher F. Mojcik, M.D., Ph.D. (13)........................ 30,076 *
Thomas I.H. Dubin, J.D. (14)................................... 11,624 *
Jerry T. Jackson (15).......................................... 9,001 *
R. Douglas Norby (16).......................................... 9,001 *
Alvin S. Parven (17)........................................... 7,901 *
All Directors and Executive Officers as a group (17 persons)
(18).......................................................... 1,751,433 9.0%
___________
* Less than one percent.
(1) Unless otherwise indicated, the address of all persons is 352 Knotter
Drive, Cheshire, Connecticut 06410.
(2) To our knowledge, except as set forth below, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community property
laws where applicable and the information contained in the footnotes in
this table.
(3) This figure is based upon information set forth in Schedule 13G dated June
6, 2001.
(4) This figure is based upon information set forth in Schedule 13G dated May
10, 2001.
(5) This figure is based upon information set forth in Schedule 13G dated
February 14, 2001.
(6) This figure is based upon information set forth in Schedule 13G dated
August 8, 2001.
(7) Includes 611,916 shares of common stock that may be acquired upon the
exercise of options within 60 days of October 1, 2001 and 300 shares, in
aggregate, held in the names of Dr. Bell's three minor children. Excludes
148,084 shares obtainable through the exercise of options, granted to Dr.
Bell, which are not exercisable within 60 days of October 1, 2001 and
90,000 shares held in trust for Dr. Bell's children of which Dr. Bell
disclaims beneficial ownership. Dr. Bell disclaims beneficial ownership of
the shares held in the name of his minor children.
(8) Includes 174,890 shares of common stock which may be acquired upon the
exercise of options within 60 days of October 1, 2001; 5,200 shares held in
trust for the benefit of Dr. Squinto's two minor children of which Dr.
Squinto's spouse is the trustee; and 10,000 shares held in a charitable
remainder trust of which Dr. Squinto and his spouse are the trustees and
income beneficiaries. Excludes 61,610 shares obtainable through the
exercise of options, granted to Dr. Squinto, which are not exercisable
within 60 days of October 1, 2001. Dr. Squinto disclaims beneficial
ownership of the shares held in the name of his minor children and the
foregoing trusts.
(9) Includes 189,136 shares of common stock which may be acquired upon the
exercise of options within 60 days of October 1, 2001 and 300 shares, in
aggregate, held in the names of Mr. Keiser's three children. Excludes
74,864 shares obtainable through the exercise of options, granted to Mr.
Keiser, which are not exercisable within 60 days of October 1, 2001. Mr.
Keiser disclaims beneficial ownership of the shares held in the name of his
minor children.
(10) Includes 4,001 shares of common stock, which may be acquired upon the
exercise of options that are exercisable within 60 days of October 1, 2001.
Excludes 16,166 obtainable through the exercise of options granted to Dr.
Fried, which are not exercisable within 60 days of October 1, 2001.
(11) Includes 19,134 shares of common stock which may be acquired on the
exercise of options that are exercisable within 60 days of October 1, 2001.
Excludes 16,166 obtainable through the exercise of options granted to Dr.
Madri, which are not exercisable within 60 days of October 1, 2001.
(12) Includes 4,001 shares of common stock which may be acquired upon the
exercise of options within 60 days of October 1, 2001. Excludes 16,166
shares obtainable through the exercise of options, granted to Dr. Link,
which are not exercisable within 60 days of October 1, 2001.
(13) Includes 30,076 shares of common stock, which may be acquired upon the
exercise of options within 60 days of October 1, 2001. Excludes 52,924
shares obtainable through the exercise of options, granted to Dr. Mojcik,
which are not exercisable within 60 days of October 1, 2001.
(14) Includes 11,624 shares of common stock which may be acquired on the
exercise of options that are exercisable within 60 days of October 1, 2001.
Excludes 59,376 shares obtainable through the exercise of options granted
to Mr. Dubin, which are not exercisable within 60 days of October 1, 2001.
(15) Includes 9,001 shares of common stock which may be acquired on the exercise
of options that are exercisable within 60 days of October 1, 2001.
Excludes 17,999 shares obtainable through the exercise of options granted
to Mr. Jackson, which are not exercisable within 60 days of October 1,
2001.
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(16) Includes 9,001 shares of common stock which may be acquired on the exercise
of options that are exercisable within 60 days of October 1, 2001.
Excludes 17,999 shares obtainable through the exercise of options granted
to Mr. Norby, which are not exercisable within 60 days of October 1, 2001.
(17) Includes 7,901 shares of common stock which may be acquired on the exercise
of options that are exercisable within 60 days of October 1, 2001.
Excludes 17,999 shares obtainable through the exercise of options granted
to Mr. Parven, which are not exercisable within 60 days of October 1, 2001.
(18) Consists of shares beneficially owned by Drs. Bell, Fried, Link, Madri,
Mojcik, and Squinto and Messrs. Dubin, Jackson, Keiser, Norby and Parven,
and certain other officers. Includes 1,264,712 shares of common stock,
which may be acquired upon the exercise of options within 60 days of
October 1, 2001.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June and October 1992, we entered into patent licensing agreements with
Oklahoma Medical Research Foundation and Yale University. The agreements provide
that we will pay to these institutions royalties based on sales of products
incorporating technology licensed thereunder and also license initiation fees,
including annual minimum royalties that increase in amount based on the status
of product development and the passage of time. Under policies of OMRF and Yale,
the individual inventors of patents are entitled to receive a percentage of the
royalties and other license fees received by the licensing institution. Some of
our founders and scientific advisors are inventors under patent and patent
applications, including Dr. Bell, one of our directors and our President and
Chief Executive Officer, Dr. Madri, one of our directors, Dr. Squinto, Executive
Vice President and Head of Research, and Dr. Rollins, Vice President of Drug
Development and Project Management with respect to patent applications licensed
from Yale and therefore, entitled to receive a portion of royalties and other
fees payable by us.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
(2) Financial Statement Schedules
Schedules have been omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.
(3) Exhibits:
2.1 Agreement and Plan of Merger by and among Alexion Pharmaceuticals, Inc.,
PI Acquisition Company, Inc., and Prolifaron, Inc., dated September 22,
2000.*/(1)/
3.1 Certificate of Incorporation, as amended.*/(2)/
3.2 Bylaws.*/(2)/
4.1 Specimen Common Stock Certificate.*/(2)/
10.1 Employment Agreement, dated April 1, 2000, between the Company and Dr.
Leonard Bell.*/(3)/
10.2 Employment Agreement, dated October 2, 2000, between the Company and
David W. Keiser.*/(4)/
10.3 Employment Agreement, dated October 22, 1997, between the Company and
Dr. Stephen P. Squinto.*/(5)/
10.4 Employment Agreement, dated September 21, 2000, between the Company
and Dr. Katherine S. Bowdish.*/(1)/
10.5 Administrative, Research and Development Facility Lease, dated May 9,
2000, between the Company and WE Knotter L.L.C.*/(6)/
10.6 Option Agreement, dated April 1, 1992 between the Company and Dr.
Leonard Bell.*/(2)/
10.7 Company's 1992 Stock Option Plan, as amended.*/(7)/
10.8 Company's 2000 Stock Option Plan.*/(8)/
10.9 Company's 1992 Outside Directors Stock Option Plan, as amended.*/(9)/
10.10 Exclusive License Agreement dated as of June 19, 1992 among the
Company, Yale University and Oklahoma Medical Research Foundation.*/(3)/
10.11 License Agreement dated as of September 30, 1992 between the Company
and Yale University, as
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amended July 2, 1993.*/(2)/+
10.12 License Agreement dated as of August 1, 1993 between the Company and
Biotechnology Research and Development Corporation ("BRDC"), as amended as
of July 1, 1995.*/(2)/+
10.13 License Agreement dated January 25, 1994 between the Company and The
Austin Research Institute.*/(2)/+
10.14 Exclusive Patent License Agreement dated April 21, 1994 between the
Company and the National Institutes of Health.*/(2)/+
10.15 License Agreement dated July 22, 1994 between the Company and The
Austin Research Institute.*/(2)/+
10.16 License Agreement dated as of January 10, 1995 between the Company and
Yale University.*/(2)/+
10.17 License Agreement dated as of May 27, 1992 between the Company and
Yale University, as amended September 23, 1992.*/(2)/+
10.18 Agreement to be Bound by Master Agreement dated as of August 1, 1993
between the Company and BRDC.*/(2)/
10.19 License Agreement dated March 27, 1996 between the Company and Medical
Research Council.*/(10)/+
10.20 License Agreement dated May 8, 1996 between the Company and Enzon,
Inc.*/(10)/+
10.21 Asset Purchase Agreement date as of February 9, 1999 between the
Company and United States Surgical Corporation.*/(11)/
10.22 Collaboration Agreement dated January 25, 1999 between the Company and
the Procter & Gamble Company, as amended.*/(11)/+
10.23 Letter agreement dated September 14, 1999 between the Company and
Leonard Bell.*/(11)/
21.1 Subsidiaries of Alexion Pharmaceuticals, Inc.
23.1 Consent of Arthur Andersen LLP
99 Risk Factors
------------------
* Previously filed
(1) Incorporated by reference to our report on Form 8-K, filed on October 3,
2000.
(2) Incorporated by reference to our Registration Statement on Form S-1 (Reg.
No. 333-00202).
(3) Incorporated by reference to our Quarterly Report on Form 10-Q for the
quarter ended April 30, 2000.
(4) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended July 31, 2000.
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(5) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended July 31, 1997.
(6) Incorporated by reference to our Registration Statement on Form S-3 (Reg.
No. 333-36738) filed on May 10, 2000.
(7) Incorporated by reference to our Registration Statement on Form S-8 (Reg.
No. 333-71879) filed on February 5, 1999.
(8) Incorporated by reference to our Registration Statement on Form S-8 (Reg.
No. 333-69478) filed on September 14, 2001.
(9) Incorporated by reference to our Registration Statement on Form S-8 (Reg.
No. 333-71985) filed on February 8, 1999.
(10) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended July 31, 1996.
(11) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended July 31, 1999.
+ Confidential treatment was granted for portions of such document.
(b) Reports on Form 8-K
Current Report on Form 8-K filed on June 7, 2001 on the issuance of
two press releases announcing the commencement of a Phase II lupus
nephritis clinical trial and the completion of a Phase I Psoriasis pilot
safety study.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See (a) (2) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Alexion Pharmaceuticals, Inc.
By:
/s/ LEONARD BELL
------------------------------------
Leonard Bell, M.D.
President, Chief Executive Officer,
Secretary and Treasurer
By:
/s/ DAVID W. KEISER
------------------------------------
David W. Keiser
Executive Vice President and Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ LEONARD BELL President, Chief Executive Officer, Secretary, October 26, 2001
-------------------------------- Treasurer and Director (principal executive
Leonard Bell, M.D. officer)
/s/ DAVID W. KEISER Executive Vice President and Chief Operating October 26, 2001
-------------------------------- Officer (principal financial officer)
David W. Keiser
/s/ BARRY P. LUKE Vice President of Finance and Administration October 26, 2001
-------------------------------- (principal accounting officer)
Barry P. Luke
/s/ JOHN H. FRIED Chairman of the Board of Directors October 26, 2001
--------------------------------
John H. Fried, Ph.D.
/s/ JERRY T. JACKSON Director October 26, 2001
--------------------------------
Jerry T. Jackson
/s/ MAX LINK Director October 26, 2001
--------------------------------
Max Link, Ph.D.
/s/ JOSEPH A. MADRI Director October 26, 2001
--------------------------------
Joseph A. Madri, Ph.D., M.D.
/s/ R. DOUGLAS NORBY Director October 26, 2001
--------------------------------
R. Douglas Norby
/s/ ALVIN S. PARVEN Director October 26, 2001
--------------------------------
Alvin S. Parven
-43-
ALEXION PHARMACEUTICALS, INC.
Index
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets
As of July 31, 2001 and 2000 F-3
Consolidated Statements of Operations
For the Years Ended July 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
For the Years Ended July 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2001, 2000 and 1999 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Alexion Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Alexion
Pharmaceuticals, Inc. (a Delaware corporation) and subsidiaries (collectively,
the Company) as of July 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and comprehensive loss, and cash
flows for each of the three years in the period ended July 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 Alexion
Pharmaceuticals, Inc. and subsidiaries as of July 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 31, 2001, in conformity with accounting
principles generally accepted in the United States.
As further discussed in Note 2 to the consolidated financial statements, during
the year ended July 31, 2001, the Company changed its method of revenue
recognition relating to non-refundable upfront licensing fees in accordance with
Staff Accounting Bulletin No. 101.
/s/ Arthur Andersen LLP
Hartford, Connecticut
August 31, 2001
F-2
ALEXION PHARMACEUTICALS, INC.
Consolidated Balance Sheets
(amounts in thousands)
------------- July 31, ----------
ASSETS 2001 2000
CURRENT ASSETS:
Cash and cash equivalents $ 135,188 $ 91,858
Marketable securities 220,086 82,671
Reimbursable contract costs:
Billed 2,974 3,660
Unbilled 4,006 1,435
Prepaid expenses 493 456
----------- ----------
Total current assets 362,747 180,080
PROPERTY, PLANT, AND EQUIPMENT, net 13,731 8,213
GOODWILL, net of accumulated amortization of
$2,901 at July 31, 2001 20,270 -
DEFERRED FINANCING COSTS, net of accumulated amortization
of $751 and $185 at July 31, 2001 and 2000, respectively 3,265 3,752
OTHER ASSETS 246 657
----------- ----------
Total assets $ 400,259 $ 192,702
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ - $ 369
Accounts payable 1,722 2,100
Accrued expenses 2,271 1,229
Accrued interest 2,646 2,730
Deferred revenue 1,351 750
----------- ----------
Total current liabilities 7,990 7,178
----------- ----------
DEFERRED REVENUE, less current portion included above 7,941 -
----------- ----------
NOTES PAYABLE, less current portion included above 3,920 3,920
----------- ----------
CONVERTIBLE SUBORDINATED NOTES 120,000 120,000
----------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 9, 11, and 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000 shares authorized; no shares
issued or outstanding - -
Common stock, $.0001 par value; 145,000 shares authorized; 18,119
and 15,146 shares issued at July 31, 2001 and 2000, respectively 2 2
Additional paid-in capital 384,091 128,836
Accumulated deficit (124,257) (67,214)
Other comprehensive income (loss) 572 (20)
Treasury stock, at cost, 12 shares - -
----------- ----------
Total stockholders' equity 260,408 61,604
----------- ----------
Total liabilities and stockholders' equity $ 400,259 $ 192,702
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
ALEXION PHARMACEUTICALS, INC.
Consolidated Statements of Operations
(amounts in thousands, except per share amounts)
----------- For the Years Ended July 31, -----------
2001 2000 1999
CONTRACT RESEARCH REVENUES $ 11,805 $ 21,441 $ 18,754
------------ ------------ -----------
OPERATING EXPENSES:
Research and development 38,871 40,187 23,710
General and administrative 7,135 4,175 2,953
In-process research and development (Note 4) 21,000 - -
Amortization of goodwill (Note 4) 2,901 - -
------------ ------------ -----------
Total operating expenses 69,907 44,362 26,663
------------ ------------ -----------
Operating loss (58,102) (22,921) (7,909)
OTHER INCOME AND EXPENSE:
Interest income 17,975 5,833 1,702
Interest expense (7,798) (3,139) (188)
------------ ------------ -----------
Loss before cumulative effect of
Staff Accounting Bulletin No. 101 (SAB 101) (47,925) (20,227) (6,395)
CUMULATIVE EFFECT OF ADOPTION OF SAB 101 (Note 2) (9,118) - -
------------ ------------ -----------
Net loss $ (57,043) $ (20,227) $ (6,395)
============ ============ ===========
BASIC AND DILUTED PER SHARE DATA:
Loss before cumulative effect of adoption of SAB 101 $ (2.76) $ (1.45) $ (0.57)
Cumulative effect of adoption of SAB 101 (.52) - -
------------ ------------ -----------
Net loss $ (3.28) $ (1.45) $ (0.57)
============ ============ ===========
PRO FORMA AMOUNTS ASSUMING ADOPTION OF SAB 101
APPLIED RETROACTIVELY:
Pro forma operating loss $ (58,102) $ (22,333) $ (17,615)
Pro forma net loss $ (47,925) $ (19,639) $ (16,101)
Pro forma basic and diluted net loss per common share $ (2.76) $ (1.41) $ (1.43)
SHARES USED IN COMPUTING BASIC AND DILUTED
NET LOSS PER COMMON SHARE AND PRO FORMA
NET LOSS PER COMMON SHARE 17,371 13,914 11,265
============ ============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
ALEXION PHARMACEUTICALS, INC.
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
(amounts in thousands)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
BALANCE, July 31, 1998 11,237 $ 1 $ 79,776 $ (40,592)
Issuance of common stock from exercise of
stock options 67 - 383 -
Non-cash compensation expense related to grant
of stock options - - 132 -
Net change in unrealized losses on marketable
securities - - - -
Net loss - - - (6,395)
Comprehensive loss
----------- ------------- ------------- ---------------
BALANCE, July 31, 1999 11,304 1 80,291 (46,987)
Issuance of common stock from exercise of options
225 - 1,697 -
Non-cash compensation expense related to grant
of stock options - - 430 -
Issuance of common stock from exercise of
warrants 202 - 1,998 -
Issuance of common stock, net of issuance costs
of $3,391 3,415 1 44,420 -
Net change in unrealized losses on marketable
securities - - - -
Net loss - - - (20,227)
Comprehensive loss
----------- ------------- ------------- ---------------
BALANCE, July 31, 2000 15,146 $ 2 $ 128,836 $ (67,214)
Other Treasury Stock, Total Total
Comprehensive at cost Stockholders' Comprehensive
Income (Loss) Shares Amount Equity Loss
BALANCE, July 31, 1998 $ 5 12 $ - $ 39,190
Issuance of common stock from exercise of
Stock options - - - 383
Non-cash compensation expense related to grant
of stock options - - - 132
Net change in unrealized losses on marketable
securities (9) - - (9) $ (9)
Net loss - - - (6,395) (6,395)
---------
Comprehensive loss $ (6,404)
------------ -------- ---------- ------------ =========
BALANCE, July 31, 1999 (4) 12 - 33,301
Issuance of common stock from exercise of options
- - - 1,697
Non-cash compensation expense related to grant
of stock options - - - 430
Issuance of common stock from exercise of
warrants - - - 1,998
Issuance of common stock, net of issuance costs
of $3,391 - - - 44,421
Net change in unrealized losses on marketable
securities (16) - - (16) $ (16)
Net loss - - - (20,227) (20,227)
---------
Comprehensive loss $ (20,243)
------------ --------- ---------- ------------ =========
BALANCE, July 31, 2000 $ (20) 12 $ - $ 61,604
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
ALEXION PHARMACEUTICALS, INC.
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss (Continued)
(amounts in thousands)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
BALANCE, July 31, 2000 15,146 $ 2 $ 128,836 $ (67,214)
Issuance of common stock from exercise of options
299 - 2,199 -
Non-cash compensation expense related to grant
of stock options - - 408 -
Issuance of common stock from exercise of
warrants 18 - 179 -
Issuance of common stock, net of issuance costs
of $201 2,300 - 208,524 -
Issuance of common stock and stock options
to acquire all outstanding equity of Prolifaron 356 - 43,945 -
Net change in unrealized gains (losses) on
marketable securities - - - -
Net loss - - - (57,043)
Comprehensive loss
----------- --------- ---------- -----------
BALANCE, July 31, 2001 18,119 $ 2 $ 384,091 $ (124,257)
=========== ========= ========== ===========
Other Treasury Stock, Total Total
Comprehensive at cost Stockholders' Comprehensive
Income (Loss) Shares Amount Equity Loss
BALANCE, July 31, 2000 $ (20) 12 $ - $ 61,604
Issuance of common stock from exercise of options
- - - 2,199
Non-cash compensation expense related to grant
of stock options - - - 408
Issuance of common stock from exercise of
warrants - - - 179
Issuance of common stock, net of issuance costs
of $201 - - - 208,524
Issuance of common stock and stock options
to acquire all outstanding equity of Prolifaron - - - 43,945
Net change in unrealized gains (losses) on
marketable securities 592 - - 592 $ 592
Net loss - - - (57,043) (57,043)
---------
Comprehensive loss $ (56,451)
-------- --------- -------- ---------- =========
BALANCE, July 31, 2001 $ 572 12 $ - $ 260,408
======== ========= ======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
ALEXION PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(amounts in thousands)
------- For the Years Ended July 31, -------
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (57,043) $ (20,227) $ (6,395)
Adjustments to reconcile net loss to net cash used in
operating activities:
In-process research and development 21,000 - -
Cumulative effect of adopting SAB 101 9,118 - -
Amortization of goodwill 2,901 - -
Depreciation and amortization 2,620 1,769 889
Compensation expense related to grant of stock options 408 430 132
Changes in assets and liabilities -
Reimbursable contract costs (1,842) 1,767 (6,725)
Prepaid expenses 270 16 (263)
Accounts payable (789) (1,444) 2,734
Accrued expenses 845 (1,026) 1,459
Accrued interest (84) 2,657 51
Deferred revenue (576) 300 383
---------- ---------- ---------
Net cash used in operating activities (23,172) (15,758) (7,735)
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (561,940) (93,065) (88,987)
Proceeds from marketable securities 425,117 14,468 90,882
Purchases of property, plant, and equipment (7,021) (2,229) (1,912)
Investment in patents and licensed technology (65) (40) -
Cash paid for transaction costs, net of cash received for
acquisition of Prolifaron (464) - -
---------- ---------- ---------
Net cash used in investing activities (144,373) (80,866) (17)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 210,902 48,116 383
Net proceeds from issuance of convertible subordinated notes - 116,063 -
Repayments of notes payable (369) (462) (369)
Other 342 527 467
---------- ---------- ---------
Net cash provided by financing activities 210,875 164,244 481
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 43,330 67,620 (7,271)
CASH AND CASH EQUIVALENTS, beginning of year 91,858 24,238 31,509
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 135,188 $ 91,858 $ 24,238
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ 7,316 $ 296 $ 188
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Fixed assets acquired pursuant to seller financing $ - $ - $ 3,920
========== ========== =========
Acquisition of Prolifaron through issuance of common stock
and stock options $ 43,945 $ - $ -
========== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
(1) ORGANIZATION AND OPERATIONS
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized
in 1992 and is engaged in the development of therapeutic products for the
treatment of a wide array of severe diseases, including cardiovascular
and autoimmune disorders and cancer. The Company's two lead product
candidates are antibodies that address specific diseases that arise when
the human immune system attacks the human body itself and produces
undesired inflammation. Antibodies are proteins that bind specifically to
selected targets in the body. After the antibody binds to its target, it
may activate the body's immune system against the target, block
activities of the target or stimulate activities of the target. For one
of its lead antibody product candidates, pexelizumab, a large Phase IIb
clinical study in cardiopulmonary bypass ("CPB") patients was completed
and two additional large Phase II studies in myocardial infarction (heart
attack) patients are in progress. For the Company's other lead antibody
product candidate, 5G1.1, a large Phase II clinical study in rheumatoid
arthritis patients was completed and clinical programs are on-going in
four additional diseases, including a Phase II study in membranous
nephritis patients, as well as open label extension trials in rheumatoid
arthritis and membranous nephritis patients. The Company is also
developing Apogen immunotherapeutic products to target T-cell related
disorders and is developing therapies employing the transplantation of
cells from other species into humans, known as xenotransplantation.
In September 2000, the Company acquired Prolifaron, Inc. ("Prolifaron"),
a privately held biopharmaceutical company with extensive combinatorial
human antibody library technologies and expertise (the Prolifaron
Acquisition) (see Note 4).
In October 2000, the Company filed a shelf registration statement to
offer up to $300 million of equity securities (see Note 12).
The Company has incurred consolidated losses since inception and has made
no product sales to date. The Company will continue to seek financing to
obtain regulatory approvals for its product candidates, fund operations
losses, and if deemed appropriate, establish manufacturing, sales,
marketing and distribution capabilities. The Company expects to incur
substantial expenditures in the foreseeable future for the research and
development and commercialization of its products. The Company will seek
to raise necessary funds through public or private equity or debt
financings, bank loans, collaborative or other arrangements with
corporate sources, or through other sources of financing.
(2) CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In December 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition
in financial statements and specifically addresses revenue recognition in
the biotechnology industry for non-refundable up-front fees. Prior to the
implementation of SAB 101, non-refundable license fees received upon
execution of license agreements were recognized as revenue immediately.
The Company adopted SAB 101 in fiscal 2001 and has therefore changed its
revenue recognition policy for up-front non-refundable payments from
immediate recognition to deferral of the revenue with the up-front fee
amortized into revenue over the life of the agreement.
F-8
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
In 1999, the Company recognized $10 million of revenue from a non-
refundable up-front licensing fee received from Proctor & Gamble (see
Note 10). With the adoption of SAB 101, the Company is now required to
recognize this $10 million license fee as revenue over the average of the
remaining patent lives of the underlying technologies (17 years) as the
agreement with Proctor & Gamble provides for ongoing collaborative
services and the funding of specified clinical development and
manufacturing costs of the Company's pexelizumab product candidate. The
license is being recognized over the lives of the patents, as the
agreement does not have a specified contractual term. As part of the
change to the accounting method, the Company has recognized a non-cash
cumulative effect adjustment of $9.1 million as of August 1, 2000. There
are no income tax effects related to this accounting change.
The Company has provided pro forma operating loss, net loss and net loss
per share information as if the Company had adopted SAB 101 for all
periods presented.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include Alexion
Pharmaceuticals, Inc. and its wholly-owned subsidiaries, Alexion Antibody
Technologies ("AAT") and Columbus Farming Corporation ("Columbus").
Results of operations of AAT are included in the Company's consolidated
statements of operations since September 23, 2000, the effective date of
the Prolifaron acquisition (see Note 4). Columbus was formed on February
9, 1999 to acquire certain manufacturing assets from United States
Surgical Corporation ("US Surgical"). All significant inter-company
balances and transactions have been eliminated in consolidation.
Cash and cash equivalents
Cash and cash equivalents are stated at cost, which approximates market,
and includes short-term highly liquid investments with original
maturities of less than 90 days.
Marketable securities
The Company invests in marketable debt securities of highly rated
financial institutions and investment-grade debt instruments and limits
the amount of credit exposure with any one entity.
The Company has classified its marketable securities as "available for
sale" and, accordingly, carries such securities at aggregate fair value.
Unrealized gains or losses are included in other comprehensive income
(loss) as a component of stockholders' equity. No significant realized
gains or losses were recorded during the years ended July 31, 2001, 2000
and 1999. At July 31, 2001, the Company's marketable securities had a
maximum maturity of less than two years with an average of approximately
twelve months. The weighted average interest rate associated with these
marketable debt securities was 4.2% and 6.9% as of July 31, 2001 and
2000, respectively.
F-9
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
The following is a summary of marketable securities at July 31, 2001 and
2000 (amounts in thousands):
Amortized Unrealized Fair
Cost Gains (Losses) Value
Federal agency obligations $ 123,022 $ 387 $ 123,409
Corporate bonds 96,492 185 96,677
----------- -------- -----------
Total marketable securities
at July 31, 2001 $ 219,514 $ 572 $ 220,086
=========== ======== ===========
Federal agency obligations $ 43,435 $ (14) $ 43,421
Corporate bonds 39,256 (6) 39,250
----------- -------- -----------
Total marketable securities
at July 31, 2000 $ 82,691 $ (20) $ 82,671
=========== ======== ===========
Long-lived assets
The Company accounts for its investments in long-lived assets in accordance with
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". SFAS
No. 121 requires a company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company has reviewed its long-lived assets and
determined that no impairments exist.
Revenue recognition
Contract research revenues recorded by the Company consist of research and
development support payments and license fees under collaborations with third
parties and amounts received under various government grants.
As a result of the Company's adoption of SAB 101 (see Note 2), up-front, non-
refundable license fees received in connection with a collaboration are deferred
and amortized into revenue over the life of the underlying technologies.
Revenues derived from the achievement of milestones are recognized when the
milestone is achieved, provided that the milestone is substantive and a
culmination of the earnings process has occurred. Research and development
support revenues are recognized as the related work is performed and expenses
are incurred under the terms of the contracts for development activities.
Unbilled reimbursable contract costs as shown on the accompanying consolidated
balance sheets represent reimbursable costs incurred in connection with research
contracts which have not yet been billed. The Company bills these costs and
recognizes the costs and related revenues in accordance with the terms of the
contracts.
Deferred revenue results from cash received or amounts receivable in advance of
revenue recognition under research and development contracts (see Notes 2 and
10).
F-10
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
Research and development expenses
Research and development expenses are expensed when incurred unless recoverable
under contract. Research and development expenses include the following major
types of costs: salaries and benefit costs, research license fees and various
contractor costs, depreciation and amortization of lab facilities and leasehold
improvements, building and utilities costs related to research space and lab
supplies.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive income (loss)
The Company reports and presents comprehensive income (loss) in accordance with
SFAS No. 130 "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income (loss) and its components in a
full set of general purpose financial statements. The objective of the statement
is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners (comprehensive income (loss)). The Company's other
comprehensive income (loss) arises from net unrealized gains (losses) on
marketable securities. The Company has elected to display comprehensive income
(loss) as a component of the statements of stockholders' equity and
comprehensive loss.
Stock options
The Company accounts for stock options granted to employees in accordance with
Accounting Principles Board Opinion No. 25. The Company accounts for stock
options granted to consultants in accordance with Emerging Issues Task Force
("EITF") 96-18, "Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling, Goods or Services". The
Company recognizes compensation cost associated with stock option grants, if
any, on a pro-rata basis over the applicable vesting term.
Net loss per common share
The Company computes and presents net loss per common share in accordance with
SFAS No. 128, "Earnings Per Share". Basic net loss per common share is based on
the weighted average shares of common stock outstanding during the period.
Diluted net loss per common share assumes in addition to the above, the dilutive
effect of common shares equivalents outstanding during the period. Common share
equivalents represent dilutive stock options, warrants, and convertible
subordinated debt. These outstanding stock options, warrants and convertible
subordinated debt entitled holders to acquire 4,689,075, 3,829,887 and 2,568,587
shares of common stock at July 31, 2001, 2000 and 1999, respectively. There is
no difference in basic and diluted net loss per common share as the effect of
common share equivalents is anti-dilutive for all periods presented.
The pro forma net loss per share as reported in the accompanying statements of
operations for the years ended July 31, 2001, 2000 and 1999, assumes the
retroactive adoption of SAB 101 (see Notes 2 and 17).
F-11
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
Segment reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas and major customers. The Company has determined that
it operates in only one segment. In addition, all revenues are generated from
U.S. entities, and all long-lived assets are maintained in the U.S.
Fair value of financial instruments
Financial instruments, include cash and cash equivalents, marketable securities,
notes payable and convertible subordinated notes. Cash and cash equivalents and
marketable securities are carried at fair value. Notes payable and convertible
subordinated notes are carried at cost. Management believes notes payable
approximates fair value based upon recent borrowing rates. The carrying value of
convertible subordinated notes exceeded fair value by approximately $46.3
million based upon trading values reported at July 31, 2001.
Recently issued accounting standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", which together significantly change the accounting and disclosures
required for these activities and related assets. The primary changes resulting
from these standards consist of the cessation of the "pooling of interests"
method of accounting and how goodwill and intangible assets will be segregated,
amortized (or not amortized), reviewed for impairment (if any), and disclosed
within the footnotes to financial statements. The Company's adoption of SFAS No.
141 will have no impact on the historical financial statements.
The Company is electing to adopt SFAS No. 142 effective August 1, 2001. The
adoption of SFAS No. 142 will cause the amortization as it relates to the $23.2
million of goodwill acquired in connection with acquisition of Prolifaron (see
Note 4) to cease at this date. Prior to the adoption of this standard, this
annual amortization was expected to be approximately $3.3 million annually over
a seven year period. On a prospective basis, this goodwill is subject to annual
impairment reviews, and, if conditions warrant, interim reviews based upon its
estimated fair value. Impairment charges, if any, will be recorded as a
component of operating expenses in the period in which the impairment is
determined. The Company has not yet determined whether an impairment charge, if
any, would need to be recorded as a result of the adoption of this standard.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Financial Instruments and for Hedging
Activities" which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. SFAS No. 133
was effective for fiscal years beginning after June 15, 1999. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Financial Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133 - an
Amendment of SFAS No. 133" for the sole purpose of updating the effective date
of adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 did not have an impact on the Company's results of
operations or financial condition as the Company does not currently hold
derivative financial instruments and does not engage in hedging activities.
F-12
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
(4) PROLIFARON ACQUISITION
On September 23, 2000, the Company acquired Prolifaron, Inc.
("Prolifaron"), a privately-held biopharmaceutical company with extensive
combinatorial human antibody library technologies and expertise. The
acquisition was accomplished when Prolifaron was merged with a wholly owned
subsidiary of Alexion and renamed Alexion Antibody Technologies, Inc. In
consideration thereof, the Company issued 355,594 shares of the Company's
common stock and fully vested options to purchase 44,364 shares of the
Company's common stock at a weighted average exercise price of $44.35 per
share, in exchange for all of the outstanding equity of Prolifaron
including fully vested options under their stock option plan. The fair
value of the Company's common stock and stock options issued at the date of
the acquisition was approximately $43.9 million.
The Prolifaron acquisition has been accounted for as a purchase and,
accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
the acquisition. The Company allocated $21.0 million of the purchase price
to in-process research and development projects. This allocation
represented the estimated fair value based on risk-adjusted cash flows
related to the incomplete research and development projects. At the date of
the acquisition, development of these projects had not yet reached
technological feasibility and the research and development in progress has
no alternative future uses. Accordingly, these costs were expensed as of
the acquisition date. At the merger date, Prolifaron was conducting pre-
clinical development and testing activities with a goal to develop
technologies for antibody discovery and engineering and identify new fully
human therapeutic antibodies addressing multiple disease areas. The drug
candidates under development represent innovative technologies addressing
autoimmune and inflammatory disorders, and cancer.
As of the acquisition date, Prolifaron had incurred approximately $5.7
million of expenses on development projects since its inception in 1998,
and expected to spend approximately $8.5 million over the next seven years
to complete animal testing of the developmental drug candidates. Management
anticipates the in-process projects would, if successful, be marketed in
the U.S. in five to nine years.
In making its purchase price allocation, management considered present
value calculations of income, an analysis of project accomplishments and
remaining outstanding items, an assessment of overall contributions, as
well as technological and regulatory risks. The value assigned to purchased
in-process technology was determined by estimating the costs to develop the
acquired technology into commercially viable products, estimating the
resulting net cash flows from the projects, and discounting the net cash
flows to their present value. The revenue projection used to value the in-
process research and development was based on estimates of relevant market
sizes and growth factors, expected trends in technology, and nature and
expected timing of new product introductions by Prolifaron and its
competitors.
The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the risks
associated with the projected cash flow forecast, a discount rate of 40
percent was considered appropriate for the in-process research and
development. The selected rate reflects the inherent uncertainties
surrounding the successful development of the purchased in-process
technology, the useful life of such technology, and the uncertainty of
technological advances that are unknown at this time.
F-13
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
If these projects are not successfully developed, the sales and profitability of
the combined companies may by adversely affected in future periods.
Additionally, the value of other acquired intangible assets may become impaired.
The research and development projects acquired in connection with the
acquisition of Prolifaron are expected to continue in line with the estimates
described above.
The excess cost over the fair value of the net assets acquired, which amounted
to approximately $23.2 million, is reflected as goodwill and is being amortized
over approximately 7 years (see Recently Issued Accounting Standards, Note 3).
The following table summarizes the allocation of the purchase price to the net
assets acquired (amounts in thousands):
Cash and cash equivalents acquired $ 771
Reimbursable contract costs 43
Prepaid expenses and other current assets 307
Property, plant and equipment 493
Other 3
Goodwill 23,171
In-process research and development 21,000
Accounts payable and accrued expenses (540)
Accrued transaction costs (1,303)
-----------
Total fair value of equities issued $ 43,945
===========
The following unaudited pro forma condensed consolidated information has been
prepared to give effect to the acquisition as if such transaction had occurred
at the beginning of the periods presented. The historical results have been
adjusted to reflect: i) elimination of the one-time charge to operations for the
purchase of acquired in-process research and development, ii) amortization of
goodwill arising from the transaction, and iii) elimination of income tax
benefits or expenses that would not have been realized on a combined basis
(amounts in thousands, except per share amounts).
------------Years Ended July 31------------
2001 2000
Pro forma Pro forma
Contract research revenues $ 12,926 $ 24,019
Net loss before cumulative effect of adoption
of SAB 101 (27,724) (23,955)
Net loss (36,842) (23,955)
Basic and diluted net loss per common share (2.11) (1.68)
Shares used in computing basic and diluted net
loss per common share 17,423 14,270
Had SAB 101 been retroactively applied to the pro forma information for the year
ended July 31, 2000, contract revenues would increase and net loss would
decrease by $588,000. Basic and diluted net loss per share would be reduced to
$(1.64) per share for that year.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of what actual results would have been had the
transaction occurred on the dates indicated and do not purport to indicate the
results of future operations.
F-14
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is recorded at cost and is depreciated
over the estimated useful lives of the assets involved. Depreciation and
amortization commences at the time the assets are placed in service and
is computed using the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to expense when
incurred. Depreciation and amortization of fixed assets, was
approximately $2,095,000, $1,429,000, and $764,000 for the years ended
July 31, 2001, 2000, and 1999, respectively.
Asset Estimated Useful Life
Building and building improvements 15 years
Leasehold improvements Life of lease
Laboratory equipment 5 years
Furniture and office equipment 3 years
A summary of property, plant, and equipment is as follows (amounts in
thousand):
-------------- July 31, --------------
2001 2000
Land $ 364 $ 364
Building, building improvements and
leasehold improvements 9,088 4,070
Laboratory and support equipment 9,338 7,378
Furniture and office equipment 1,852 1,217
---------- ----------
20,642 13,029
Less - Accumulated depreciation and amortization (6,911) (4,816)
---------- ----------
$ 13,731 $ 8,213
========== ==========
(6) ACCRUED EXPENSES
A summary of accrued expenses is as follows (amounts in thousands):
-------------- July 31, --------------
2001 2000
Payroll and employee benefits $ 1,121 $ 809
Accrued rent 452 -
Research and development expenses 398 176
Other 300 244
---------- ----------
$ 2,271 $ 1,229
========== ==========
F-15
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
(7) NOTES PAYABLE
A summary of notes payable is as follows (amounts in thousands):
-------------- July 31, --------------
2001 2000
Term note payable to US Surgical bearing interest at 6% per annum,
payable quarterly. The principal balance under the note matures in May
2005. The note payable is secured by certain manufacturing assets of
Columbus.
$ 3,920 $ 3,920
Term loan payable to a bank repaid in fiscal 2001. - 369
---------- ----------
3,920 4,289
Less - current portion - 369
---------- ----------
Total long-term $ 3,920 $ 3,920
========== ===========
(8) CONVERTIBLE SUBORDINATED NOTES
In March 2000, the Company completed a $120 million private placement of
5.75% Convertible Subordinated Notes due March 15, 2007. The notes bear
interest payable semi-annually on September 15 and March 15 of each year,
beginning September 15, 2000. The holders may convert all or a portion of
the notes into common stock at any time on or before March 15, 2007 at a
conversion price of $106.425 per share.
The notes are subordinated to all the Company's existing and future
senior indebtedness and are effectively subordinated to all of the
indebtedness and other liabilities (including trade and other payables)
of the Company and its subsidiaries. The indenture governing the notes
does not limit the amount of indebtedness, including senior indebtedness,
which the Company may incur.
Noteholders may require the Company to repurchase their notes upon a
repurchase event as defined by the loan agreement in cash, or, at the
option of the Company, in common stock, at 105% of the principal amount
of the notes, plus accrued and unpaid interest.
The notes are not entitled to any sinking fund. At any time or from time
to time on or after March 20, 2003 and ending on March 14, 2007, the
Company may redeem some or all the notes on at least 30 days notice as a
whole or, from time to time, in part at certain premiums over the
principal amount plus accrued interest.
The Company incurred deferred financing costs related to this offering of
approximately $4.0 million which are recorded in the consolidated balance
sheet and are being amortized as a component of interest expense over the
seven-year term of the notes. Amortization expense associated with the
financing costs was $566,000 and $185,000 for the years ended July 31,
2001 and 2000, respectively.
F-16
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
(9) LICENSE AND RESEARCH & DEVELOPMENT AGREEMENTS
The Company has entered into a number of license and research and
development agreements since its inception. These agreements have been
made with various research institutions, universities, and government
agencies in order to advance and obtain technologies management believes
important to the Company's overall business strategy.
License agreements generally provide for an initial fee followed by
annual minimum royalty payments. Additionally, certain agreements call
for future payments upon the attainment of agreed to milestones, such as,
but not limited to, Investigational New Drug (IND) application or Product
License Approval (PLA). These agreements require minimum royalty payments
based upon sales developed from the applicable technologies, if any.
Research and development agreements generally provide for the Company to
fund future project research and clinical trials. Based upon these
agreements, the Company may obtain exclusive and non-exclusive rights and
options to the applicable technologies developed as a result of the
applicable research.
The minimum fixed payments (assuming non-termination of the above
agreements) as of July 31, 2001, for each of the next five years are as
follows (amounts in thousands):
Years Research and
Ending License Development
July 31, Agreements Agreements
2002 $ 487 $ 4,680
2003 367 6,504
2004 347 -
2005 402 -
2006 425 -
Should the Company achieve certain milestones related to product
development and product license applications and approvals, additional
payments would be required. As of July 31, 2001, these agreements contain
milestone payment provisions aggregating approximately $15.9 million. The
agreements also require the Company to fund certain costs associated with
the filing of patent applications.
(10) CONTRACT RESEARCH REVENUES
During the three years ended July 31, 2001 the Company recorded contract
research revenues from research and development support payments and
license fees under collaboration with third parties and amounts received
from various government grants.
In January 1999, the Company and Procter & Gamble Pharmaceuticals Inc.
("P&G") entered into an exclusive collaboration to develop and
commercialize pexelizumab, one of the Company's lead product candidates.
Under this collaboration, the Company is pursuing the development of
pexelizumab for the treatment of inflammation caused by cardiopulmonary
bypass surgery, heart attack, and angioplasty. The Company has granted
P&G an exclusive license to the Company's intellectual property related
to pexelizumab, with the right to sublicense. P&G has agreed to fund
clinical development and manufacturing costs relating to pexelizumab for
these indications. Additionally, P&G has agreed to pay the Company up to
$95 million in payments, which include a non-refundable up-front license
fee, milestone payments, and research and development support payments.
The Company will also receive royalties on worldwide sales of
pexelizumab, if any, for all indications. The Company also has a
preferred position relative to third-party manufacturers to manufacture
F-17
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
pexelizumab worldwide. The Company shares co-promotion rights with P&G to
sell, market and distribute pexelizumab in the United States, and has
granted P&G the exclusive rights to sell, market and distribute
pexelizumab outside of the United States. Through July 31, 2001, the
Company received proceeds of approximately $44.8 million from P&G,
including receiving a non-refundable up-front license fee of $10 million
in fiscal 1999 (see Note 2) and $34.8 million for research and
development support expenses. Approximately 91% and 87% of reimbursable
contract costs relate to the P&G collaboration agreement as of July 31,
2001 and 2000, respectively.
The Company has been awarded various grants by agencies of the U.S.
government to fund specific research projects. Based upon costs incurred
under these projects as of July 31, 2001, the Company has up to
approximately $1.5 million of additional funding available under these
grants.
A summary of revenues generated from contract research collaboration and
grant awards is as follows (amounts in thousands):
----------------- Years Ended July 31, ----------------
Collaboration/Grant Awards 2001 2000 1999
P&G $ 9,728 $ 19,708 $ 17,753
U.S. government grants 1,677 1,733 834
Other 400 - 167
--------- ---------- ---------
11,805 21,441 18,754
Pro forma revenue as if SAB
101 was retroactively adopted
(see Note 2) - 588 (9,706)
--------- ---------- ---------
Total pro forma revenues $ 11,805 $ 22,029 $ 9,048
========= ========== =========
(11) COMMITMENTS
The Company has entered into two, three and five year employment
agreements with certain of its executives. These agreements provide that
these individuals will receive aggregate annual base salaries of
approximately $928,000 as of July 31, 2001. These individuals may also
receive discretionary bonus awards, as determined by the Board of
Directors.
As of July 31, 2001, the Company leases its headquarters and research and
development facilities. The lease commenced in August 2000 and has a term
of ten years and six months. The Company is required to pay a pro rata
percentage of real estate taxes and operating expenses. Monthly fixed
rent starts at approximately $80,000, increasing to approximately $96,000
over the term of this lease. The Company has issued a $200,000 open
letter of credit to secure the lease.
F-18
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
The pilot manufacturing plant, which is used for producing compounds for
clinical trials, has a monthly fixed rent of approximately $16,500. The
Company is currently leasing the facility on a month to month basis. The
Company leases additional research facilities at a monthly fixed rent of
approximately $14,200. This lease expires in August 2002.
Lease expense for the Company's facilities was $1,536,000, $694,000, and
$420,000 for the years ended July 31, 2001, 2000 and 1999, respectively.
Lease expense is being recorded on a straight-line basis over the
applicable rental terms.
Aggregate future minimum annual rental payments for the next five years
under noncancellable operating leases (including facilities and
equipment) are as follows (amounts in thousands):
Years Ended
July 31,
2002 $ 1,178
2003 1,146
2004 1,131
2005 1,095
2006 1,085
2007 and thereafter 5,127
(12) COMMON STOCK
Fiscal 2001 Common Stock Sale
In October 2000, the Company filed a shelf registration statement to
offer up to $300 million of equity securities. In November 2000, the
Company sold 2.3 million shares of common stock at a price of $90.75 per
share resulting in proceeds of approximately $208.5 million, net of fees
and other expenses of approximately $201,000 related to the transaction.
Fiscal 2000 Common Stock Sale
In November 1999, the Company sold 3.415 million shares of common stock
at a price of $14 per share in a follow-on public offering resulting in
net proceeds of approximately $44.4 million net of fees and other
expenses of $3.4 million related to the transaction.
(13) STOCK OPTIONS AND WARRANTS
Stock Options
During fiscal 2001, the stockholders of the Company approved the adoption
of the 2000 Stock Option Plan and elected to terminate the previous 1992
Plan. Under the 2000 Plan, incentive and nonqualified stock options may
be granted for up to a maximum of 1,500,000 shares of common stock to
directors, officers, key employees and consultants of the Company. As
July 31, 2001, approximately 376,700 options were available for grant
under the 2000 Plan. During fiscal 2001, the stockholders of the Company
approved an amendment to the 1992 Stock Option Plan for Outside
Directors. This amendment increases the number of stock options granted
initially to qualifying directors as well as upon annual re-election to
the board of directors. Options generally become exercisable in equal
proportions over three to four years and remain exercisable for up to ten
years after the grant date, subject to certain conditions.
F-19
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statments
SFAS No. 123, "Accounting for Stock-Based Compensation" requires the
measurement of the fair value of stock options or warrants to be
disclosed in the notes to financial statements. The Company has computed
the pro forma disclosure required under SFAS No. 123 for options granted
using the Black-Scholes option pricing model prescribed by SFAS No. 123.
The assumptions used are as follows:
2001 2000 1999
Risk free interest rate 4.7% 6.0% 5.0%
Expected dividend yield 0% 0% 0%
Expected lives 5 years 5 years 5 years
Expected volatility 101% 85% 65%
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates of awards under
these plans consistent with the method of SFAS No. 123, the Company's net
loss and pro forma net loss per common share would have been increased to
the pro forma amounts indicated below (amounts in thousands, except per
share amounts):
2001 2000 1999
Net loss:
As reported $ (57,043) $ (20,227) $ (6,395)
Pro forma (69,470) (22,887) (8,419)
Net loss per common share:
As reported $ (3.28) $ (1.45) $ (0.57)
Pro forma (4.00) (1.64) (0.74)
A summary of the status of the Company's stock option plans at July 31,
2001, 2000 and 1999 and changes during the years then ended is presented
in the table and narrative below:
------------- 2001 -------- -------- 2000 --------- -------- 1999 ----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at August 1 2,684,215 $ 21.09 2,348,587 $ 8.10 1,727,986 $ 7.40
Granted 1,275,164 30.05 644,800 63.18 780,750 9.64
Exercised (299,525) 7.34 (225,083) 7.56 (66,587) 5.75
Cancelled (98,334) 33.20 (84,089) 17.34 (93,562) 9.73
----------- -------- ----------- ------- ----------- -------
Outstanding at July 31 3,561,520 $ 25.12 2,684,215 $ 21.09 2,348,587 $ 8.10
=========== ======== =========== ======= =========== =======
Options exercisable at
July 31 1,622,164 $ 14.65 1,443,554 $ 7.26 1,238,398 $ 6.46
Weighted-average fair
value of options
granted during the year $ 25.70 $ 45.02 $ 6.52
F-20
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statments
During fiscal 2001, options to purchase 1,220,800 shares of common stock
were granted to employees at exercise prices equal to the fair value of
the stock at the date of grant. The weighted average exercise price of
these options was $29.16 per share. The weighted average fair value of
these options at the date of grant was $22.40 per option. In addition,
options to purchase 10,000 shares of common stock were granted to
employees at exercise prices which were less then the fair value of the
common stock at the date of grant. Accordingly, the Company is recording
compensation expense based upon this difference over the vesting period
associated with these options. Compensation expense associated with these
options is $121,000 for the year ended July 31, 2001. Aggregate
compensation expense of approximately $203,000 associated with these
option grants is expected to be recognized over the next three years. The
weighted average exercise price of these options was $75.51 per share.
The weighted average fair value of these options at the date of grant was
$92.27 per option.
In connection with acquisition of Prolifaron (see Note 4), the Company
issued fully vested options to purchase 44,364 shares of common stock at
a weighted average exercise price of $44.35 per share. The weighted
average fair value of these options at the date of grant was $101.46 per
option. The value of these options were included as a component of the
purchase price of Prolifaron at the date of acquisition.
During fiscal 2000, options to purchase 644,800 shares of common stock
were granted to employees and consultants of the Company at an exercise
price equal to the fair value of the stock at the date of grant. The
Company is recording compensation expense based upon the fair value of
the options granted to consultants over the vesting term. Compensation
expense related to these options was $93,000 and $239,000 for the years
ended July 31, 2001 and 2000, respectively.
During fiscal 1999, options to purchase 513,500 shares of common stock
were granted to employees at exercise prices equal to the fair value of
the stock at the date of grant. The weighted average exercise price of
these options was $9.98 per share. The weighted average fair value of
these options at the date of grant was $5.89 per option. In addition,
options to purchase 267,250 shares of common stock were granted to
employees subject to shareholders' approving an increase in total shares
available to be granted under the plan. These options were granted at an
exercise price of $9.00 per share which was equal to the fair value of
the common stock at the date of grant. However, the exercise price of
these options was less than the fair value of the stock at the date of
shareholder approval. Accordingly, the Company is recording compensation
expense based upon this difference over the vesting period associated
with these options. Compensation expense associated with these options is
$194,000, $191,000 and $132,000 for the years ended July 31, 2001, 2000
and 1999, respectively. Aggregate compensation expense of approximately
$166,000 associated with these option grants is expected to be recognized
over the next two years. The weighted average fair value of these options
at the date of shareholder approval was $7.73 per option.
F-21
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statments
The following table presents weighted average price and life information
about significant option groups outstanding at July 31, 2001:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
$ 2.37 - $ 9.00 752,850 4.5 $ 5.55 687,412 $ 5.25
$ 9.01 - $ 20.99 975,785 6.4 10.49 725,161 10.40
$ 21.00 - $ 22.50 955,300 9.7 21.00 - -
$ 32.00 - $ 54.00 182,085 8.9 37.46 48,585 43.21
$ 61.00 - $ 87.00 655,500 8.8 66.91 161,006 65.32
$ 106.00 - $ 108.00 40,000 9.1 107.88 - -
--------- --- ------- --------- -------
3,561,520 7.5 $ 25.12 1,622,164 $ 14.65
========== === ======= ========= =======
Warrants
In connection with the Company's initial public offering in 1996, the
Company sold to its underwriter, for nominal consideration, warrants to
purchase 220,000 shares of common stock which have been fully exercised
as of July 31, 2001. These warrants were exercisable at a price of $9.90
per share for a period of forty-two (42) months commencing on August 27,
1997. During fiscal 2000, warrants to purchase 201,883 shares were
exercised resulting in proceeds of $2.0 million to the Company. During
fiscal 2001, the remaining warrants to purchase 18,117 shares were
exercised resulting in proceeds of approximately $179,000 to the Company.
(14) RIGHTS TO PURCHASE PREFERRED STOCK
In February 1997, the Board of Directors of the Company declared a
dividend of one preferred stock purchase right for each outstanding share
of common stock (including all future issuances of common stock). Under
certain conditions, each right may be exercised to purchase one
one-hundredth of a share of a new series of preferred stock at an
exercise price of $75.00 (see below), subject to adjustment. The rights
may be exercised only after a public announcement that a party acquired
20% or more of the Company's common stock or after commencement or public
announcement to make a tender offer for 20% or more of the Company's
common stock. The rights, which do not have voting rights, expire on
March 6, 2003, and may be redeemed by the Company at a price of $.01 per
right at any time prior to their expiration or the acquisition of 20% or
more of the Company's stock. The preferred stock purchasable upon
exercise of the rights will have a minimum preferential dividend of
$10.00 per year, but will be entitled to receive, in the aggregate, a
dividend of 100 times the dividend declared on a share of common stock.
In the event of a liquidation, the holders of the shares of preferred
stock will be entitled to receive a minimum liquidation payment of $100
per share, but will be entitled to receive an aggregate liquidation
payment equal to 100 times the payment to be made per share of common
stock.
F-22
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statments
On September 18, 2000, the Board of Directors of the Company amended the
purchase price under the preferred stock purchase rights. Such purchase
price, for each one one-hundredth of a share of preferred stock to be
issued upon the exercise of each preferred stock purchase right was
increased from $75.00 to $725.00. Except for the increase in the purchase
price, the terms and conditions of the rights remain unchanged.
In the event that the Company is acquired in a merger, other business
combination transaction, or 50% or more of its assets, cashflow, or
earning power are sold, proper provision shall be made so that each
holder of a right shall have the right to receive, upon exercise thereof
at the then current exercise price, that number of shares of common stock
of the surviving company which at the time of such transaction would have
a market value of two times the exercise price of the right.
(15) 401(k) PLAN
The Company has a 401(k) plan. Under the plan, employees may contribute
up to 15 percent of their compensation with a maximum of $10,500 per
employee in calendar year 2000. The Company matches contributions at a
rate of $0.50 for each dollar deferred up to the first 6% of
compensation. The Company made matching contributions of approximately
$177,000, $127,000, and $85,000 for the years ended July 31, 2001, 2000
and 1999, respectively.
(16) INCOME TAXES
At July 31, 2001, the Company has available for federal tax reporting
purposes, net operating loss carryforwards of approximately $97.6 million
which expire through 2021 (of which approximately $11.2 million resulted
from the exercise of nonqualified stock options as discussed below). The
Company also has federal and state research and development credit
carryforwards of approximately $10.0 million which begin to expire
commencing in fiscal 2008. The Tax Reform Act of 1986 contains certain
provisions that limits the Company's ability to utilize net operating
loss and tax credit carryforwards in any given year resulting from
cumulative changes in ownership interests in excess of 50% over a
three-year period. The Company believes it has triggered these limitation
provisions.
Recently enacted state tax legislation in Connecticut may allow the
Company to exchange certain research and development tax credit
carryforwards generated in fiscal 2001 for a cash payment. If the Company
elects to exchange such credits for cash, the Company will recognize the
value associated with these tax credit carryforwards when receivable from
the applicable taxing authority.
The Company follows SFAS No. 109, "Accounting for Income Taxes." This
statement requires that deferred income tax assets and liabilities
reflect the impact of "temporary differences" between the amount of
assets and liabilities for financial reporting purposes and such amounts
as measured by tax laws and regulations.
F-23
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
The components of deferred income tax assets are as follows (amounts in
thousands):
----------- July 31, -----------
2001 2000
Deferred tax assets:
Net operating loss carryforwards, federal and state $ 36,870 $ 24,250
Tax credit carryforwards 9,990 5,580
Deferred revenues 3,350 -
Other - 230
----------- -----------
Total deferred tax assets 50,210 30,060
Less: Valuation allowance for deferred tax assets 50,210 30,060
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
The exercise price of nonqualified stock options gives rise to
compensation which is included in the taxable income of the applicable
employees and deducted by the Company for federal and state income tax
purposes. As a result of the exercise of nonqualified stock options, the
Company has related net operating loss carryforwards of approximately
$11.2 million which can be used to offset future taxable income, if any.
When realized, the related tax benefits of these net operating loss
carryforwards will be credited directly to paid in capital.
The reconciliation of the statutory Federal income tax rate to the
Company's effective income tax rate is as follows:
--------- Years ended July 31, ---------
2001 2000 1999
Statutory rate (34)% (34)% (34)%
State tax benefit, net of Federal taxes (5) (5) (5)
In-process research and development 14 - -
Amortization of goodwill 2 - -
Research & development credits (5) (11) -
Increase in deferred tax valuation allowance 28 50 39
---- ----- ----
Effective rate -% -% -%
==== ===== ====
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of July 31, 2001 do not satisfy
the realization criteria set forth in SFAS No. 109 and has recorded a
valuation allowance for the entire deferred tax assets.
F-24
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
(17) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is condensed quarterly financial information (amounts in
thousands, except per share amounts):
--------------------------Fiscal 2001------------------------
First Second Third Fourth
quarter quarter quarter quarter
Contract research revenues $ 3,399 $ 3,174 $ 1,960 $ 3,272
Operating expenses 33,650 12,248 11,125 12,884
Operating loss (30,251) (9,074) (9,165) (9,612)
Net loss before cumulative
effect of adopting SAB 101 (29,441) (4,486) (6,462) (7,536)
Cumulative effect of
adopting SAB 101 (9,118) - - -
Net loss applicable to common
shareholders (38,559) (4,486) (6,462) (7,536)
Net loss per common share:
Basic and diluted (2.52) (0.25) (0.36) (0.42)
--------------------------Fiscal 2000-------------------------
First Second Third Fourth
quarter quarter quarter quarter
Contract research revenues $ 6,288 $ 6,679 $ 4,483 $ 3,991
Operating expenses 11,755 10,990 11,634 9,983
Operating loss (5,467) (4,311) (7,151) (5,992)
Net loss applicable to common
shareholders (5,177) (3,639) (6,319) (5,092)
Net loss per common share:
Basic and diluted (0.46) (0.26) (0.42) (0.34)
F-25
ALEXION PHARMACEUTICALS, INC.
Notes to Consolidated Financial Statements
The Company was required to adopt SAB 101 no later than July 31, 2001.
The Company elected to adopt SAB 101 during the quarter ended April 30,
2001, retroactive to August 1, 2000. Accordingly, the following quarterly
information for the fiscal quarters ended October 31, 2000 and January
31, 2001, reflects the quarters as previously reported prior to adoption
and as restated for the retroactive adoption of SAB 101 to August 1,
2000, as noted in the column headings. The impact of the change resulted
in an increase in total revenues and corresponding decrease in loss
before cumulative effect of a change in accounting principle of $147,000
for each of the quarters ended October 31, 2000 and January 31, 2001 as
compared to amounts previously reported in Form 10-Q's filed with the SEC
(amounts in thousands, except per share amounts).
First Quarter Ended Second Quarter Ended
October 31, 2000 January 31, 2001
As previously As previously
reported Restated reported Restated
Contract research revenues $ 3,252 $ 3,399 $ 3,027 $ 3,174
Operating expenses 33,650 33,650 12,248 12,248
----------- ----------- ------------- ----------
Operating loss (30,398) (30,251) (9,221) (9,074)
Total other income, net 810 810 4,588 4,588
----------- ----------- ------------- ----------
Net loss before cumulative
effect of adopting SAB 101 (29,588) (29,441) (4,633) (4,486)
Cumulative effect of
adopting SAB 101 - (9,118) - -
----------- ----------- ------------- ----------
Net loss $ (29,588) $ (38,559) $ (4,633) $ (4,486)
=========== =========== ============= ==========
Basic and diluted net loss
per common share $ (1.93) $ (2.52) $ (0.26) $ (0.25)
Shares used in computing basic
and diluted net loss per
common share 15,323 15,323 17,999 17,999
F-26