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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
[_] 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 0-28386
CELL THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1533912
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
201 Elliott Avenue West, Suite 400
Seattle, WA 98119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 282-7100
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Preferred Stock Purchase Rights
(Title of classes)
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Indicate by check mark whether the registrant (1) has filed all reports
required 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 the 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. [_]
On February 28, 2001, Cell Therapeutics, Inc. had 33,701,303 outstanding
shares of Common Stock. Of those, 8,524,148 shares of Common Stock were held
by nonaffiliates. The aggregate market value of such Common Stock held by
nonaffiliates, based on the closing price of such shares on the Nasdaq
National Market on February 28, 2001, was approximately $202,981,274. Shares
of Common Stock held by each executive officer and director and by each person
known to the Company who beneficially owns more than 5% of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.
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DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III incorporate by reference information
from the Registrant's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Registrant's 2001 Annual Meeting of Shareholders.
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PART I
This Form 10-K contains, in addition to historical information, forward-
looking statements. These statements relate to our future plans, objectives,
expectations, intentions and financial performance, and assumptions that
underlie these statements. When used in this Form 10-K, terms such as
"anticipates," "believes," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "potential," "predicts," "should," or "will" or the
negative of those terms or other comparable terms are intended to identify
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause industry trends or our actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include
those listed under "Factors Affecting Our Operating Results," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business" and elsewhere in this Form 10-K.
Although we believe that expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We will not update any of the forward-
looking statements after the date of this Form 10-K to conform these
statements to actual results or changes in our expectations. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which apply only as of the date of this Form 10-K.
Item 1. Business
Overview
We develop, acquire and commercialize novel treatments for cancer. Our goal
is to build a leading, vertically-integrated biopharmaceutical company with a
diversified portfolio of proprietary oncology drugs. Our research and in-
licensing activities are concentrated on identifying new, less toxic and more
effective ways to treat cancer.
We were incorporated in Washington in 1991. Our principal executive offices
are located at 201 Elliott Avenue West, Seattle, Washington 98119. Our
telephone number is (206) 282-7100. Our website can be found at
www.cticseattle.com.
"CTI," "PG-TXL," "CT-2584" and "TRISENOX" are our trademarks. All other
product names, trademarks and trade names referred to in this Form 10-K are
the property of their respective owners.
Our Products
We acquired our lead product called arsenic trioxide, or TRISENOX, in
January 2000. We submitted a New Drug Application, or NDA, with the FDA for
TRISENOX in March 2000 and received FDA approval in September 2000. TRISENOX
is initially being marketed for patients with a type of blood cell cancer
called Acute Promyelocytic Leukemia, or APL, who have relapsed or failed
available therapies. In its pivotal trial in patients with relapsed or
refractory APL, 70% of the 40 patients experienced complete remission
following treatment with TRISENOX with 78% entering a molecular remission. In
addition, initial clinical trials have demonstrated encouraging responses
among patients with other types of blood related cancers, including multiple
myeloma and myelodysplasia, or MDS, chronic myelogenous leukemia and lymphoma.
We have received orphan drug designation for TRISENOX from the FDA for myeloma
and MDS. The National Cancer Institute, or NCI, is investigating TRISENOX in
treating a variety of cancers including multiple myeloma, lymphoma, cervical
cancer, prostate cancer, renal cell cancer, bladder cancer and certain types
of leukemia. Seventeen clinical trials for TRISENOX are ongoing in the United
States. In addition to these NCI sponsored trials, we have initiated and plan
to initiate 10 additional trials for TRISENOX in the United States and Europe.
In January 2001 the European Medicinal Evaluation Agency, or EMEA, validated
our Marketing Authorization Application, or MAA, for TRISENOX and designated
the product as an orphan medicinal product under its recently enacted orphan
drug legislation. We expect to receive marketing authorization for TRISENOX in
the European Community by the end of this year.
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We are also developing a new way to deliver cancer drugs more selectively to
tumor tissue in order to attempt to reduce the toxic side effects and improve
the anti-tumor activity of existing chemotherapy agents. Our technology links,
or conjugates, chemotherapy drugs to a biodegradable polymer called
polyglutamate. We believe this technology works by taking advantage of the
characteristics of tumor blood vessels to increase the percentage of the drug
administered that actually reaches the tumor, which may increase the potency
and reduce the side effects of a given dose compared to giving the drug alone.
In addition, the conjugate is inactive while it circulates in the bloodstream,
which may lower its toxicity relative to the drug alone.
Our first application of the polyglutamate technology is PG-TXL, which is
paclitaxel linked to polyglutamate. Paclitaxel is the active ingredient in
Taxol, the world's best selling cancer drug. In preclinical animal studies,
PG- TXL demonstrated fewer side effects and improved tumor killing-activity
when compared to Taxol alone. The Cancer Research Campaign, or CRC, is
currently sponsoring a U.K. phase I clinical trial of PG-TXL for which we
expect to complete enrollment by mid-2001. A phase II trial is currently
underway in the U.S. We also expect to initiate development of a novel PG-
camptothecin and file a U.S. investigational new drug application, or IND, by
the end of this year.
In addition, we are developing CT-2584, an anti-cancer compound that
regulates how cancer cells metabolize certain lipids. Because of its mechanism
for killing cancer cells, we believe that CT-2584 may not have the side
effects of conventional cancer drugs, may be effective in treating patients
whose cancers have become resistant to standard anti-cancer agents and may
enhance the cancer fighting capabilities of conventional chemotherapy drugs.
In November 1999, we announced encouraging clinical results in the first 24
evaluable patients in a phase II efficacy trial of CT-2584 in patients with
soft tissue sarcomas who had failed available therapies. As a result, we
expanded the trial protocol from 40 patients to 80 patients and completed
enrollment for this trial in December 2000. Treatment of sarcoma with CT-2584
has received orphan drug designation from the FDA. We have also completed
enrollment in a phase II trial of CT-2584 in patients with prostate cancer who
have failed hormonal and conventional chemotherapy. We are currently studying
CT-2584 when used in combination with cisplatin, a commonly used and marketed
anti-cancer agent. Preclinical animal studies have suggested that CT-2584 may
make tumors more sensitive to the killing effects of cisplatin without
increasing the side effects.
The Oncology Market
Overview. Cancer is the second leading cause of death in the United States,
resulting in over 550,000 deaths annually. The National Cancer Advisory Board
reports that more than 8 million people in the United States have cancer, and
it is estimated that one in three Americans will develop cancer in their
lifetime. Approximately 1.2 million new cases of cancer are diagnosed each
year in the United States. The most commonly used methods for treating cancer
patients are surgery, radiation and chemotherapy. A cancer patient usually
receives a combination of these treatments depending upon the type and extent
of the disease. At some point in their disease treatment, 60% of all cancer
patients will receive radiation therapy and 50% of all cancer patients will
receive chemotherapy. Unfortunately, there are significant limitations and
complications associated with radiation and chemotherapy that result in a high
rate of treatment failure. The principal limitations of chemotherapy include:
. treatment related toxicities
. inability to selectively target killing effects to cancer cells
. the development of resistance to the cancer killing effects of
chemotherapy
Treatment related toxicities. The majority of current chemotherapy agents
kill cancer cells by disrupting the cell division process. Chemotherapy drugs
disrupt the process by killing cells once they begin to undergo division and
replication. Although this mechanism often works in cancer cells, which grow
rapidly through cell division, non-cancerous cells are also killed because
they too undergo routine cell division. This is especially true for cells that
line the mouth, stomach and intestines, hair follicles, blood cells and
reproductive cells (sperm
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and ovum). Because the mechanism by which conventional cancer drugs work is
not limited to cancer cells, their use is often accompanied by toxicities.
These toxicities limit the effectiveness of cancer drugs and seriously impact
the patient's quality of life.
Selective targeting of tumor tissue. When administered, chemotherapy drugs
circulate through the bloodstream, reaching both tumor and normal tissues.
Normal tissues are generally as sensitive as tumor cells to the killing
effects of chemotherapy. These toxic effects on normal tissues prevent use of
higher, potentially more effective, doses of chemotherapy.
Chemotherapy resistance. Resistance to the cancer killing effects of
conventional chemotherapy drugs is a major impediment to effective treatment
of cancer. Approximately 90% of all cancer patients undergoing chemotherapy
ultimately develop resistance to chemotherapy and die from their disease.
Because many chemotherapy drugs share similar properties, when a tumor
develops resistance to a single drug, it may become resistant to many other
drugs as well. Drugs that work differently from existing chemotherapies, and
are not susceptible to the same mechanisms of resistance, could play a very
important role in treating resistant tumors.
Strategy
Our goal is to become a leading cancer drug company. The following are the
key elements of our business strategy:
. We initially develop our cancer drug candidates to treat life threatening
types or stages of cancer for which current treatments are inadequate and
that qualify for fast-track designation from the FDA. If approved, we
will seek to expand the market potential of our products by seeking
approval for other indications in larger cancer patient populations.
. We plan to devote a substantial portion of our efforts to further develop
and commercialize TRISENOX for additional indications, if approved by the
FDA.
. We have developed our own sales and marketing capabilities in North
America and plan to establish collaborations to commercialize our
products outside North America.
. We are applying our patented polymer drug delivery technology to develop
a portfolio of improved versions of currently marketed anti-cancer drugs
to improve their ease of administration, side effect profile and
effectiveness.
. We plan to continue to in-license or acquire complementary products or
technologies, or companies.
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Products in Development
The following table summarizes the potential therapeutic indications for,
and current development status of, our products in development. Trials
designated with an asterisk are being conducted under a Cooperative Research
and Development Agreement with the NCI.
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Drug
Candidate Indication/Intended Use Status
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TRISENOX Hematologic
(arsenic Randomized consolidation therapy for untreated Phase III*
trioxide) acute promyelocytic leukemia (APL)
Refractory leukemia and lymphoma in pediatric Phase I*
patients
Combination with ATRA for first line treatment of Phase IV
APL
Second relapse multiple myeloma following high Phase II
dose chemotherapy
Relapsed/refractory multiple myeloma with Phase II
dexamethasone
Relapsed/refractory multiple myeloma with Phase I/II*
ascorbic acid
Low risk myelodysplasia Phase II
High risk myelodysplasia Phase II
Relapsed/refractory intermediate- and high-grade Phase II*
non-Hodgkin's lymphoma
Relapsed/refractory Hodgkin's disease Phase II*
Relapsed/refractory acute lymphoblastic leukemia Phase II*
(ALL)
Relapsed/refractory acute myeloid leukemia (AML) Phase II*
Fludarabine-refractory or relapsed chronic Phase II*
lymphocytic leukemia (CLL)
Relapsed/refractory chronic myelogenous leukemia Phase II*
(CML)
Interferon-a refractory or intolerant chronic Phase II*
phase CML
Relapsed/refractory Philadelphia chromosome Phase II*
positive ALL and previously untreated CML with
blast crisis
Relapsed/refractory indolent lymphoproliferative Phase II*
disorders
Refractory anemia (RA), RA with ringed Phase II*
sideroblasts (RARS), low- and intermediate-risk
myelodysplasia
Solid Tumors
Urothelial (bladder) cancer Phase II*
Advanced hormone-refractory prostate cancer Phase II*
Advanced cervical carcinoma Phase II*
Advanced renal cell carcinoma Phase II*
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PG-TXL Advanced solid tumors not previously treated with Phase I
taxanes
(CT-2103, Single agent therapy in relapsed ovarian cancer Phase II
polyglutamate Advanced solid tumors in combination with Phase I
cisplatin
paclitaxel)
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PG-CPT Advanced colon and other cancers Preclinical
(CT-2106,
polyglutamate
camptothecin)
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CT-2584 Hormone refractory prostate cancer Phase II
Soft tissue sarcoma Phase II
Advanced solid tumors in combination with Phase I
cisplatin
Continuous infusion study Phase I
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TRISENOX (arsenic trioxide injection)
We are marketing TRISENOX initially for the treatment of patients with
chemotherapy resistant or relapsed APL. We received FDA approval for TRISENOX
in September 2000. TRISENOX is a synthetic version of arsenic, a natural
element. TRISENOX appears to work by forcing immature cancer cells to self
destruct through a process called programmed cell death or apoptosis.
Apoptosis is a normal part of a normal cell's life cycle. Because cancer is
often associated with a malfunction of the normal process of apoptosis, drugs
that can induce apopotosis offer the hope of affecting cancer cells more
selectively without the typical toxic side effects of conventional treatments.
Direct induction of apoptosis represents a new method of killing tumor cells
that is different from that of the majority of conventional cancer drugs. As a
result, in addition to its use as single agent therapy, TRISENOX may work well
when administered in combination with other cancer therapies to produce more
durable cancer response rates.
We intend to protect TRISENOX, for indications other than APL, by obtaining
orphan drug marketing exclusivity in the U.S. and Europe. When granted orphan
drug marketing exclusivity, products usually receive seven years of marketing
exclusivity in the U.S. and 10 years in the E.U. We have received orphan drug
marketing exclusivity for the use of TRISENOX in APL and have received orphan
drug designation, for refractory multiple myeloma and myelodysplasia. In
January 2001 the European Medicinal Evaluation Agency validated our Marketing
Authorization Application for TRISENOX and designated the product as an orphan
medicinal product under its recently enacted orphan drug legislation. We
expect to receive marketing authorization for TRISENOX in the European
Community by the end of this year. We also plan to pursue orphan drug
designation for other indications. Seventeen clinical trials for TRISENOX are
ongoing in the United States. In addition to these NCI sponsored trials, we
have initiated and plan to initiate 10 additional trials for TRISENOX in the
United States and Europe. In addition, we have exclusive rights to several
patent applications filed by PolaRx Biopharmaceuticals, Inc., Memorial Sloan-
Kettering Institute and the Sam Waxman Cancer Foundation which cover methods
of treating a variety of cancers and conditions with TRISENOX. If a product
that has an orphan drug designation subsequently receives the first FDA
approval for the indication for which it has such designation, the product is
entitled to orphan drug marketing exclusivity, meaning that the FDA may not
approve any other applications to market the same drug for the same
indication, except in certain very limited circumstances, for a period of
seven years.
TRISENOX for Acute Promyleocytic Leukemia. APL is a malignant disorder of
the white blood cells which typically occurs in patients over the age of 30.
Approximately 1,500 to 2,000 patients are diagnosed with APL each year in the
United States. Current treatment for APL includes the use of all-trans
retinoic acid, commonly called ATRA, followed by anthracyline based
chemotherapy. Without chemotherapy, 90% of patients will relapse within 6
months of ATRA treatment. Combined with chemotherapy, still only about 50% of
APL patients will survive three years or longer. The high treatment failure
rates may be explained by the fact that combination treatment results in
eradication of the mutant APL gene in the bone marrow in only 20% to 30% of
patients. For patients who relapse following ATRA and chemotherapy, survival
rates are low, with median survival being limited to just four to five months
and only approximately 20% of patients surviving one year. Moreover, these
patients are exposed to, and some actually die from, the toxic effects of high
cumulative doses of anthracycline chemotherapy. The initial pilot trial
results and accompanying editorial for TRISENOX for APL were published in the
November 5, 1998 issue of The New England Journal of Medicine. The results of
this study were confirmed by a second pivotal trial. The combined results of
these two studies were presented at the 2000 Annual Meeting of the American
Society of Hematology, or ASH. As reported at ASH, 85% of patients with
resistant APL achieved a complete remission with TRISENOX.
As reported in our package insert for TRISENOX in the pivotal trial, 40
patients with relapsed APL following chemotherapy and/or bone marrow
transplants were treated with intravenous TRISENOX over a one to two hour
daily infusion until remission was achieved. Patients required on average 40
days of treatment and, following a month off treatment, received an additional
25 days of consolidation therapy. Of the 40 patients treated, 70% achieved a
protocol defined complete response, with 78% of the patients demonstrating
molecular eradication of the malignant APL gene using a sensitive molecular
bone marrow test. Although the median
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survival has not yet been reached, median survival already exceeds 18 months.
Side effects of TRISENOX noted in that study by the investigators were
manageable, for the most part, as outpatients once they were asymptomatic from
their leukemia. The most common side effects included fever, weight gain,
fatigue, skin rash, numbness in the hands and an asymptomatic change in
electrocardiogram, or EKG.
TRISENOX for Multiple Myeloma. Multiple myeloma is a malignant disease of
the bone marrow that is invariably fatal. It is the second most common blood
cell malignancy, affecting approximately 50,000 people in the United States
with over 14,000 new cases reported annually. The disease is initially treated
with oral chemotherapy drugs. Once the disease can no longer be controlled
with oral drugs, treatments include high dose corticosteroids, high dose
chemotherapy, high dose chemotherapy and stem cell transplants and recently,
thalidomide. Fewer than 50% of patients experience a response to these
treatment options.
Preclinical studies have suggested that TRISENOX may be able to kill
multiple myeloma cells taken from chemotherapy resistant patients and that the
killing can be enhanced when combined with vitamin C (ascorbic acid) or with
corticosteroids. Preliminary clinical studies reported at ASH in December 2000
using TRISENOX in multiple myeloma refractory to both stem cell transplant and
to thalidomide have suggested encouraging objective responses. The NCI is
conducting a phase I/II trial of TRISENOX in combination with ascorbic acid
for treating relapsed and refractory myeloma. In addition, we are sponsoring
several multi-center trials with TRISENOX used either in combination with
corticosteroids or as single agent therapy for first relapse and more advanced
stages of multiple myeloma to determine if TRISENOX may be of benefit in
treating this disease. TRISENOX has received orphan drug designation by the
FDA for this indication.
TRISENOX for Advanced Hematologic Malignancies. Hematologic malignancies are
cancers of the blood system, and include leukemias and lymphomas. In 1998,
more than 80,000 people had acute and chronic leukemia and approximately
31,000 new cases are diagnosed annually in the U.S. Non-Hodgkin's lymphoma
affects almost 180,000 people in the U.S., with approximately 55,000 new cases
reported in the U.S. in 1999. For patients who relapse, fewer than 25% survive
five years, with the majority dying within 14 months of relapse. Preliminary
clinical trials with TRISENOX have suggested encouraging activity in advanced
leukemias and blood related cancers other than APL and myeloma, including
chronic myelogenous leukemia, or CML, acute myeloid leukemia, or AML and
myelodysplasia. Promising preliminary results have also been suggested with
respect to advanced lymphomas including non-Hodgkin's lymphoma. The NCI is
conducting six phase II or phase III clinical trials investigating the utility
of TRISENOX in treating advanced leukemia and lymphoma. If these trials are
successful and provide sufficient data, we intend to use data from these
trials, where appropriate, to support additional uses and indications for
TRISENOX.
TRISENOX for Solid Tumors. Solid tumors include malignancies that develop in
various tissues throughout the body, as opposed to hematologic cancers
described above. Genitourinary cancers, such as cervical, renal cell, bladder
and prostate cancer, affect approximately 850,000 patients in the United
States, with over 300,000 new cases diagnosed annually. Preclinical tests and
preliminary clinical trials have suggested that TRISENOX may have significant
anti-tumor activity among patients with cervical, renal cell, bladder and
prostate cancer. The NCI is currently conducting four phase II trials in these
cancers to further evaluate these preliminary observations. If these trials
are successful and provide sufficient data, if we receive FDA approval, we
intend to use the information from these trials and new trials in other solid
tumors to extend the indications of TRISENOX.
Polyglutamate Drug Delivery Technology
We are also developing a new way to deliver cancer drugs more selectively to
tumor tissue with the goal of reducing the toxic side effects and improving
the anti-tumor activity of existing chemotherapy agents. Our technology links
cancer drugs to proprietary polyglutamate polymers. Polyglutamate, which we
call PG, is a biodegradable polymer made of glutamic acid, a naturally
occurring amino acid. To build these polymers, we repetitively link together
glutamic acid molecules to an optimized size. The polymer technology takes
advantage of a well described difference between tumor blood vessels and blood
vessels in normal tissues. Unlike blood vessels found in normal tissues, tumor
blood vessels contain openings or pores. Because of these pores, tumors
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are more permeable or porous to molecules, such as our PG polymers, that are
within a specific size range. As the polymer, carrying its tumor killing drug,
circulates in the bloodstream and passes through the tumor blood vessels, it
becomes trapped in the tumor tissue allowing a significantly greater
percentage of the anticancer drug to accumulate preferentially in tumor tissue
as compared to normal tissue. The toxicity of the chemotherapy drug may be
further reduced because the drug is inactive as long as it is bound to the
polymer. Once the polymer backbone is digested by the tumor and enters the
tumor cell, the polymer linked chemotherapy is digested, freeing the cancer
killing drug directly within the cancer cell.
Based on preclinical animal studies and preliminary phase I clinical trial
data, we believe that our polyglutamate-chemotherapy drug conjugates may be
able to achieve a number of benefits over existing chemotherapy drugs:
. more drug reaches the tumor
. increased efficacy using the same amount of drug
. ability to use higher doses of the active drug
. less toxicity at the same or higher doses of drug
. broader applicability due to differentiated tumor uptake mechanism
. potential to overcome resistance to the underlying chemotherapy drug
In addition, we believe that linking our polymers to existing drugs will
yield patentable subject matter and that our polymer-drug conjugates will not
infringe any third party patents covering the underlying drug. However, there
can be no assurance that we will receive a patent for our polymer conjugates
or that we will not be challenged by the holder of a patent covering the
underlying drug.
We licensed the worldwide exclusive rights to PG and related polymers and
their applications from PG-TXL Company in 1998. The technology was originally
developed at the M.D. Anderson Cancer Center. The initial patent, which issued
in November 1999, covers the ability to use PG coupled with commonly used
cancer drugs such as paclitaxel, docetaxel, etopside, teniposide, camptothecin
or epothilone. These drug classes represented over 40% of U.S. chemotherapy
sales in 1998. In relation to such PG-coupled drugs, the patented technology
also covers formulations with paclitaxel that include human serum albumin.
Our strategy is to use this novel polymer to build a portfolio of
potentially safer and more effective versions of well-known anti-cancer
agents. We believe that our PG drug development program may lower the risks
inherent in developing new drugs because we are linking PG to well defined and
widely used chemotherapy drugs. We are initially focusing our development
efforts on applying PG to two of the fastest growing classes of anticancer
drugs, taxanes and the camptothecins.
PG-TXL (polyglutamate paclitaxel). PG-TXL is PG linked to paclitaxel, the
active ingredient in Taxol, the world's best selling cancer drug. Taxol is
difficult to administer because it must be mixed in castor oil and ethanol,
which is toxic when given intravenously, and requires a lengthy three hour
intravenous infusion. PG-TXL is 80,000 times more water soluble than
paclitaxel, allowing it to be administered in just two tablespoons of water in
minutes. Also, because PG-TXL is water soluble, its administration should not
require premedication with steroids and antihistamines to prevent severe
reactions. PG-TXL may also allow for delivery of higher doses that can be
achieved with the currently marketed version of paclitaxel.
It is estimated that more than 2 million people have breast, ovarian, lung
and colon cancer, with more than 480,000 new cases diagnosed each year in the
United States. Despite the difficulties associated with administration and
serious dose limiting toxicities, 1999 U.S. sales of Taxol and Taxotere grew
to $1.2 billion, with worldwide sales approaching $2.0 billion. The majority
of taxane usage has been in breast, ovarian and
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lung cancer indications. Most recently, Taxol received approval as a first
line treatment in node positive breast cancer, which is expected to add up to
an additional 75,000 eligible patients annually in the U.S.
We have performed multiple preclinical animal studies using PG-TXL and
comparing PG-TXL to paclitaxel alone. These preliminary results suggested
better efficacy and lower toxicity for PG-TXL, and an ability for PG-TXL to
treat tumors resistant to Taxol. Specifically:
. in preliminary animal testing, when administered at equivalent doses of
paclitaxel, treatment with PG-TXL in some instances cured established
breast cancer tumors whereas treatment with paclitaxel only slowed tumor
growth by several days.
. when examined for the ability of PG-TXL to accumulate in tumor tissue,
administration of PG-TXL to tumor bearing animals resulted in, on
average, 600% more paclitaxel reaching the tumor than an equivalent dose
of paclitaxel alone. At the end of seven days, there was generally still
as much paclitaxel in the tumor being released from the polymer than the
maximum amount that was achieved on day one with free paclitaxel.
. PG-TXL enhanced anti-tumor activity in tumors that are resistant to the
killing effects of paclitaxel, suggesting the polymer may expand the
potential utility of paclitaxel to a wider population of cancer types
than the currently available form of the drug can achieve.
The CRC is currently sponsoring and completing a U.K. phase Ia clinical
trial of PG-TXL and will initiate a phase Ib trial later this year. We have
initiated a phase II trial in the U.S. Our registration strategy for PG-TXL is
to examine its potential safety and efficacy as single agent therapy in solid
tumors that either have become unresponsive to Taxol or Taxotere or for which
Taxol and Taxotere are not indicated. We also intend to investigate the safety
and efficacy of PG-TXL when used in combination with drugs commonly used in
first line treatment regimens in combination with Taxol or Taxotere, such as
cisplatin or carboplatin.
The phase Ia trial is testing PG-TXL in patients with cancers who have
failed other chemotherapies but who have not previously been treated with
taxanes such as Taxol or Taxotere. We have enrolled 11 patients to date and
expect to enroll up to 18 patients to determine the maximum tolerated dose of
PG-TXL when administered by a 30 minute infusion every three weeks. We chose
to initiate human trials in the U.K. because of the CRC's experience with
polymer cancer drug conjugates and because of the ability to perform trials in
patients who have not received taxol. Premedication has not been administered
with PG-TXL in these trials and we believe it will not be required in the
ongoing phase II trial even at doses in excess of 175 mg/m2, the current
approved Taxol dose. Preliminary phase Ia data presented by the investigator
demonstrate that PG-TXL may have a lower toxicity profile than equivalent
doses of Taxol while demonstrating evidence of anti-tumor activity. Some of
these anti-tumor activity has been reported among cancer types that are known
not to be sensitive to taxanes, supporting the preclinical evidence that PG-
TXL may have applications across a broader variety of types of cancer.
Based on the encouraging preliminary pharmacology, toxicology and anti-tumor
activity data generated in our ongoing phase Ia trial, and following
discussions with a number of opinion leaders and cooperative groups we have
decided to initiate a more aggressive phase II development program for PG-TXL
in 2001. We have initiated phase I and II trials in the United States and plan
on initiating several additional phase II trials later this year. Ongoing and
planned studies included first line treatment of ovarian cancer and non small
cell lung cancer with PG-TXL when used in combination with a standard dose of
carboplatin. In addition we are planning a first line treatment trial for NSC
lung cancer with PG-TXL as a single agent among patients who are 70 years of
age and older. We are examining the effectiveness and safety of PG-XTL when
administered with another common cancer drug cisplatin, in a variety of cancer
types including lung, ovarian, and head and neck cancers. Additional single
agent PG-TXL studies in relapsed ovarian cancer or in relapsed colorectal
cancer are ongoing and planned respectively. All of these studies will utilize
PG-TXL at doses in excess of the approved dose for Taxol and be administered
to patients over a 10 minute infusion time.
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PG-CPT (polyglutamate camptothecin). PG-CPT (polyglutamate camptothecin) is
camptothecin linked to PG. Camptothecins are an important and rapidly growing
class of anticancer drugs. However, like taxanes, their full clinical benefit
is limited by poor solubility and significant toxicity. To avert solubility
limitations, oral analogs such as Hycamtin and Camptosar were developed.
However, conversion to oral dosage forms has been accompanied by a reduction
in antitumor potency. Despite these limitations, camptothecins are becoming
standard drugs in the treatment of advanced colon, lung and ovarian cancer.
U.S. sales for camptothecins exceeded $330 million in 1999.
Linking camptothecin to PG renders it water soluble, and animal studies
suggest that it permits up to 400% more drug to be administered without an
increase in toxicity. PG-CPT suggested significantly enhanced anti-tumor
activity in animal models of lung, colon and breast cancer, with up to 500%
improvement over the free drug. We have optimized a camptothecin for selection
as a clinical development candidate and plan to file an IND by late 2001.
CT-2584
CT-2584 belongs to a new class of cancer drugs, called phospholipid
regulators, developed by our scientists. Tumors that are or become resistant
to standard anti-cancer drugs may not be resistant to CT-2584. Preclinical
studies have suggested that CT-2584, when used in combination with
conventional agents such as the widely used cancer drug cisplatin, may
sensitize tumors to the killing effects of cisplatin, thereby possibly making
the combination treatment more effective than either agent used alone.
We have completed enrollment in an 80 patient phase II trial of CT-2584 in
patients with drug resistant soft tissue sarcoma. The FDA has granted orphan
drug designation for CT-2584 in the treatment of adult soft tissue sarcoma,
hormone refractory prostate cancer, and malignant mesothelioma. Our strategy
is to initially pursue fast track designation for diseases like sarcoma and
then seek to expand the potential indications of the drug by investigating it
in combination with conventional cancer drugs for larger disease indications
such as non-small cell lung cancer and prostate cancer.
CT-2584 for Sarcoma. Sarcomas are malignant tumors of the muscle, cartilage
or cells which make up the connective tissues of other organs. Over 12,000
patients have sarcoma in the United States, with 7,000 new cases diagnosed
each year. First line chemotherapy treatment for sarcomas consists primarily
of anthracycline therapy, which produces responses in approximately 10% to 20%
of patients. Patients with sarcoma that do not respond to chemotherapy
generally die within 12 months.
We previously completed two phase I trials in 52 patients with end stage
cancers which provide preliminary data on the maximum tolerated dose, safety
and potential efficacy of CT-2584 when used alone in the treatment of advanced
stage cancers. Among those 52 patients, 17 had advanced stage sarcoma. Six of
these 17 (35%) had a response with 5 of 6 (83%) remaining alive a median of 19
months from commencing therapy. Based on these results, we initiated a phase
II trial of CT-2584 as second line treatment for sarcoma. In November 1999,
investigators reported encouraging data among the first 24 evaluable patients.
Based upon the responses that were observed in a particular subtype of sarcoma
called gastrointestinal stromal cell sarcoma, or GIST, we announced we were
expanding the size of the sarcoma trial from 40 patients to 80 patients. We
completed enrollment for this trial at the end of 2000 and expect to review
the data by the second half of this year. If CT-2584 demonstrates encouraging
anti-tumor activity in this disease, we intend to discuss a potential pivotal
trial design with the FDA.
CT-2584 for Treatment of Other Cancers. We are also investigating whether
the combination of CT-2584 with cisplatin, a commonly used cancer drug for
solid tumors, can result in better tumor response rates than with cisplatin
alone. We have initiated a phase I trial of CT-2584 in combination with
cisplatin for lung cancer and other advanced cancers. Our strategy is to
expand the use of CT-2584 over time to larger cancer markets such as lung
cancer and prostate cancer where CT-2584 may improve efficacy when combined
with conventional cancer drugs.
10
Collaboration and Licensing Arrangements
BioChem Pharma. We have a collaboration and supply agreement with BioChem
Pharma for the development and commercialization of CT-2584 in Canada. Under
this collaboration agreement, BioChem Pharma will be responsible for obtaining
regulatory approval for CT-2584 in Canada. Although BioChem Pharma will have
no obligation to conduct any research and development activities, it will have
the right to have us perform clinical trials in Canada at BioChem Pharma's
expense. BioChem Pharma will have the exclusive right to commercialize CT-2584
in Canada, subject to the payment of royalties to us. We will also receive
payments under the collaboration agreement if certain milestones are achieved.
The aggregate amount of milestone payments we may receive per the BioChem
Pharma agreement is $1.5 million. These payments are payable upon future
milestones, such as trial commencements, filings and sales achievements.
BioChem Pharma may terminate this agreement with respect to any product at any
time for any reason upon 30 days' notice.
PG-TXL Company, L.P. On June 30, 1998, we entered into an agreement with PG-
TXL Company, L.P. granting us an exclusive worldwide license for the rights to
PG-TXL and to all potential uses of PG-TXL Company's polymer technology. Under
the terms of the agreement, we acquired the rights to fund the research,
development, manufacture, marketing and sale of anti-cancer drugs developed
using this polymer technology. We are obligated to make payments upon the
attainment of significant development milestones, as defined in the agreement.
The aggregate amount of milestone payments we may be required to pay pursuant
to the PG-TXL agreement is $20.5 million. These are payable upon future
milestones, such as agreement executions, trial commencements and completions,
filings and regulatory approvals. We are obligated to meet certain development
requirements by June 30, 2002 to maintain these exclusive license rights.
Patents and Proprietary Rights
We dedicate significant resources to protecting our intellectual property.
Through our acquisition of PolaRx, we obtained rights to four pending patent
applications that, in the aggregate, cover dosage formulations, methods of
administration and methods of use for various forms of arsenic trioxide and
related compounds. We have exclusive rights to two issued patents and 21 U.S.
and foreign pending patent applications relating to our polymer drug delivery
technology. Fifteen issued U.S. patents cover the chemical entity,
pharmaceutical compositions and methods of use of CT-2584 and related
compounds. We intend to file additional patent applications when appropriate,
with respect to improvements in our core technology and to specific products
and processes that we develop. Patents may not issue from any present or
future applications or, if patents do issue, such patents may not be issued on
a timely basis or claims allowed on issued patents may not be sufficient to
protect our technology. In addition, the patents issued to us may be
challenged, invalidated or circumvented or the rights granted thereunder may
not provide proprietary protection or commercial advantage to us. With respect
to such issued U.S. patents or any patents that may issue in the future, they
may not effectively protect the technology involved, foreclose the development
of competitive products by others or otherwise be commercially valuable.
We have sought and intend to aggressively seek patent protection in the
United States, Europe and Japan to protect any products that we may develop.
We also intend to seek patent protection or rely upon trade secrets to protect
certain of our enabling technologies that will be used in discovering and
evaluating new drugs which could become marketable products. However, such
steps may not effectively protect the technology involved. To protect any such
trade secrets and other proprietary information, we rely on confidentiality
and material transfer agreements with our corporate partners, employees,
consultants, outside scientific collaborators and sponsored researchers and
other advisors. These agreements may be breached, we may not have adequate
remedies for breach or our trade secrets may not otherwise become known or
independently discovered by competitors. We also have members of our
Scientific Advisory and Clinical Boards, our consultants and, in most cases,
our employees enter into agreements requiring disclosure to us of ideas,
developments, discoveries or inventions conceived during employment or
consulting and assignment to us of proprietary rights to such matters related
to our business and technology.
11
Manufacturing
We currently use, and expect to continue to be dependent upon, contract
manufacturers to manufacture each of our product candidates. We have
established a quality control and quality assurance program, including a set
of standard operating procedures and specifications, designed to ensure that
our products are manufactured in accordance with cGMPs and other applicable
domestic and foreign regulations. These manufacturers may not meet our
requirements for quality, quantity or timeliness.
We will need to develop additional manufacturing resources, and may seek to
enter into additional collaborative arrangements with other parties which have
established manufacturing capabilities or may elect to have a third party
manufacture our products on a contract basis. We have an agreement with a
third party vendor to furnish TRISENOX, PG-TXL and CT-2584 drug substances for
clinical studies and in the case of TRISENOX, for commercial market demand. We
will be dependent upon these third parties to supply us in a timely manner
with products manufactured in compliance with cGMPs or similar standards
imposed by foreign regulators Contract manufacturers may violate cGMPs, and
the FDA has intensified its oversight of drug manufacturers. The FDA may take
action against a contract manufacturer who violates cGMPs. Such actions may
include requiring the contract manufacturer to cease its manufacturing
activities.
Marketing
We have developed an experienced sales and marketing infrastructure in North
America to commercialize our portfolio of oncology products. The oncology
market is highly concentrated. It is comprised primarily of the approximately
85,000 physicians who order the vast majority of cancer therapeutics. We
currently are marketing TRISENOX with our direct sales force consisting of 16
field based oncology account managers and medical science liaisons and expect
to have a total of 31 field based sales personnel by mid year 2001. We plan to
enter into commercialization arrangements to market our products outside of
North America.
Competition
Competition in the pharmaceutical and biotechnology industries is intense.
We face competition from a variety of companies focused on developing oncology
drugs. We compete with large pharmaceutical companies and with other
specialized biotechnology companies. Many of our existing or potential
competitors have substantially greater financial, technical and human
resources than us and may be better equipped to develop, manufacture and
market products. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Many of these
competitors have significant products that have been approved or are in
development and operate large, well funded research and development programs.
We expect to encounter significant competition for the principal
pharmaceutical products we plan to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage if their products work through a similar mechanism as our products.
Accordingly, we do not believe competition is as intense among products which
treat cancer through novel delivery or therapeutic mechanisms. 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, such
products have already entered late-stage clinical trials or received FDA
approval. However, cancer drugs with distinctly different mechanisms of action
are often used together in combination for treating cancer, allowing several
different products to target the same cancer indication or disease type.
We believe that our ability to compete successfully will be based on our
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent
or other protection for its products, obtain required regulatory approvals and
manufacture and successfully market our products either alone or through
outside parties. We will continue to seek licenses with respect to technology
related to our field of interest and may face competition with respect to such
efforts.
12
Government Regulation
The research, development, testing, manufacture, labeling, promotion,
advertising, distribution, and marketing, among other things, of our products
are extensively regulated by governmental authorities in the United States and
other countries. In the United States, the FDA regulates drugs under the
Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing
regulations. Failure to comply with the applicable U.S. requirements may
subject us to administrative or judicial sanctions, such as FDA refusal to
approve pending new drug applications, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution,
injunctions, and/or criminal prosecution.
Drug Approval Process. None of our drugs may be marketed in the U.S. until
the drug has received FDA approval. The steps required before a drug may be
marketed in the U.S. include:
. preclinical laboratory tests, animal studies, and formulation studies
. submission to the FDA of an investigational new drug application, or IND,
for human clinical testing, which must become effective before human
clinical trials may begin
. adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug for each indication
. submission to the FDA of a NDA
. satisfactory completion of an FDA inspection of the manufacturing
facility or facilities at which the drug is produced to assess compliance
with current Good Manufacturing Procedures, or cGMP, and
. FDA review and approval of the NDA.
Preclinical tests include laboratory evaluation of product chemistry,
toxicity, and formulation, as well as animal studies. The results of the
preclinical 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 begin. An IND will automatically become
effective 30 days after receipt by the FDA, unless before that time the FDA
raises concerns or questions about issues such as the conduct of the trials as
outlined in the IND. In such a case, the IND sponsor and the FDA must resolve
any outstanding FDA concerns or questions before clinical trials can proceed.
We cannot be sure that submission of an IND will result in FDA allowing
clinical trials to begin.
Clinical trials involve the administration of the investigational drug to
human subjects under the supervision of qualified investigators. Clinical
trials are conducted under protocols detailing the objectives of the study,
the parameters to be used in monitoring safety, and the effectiveness criteria
to be evaluated. Each protocol must be submitted to the FDA as part of the
IND.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review Board before it can begin. Study subjects
must sign an informed consent form before participating in a clinical trial.
Phase I usually involves the initial introduction of the investigational drug
into people to evaluate its safety, dosage tolerance, pharmacologic action,
and, if possible, to gain an early indication of its effectiveness. Phase II
usually involves trials in a limited patient population to (i) evaluate dosage
tolerance and appropriate dosage; (ii) identify possible adverse effects and
safety risks; and (iii) evaluate preliminarily the efficacy of the drug for
specific indications. Phase III trials usually further evaluate clinical
efficacy and test further for safety by using the drug in its final form in an
expanded patient population. There can be no assurance that phase I, phase II,
or phase III testing will be completed successfully within any specified
period of time, if at all. Furthermore, the Company or the FDA may suspend
clinical trials at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health risk.
Assuming successful completion of the required clinical testing, the results
of the preclinical studies and of the clinical studies, together with other
detailed information, including information on the manufacture and composition
of the drug, are submitted to the FDA in the form of an NDA requesting
approval to market the
13
product for one or more indications. Before approving an NDA, the FDA usually
will inspect the facility or the facilities at which the drug is manufactured,
and will not approve the product unless cGMP compliance is satisfactory. If
FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA
will issue an approval letter. If the FDA evaluates the NDA submission or
manufacturing facilities as not acceptable, the FDA will outline the
deficiencies in the submission and often will request additional testing or
information. Even if we submit the requested additional information, the FDA
ultimately may decide that the NDA does not satisfy the criteria for approval.
The testing and approval process requires substantial time, effort, and
financial resources, and we cannot be sure that any approval will be granted
on a timely basis, if at all. After approval, certain changes to the approved
product, such as adding new indications, manufacturing changes, or additional
labeling claims are subject to further FDA review and approval.
Post-Approval Requirements. Once FDA approves a drug product, we are
required to comply with a number of post-approval requirements. For example,
holders of an approved NDA are required to report certain adverse reactions to
the FDA, and to comply with certain requirements concerning advertising and
promotional labeling for their products. Also, quality control and
manufacturing procedures must continue to conform to cGMP after approval, and
the FDA periodically inspects manufacturing facilities to assess compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain cGMP
compliance. We use and will continue to use third party manufacturers to
produce our products in clinical and commercial quantities, and future FDA
inspections may identify compliance issues at our facilities or at the
facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct. In addition,
discovery of problems with a product after approval may result in restrictions
on a product, manufacturer, or holder of an approved NDA, including withdrawal
of the product from the market.
Orphan Drug. The FDA may grant orphan drug designation to drugs intended to
treat a "rare disease or condition," which generally is a disease or condition
that affects fewer than 200,000 individuals in the United States. Orphan drug
designation must be requested before submitting an NDA. After the FDA grants
orphan drug designation, the identity of the therapeutic agent and its
potential orphan use are publicly disclosed by the FDA. Orphan drug
designation does not convey an advantage in, or shorten the duration of, the
review and approval process. If a product which has an orphan drug designation
subsequently receives the first FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, meaning
that the FDA may not approve any other applications to market the same drug
for the same indication, except in certain very limited circumstances, for a
period of seven years. Orphan drug designation does not prevent competitors
from developing or marketing different drugs for an indication.
We have obtained orphan drug market exclusivity for TRISENOX to treat
patients with drug resistant or relapsed APL. We have received orphan drug
designation for CT-2584 to treat patients with adult soft tissue sarcoma,
hormone refractory prostate cancer, and malignant mesothelioma. We have also
received orphan drug designation for TRISENOX for the treatment of patients
with refractory multiple myeloma and myelodysplasia. However, TRISENOX may not
receive an orphan drug marketing exclusivity for any of these indications, and
CT-2584 or any of our other drug products may not receive orphan drug
exclusivity for any indication. Also, it is possible that our competitors
could obtain approval, and attendant orphan drug exclusivity, for products
that would preclude us from marketing our products for specified indications
for some time.
Non-United States Regulation. Before our products can be marketed outside of
the United States, they are subject to regulatory approval similar to that
required in the United States, although the requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country. No action can be taken to market any product in a
country until an appropriate application has been approved by the regulatory
authorities in that country. The current approval process varies from country
to country, and the time spent in gaining approval varies from that required
for FDA approval. In certain countries, the sales price of a product must also
be approved. The pricing review period often begins after market approval is
granted. Even if a product is approved by a regulatory authority, satisfactory
prices, may not be approved for such product.
14
Environmental Regulation
In connection with our research and development activities, we are subject
to federal, state and local laws, rules, regulations and policies governing
the use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials, biological specimens and wastes.
Although we believe that we have complied with these laws, regulations and
policies in all material respects and have not been required to take any
significant action to correct any noncompliance, we may be required to incur
significant costs to comply with environmental and health and safety
regulations in the future. Our research and development involves the
controlled use of hazardous materials, including but not limited to certain
hazardous chemicals and radioactive materials. Although we believe that our
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the
event of such an accident, we could be held liable for any damages that result
and any such liability could exceed our resources.
Employees
As of March 15, 2001, we employed 147 individuals, including 47 holding
doctoral or other advanced degrees. Our employees do not have a collective
bargaining agreement. We consider our relations with our employees to be good.
Scientific and Clinical Advisory Boards
We have a Scientific Advisory Board which consists of recognized scientists
with expertise in the fields of immunology, cell and molecular biology, and
synthetic and medical chemistry. Our Scientific Advisory Board meets with our
management and key scientific employees on a semi-annual basis and in smaller
groups or individually from time to time on an informal basis. The members
assist us in identifying scientific and product development opportunities,
reviewing with management the progress of our specific projects and recruiting
and evaluating our scientific staff. We also have a Clinical Advisory Board
which assists us from time to time on clinical matters.
The following are members of our Scientific Advisory Board:
Lewis Cantley, Ph.D., is a noted authority in cellular biochemical signaling
pathways that employ phosphatidyl inositol and its metabolites and is the
discoverer of one of the most critical enzymes in those pathways, the PI3
Kinase. He is currently Professor of Cell Biology at Harvard Medical School
and Chief of the Division of Signal Transduction in the Department of
Medicine, Beth Israel Hospital, Boston and the author of over 180
publications.
Edward A. Dennis, Ph.D., is the Vice Chair of Medical Biochemistry at the
University of California, San Diego. He is a noted authority on
phospholipases, cell signaling and phospholipid metabolism. Dr. Dennis serves
on the Scientific Advisory Board and Management Committee of, and chairs the
Management Executive Board of, the Keystone Symposia. He sits on the Editorial
Board of the Journal of Cellular Biochemistry and on the Publications
Committee of the American Society for Biochemistry and Molecular Biology. He
has authored over 185 manuscripts.
Edwin Krebs, M.D., is a Professor Emeritus, Department of Pharmacology and
Biochemistry, at the University of Washington in Seattle and a Senior
Investigator Emeritus at the Howard Hughes Medical Institute. He is a
recognized authority on mechanisms of action of second messengers, including
protein kinases and phosphorylation reactions. He is the recipient of numerous
awards and honors and has authored 297 manuscripts. In 1992, Dr. Krebs was
awarded the Nobel Prize in Physiology of Medicine for his work on second
messenger pathways.
15
L. Jackson Roberts, II, M.D., is an internationally recognized authority on
the oxidative metabolism of polyunsaturated fatty acids. He is known for
having identified PGD2 on the major mast cell lipid mediator and, more
recently, for having originated the field of studying non enzymatically-
generated prostanoids, including the isprostanes and neuroprostanes. He is
currently Professor of Pharmacology and Medicine at Vanderbilt University and
is the author of over 170 publications.
The following are members of our Clinical Advisory Board:
E. Donnall Thomas, M.D., is the Chairman of our Clinical Advisory Board. He
is the former Associate Director of Clinical Research and presently a
Professor Emeritus at the Fred Hutchinson Cancer Research Center, of which he
was a founding member. His research has spanned a wide array of fields from
radiation biology to developmental immunology, and from cancer causing genes
to gene transfer therapies. For his pioneering work in bone marrow transplant,
Dr. Thomas was awarded the Nobel Prize for Medicine in 1990. Among the other
honors awarded to Dr. Thomas in recognition of his medical research are the
American Cancer Society Award for Distinguished Service in Basic Research and
the Kettering Prize of the General Motors Cancer Research Foundation. He is a
member of the U.S. Academy of Sciences.
Karen H. Antman, M.D., is the Chief of the Division of Medical Oncology,
College of Physicians & Surgeons of Columbia University. Dr. Antman is an
expert in emerging treatment strategies for solid tumors, notably breast
cancer and sarcomas. From 1994 to 1995 she served as President of the American
Society of Clinical Oncology. Since 1993, Dr. Antman has served on the Sarcoma
Committee of the Southwest Oncology Groups, and has been its chairperson since
1995. From 1993 to 1994 she was program committee chair of the American
Association for Cancer Research. She is on the editorial board of several
prestigious journals, including Associate Editor of The New England Journal of
Medicine.
Factors Affecting Our Operating Results
This annual report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the risks faced by us described below and elsewhere
in this annual report on Form 10-K.
If we continue to incur net losses, we may not achieve or maintain
profitability.
We were incorporated in 1991 and have incurred a net operating loss every
year. As of December 31, 2000, we had an accumulated deficit of approximately
$210.3 million. We only recently began to generate product revenue from
initial sales of TRISENOX in the quarter ended December 31, 2000. We may never
become profitable, even if we are able to commercialize additional products.
We will need to conduct significant research, development, testing and
regulatory compliance activities that, together with projected general and
administrative expenses, we expect will result in substantial increasing
operating losses for at least the next several years. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
If we do not successfully develop additional products, we may be unable to
generate revenue.
We have only one product, TRISENOX for APL, that has received marketing
approval to date. Our leading drug candidates, TRISENOX for other indications,
PG-TXL and CT-2584, are currently in clinical trials. These clinical trials of
the drug candidates involve the testing of potential therapeutic agents, or
effective treatments, in humans in three phases to determine the safety and
efficacy of the drug candidates necessary for an approved drug. Many drugs in
human clinical trials fail to demonstrate the desired safety and efficacy
characteristics. Even if our drugs progress successfully through initial human
testing, they may fail in later stages of development. A number of companies
in the pharmaceutical industry, including us, have suffered significant
setbacks in advanced clinical trials, even after reporting promising results
in earlier trials. For example, in our first phase III human
16
trial for lisofylline, completed in March 1998, we failed to meet our two
primary endpoints, or goals, even though we met our endpoints in two earlier
phase II trials for lisofylline. As a result, we are no longer developing
lisofylline as a potential product. In addition, data obtained from clinical
trials are susceptible to varying interpretations. Government regulators and
our collaborators may not agree with our interpretation of our future clinical
trial results. The clinical trials of TRISENOX, PG-TXL and CT-2584 or any of
our future drug candidates may not be successful.
Many of our drug candidates are still in research and preclinical
development, which means that they have not yet been tested on humans. We will
need to commit significant time and resources to develop these and additional
product candidates. We are dependent on the successful completion of clinical
trials and obtaining regulatory approval in order to generate revenues. The
failure to generate such revenues may preclude us from continuing our research
and development of these and other product candidates.
Even if our drug candidates are successful in clinical trials, we may not be
able to successfully commercialize them.
Since our inception in 1991, we have dedicated substantially all of our
resources to the research and development of our technologies and related
compounds. With the exception of TRISENOX for APL, all of our compounds
currently are in research or development, and none has been submitted for
marketing approval. Our other compounds may not enter human clinical trials on
a timely basis, if at all, and we may not develop any product candidates
suitable for commercialization. Prior to commercialization, each product
candidate will require significant additional research, development and
preclinical testing and extensive clinical investigation before submission of
any regulatory application for marketing approval. Potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. Potential products may:
. be found ineffective or cause harmful side effects during preclinical
testing or clinical trials
. fail to receive necessary regulatory approvals
. be difficult to manufacture on a large scale
. be uneconomical to produce
. fail to achieve market acceptance
. be precluded from commercialization by proprietary rights of third
parties
Our product development efforts or our collaborative partners' efforts may
not be successfully completed and we may not obtain required regulatory
approvals. Any products, if introduced, may not be successfully marketed nor
achieve customer acceptance.
Because we based several of our drug candidates on unproven novel
technologies, we may never develop them into commercial products.
We base many of our product candidates upon novel delivery technologies
which we are using to discover and develop drugs for the treatment of cancer.
This technology has not been proven. Furthermore, preclinical results in
animal studies may not predict outcome in human clinical trials. Our product
candidates may not be proven safe or effective. If this technology does not
work, our drug candidates may not develop into commercial products.
17
We may not complete our clinical trials in the time expected which could
delay or prevent the commercialization of our products.
Although for planning purposes we forecast the commencement and completion
of clinical trials,the actual timing of these events can vary dramatically due
to factors such as delays, scheduling conflicts with participating clinicians
and clinical institutions and the rate of patient accruals. Clinical trials
involving our product candidates may not commence nor be completed as
forecasted. We have limited experience in conducting clinical trials. In
certain circumstances we rely on academic institutions or clinical research
organizations to conduct, supervise or monitor some or all aspects of clinical
trials involving our products. In addition, certain clinical trials for our
products will be conducted by government-sponsored agencies and consequently
will be dependent on governmental participation and funding. We will have less
control over the timing and other aspects of these clinical trials than if we
conducted them entirely on our own. These trials may not commence or be
completed as we expect. They may not be conducted successfully. Failure to
commence or complete, or delays in, any of our planned clinical trials could
delay or prevent the commercialization of our products and harm our business.
If we fail to adequately protect our intellectual property, our competitive
position could be harmed.
Development and protection of our intellectual property are critical to our
business. If we do not adequately protect our intellectual property,
competitors may be able to practice our technologies. Our success depends in
part on our ability to:
. obtain patent protection for our products or processes both in the United
States and other countries
. protect trade secrets
. prevent others from infringing on our proprietary rights
In particular we believe that linking our polymers to existing drugs may
yield patentable subject matter. We do not believe that our polymer-drug
conjugates will infringe any third party patents covering the underlying drug.
However, we may not receive a patent for our polymer conjugates and we may be
challenged by the holder of a patent covering the underlying drug.
The patent position of biopharmaceutical firms generally is highly uncertain
and involves complex legal and factual questions. The U.S. Patent and
Trademark Office has not established a consistent policy regarding the breadth
of claims that it will allow in biotech patents. If it allows broad claims,
the number and cost of patent interference proceedings in the U.S. and the
risk of infringement litigation may increase. If it allows narrow claims, the
risk of infringement may decrease, but the value of our rights under our
patents, licenses and patent applications may also decrease.
Patent applications in which we have rights may never issue as patents and
the claims of any issued patents may not afford meaningful protection for our
technologies or products. In addition, patents issued to us or our licensors
may be challenged and subsequently narrowed, invalidated or circumvented.
Litigation, interference proceedings or other governmental proceedings that we
may become involved in with respect to our proprietary technologies or the
proprietary technology of others could result in substantial cost to us.
Patent litigation is widespread in the biotechnology industry, and any patent
litigation could harm our business. Costly litigation might be necessary to
protect our orphan drug designations or patent position or to determine the
scope and validity of third party proprietary rights, and we may not have the
required resources to pursue such litigation or to protect our patent rights.
An adverse outcome in litigation with respect to the validity of any of our
patents could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease using
a product or technology.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. Third parties may
independently develop such know-how or otherwise obtain access to our
technology. While we require our employees, consultants and corporate partners
with access to proprietary information to enter into confidentiality
agreements, these agreements may not be honored.
18
If any of our license agreements for intellectual property underlying
TRISENOX, PG-TXL or any other product are terminated, we may lose our rights
to develop or market that product.
Patents issued to third parties may cover our products as ultimately
developed. We may need to acquire licenses to these patents or challenge the
validity of these patents. We may not be able to license any patent rights on
acceptable terms or successfully challenge such patents. The need to do so
will depend on the scope and validity of these patents and ultimately on the
final design or formulation of the products and services that we develop.
We have licensed intellectual property, including patent applications from
Memorial Sloan Kettering Cancer Institute, Samuel Waxman Cancer Research
Foundation, Beijing Medical University and others, including the intellectual
property underlying our most advanced product candidate, TRISENOX. We have
also in-licensed the intellectual property relating to our polymer drug
delivery technology, including PG-TXL. Some of our product development
programs depend on our ability to maintain rights under these licenses. Each
licensor has the power to terminate its agreement with us if we fail to meet
our obligations under that license. We may not be able to meet our obligations
under these licenses. If we default under any of these license agreements, we
may lose our right to market and sell any products based on the licensed
technology.
Our products could infringe on the intellectual property rights of others,
which may cause us to engage in costly litigation and, if we are not
successful, could cause us to pay substantial damages and prohibit us from
selling our products.
Although we attempt to monitor the patent filings of our competitors in an
effort to guide the design and development of our products to avoid
infringement, third parties may challenge the patents that have been issued or
licensed to us. We may have to pay substantial damages, possibly including
treble damages, for past infringement if it is ultimately determined that our
products infringe a third party's patents. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all,
may require us to pay substantial royalties. Even if infringement claims
against us are without merit, defending a lawsuit takes significant time, may
be expensive and may divert management attention from other business concerns.
Our limited operating experience may cause us difficulty in managing our
growth and could seriously harm our business.
As a result of FDA approval of TRISENOX for APL and clinical trials
currently underway, we will need to expand our operations in various areas,
including our management, regulatory, clinical, financial and information
systems and other elements of our business process infrastructure. We expect
to add additional key personnel in these areas in the near future. In
addition, if rapid growth occurs, it may strain our operational, managerial
and financial resources. We will not be able to increase revenues or control
costs unless we continue to improve our operational, financial, regulatory and
managerial systems and processes, expand, train and manage our work force.
If we fail to keep pace with rapid technological change in the biotechnology
and pharmaceutical industries, our products could become obsolete.
Biotechnology and related pharmaceutical technology have undergone and are
subject to rapid and significant change. We expect that the technologies
associated with biotechnology research and development will continue to
develop rapidly. Our future will depend in large part on our ability to
maintain a competitive position with respect to these technologies. Any
compounds, products or processes that we develop may become obsolete before we
recover any expenses incurred in connection with developing these products.
19
We face direct and intense competition from our rivals in the biotechnology
and pharmaceutical industries and we may not compete successfully against
them.
The biotechnology and pharmaceutical industries are intensely competitive.
We have numerous competitors in the United States and elsewhere. Our
competitors include major, multinational pharmaceutical and chemical
companies, specialized biotechnology firms and universities and other research
institutions. Many of these
competitors have greater financial and other resources, larger research and
development staffs and more effective marketing and manufacturing
organizations, than we do. In addition, academic and government institutions
have become increasingly aware of the commercial value of their research
findings. These institutions are now more likely to enter into exclusive
licensing agreements with commercial enterprises, including our competitors,
to market commercial products.
Our competitors may succeed in developing or licensing technologies and
drugs that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for
drug candidates before we do. In particular, we face direct competition from
many companies focusing on delivery technologies. Drugs resulting from our
research and development efforts, if approved for sale, may not compete
successfully with our competitors' existing products or products under
development.
We may need to raise additional funds in the future, and they may not be
available on acceptable terms, or at all.
We expect that our existing capital resources and the interest earned
thereon will enable us to maintain our current and planned operations until
2003. Beyond that time, if our capital resources are insufficient to meet
future capital requirements, we will have to raise additional funds to
continue the development of our technologies and complete the
commercialization of products, if any, resulting from our technologies. We
will require substantial funds to: (1) continue our research and development
programs, (2) in-license or acquire additional technologies, and (3) conduct
preclinical studies and clinical trials. We may need to raise additional
capital to fund our operations repeatedly. We may raise such capital through
public or private equity financings, partnerships, debt financings, bank
borrowings, or other sources. Our capital requirements will depend upon
numerous factors, including the following:
. the establishment of additional collaborations
. the development of competing technologies or products
. changing market conditions
. the cost of protecting our intellectual property rights
. the purchase of capital equipment
. the progress of our drug discovery and development programs, the progress
of our collaborations and receipt of any option/license, milestone and
royalty payment resulting from those collaborations
. in-licensing and acquisition opportunities
Additional funding may not be available on favorable terms or at all. If
adequate funds are not otherwise available, we may curtail operations
significantly. To obtain additional funding, we may need to enter into
arrangements that require us to relinquish rights to certain technologies,
drug candidates, products and/or potential markets. To the extent that
additional capital is raised through the sale of equity, or securities
convertible into equity, you may experience dilution of your proportionate
ownership of the company.
Our stock price is extremely volatile, which may affect our ability to raise
capital in the future.
The market price for securities of biopharmaceutical and biotechnology
companies, including that of ours, historically has been highly volatile, and
the market from time to time has experienced significant price and volume
fluctuations that are unrelated to the operating performance of such
companies. For example, during the
20
twelve months ended December 31, 2000, our stock price has ranged from a low
of $5.31 to a high of $77.25. Fluctuations in the trading price or liquidity
of our common stock may adversely affect our ability to raise capital through
future equity financings.
Factors that may have a significant impact on the market price and
marketability of our common stock include:
. announcements of technological innovations or new commercial therapeutic
products by us, our collaborative partners or our present or potential
competitors
. our quarterly operating results
. announcements by us or others of results of preclinical testing and
clinical trials
. developments or disputes concerning patent or other proprietary rights
. developments in our relationships with collaborative partners
. acquisitions
. litigation
. adverse legislation, including changes in governmental regulation and the
status of our regulatory approvals or applications
. third party reimbursement policies
. changes in securities analysts' recommendations
. changes in health care policies and practices
. economic and other external factors
. general market conditions
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If a securities class action suit is filed against us, we would
incur substantial legal fees and our management's attention and resources
would be diverted from operating our business in order to respond to the
litigation.
There are a substantial number of unregistered shares of our common stock
which, when registered for resale, could result in a decrease in our stock
price or impair our ability to raise funds in future equity offerings.
The sale, or availability for sale, of substantial amounts of our common
stock in the public market could materially decrease the market price of our
common stock and could impair our ability to raise additional capital. Any
sales by existing shareholders or holders of options or warrants may have an
adverse effect on our ability to raise capital and may adversely affect the
market price of the common stock.
Our dependence on third party manufacturers means that we may not have
sufficient control over the manufacture of our products.
We currently do not have internal facilities for the manufacture of any of
our products for clinical or commercial production. We will need to develop
additional manufacturing resources, enter into collaborative arrangements with
other parties which have established manufacturing capabilities or elect to
have other third parties manufacture our products on a contract basis. For
example, we are a party to an agreement with Aerojet to furnish CT-2584 bulk
drug substance for future clinical studies. We are dependent on such
collaborators or third parties to supply us in a timely way with products
manufactured in compliance with standards imposed by the FDA and foreign
regulators. The manufacturing facilities of contract manufacturers may not
comply with applicable manufacturing regulations of the FDA nor meet our
requirements for quality, quantity or timeliness.
21
We may face difficulties in achieving acceptance of our products in the
market if we do not continue to expand our sales and marketing
infrastructure.
We currently are marketing TRISENOX with our direct sales force. Because the
oncology market is highly concentrated and many prospective clients are
unfamiliar with TRISENOX, we will need to continue to expand our sales and
marketing infrastructure in order to increase market awareness of this
product. We are in the process of expanding our direct sales force, and
currently require additional qualified sales personnel. Competition for these
individuals is intense, and we may not be able to hire the type and number of
sales personnel we need. In addition, should we have to market and sell
directly our products other than TRISENOX, we would need to further expand our
marketing and sales force with sufficient technical expertise and distribution
capacity. If we are unable to continue to expand our direct sales operations
and train new sales personnel as rapidly as necessary, we may not be able to
increase market awareness and sales of our products, which may prevent us from
growing our revenues and achieving and maintaining profitability.
If we lose our key personnel or are unable to attract and retain additional
personnel, we may be unable to pursue collaborations or develop our own
products.
We are highly dependent on Dr. James A. Bianco, Chief Executive Officer, and
Dr. Jack Singer, Executive Vice President, Research Program Chairman. The loss
of these principal members of our scientific or management staff, or failure
to attract or retain other key scientific personnel employees, could prevent
us from pursuing collaborations or developing our products and core
technologies. Recruiting and retaining qualified scientific personnel to
perform research and development work are critical to our success. There is
intense competition for qualified scientists and managerial personnel from
numerous pharmaceutical and biotechnology companies, as well as from academic
and government organizations, research institutions and other entities. In
addition, we rely on consultants and advisors, including our scientific and
clinical advisors, to assist us in formulating our research and development
strategy. All of our consultants and advisors are employed by other employers
or are self-employed, and have commitments to or consulting or advisory
contracts with other entities that may limit their availability to us.
We are subject to extensive government regulation, including the requirement
of approval before our products may be marketed.
The FDA has approved only one of our products, TRISENOX, for sale in the
United States, for the indication of relapsed and refractory APL. Before we
can market TRISENOX for other indications, we must obtain FDA approval. Our
other products are in development, and will have to be approved by the FDA
before they can be marketed in the United States. If the FDA does not approve
our products and any additional indications for marketed products in a timely
fashion, or does not approve them at all, our business and financial condition
may be adversely affected.
In addition, we and our products are subject to comprehensive regulation by
the FDA both before and after products are approved for marketing. The FDA
regulates, for example, research and development, including preclinical and
clinical testing, safety, effectiveness, manufacturing, labeling, advertising,
promotion, export, and marketing of our products. Our failure to comply with
regulatory requirements may result in various adverse consequences including
FDA delay in approving or refusal to approve a product, recalls, withdrawal of
an approved product from the market, and/or the imposition of civil or
criminal sanctions.
Because there is a risk of product liability associated with our products, we
face potential difficulties in obtaining insurance.
Our business exposes us to potential product liability risks inherent in the
testing, manufacturing and marketing of human pharmaceutical products, and we
may not be able to avoid significant product liability exposure. While we have
insurance covering product use in our clinical trials, and currently have
product liability insurance for TRISENOX, it is possible that we will not be
able to maintain such insurance on acceptable
22
terms or that any insurance obtained will provide adequate coverage against
potential liabilities. Our inability to obtain sufficient insurance coverage
at an acceptable cost or otherwise to protect against potential product
liability claims could prevent or limit the commercialization of any products
we develop. A successful product liability claim in excess of our insurance
coverage could exceed our net worth.
Uncertainty regarding third party reimbursement and health care cost
containment initiatives may limit our returns.
The ongoing efforts of governmental and third party payors to contain or
reduce the cost of health care will affect our ability to commercialize our
products successfully. Governmental and other third party payors increasingly
are attempting to contain health care costs by:
. challenging the prices charged for health care products and services
. limiting both coverage and the amount of reimbursement for new
therapeutic products
. denying or limiting coverage for products that are approved by the FDA
but are considered experimental or investigational by third party payors
. refusing in some cases to provide coverage when an approved product is
used for disease indications in a way that has not received FDA marketing
approval
In addition, the trend toward managed health care in the United States, the
growth of organizations such as health maintenance organizations, and
legislative proposals to reform healthcare and government insurance programs
could significantly influence the purchase of healthcare services and
products, resulting in lower prices and reducing demand for our products.
Even if we succeed in bringing any of our proposed products to the market,
they may not be considered cost-effective and third party reimbursement might
not be available or sufficient. If adequate third party coverage is not
available, we may not be able to maintain price levels sufficient to realize
an appropriate return on our investment in research and product development.
In addition, legislation and regulations affecting the pricing of
pharmaceuticals may change in ways adverse to us before or after any of our
proposed products are approved for marketing. While we cannot predict whether
any such legislative or regulatory proposals will be adopted, the adoption of
such proposals could make it difficult or impossible to sell our products.
Since we use hazardous materials in our business, we may be subject to claims
relating to improper handling, storage or disposal of these materials.
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive compounds. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain
waste products. Although we believe that our safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated completely. In the event of such an
accident, we could be held liable for any damages that result and any such
liability not covered by insurance could exceed our resources. Compliance with
environmental laws and regulations may be expensive, and current or future
environmental regulations may impair our research, development or productions
efforts.
We may not be able to conduct animal testing in the future which could harm
our research and development activities.
Certain of our research and development activities involve animal testing.
Such activities have been the subject of controversy and adverse publicity.
Animal rights groups and other organizations and individuals have attempted to
stop animal testing activities by pressing for legislation and regulation in
these areas. To the extent the activities of these groups are successful, our
business could be materially harmed by delaying or interrupting our research
and development activities.
23
Because our charter documents contain certain anti-takeover provisions and we
have a rights plan, it may be more difficult for a third party to acquire us,
and the rights of some shareholders could be adversely affected.
Our Restated Articles of Incorporation and Bylaws contain provisions that
may make it more difficult for a third party to acquire or make a bid for us.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of our common stock. In addition, shares of
our preferred stock may be issued in the future without further shareholder
approval and upon such terms and conditions and having such rights, privileges
and preferences, as the board of directors may determine. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of any holders of preferred stock that may be issued in the future.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of our outstanding
voting stock. We have no present plans to issue any additional shares of
preferred stock. In addition, we have adopted a shareholder rights plan that,
along with certain provisions of our Restated Articles of Incorporation, may
have the effect of discouraging certain transactions involving a change of
control of the company.
Item 2. Properties
We lease approximately 66,000 square feet of space at 201 Elliott Avenue
West in Seattle, Washington for our executive office, laboratory and
administrative operations. The lease expires January 31, 2003, with two
consecutive five-year renewal options at the then prevailing market rent. We
also leased in December 2000 approximately 29,000 square feet of space at 501
Elliott Avenue West in Seattle, Washington for additional executive offices
and administrative operations. The lease expires December 31, 2003. To
accommodate the operational requirements of Cell Therapeutics (UK) Limited,
our wholly-owned, London-based subsidiary, we leased space at 100 Fetter Lane
in London, UK. We believe our existing and planned facilities are adequate to
meet our present requirements. Despite a decrease in local vacancy rates for
commercial space, we currently anticipate that additional space will be
available to us, when needed, on commercially reasonable terms.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
24
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Our common stock is traded on the Nasdaq National Market under the symbol
"CTIC." The following table sets forth, for the periods indicated, the high
and low reported sales prices per share of the common stock as reported on the
Nasdaq National Market.
High Low
---- ----
1999
First Quarter.......................................... $ 4 5/8 $ 2 13/16
Second Quarter......................................... 4 1/8 2 1/16
Third Quarter.......................................... 3 9/32 2 1/32
Fourth Quarter......................................... 7 1/2 1 5/16
2000
First Quarter.......................................... 48 1/8 5 5/16
Second Quarter......................................... 33 1/2 10 1/2
Third Quarter.......................................... 68 1/4 26 3/8
Fourth Quarter......................................... 77 1/4 30 1/2
2001
First Quarter (through February 28, 2001).............. 49 21 1/8
On February 28, 2001, the last reported sale price of our common stock on
the Nasdaq Market was $23 13/16 per share. As of February 28, 2001, there were
approximately 308 shareholders of record of our common stock.
Dividend Policy
We have not declared or paid any cash dividends on our capital stock since
our inception. We currently intend to retain all of our cash and any future
earnings to finance the growth and development of our business and therefore
do not anticipate paying any cash dividends in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
25
Item 6. Selected Financial Data
The data set forth below should be read in conjunction with Item 7. "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
appearing at Item 8 of this report.
Year ended December 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------
(in thousands, except share and per share data)
Consolidated Statements
of Operations Data:
Revenues:
Collaboration
agreements............ $ -- $ -- $ 13,200 $ 11,831 $ 9,121
Product sales.......... 502 -- -- -- --
---------- ---------- ---------- ---------- ---------
Total revenues....... 502 -- 13,200 11,831 9,121
---------- ---------- ---------- ---------- ---------
Operating expenses:
Cost of product sold... 19 -- -- -- --
Research and
development........... 26,574 27,682 29,942 27,285 16,109
General and
administrative........ 14,770 9,788 10,889 10,090 7,602
Sales and marketing.... 5,651 -- -- -- --
Amortization of
purchased
intangibles........... 9,390 -- -- -- --
---------- ---------- ---------- ---------- ---------
Total operating
expenses............ 56,404 37,470 40,831 37,375 23,711
---------- ---------- ---------- ---------- ---------
Loss from operations.... (55,902) (37,470) (27,631) (25,544) (14,590)
---------- ---------- ---------- ---------- ---------
Other income (expense):
Investment income...... 4,518 1,692 3,094 2,895 1,174
Interest expense....... (545) (502) (435) (377) (512)
---------- ---------- ---------- ---------- ---------
Net loss................ (51,929) (36,280) (24,972) (23,026) (13,928)
Preferred stock
dividend............... (508) (5,201) -- -- --
---------- ---------- ---------- ---------- ---------
Net loss applicable to
common shareholders.... $ (52,437) $ (41,481) $ (24,972) $ (23,026) $ (13,928)
========== ========== ========== ========== =========
Basic and diluted net
loss per common share
(1).................... $ (2.07) $ (2.67) $ (1.62) $ (1.98) $ (2.82)
========== ========== ========== ========== =========
Shares used in
computation of basic
and diluted net loss
per common share....... 25,344,796 15,551,526 15,409,848 11,634,032 4,939,388
========== ========== ========== ========== =========
December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- -------- --------
(in thousands)
Consolidated Balance
Sheets Data:
Cash, cash equivalents,
securities available-for-
sale and interest
receivable............... $ 156,433 $ 23,880 $ 46,435 $ 70,444 $ 30,987
Working capital........... 146,384 17,705 44,143 67,594 26,300
Total assets.............. 190,111 30,848 58,156 80,433 37,002
Long-term obligations,
less current portion..... 1,060 2,653 3,888 2,039 2,005
Deficit accumulated during
development stage........ (210,279) (158,350) (122,070) (97,098) (74,083)
Total shareholders'
equity................... 177,943 20,904 47,165 71,760 30,054
- --------
(1) See Notes 1 and 9 of Notes to Consolidated Financial Statements for a
description of the computation of the number of shares and net loss per
common share.
26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements and the related
Notes included in Items 6 and 8 of this Form 10-K. The following discussion
contains forward-looking statements that involve risks and uncertainties. Such
statements, which include statements concerning research and development
expenses, general and administrative expenses, additional financings and
additional losses, are subject to risks and uncertainties, including, but not
limited to, those discussed below and elsewhere in this Form 10-K,
particularly in "Factors Affecting Our Operating Results," that could cause
actual results to differ significantly from those projected.
Overview
We develop, acquire and commercialize novel treatments for cancer. Our goal
is to build a leading, vertically-integrated biopharmaceutical company with a
diversified portfolio of proprietary oncology drugs. Our research and in-
licensing activities are concentrated on identifying new, less toxic and more
effective ways to treat cancer.
Since commencement of operations in 1992, we have been engaged in research
and development activities, including conducting preclinical studies and
clinical trials. In September 2000, we received approval of our New Drug
Application, or NDA, by the Food and Drug Administration, or FDA, for TRISENOX
(injectable arsenic trioxide), and commenced initial product sales for
TRISENOX of $502,000 in the fourth quarter of 2000. Revenue from these product
sales is recognized when the product is shipped. Product sales are recorded
net of an allowance for returns and discounts. As of December 31, 2000, we had
incurred aggregate net losses of approximately $210.3 million since inception.
We expect to continue to incur significant additional operating losses over
the next several years from our research and development efforts. Operating
losses may fluctuate from quarter to quarter as a result of differences in the
timing of expenses incurred and revenues recognized.
In the fourth quarter of 1995, we began to receive revenue under a
collaboration agreement with BioChem Pharma, Inc., and in the fourth quarter
of 1996, we began to receive revenue under a collaboration agreement with
subsidiaries of Johnson & Johnson. Under the terms of the collaboration,
Johnson & Johnson paid 60% of the U.S. development costs of lisofylline, a
product we are no longer developing. In November 1998, after reviewing the
results of our phase III clinical trial for lisofylline, we and Johnson &
Johnson formally amended our collaboration, under the terms of which, Johnson
& Johnson agreed to pay us $13.1 million for development cost reimbursements
for the year ended December 31, 1998. In April 2000, we terminated our
collaboration agreement with Johnson & Johnson.
On June 30, 1998, we entered into an agreement with PG-TXL Company, L.P. and
scientists at the M.D. Anderson Cancer Center, granting us an exclusive
worldwide license to the rights to PG-TXL, and to all potential uses of PG-
TXL's polymer technology. Under the terms of the agreement, we will fund the
research, development, manufacture, marketing and sale of drugs developed
using PG-TXL's polymer technology.
In January 2000, we acquired TRISENOX upon our acquisition of PolaRx
Biopharmaceuticals, Inc. (PolaRx), a single product company that owned the
rights to TRISENOX. The aggregate purchase price of approximately $36.2
million consisted primarily of 5 million shares of common stock. Two
additional payouts tied to sales thresholds of $10 million and $20 million in
any four consecutive quarters, may be payable in tranches of $4 million and $5
million at the then fair market value of our stock, at the time such
thresholds are achieved. For annual sales of TRISENOX in excess of $40
million, PolaRx shareholders will receive a 2% royalty on net sales payable at
the then fair market value of our common stock or, in certain circumstances,
cash. We assumed net liabilities of $3.9 million from PolaRx and have incurred
sales and marketing expenses of $5.7 million associated with the launch of
TRISENOX.
27
Results of Operations
Years ended December 31, 2000 and 1999.
Product sales. In October 2000, we launched Trisenox, a pharmaceutical grade
arsenic product that has been approved by the FDA to treat patients with
relapsed or refractory acute promyelocytic leukemia. We recorded initial net
product sales of approximately $502,000 for Trisenox in the fourth quarter of
2000.
Cost of product sold. The cost of product sold during the fourth quarter of
2000 was approximately $19,000. Prior to FDA approval, the raw material and
production costs of Trisenox were recorded as research and development
expense. We expect product costs in the future to continue to approximate a
small percentage of revenue.
Research and development. Research and development expenses decreased to
approximately $26.6 million for the year ended December 31, 2000 from
approximately $27.7 million for the year ended December 31, 1999. The decrease
was primarily due to the elimination of research and development expenses for
lisofylline ($6.6 million), the reduction in the manufacturing and preclinical
development activity of CT-2584 ($1.7 million), offset in part by the research
and development activities associated with the FDA's approval of Trisenox
($5.2 million), and a milestone payment under our license agreement with PG-
TXL Company, L.P. ($2.0 million). In addition, research and development
expenses reflect an increase in noncash stock-based compensation of
approximately $1.3 million for the year ended December 31, 2000. We anticipate
increased research and development expenses in connection with the clinical
development plans for Trisenox, PG-TXL, CT-2584 and our other products.
General and administrative. General and administrative expenses increased to
approximately $14.8 million for the year ended December 31, 2000 from
approximately $9.8 million for the year ended December 31, 1999. The increase
reflects noncash expenses of approximately $3.3 million in stock-based
compensation to our consultants and operating expenses associated with
supporting our research, development and marketing activities of approximately
$1.7 million. We expect general and administrative expenses to increase in the
future to support our expected increase in research, development and
commercialization efforts.
Sales and marketing. We expensed approximately $5.7 million in our sales and
marketing effort for the year ended December 31, 2000 as we launched Trisenox
in October 2000. We intend sales and marketing expenses to increase as we
continue the launch of TRISENOX.
Amortization of purchased intangibles. In January 2000, we acquired PolaRx
Biopharmaceuticals, Inc. which was accounted for using the purchase method of
accounting. We recorded acquired intangible assets for marketing, patents and
goodwill aggregating $36.2 million. These intangible assets are amortized over
their remaining lives, estimated to be three to five years. The amortization
for the year ended December 31, 2000 was approximately $9.4 million.
Investment income. Investment income increased to approximately $4.5 million
for the year ended December 31, 2000 from approximately $1.7 million for the
year ended December 31, 1999. This increase is attributed to higher average
cash balances on hand during 2000 because we completed a private placement and
secondary offering in 2000 which generated net proceeds of approximately
$164.6 million.
Interest expense. Interest expense increased to approximately $544,000 for
the year ended December 31, 2000 from approximately $502,000 for the year
ended December 31, 1999. This increase was due primarily to interest payments
made to PolaRx shareholders on notes payable assumed upon the PolaRx
acquisition.
Preferred stock dividend. We accrued approximately $508,000 for a preferred
stock dividend for the year ended December 31, 2000 in connection with
preferred stock issued in November 1999. In October 2000, we issued 6,366
shares of common stock valued at approximately $425,000 in lieu of cash as a
preferred stock dividend.
28
Years ended December 31, 1999 and 1998
Revenues. We did not record any collaboration agreement revenues during
1999. In 1998, we recorded revenues of approximately $13.1 million from our
collaboration agreement with Johnson & Johnson and $100,000 under a
collaboration agreement from BioChem Pharma.
Research and development. Research and development expenses decreased to
approximately $27.7 million for the year ended December 31, 1999 from
approximately $29.9 million for the year ended December 31, 1998. This
decrease was due primarily to the winding down of manufacturing and
preclinical development activities for lisofylline and a reduction in research
and development staff ($6.9 million), offset in part by development activities
for PG-TXL and Apra ($4.7 million).
General and administrative. General and administrative expenses decreased to
approximately $9.8 million for the year ended December 31, 1999 from
approximately $10.9 million for the year ended December 31, 1998. This
decrease was due primarily to reduction in general and administrative staff
personnel and operating expenses required to support our research and
development activities ($1.1 million).
Investment income. Investment income decreased to approximately $1.7 million
for the year ended December 31, 1999 from approximately $3.1 million for the
year ended December 31, 1998. This decrease was associated primarily with
lower average cash balances on hand during the year ended December 31, 1999
compared to the year ended December 31, 1998.
Interest expense. Interest expense increased to approximately $502,000 for
the year ended December 31, 1999 from approximately $435,000 for the year
ended December 31, 1998. This increase was due primarily to higher average
balances of outstanding long-term obligations.
Preferred stock dividend. We issued preferred stock in November 1999. On the
date of issuance, the effective conversion price of the preferred stock, after
allocating the portion of the proceeds to the accompanying common stock
warrants based on the relative fair values, was at a discount to the price of
the common stock into which the preferred stock is convertible. The discount
of $5.2 million was recorded as a preferred stock dividend.
Liquidity and Capital Resources
As of December 31, 2000, we had $156.4 million in cash, cash equivalents,
securities available-for-sale and interest receivable.
Net cash used in operating activities increased to $36.0 million in 2000,
compared to $30.0 million in 1999 and $21.7 million in 1998. The increase in
net cash used in operating activities in 2000, as compared to 1999, was
primarily due to the increase in our net loss, offset in part by the
amortization of goodwill and other intangible assets associated with the
acquisition of PolaRx, and an increase in stock-based compensation. The
increase in net cash used in operating activities in 1999, as compared to
1998, was primarily due to the increase in our net loss, offset in part from a
preferred stock dividend.
We expect net cash used in operating activities to increase in 2001. The
extent of cash flow used in operating activities will be significantly
affected by changes in our working capital requirements. Our accounts
receivable will be directly affected by sales of Trisenox.
Net cash used in investing activities increased to $113.9 million in 2000,
compared to net cash provided of $22.9 million in 1999 and $16.0 million in
1998. The increase in net cash used in investing activities in 2000, as
compared to 1999, was primarily due to an increase in purchases of securities
available-for-sale, the acquisition of PolaRx, net of cash acquired, and
decreases in proceeds from sales and maturities of securities available-for-
sale. The increase in net cash provided by investing activities in 1999, as
compared to 1998, was primarily due to a decrease in purchases of securities
available-for-sale and purchases of property and equipment, offset in part by
a decrease in proceeds from sales and maturities of securities available-for-
sale.
29
Net cash provided by financing activities increased to approximately $168.0
million in 2000, compared to $8.4 million in 1999 and $1.2 million in 1998.
The net increase in cash provided by financing activities in 2000, as compared
to 1999, was due primarily to the net proceeds we received from a private
placement and public offering of our common stock and proceeds received from
the exercise of common stock options and warrants, offset in part by the
payment of notes payable associated with the acquisition of PolaRx. The
increase in net cash provided by financing activities in 1999, as compared to
1998, was due primarily to the net proceeds received from a Series D preferred
private placement, offset in part by the changes in notes receivable from
officers and net proceeds from the issuance of long term obligations and their
repayment.
We expect to generate losses from operations for several years due to
substantial additional research and development costs, including costs related
to clinical trials, and increased sales and marketing expenditures. We expect
that our existing capital resources will enable us to maintain our current and
planned operations through at least 2003. Our future capital requirements will
depend on many factors, including:
. success of our sales and marketing efforts
. progress in and scope of our research and development activities
. competitive market developments
. success in acquiring complementary products, technologies or businesses
Future capital requirements will also depend on the extent to which we
acquire or invest in businesses, products and technologies. If we should
require additional financing due to unanticipated developments, additional
financing may not be available when needed or, if available, we may not be
able to obtain this financing on terms favorable to us or to our shareholders.
Insufficient funds may require us to delay, scale back or eliminate some or
all of our research and development programs, or may adversely affect our
ability to operate as a going concern. If additional funds are raised by
issuing equity securities, substantial dilution to existing shareholders may
result.
Income Taxes
As of December 31, 2000, we had available for Federal income tax purposes
net operating loss carryforwards of approximately $204 million, of which $4.4
million relates to stock option deductions, and research and development
credit carryforwards of approximately $6.7 million. These carryforwards begin
to expire in 2007. Our ability to utilize these net operating loss and
research and development credit carryforwards is subject to annual limitations
of $6.7 million for losses incurred prior to March 26, 1997 and may be subject
to additional limitations thereafter pursuant to the "change in ownership"
rules under Section 382 of the Internal Revenue Code of 1986.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk related to changes in interest rates that
could adversely affect the value of our investments. We do not use derivative
financial instruments for speculative or trading purposes. We maintain a
short-term investment portfolio consisting of interest bearing securities with
an average maturity of less than one year. These securities are classified as
"available-for-sale" securities. These securities are interest bearing and
thus subject to interest rate risk and will fall in value if market interest
rates increase. Because we have the ability to hold our fixed income
investments until maturity, we do not expect our operating results or cash
flows to be affected to any significant degree by a sudden change in market
interest rates on its securities portfolio. The fair value of our equity
instruments at December 31, 2000 was $131,172,000. For each one percent change
in the fair value of the underlying securities, the fair value of our equity
investments would change by $1,312,000.
We have operated primarily in the United States and all revenues to date
have been in U.S. dollars. Accordingly, we do not have material exposure to
foreign currency rate fluctuations. We have not entered into any foreign
exchange contracts to hedge any exposure to foreign currency rate fluctuations
because such exposure is immaterial.
30
Item 8. Consolidated Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors.......................... 32
Consolidated Balance Sheets................................................ 33
Consolidated Statements of Operations...................................... 34
Consolidated Statements of Shareholders' Equity............................ 35
Consolidated Statements of Cash Flows...................................... 37
Notes to Consolidated Financial Statements................................. 38
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cell Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of Cell
Therapeutics, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cell
Therapeutics, Inc. at December 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Seattle, Washington
March 19, 2001
32
CELL THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
2000 1999
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 23,734,953 $ 5,674,386
Securities available-for-sale.................. 131,171,841 18,205,630
Interest receivable............................ 1,526,666 367,636
Accounts receivable, net of allowance of
$66,874 at December 31, 2000.................. 109,501 --
Inventory...................................... 167,073 --
Prepaid expenses and other current assets...... 782,592 748,506
------------- -------------
Total current assets....................... 157,492,626 24,996,158
Property and equipment, net...................... 4,263,424 5,035,683
Goodwill, net.................................... 10,134,766 --
Other intangibles, net........................... 16,689,903 --
Other assets and deferred charges................ 1,530,734 816,050
------------- -------------
Total assets............................... $ 190,111,453 $ 30,847,891
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 1,113,089 $ 1,224,994
Accrued expenses............................... 8,495,225 4,940,626
Current portion of long-term obligations....... 1,500,208 1,125,211
------------- -------------
Total current liabilities.................. 11,108,522 7,290,831
Long-term obligations, less current portion...... 1,059,768 2,653,111
Commitments
Shareholders' equity:
Preferred Stock, no par value:
Authorized shares--10,000,000
Series A and B, 161,118.645 shares
designated, none issued or outstanding..... -- --
Series D, designated, issued and
outstanding--2,425 and 10,000
at December 31, 2000 and 1999,
respectively, liquidation preference--
$2,425,000 at December 31, 2000............ 1,510,280 6,227,960
Common Stock, no par value:
Authorized shares--100,000,000
Issued and outstanding shares--33,562,627
and 15,595,536 at December 31, 2000 and
1999, respectively......................... 386,894,521 173,391,407
Notes receivable from officers................. (255,000) (330,000)
Accumulated deficit............................ (210,278,973) (158,350,182)
Accumulated other comprehensive income (loss).. 72,335 (35,236)
------------- -------------
Total shareholders' equity................. 177,943,163 20,903,949
------------- -------------
Total liabilities and shareholders'
equity.................................... $ 190,111,453 $ 30,847,891
============= =============
See accompanying notes.
33
CELL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Collaboration agreements.......... $ -- $ -- $ 13,200,426
Product sales, net................ 502,041 -- --
------------ ------------ ------------
Total revenues.................. 502,041 -- 13,200,426
Operating expenses:
Cost of product sold.............. 18,758 -- --
Research and development.......... 26,574,455 27,682,174 29,941,772
General and administrative........ 14,770,381 9,788,292 10,889,402
Sales and marketing............... 5,651,113 -- --
Amortization of purchased
intangibles...................... 9,389,500 -- --
------------ ------------ ------------
Total operating expenses........ 56,404,207 37,470,466 40,831,174
------------ ------------ ------------
Loss from operation................. (55,902,166) (37,470,466) (27,630,748)
Other income (expense):
Investment income................. 4,517,663 1,691,912 3,094,116
Interest expense.................. (544,288) (501,596) (435,279)
------------ ------------ ------------
Net loss............................ (51,928,791) (36,280,150) (24,971,911)
Preferred stock dividend............ (508,333) (5,200,513) --
------------ ------------ ------------
Net loss applicable to common
shareholders....................... $(52,437,124) $(41,480,663) $(24,971,911)
============ ============ ============
Basic and diluted net loss per
common share....................... $ (2.07) $ (2.67) $ (1.62)
============ ============ ============
Shares used in calculation of basic
and diluted net loss per
common share....................... 25,344,796 15,551,526 15,409,848
============ ============ ============
See accompanying notes.
34
CELL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred Stock-- Notes Accumulated
Series D Common Stock Receivable Other Total
----------------- ----------------------- from Accumulated Comprehensive Shareholders'
Shares Amount Shares Amount Officers Deficit Income (Loss) Equity
------ ---------- ---------- ------------ ---------- ------------- ------------- -------------
Balance at January 1,
1998................... -- $ -- 15,378,419 $168,893,074 $ -- $ (97,098,121) $(34,649) $ 71,760,304
Proceeds from stock
options exercised and
stock awards........... -- -- 8,570 86,992 -- -- -- 86,992
Non-employee stock
option compensation
expense................ -- -- -- 422,923 -- -- 422,923
Restricred shares issued
to non-employees....... -- -- 51,835 -- -- -- -- --
Proceeds from stock sold
via employee stock
purchase plan.......... -- -- 95,535 215,646 -- -- -- 215,646
Notes receivable from
officers............... -- -- -- -- (380,000) -- -- (380,000)
Comprehensive loss:
Unrealized gains on
securities available-
for-sale............... -- -- -- -- -- -- 31,019 31,019
Net loss for the period
ended December 31,
1998................... -- -- -- -- -- (24,971,911) -- (24,971,911)
Comprehensive loss...... (24,940,892)
------ ---------- ---------- ------------ --------- ------------- -------- ------------
Balance at December 31,
1998................... -- -- 15,534,359 169,618,635 (380,000) (122,070,032) (3,630) 47,164,973
Net proceeds from the
issuance of Series D
convertible preferred
stock and warrants to
acquire common stock
net of offering costs
of $755,040 (including
warrants issued to
placement agent valued
at $100,000)........... 10,000 6,227,960 -- 3,117,000 -- -- -- 9,344,960
Preferred stock
dividend............... -- -- -- (44,444) -- -- -- (44,444)
Proceeds from stock
options exercised and
stock awards, and stock
sold via employee stock
purchase plan.......... -- -- 61,177 131,449 -- -- -- 131,449
Non-employee equity
based compensation
expense................ -- -- -- 568,767 -- -- 568,767
Reclass to current asset
for former officer..... -- -- -- -- 50,000 -- -- 50,000
Comprehensive loss:
Unrealized losses on
securities available-
for-sale............... -- -- -- -- -- -- (31,606) (31,606)
Net loss for the period
ended December 31,
1999................... -- -- -- -- -- (36,280,150) -- (36,280,150)
------------
Comprehensive loss...... (36,311,756)
------ ---------- ---------- ------------ --------- ------------- -------- ------------
Balance at December 31,
1999................... 10,000 6,227,960 15,595,536 173,391,407 (330,000) (158,350,182) (35,236) 20,903,949
See accompanying notes.
35
CELL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(Continued)
Preferred Stock-- Notes Accumulated
Series D Common Stock Receivable Other Total
------------------- ----------------------- from Accumulated Comprehensive Shareholders'
Shares Amount Shares Amount Officers Deficit Income (Loss) Equity
------ ----------- ---------- ------------ ---------- ------------- ------------- -------------
PolaRx acquisition... -- -- 5,000,000 31,401,569 -- -- -- 31,401,569
Conversion of
preferred stock to
common stock........ (7,575) (4,717,680) 3,502,890 4,717,680 -- -- -- --
Net proceeds from the
issuance of common
stock, net of
offering costs of
$4,460,818
(including warrants
issued to placement
agent valued at
$1,581,000)......... 3,333,334 37,120,190 -- -- -- 37,120,190
Net proceeds from the
issuance of common
stock via follow-on
public offering, net
of offering costs of
$9,301,660.......... 3,600,000 127,498,340 -- -- -- 127,498,340
Preferred stock
dividend............ -- -- 6,366 (83,333) -- -- -- (83,333)
Proceeds from stock
warrants exercised.. -- -- 1,290,834 2,876,000 -- -- -- 2,876,000
Proceeds from stock
options exercised
and stock awards,
and stock sold via
employee stock
purchase plan....... -- -- 1,233,667 4,257,103 -- -- -- 4,257,103
Equity based
compensation
expense............. -- -- -- 5,715,565 -- -- 5,715,565
Reclass to current
asset for former
officer............. -- -- -- -- 75,000 -- -- 75,000
Comprehensive loss:
Unrealized gains on
securities
available-for-
sale............... -- -- -- -- -- -- 107,571 107,571
Net loss for the
period ended
December 31, 2000.. -- -- -- -- -- (51,928,791) -- (51,928,791)
------------
Comprehensive loss... (51,821,220)
------ ----------- ---------- ------------ --------- ------------- -------- ------------
Balance at December 31,
2000................ 2,425 $ 1,510,280 33,562,627 $386,894,521 $(255,000) $(210,278,973) $ 72,335 $177,943,163
====== =========== ========== ============ ========= ============= ======== ============
See accompanying notes.
36
CELL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
2000 1999 1998
------------- ------------ ------------
Operating activities
Net loss applicable to common
shareholders...................... $ (52,437,124) $(41,480,663) $(24,971,911)
Adjustments to reconcile net loss
applicable to common shareholders
to net cash used in operating
activities:
Preferred stock dividend.......... 508,333 5,200,513 --
Depreciation and amortization..... 11,115,000 1,822,593 1,880,535
Noncash rent benefit.............. (114,912) (171,088) (42,986)
Noncash compensation expense...... 5,715,565 568,767 422,923
Loss on disposition of property
and equipment.................... -- 525,784 --
Investment premium (discount)
amortization (accretion)......... (681,881) 366,054 200,118
(Gain) loss on sale of investment
securities....................... 1,359 4,563 (31,603)
Changes in assets and
liabilities:
Interest receivable............. (1,159,030) 269,694 (36,726)
Collaboration agreement
receivables.................... -- 3,254,491 428,540
Accounts receivable, net........ (109,501) -- --
Inventory....................... (167,073) -- --
Prepaid expenses and other
current assets................. 67,573 221,630 (819,009)
Other assets and deferred
charges........................ (520,798) (732,171) 215,985
Accounts payable................ (111,905) 118,162 944,363
Accrued expenses................ 1,892,866 79,797 104,153
------------- ------------ ------------
Total adjustments.................. 16,435,596 11,528,789 3,266,293
------------- ------------ ------------
Net cash used in operating
activities........................ (36,001,528) (29,951,874) (21,705,618)
------------- ------------ ------------
Investing activities
Purchases of securities available-
for-sale.......................... (148,414,555) (29,561,916) (63,891,102)
Proceeds from sales of securities
available-for-sale................ 2,513,437 11,111,339 26,025,226
Proceeds from maturities of
securities available-for-sale..... 33,723,000 41,915,000 56,622,884
Purchases of property and
equipment......................... (953,242) (558,163) (2,801,332)
PolaRx acquisition, net of cash
acquired.......................... (781,438) -- --
------------- ------------ ------------
Net cash provided by (used in)
investing activities.............. (113,912,798) 22,906,260 15,955,676
------------- ------------ ------------
Financing activities
Sale of common stock, net of
offering costs.................... 164,618,530 -- --
Sale of Series D preferred stock
via private placement, net of
offering costs.................... -- 9,344,960 --
Notes receivable from officers to
acquire common stock.............. -- -- (380,000)
Proceeds from common stock options
exercised......................... 4,034,405 14,002 86,992
Proceeds from common stock warrants
exercised......................... 2,876,000 -- --
Proceeds from employee stock
purchase plan..................... 222,698 117,447 215,646
Repayment of notes payable......... (2,673,306) -- --
Repayment of long-term
obligations....................... (1,103,434) (1,118,895) (1,880,361)
Proceeds from the issuance of long-
term obligations.................. -- -- 3,193,161
------------- ------------ ------------
Net cash provided by financing
activities........................ 167,974,893 8,357,514 1,235,438
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. 18,060,567 1,311,900 (4,514,504)
Cash and cash equivalents at
beginning of year................. 5,674,386 4,362,486 8,876,990
------------- ------------ ------------
Cash and cash equivalents at end of
year.............................. $ 23,734,953 $ 5,674,386 $ 4,362,486
============= ============ ============
Supplemental disclosure of cash
flow information
Conversion of Series D preferred
stock into common stock........... $ 4,717,680 $ -- $ --
============= ============ ============
Common stock warrants issued in
conjunction with Series D......... $ -- $ 3,117,000 $ --
============= ============ ============
Reclass to current asset of note
receivable from former officer.... $ 75,000 $ 50,000 $ --
============= ============ ============
Common stock issued in PolaRx
acquisition....................... $ 31,402,000 $ -- $ --
============= ============ ============
Cash paid during the period for
interest obligations.............. $ 544,288 $ 501,596 $ 435,279
============= ============ ============
See accompanying notes.
37
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. Summary of Significant Accounting Policies
Description of Business
Cell Therapeutics, Inc. (the "Company") focuses on the discovery,
development, and commercialization of drugs for the treatment of cancer. The
Company concluded during the second quarter of 2000 that it was no longer in
the development stage. The Company's principal business strategy is to focus
its activities on cancer therapeutics, an area that represents a large market
opportunity which is not adequately served by existing therapies. The Company
commenced operations February 1992.
The Company operates in a highly regulated and competitive environment. The
manufacturing and marketing of pharmaceutical products require approval from,
and are subject to, ongoing oversight by the Food and Drug Administration in
the United States and by comparable agencies in other countries. Obtaining
approval for a new therapeutic product is never certain and may take several
years and involve expenditure of substantial resources. Competition in
researching, developing, and marketing pharmaceutical products is intense. Any
of the technologies covering the Company's existing products under development
could become obsolete or diminished in value by discoveries and developments
of other organizations. As the Company operates as one segment, no additional
disclosures are required in accordance with FASB Statement No. 131 Disclosures
about Segments of an Enterprise and Related Information.
The Company's market for pharmaceutical products is primarily the United
States. Sales are primarily to pharmaceutical wholesalers. During 2000,
approximately 83% of sales were made to four of these wholesalers. The Company
obtains its product from one supplier.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries (CTI Technologies, Inc., PolaRx
Biopharmaceuticals, Inc., and Cell Therapeutics (UK) Limited), and its
majority owned subsidiary (PanGenex, Inc.). All intercompany transactions and
balances are eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with maturities of
three months or less at the time acquired to be cash equivalents. Cash
equivalents represent short-term investments consisting of investment-grade
corporate and government obligations, carried at market value, which
approximates cost.
Securities Available-for-Sale
Management determines the appropriate classification of debt securities at
the time of purchase. Management currently classifies its investment portfolio
as available-for-sale and carries the securities at fair value based on quoted
market prices with unrealized gains and losses included in accumulated other
comprehensive income and loss. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization and accretion is included in investment income.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific identification method.
Interest on securities classified as available-for-sale is included in
investment income.
38
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management of Credit Risk
The Company is subject to concentration of credit risk primarily from its
cash investments. Under the Company's investment guidelines, credit risk is
managed by diversification of the investment portfolio and by the purchase of
investment-grade securities. The Company does not require collateral or other
security to support credit sales, but provides an allowance for bad debts when
warranted.
Collaboration Agreement Revenues
Revenue under collaboration agreements represents reimbursement of
development costs, license fees, and milestone payments. Revenue from
milestone payments is recognized upon satisfaction of related obligations.
Other revenue under collaboration agreements is recognized as the earnings
process is completed, based on the provisions of each agreement.
Product Sales
Revenue from product sales is recognized when the product is shipped.
Product sales are recorded net of an allowance for returns and discounts.
Allowances for discounts, returns and bad debts, which are netted against
accounts receivable, totaled $66,874 at December 31, 2000. Shipping and
handling costs are included in cost of product sold.
Inventory
Inventory is stated at the lower of cost, using a weighted-average method,
or market value. Inventory at December 31, 2000 consists of finished goods of
the Company's FDA-approved pharmaceutical drug, Trisenox. Prior to FDA
approval, the raw material and production costs of Trisenox were recorded as
research and development expense.
Property and Equipment
Property and equipment, including assets pledged as security in financing
agreements, are carried at cost, less accumulated depreciation and
amortization. Leasehold improvements are amortized over the lesser of the
useful life or the term of the applicable lease using the straight-line
method. Depreciation commences at the time assets are placed in service and is
computed using the straight-line method over the estimated useful lives of the
assets (three to five years).
Intangible Assets
Intangible assets consists of goodwill and other acquisition-related
intangible assets acquired in 2000. The assets were valued by an outside
independent party. The assets are amortized straight line over their estimated
useful lives, ranging from three to five years. Accumulated amortization
totaled $9.4 million at December 31, 2000. The Company periodically performs
reviews to evaluate the recoverability of goodwill and other intangibles and
takes into account events or circumstances that warrant revised estimates of
useful lives or that indicate that an impairment exists. In the event that the
sum of future undiscounted cash flows is less than recorded book value, the
carrying amount will be reduced to its fair value.
39
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets are composed of the following as of December 31, 2000:
Goodwill...................................................... $13,440,000
Marketing intangible asset.................................... 16,100,000
Other intangibles............................................. 6,674,169
-----------
36,214,169
Less: accumulated depreciation and amortization............... 9,389,500
-----------
$26,824,669
===========
Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company has elected to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
market price of the Company's common stock at the date of grant over the stock
option exercise price. Any deferred compensation is recognized on a graded
vesting method. Under the Company's plans, stock options are generally granted
at fair market value.
Stock compensation expense for options granted to non-employees has been
determined in accordance with SFAS 123 and the Emerging Issues Task Force
consensus in Issue No. 96-18, Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services (EITF 96-18), as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. The fair value of options granted to non-employees is
periodically remeasured as the underlying options vest.
Advertising Costs
The costs of advertising are expensed as incurred. The Company incurred
advertising costs of $469,000 in 2000. There were no material advertising
costs in 1999 or 1998.
Net Loss per Share
Basic loss per share is calculated based on the net loss applicable to
common shareholders divided by the weighted average number of common shares
outstanding for the period excluding any dilutive effects of options, warrants
and convertible securities. Diluted earnings per share, if separately
presented, would assume the conversion of all dilutive securities, such as
options, warrants and convertible preferred stock. Due to the Company's
history of losses, all such securities are anti-dilutive.
Other Financial Instruments
At December 31, 2000 and 1999, the carrying value of financial instruments
such as receivables and payables, approximated their fair values based on the
short-term maturities of these instruments. Additionally, the carrying value
of long-term liabilities approximated fair values because the underlying
interest rates reflect market rates at the balance sheet dates.
40
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
New Accounting Pronouncements
During June 1999, the FASB issued Statement of Financial Accounting
Standard, or SFAS 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement 133. SFAS 137
defers the effective date of SFAS 133 to fiscal 2001. During June 2000, the
FASB issued SFAS 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, which amends certain provisions of SFAS 133. The
Company will adopt SFAS 138 concurrently with SFAS 133 on January 1, 2001.
SFAS 133 establishes accounting and reporting standards that requires every
derivative be in the balance sheet as either an asset or liability measured at
its fair value. SFAS 133 also requires that changes in the fair value be
recognized in earnings unless specific hedge accounting criteria are met. As
the Company does not currently utilize hedge instruments, the adoption of SFAS
133 is not expected to have a material effect.
Reclassifications
Certain prior year items have been reclassified to conform to the current
year presentation.
2. Securities Available-for-Sale
Securities available-for-sale consist of the following as of December 31:
2000
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ---------- ---------- ------------
U.S. government obligations... $ 20,078,475 $14,200 $ -- $ 20,092,675
Municipal government
obligations.................. 4,049,242 15,548 -- 4,064,790
Corporate obligations......... 106,971,789 56,298 (13,711) 107,014,376
------------ ------- -------- ------------
$131,099,506 $86,046 $(13,711) $131,171,841
============ ======= ======== ============
1999
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
Municipal government
obligations.................... $ 398,339 $ -- $ (663) $ 397,676
Corporate obligations........... 17,842,527 419 (34,992) 17,807,954
----------- ----- -------- -----------
$18,240,866 $ 419 $(35,655) $18,205,630
=========== ===== ======== ===========
As of December 31, 2000 and 1999, all securities available-for-sale had
contractual maturities of less than one year. Gross realized gains and losses
to date have not been material.
41
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment are composed of the following as of December 31:
2000 1999
------------ ------------
Leasehold improvements......................... $ 4,551,176 $ 4,551,176
Lab equipment.................................. 6,074,840 5,843,911
Furniture and office equipment................. 6,877,279 6,154,966
------------ ------------
17,503,295 16,550,053
Less: accumulated depreciation and
amortization.................................. (13,239,871) (11,514,370)
------------ ------------
$ 4,263,424 $ 5,035,683
============ ============
Depreciation expense of $1,726,000, $1,823,000 and $1,881,000 was recognized
during 2000, 1999, and 1998, respectively.
4. Capital Stock
In November 1999, the Company completed a $10,000,000 private placement of
10,000 shares of Series D convertible preferred stock (Series D) and warrants
to acquire 1,523,810 shares of common stock, resulting in net proceeds of
$9,344,960. Each share of Series D is convertible into shares of common stock,
subject to adjustment as provided in the Articles of Amendment to Restated
Articles of Incorporation. Each share of Series D is currently convertible
into 462.427 shares of common stock. The warrants were valued at $3,017,000,
have exercise prices of $2.625 per share of common stock and expire in
November 2004. The Company also issued warrants to purchase 50,000 shares of
common stock to the placement agent of the Series D. These warrants expire in
2004, and have exercise prices of $2.38. All warrants were valued using the
Black-Scholes pricing model with input assumptions for volatility, risk-free
interest rate, dividends, and life of 1.01, 5.5%, none, and five,
respectively. During the year ended December 31, 2000, 7,575 shares of Series
D were converted into 3,502,890 shares of common stock, and 1,164,286 warrants
were exercised and converted into 1,137,805 shares of common stock. There were
409,524 warrants outstanding as of December 31, 2000.
Holders of the Series D are entitled to receive cumulative dividends at a
rate per share of 5% per annum payable on each September 30, commencing
September 30, 2000. At the Company's option, subject to certain restrictions
and penalties, dividends may be paid in cash or in shares of the Company's
common stock. The Company is to pay each Series D investor four annual
dividend payments notwithstanding any conversion, redemption or sale of the
preferred stock held by such investor. The Company paid dividends with 6,366
shares of the Company's common stock in October 2000. As of December 31, 2000,
the Company had recorded $128,000 as a preferred stock dividend payable.
The Company's obligation to issue dividends after the fourth annual dividend
payment will terminate for any shares of the Series D that have not been
converted into shares of common stock if on the earlier of the fourth
anniversary or any subsequent annual anniversary of the original issue date,
as defined, the average share closing price of the common stock is greater
than 20% of the fixed conversion price of $2.1625, compounded annually.
Notwithstanding the above, the Company's obligation to pay dividends
terminates on the seven-year anniversary of the original issue date, as
defined.
The Series D is convertible at the option of the holder or may automatically
convert if the per share market value of the Company's shares of common stock
exceeds specified returns when compared to the conversion price.
The holders of the Series D have a liquidation preference of $1,000 per
share. The Series D holders have the right to vote with the common stock on an
as-converted basis. The Company is also precluded from carrying out certain
actions without the approval of at least 51% of the Series D holders.
42
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The shares of common stock issuable upon the conversion and exercise of the
Series D preferred stock and warrants, respectively, have certain registration
rights.
On the date of the preferred stock issuance, the effective conversion price
of the preferred stock (after allocating the portion of the proceeds to the
common stock warrants based on the relative fair values) was at a discount to
the price of the common stock into which the preferred stock is convertible.
In accordance with EITF 98-5 "Convertible Securities with Beneficial
Conversion Features," the discount was recorded as a preferred stock dividend
valued at $5,156,069.
In February 2000, the Company completed a $40 million private placement of
3,333,334 shares of common stock at an offering price of $12 per share,
resulting in net proceeds of approximately $37.1 million. In connection with
the offering, the Company issued 170,000 warrants to purchase shares of common
stock to a placement agent and finder. The warrants are exercisable at a price
of $13.20 per share and expire February 15, 2005. The shares of common stock
issued and issuable upon the exercise of the warrants have certain
registration rights. During the year ended December 31, 2000, 40,875 warrants
were exercised and converted into 38,721 shares of common stock. There were
129,125 warrants outstanding as of December 31,2000.
In September 2000, the Company completed a public offering of 3.6 million
shares of its common stock at $38 per share, which generated net proceeds of
$127.5 million.
Common Stock Reserved
A summary of common stock reserved for issuance is as follows as of December
31, 2000:
Series D preferred stock......................................... 1,121,387
Equity incentive plan............................................ 3,653,114
Common stock warrants............................................ 888,649
Employee stock purchase plan..................................... 114,268
Restricted share rights.......................................... 103,665
---------
5,881,083
=========
5. Consulting and Employment Agreements
Corporate Officers
In 1998, the Company extended loans totaling $380,000 to executive officers
on a full-recourse basis. Each of the notes has a term of four years and bears
interest at approximately 5%. The full balance of principal and accumulated
interest is due at maturity. The executives used the funds to purchase shares
of the Company's common stock on the open market.
The Company has severance agreements with certain of its officers having a
term of one year.
Advisory Boards
The Company has entered into consulting agreements with the members of its
Scientific and Clinical Advisory Boards ("Advisory Boards") providing for the
periodic issuance of common stock and options to purchase common stock, and
consulting fees. One agreement has an annual retainer of $10,000. The
remaining advisory board members are paid consulting fees on a per diem basis.
The consulting agreements with members of the Advisory Boards are cancelable
upon 30 days notice. The Company has issued stock options to members
43
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of its Advisory Boards. All options held by advisory board members are
accounted for at fair market value in accordance with EITF 96-18. Compensation
related expense recognized in 2000, 1999 and 1998 was $1,248,000, $156,000 and
$157,000, respectively.
Consultants
The Company has issued stock options to other consultants for various
services. All options held by consultants are accounted for at fair market
value in accordance with EITF 96-18. Compensation related expense recognized
in 2000, 1999, and 1998 was $1,426,000, $256,000, and $266,000, respectively.
Related Party Disclosure
In 1999, the Company entered into an agreement with a clinical medical
consultant who is the spouse of an executive officer of the Company. The
Company paid the clinical medical consultant approximately $77,450 and
$107,000 during 2000 and 1999, respectively, in fees for services rendered.
6. Contractual Arrangements and Commitments
Licensed Technology
The Company has an agreement with the Fred Hutchinson Cancer Research Center
(FHCRC) under the terms of which the Company has received worldwide licenses
and options to technology, or technology claimed, for five U.S. patent
applications. The Company is obligated to pay royalties on revenues resulting
from future sales of products employing the technology and on revenues
received from sublicenses for the technology, with minimum annual royalties of
$50,000 prior to, and $100,000 after, the first commercial sale of such
products. The agreements are for a term equal to the later of March 2007 or
the expiration of the last issued patent included within the licensed
technology, unless terminated earlier for certain specified events, including
the failure of the Company to take reasonable efforts to engage in research
and development with respect to the licensed technology. The Company
recognized expense of $50,000 in 2000, 1999 and 1998 related to this
agreement.
Facilities Lease
The Company has executed noncancelable operating leases for office and
laboratory space that expire in 2003, with two five-year renewal options at
the then-current market rates. The lessor provided approximately $575,000 for
leasehold improvements and rent concessions, which is being amortized over the
initial lease term. In 2000, the Company executed two operating leases for
additional office space, one expiring in December 2001 and the other expiring
in December 2003. Rent expense amounted to $1,235,748, $1,396,289, and
$1,152,340, for the years ended December 31, 2000, 1999, and 1998,
respectively. Future minimum annual rental payments under the leases
approximate the following for the years ending December 31:
2001............................................................ $2,446,604
2002............................................................ 1,999,871
2003............................................................ 891,169
----------
$5,337,644
==========
44
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-term Obligations
Long-term obligations consist of the following as of December 31:
2000 1999
------------ -----------
Master financing agreements:
Due December 2001, monthly payments of $44,196,
including interest at 12.5%................... $ 616,670 $ 1,040,699
Due September 2002, monthly payments of
$59,811, including interest at 12.4%.......... 1,272,687 1,796,650
Due December 2002, monthly payments of $18,290,
including interest at 12.4%................... 431,208 586,649
Deferred rent.................................... 239,411 354,324
------------ -----------
2,559,976 3,778,322
Less current portion............................. (1,500,208) (1,125,211)
------------ -----------
$ 1,059,768 $ 2,653,111
============ ===========
For each borrowing, the Company granted the lessor a security interest in
specified fixed assets.
Annual maturities of the master financing agreements for 2001 through 2002,
respectively, are $1,385,295 and $935,268.
8. Stock Options and Warrants
Stock Options
The 1994 Equity Incentive Plan (the 1994 Plan) provides for (a) the grant of
incentive stock options (with terms not to exceed ten years), nonstatutory
stock options and stock appreciation rights, (b) the award of stock bonuses,
(c) the sale of stock, and (d) any other equity-based or equity-related awards
which the Plan Administrator determines to be consistent with the purpose of
the 1994 Plan and the interests of the Company. Option-vesting schedules are
specified by the Plan Administrator. The 1994 Plan also provides for the
automatic grant of nonstatutory options to non-employee directors.
45
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1998, the Board of Directors approved the exchange of all outstanding
options with exercise prices ranging from $3.03 to $16.06 per share for
options with an exercise price of $2.906 per share, the fair value of the
underlying common stock at that time. Accordingly, 1,612,934 shares were
exchanged for new options with 10-year terms commencing July 31, 1998. These
amounts have been included as granted and canceled options during 1998 in the
summary activity table shown below.
Shares Weighted Average
Under Exercise Price
Option Per Share
---------- ----------------
Balance January 1, 1998 (791,265
exercisable)................................. 1,768,443 $12.48
Granted..................................... 2,510,999 2.93
Canceled.................................... (1,762,045) 12.29
Exercised................................... (8,570) 9.82
----------
Balance December 31, 1998 (57,477
exercisable)................................. 2,508,827 3.07
Granted..................................... 1,198,459 2.96
Canceled.................................... (517,718) 3.03
Exercised................................... (4,932) 2.84
----------
Balance December 31, 1999 (1,666,822
exercisable)................................. 3,184,636 3.04
Granted
At fair value............................. 1,179,654 36.87
At prices below fair value................ 52,600 47.28
Canceled.................................... (173,784) 5.37
Exercised................................... (1,214,001) 3.31
----------
Balance December 31, 2000 (1,097,625
exercisable)................................. 3,029,105 16.73
==========
Exercisable Options
Outstanding (Without
Options Outstanding Restriction)
--------------------------------------------- ----------------------------
Number Weighted Average
Outstanding Remaining Weighted Average Number Weighted Average
Range of Exercise Prices 12/31/00 Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
$ 2.000-$ 2.906......... 1,186,615 7.75 Years $ 2.80 821,702 $ 2.86
$ 2.969-$ 3.688......... 629,771 8.42 Years $ 3.14 243,181 3.01
$ 3.813-$42.969......... 1,081,764 9.71 Years $36.54 30,837 25.83
$43.032-$57.282......... 130,955 9.70 Years $44.55 1,905 44.06
--------- ---------
$ 2.000-$57.282......... 3,029,105 8.70 Years $16.73 1,097,625 3.61
========= =========
The weighted average fair value of options granted during 2000 was $33.23
and $41.20 for those issued at fair value and in-the-money, respectively, and
during 1999 and 1998 was $1.94, and $1.85, respectively. As of December 31,
2000, 408,331 shares of common stock were available for future grants.
SFAS 123 encourages, but does not require, entities to adopt the fair value
method of accounting for their stock-based compensation plans. Under this
method, compensation cost for stock-based compensation plans is measured at
the grant date based on the fair value of the award and is recognized over the
vesting period. Fair value is determined using a Black-Scholes option pricing
model that takes into account (1) the stock price at the grant date, (2) the
exercise price, (3) a four and a half-year expected life in 2000, a two-year
expected life in 1999, and a four-year expected life in 1998, (4) no expected
dividends, (5) risk-free interest rate of 6.0% in 2000, and 5.5% in both 1999
and 1998 and (6) a volatility factor of 1.095, 1.006, and .91 in 2000, 1999,
and 1998, respectively. In accordance with the provisions of SFAS 123, the
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans and, accordingly,
does not recognize compensation cost for options granted with exercise prices
equal to or greater than fair value. If the
46
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS 123, basic and diluted net
loss and basic and diluted net loss per share would have been adjusted
(increased) as follows for the years ended December 31:
2000 1999 1998
------------ ------------ ------------
Net loss applicable to common
shareholders:
As reported....................... $(52,437,124) $(41,480,663) $(24,971,911)
As adjusted....................... (56,893,639) (43,530,183) (27,553,633)
Basic and diluted net loss per
share:
As reported....................... $ (2.07) $ (2.67) $ (1.62)
As adjusted....................... (2.24) (2.80) (1.79)
During the year ended December 31, 2000, in connection with the grant of
certain options to employees, the Company recorded deferred stock compensation
(included in deferred charges) of $800,000, representing the difference
between the exercise price and the fair value of the Company's common stock on
the measurement date, of which $366,000 was expensed during 2000.
In accordance with EITF 96-18, the Company considers all equity instruments
issued to non-employees to be accounted for as fair value equity instruments.
The value of the instrument is amortized to expense over the vesting period
with final valuation measured on the latter of the vesting date or date on
which they become exercisable. At December 31, 2000, options to acquire
224,332 shares of common stock are considered fair value options. The Company
recognized total EITF 96-18 non-employee equity-based compensation related
expense of $2,674,000, $569,000, and $423,000 during 2000, 1999, and 1998,
respectively.
In December 1999, the Compensation Committee of the Board of Directors
authorized the issuance of 243,903 restricted shares valued at $746,000 to
executive officers and certain employees. The shares vest in December 2002.
28,225 restricted shares were cancelled during 2000 due to employee
terminations. The share value was recorded as deferred compensation (included
in deferred charges on the balance sheet), and is being amortized over the
three year vesting period. The unamortized balance at December 31, 2000 was
$660,000.
The Company has also issued 103,665 restricted share rights to non-employees
in 1998 for which ownership vests upon the achievement of a future event (see
Note 11). Compensation related to these rights will be measured as the event
becomes probable with final valuation on the vesting date.
Warrants
In 1998, the Company issued warrants to purchase 350,000 shares of common
stock of the Company in connection with a license agreement (see Note 11). The
warrants expire November 12, 2008 and become exercisable only upon the
occurrence of certain exercise events, including a license or sale by the
Company of any licensed patent rights subject to the agreement to a third
party or a change of control of the Company, as defined. The exercise price
per share is the lesser of $20.00 or the average closing stock price for the
30 consecutive trading days ending on the date of the exercise event.
Compensation related to these warrants will be measured as any of the exercise
events become probable with the final valuation on the exercisable date. The
exercise events have not occurred as of December 31, 2000.
In 1999, the Company entered into an agreement with two consulting companies
to develop and execute a communication plan for the Company. In connection
with this agreement, the Company granted warrants to purchase 150,000 shares
of common stock to the consultants, whereby each warrant entitled the holder
to purchase one share of the Company's common stock at strike prices ranging
from $3.00 to $18.00 per share.
47
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Except for those warrants with a strike price of $3.00 per share which vested
immediately (valued at $37,500, in accordance with EITF 96-18), the warrants
vested when the closing price for the Company's common stock equaled or
exceeds its strike price for a specified period of time. During 2000, all of
the warrants vested and the Company recognized compensation expense of $2.2
million. All the warrants were exercised by the consultants, and converted
into 114,308 shares of common stock as of December 31, 2000.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the Purchase Plan),
under which eligible employees may purchase a limited number of shares of the
Company's common stock at 85% of the lower of the subscription date fair
market value and the purchase date fair market value. There are two six-month
offerings per year. Under the Purchase Plan, the Company issued 19,666 shares
to employees in 2000. There is a balance of 114,268 shares reserved for future
purchases at December 31, 2000.
9. Net Loss Per Share
Basic and diluted loss per share is calculated using the average number of
common shares outstanding.
Year ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Net loss applicable to common
shareholders(A).................... $(52,437,124) $(41,480,663) $(24,971,911)
============ ============ ============
Weighted average common stock
outstanding(B)..................... 25,344,796 15,551,526 15,409,848
============ ============ ============
Loss per share:
Basic and diluted(A/B)............ $ (2.07) $ (2.67) $ (1.62)
============ ============ ============
As of December 31, 2000, 1999, and 1998, options, warrants and convertible
preferred stock aggregating 5,358,484, 9,986,388, and 2,962,492 common
equivalent shares, respectively, were not included in the calculation of net
loss per share as they are anti-dilutive.
10. Income Taxes
As of December 31, 2000, the Company had net operating tax loss
carryforwards of approximately $204 million, of which $4.4 million relates to
stock option deductions, and research and development credit carryforwards of
approximately $6.7 million. The carryforwards begin to expire in the year
2007. Due to rounds of equity financings (and other ownership changes as
defined in Section 382 of the Internal Revenue Code of 1986, as amended (the
Code) see Notes 4 and 12), the Company has incurred "ownership changes"
pursuant to the Code, as amended. Accordingly, the Company's use of its net
operating loss carryforwards is limited to approximately $6.7 million annually
for losses incurred prior to March 26, 1997 and may be subject to additional
limitations thereafter. To the extent that any single-year loss is not
utilized to the full amount of the limitation, such unused loss is carried
over to subsequent years until the earlier of its utilization or the
expiration of the relevant carryforward period.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized a valuation allowance equal to the deferred tax assets due to the
uncertainty of realizing the benefits of the assets. The Company's valuation
allowance increased $18,899,000, $13,609,000, and $9,905,000, during 2000,
1999, and 1998, respectively.
48
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax liabilities and assets
as of December 31 are as follows:
2000 1999
------------ ------------
Deferred tax assets:
Net operating loss carryforwards................. $ 69,400,000 $ 51,688,000
Research and development tax credit
carryforwards................................... 6,714,000 5,555,000
Accruals on financial statements in excess of tax
returns......................................... 858,000 649,000
Charitable contributions carryforward............ 139,000 73,000
Depreciation in financial statements in excess of
tax............................................. 585,000 831,000
------------ ------------
Gross deferred tax assets.......................... 77,696,000 58,796,000
Less valuation allowance........................... (77,645,000) (58,746,000)
------------ ------------
Gross deferred tax liability: 51,000 50,000
Accruals on tax returns in excess of financial
statements...................................... (51,000) (50,000)
------------ ------------
Net deferred tax................................... $ -- $ --
============ ============
11. Significant Agreements
BioChem Therapeutic Inc.: On March 7, 1995, the Company and BioChem
Therapeutic Inc. (BioChem), a wholly owned subsidiary of BioChem Pharma, Inc.,
signed collaboration and supply agreements (the BioChem Collaboration
Agreement and the BioChem Supply Agreement, respectively). The BioChem
Collaboration Agreement grants an exclusive license to enable BioChem to seek
Canadian regulatory approval for, and to use and sell, the Company's
lisofylline (LSF) and/or CT-2584 compounds (and compositions thereof)
(collectively, the cti Compounds) in Canada. Under the BioChem Collaboration
Agreement, the Company is entitled to receive future payments upon the
satisfaction of specified product development milestones of up to $1.5 million
and royalties on all sales, if any. The BioChem Collaboration Agreement
terminates upon the expiration of the last to expire patents covering the cti
Compounds or, absent a patent, upon the tenth anniversary of the first
commercial sale of such cti Compound. The Company recorded a milestone payment
of $100,000 under the BioChem Collaboration Agreement in 1998. The BioChem
Supply Agreement terminates 20 years from the date of termination of the
BioChem Collaboration Agreement with respect to each of the cti Compounds.
Johnson & Johnson: In November 1996, the Company entered into a
collaboration and license agreement with Ortho Biotech Inc. and the R.W.
Johnson Pharmaceutical Research Institute (a division of Ortho Pharmaceutical
Corporation) each of which are wholly owned subsidiaries of Johnson & Johnson
(collectively, Johnson & Johnson) for the joint development and
commercialization of LSF. Under the terms of the Collaboration Agreement,
Johnson & Johnson paid 60% of the U.S. development costs of LSF, a product no
longer under development. In November 1998, after reviewing the results of the
Company's phase III clinical trial for LSF, the Company and Johnson & Johnson
formally amended the Collaboration Agreement and agreed to pay the Company
$13.1 million for development cost reimbursements for the year ended December
31, 1998. On April 18, 2000, the Company and Johnson & Johnson terminated the
Collaboration Agreement.
Other Agreements
PG-TXL Company, L.P.: In 1998, the Company entered into an agreement with
PG-TXL Company, L.P. granting the Company an exclusive worldwide license for
the rights to polyglutamic acid paclitaxel (PG-TXL), a water soluble form of
the cancer drug, Taxol(R) and to all potential uses of PG-TXL Company, L.P.'s
polymer technology. Under the terms of the agreement, the Company acquired the
rights to fund the research, development, manufacture, marketing and sale of
anti-cancer drugs developed using this polymer technology.
49
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company will be obligated to make future milestone payments upon the
attainment of significant achievements, as defined in the agreement of up to
$20.5 million. Accordingly, the Company made a $2 million milestone payment to
PG-TXL Company L.P. in 2000. The Company also granted warrants to purchase
350,000 shares of the Company's common stock (see Note 8) to PG-TXL Company,
L.P. The Company is obligated to meet certain development requirements by June
30, 2002 to maintain exclusive license rights.
The Company also entered into Signing Bonus and Restricted Stock and Share
Grant Agreements and Consulting Agreements with certain individuals affiliated
with PG-TXL Company, L.P. (the PG-TXL Affiliates). Under the terms of these
agreements, the Company has issued 51,835 restricted shares of common stock.
These shares vested in November 1999 upon the issuance of a patent, whereupon
the Company recorded an expense of $90,711 in accordance with EITF 96-18. The
Company also granted 103,665 restricted share rights to the PG-TXL Affiliates,
which also vest upon certain performance conditions. The Company will begin to
record compensation expense at the time the vesting of the share rights become
probable. The Company paid consulting fees to the PG-TXL Affiliates of
$111,000 and $343,000 in 2000 and 1999, respectively, and expects to pay
approximately $149,000 in 2001.
12. Acquisition of PolaRx Biopharmaceuticals, Inc.
On January 7, 2000, the Company acquired PolaRx Biopharmaceuticals, Inc.
(PolaRx), a biopharmaceutical company that owns the rights to Trisenox
(arsenic trioxide, ATO), an anti-cancer compound for which the Company
submitted and received approval for a New Drug Application with the FDA. Under
the terms of the Agreement and Plan of Merger and Reorganization, dated
January 7, 2000, (the Agreement), the Company assumed PolaRx's liabilities and
commitments. PolaRx's shareholders received 5 million shares of the Company's
common stock. The aggregate consideration of $36.2 million consisted of the 5
million shares of common stock valued at $31.4 million, assumed net
liabilities of $3.9 million and transaction costs of approximately $.9
million.
The Company is also required to make contingent payments of up to $9.0
million and future royalties if certain milestones and target net sales
specified in the merger agreement are attained. Any additional or contingent
payments made to PolaRx shareholders will be considered additional purchase
price and be capitalized as additional goodwill and amortized appropriately.
The acquisition was accounted for as a purchase transaction and PolaRx
operating results are included in those of the Company from the date of
acquisition. The aggregate purchase price of approximately $36.2 million,
which was valued by an outside independent party, was allocated, based on the
fair value on the acquisition date, to marketing intangible assets ($16.1
million), patented technology ($6.7 million) and goodwill ($13.4 million). The
intangible assets are amortized over their estimated useful lives of three to
five years. Notes payable aggregating $2,673,306 were assumed in connection
with the PolaRx acquisition. The notes carry interest rates of 9% to 15% and
became due and were paid between March and November 2000. CTI also assumed and
paid a fee of $750,000 to a placement agent in connection with the
acquisition.
The marketing of a commercial product bridges the gap in the Company's
pipeline of products and creates an opportunity to access a broader market
segment with a relatively non-controversial and accepted product. The value of
this marketing strategy is related to the acquisition of successfully-
completed clinical trial studies which included bioanalytical and statistical
data, analyses and reports which have enabled the subsequent timely filing of
a New Drug Application. The timely filing of the New Drug Application greatly
enhances the Company's relative competitive market position. The value of the
preclinical and clinical research acquired together with the Orphan Drug
Designation by the FDA accelerates the potential for regulatory approval and
commercialization of a marketable product. The fair value of the marketing
intangibles was determined by the replacement cost approach, which seeks to
measure the future benefits of ownership by quantifying the amount of money
that would be required to replace the future service capability of the subject
intangible property. Replacement cost
50
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
was the total cost to create a successful marketing strategy and included an
examination of the substantial research and development cost savings achieved
by the Company through the acquisition of PolaRx.
Through the purchase of PolaRx the Company also acquired a patent for the
treatment of primary and metastic neoplastic diseases using arsenic compounds.
By forecasting the incremental revenues and net incomes expected by the
utilization of this patent in the areas of Acute Promyelocytic Leukemia (APL)
and Multiple Myeloma over an expected five year period, it is possible to
separate the value attributable to the patent by utilizing an income approach.
The fair value of the patented technology was determined by discounting the
forecasted earnings streams to each application at 30% over the anticipated
revenue life of five years, which produced net present values of $2,018,000
and $4,594,000 for the APL and Multiple Myeloma indications, respectively.
The pro forma consolidated financial information for the year ended December
31, 1999, determined as if the acquisition had occurred on January 1, 1999,
would have resulted in no revenues, a net loss applicable to common
shareholders of $53,569,720 and basic and diluted net loss per common share of
$2.61. Pro forma information for the period ended December 31, 2000 has not
been included as the transaction was consummated on January 7, 2000, which is
near the beginning of the period. This unaudited pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the results that would have been achieved had the Company and PolaRx been
combined during the specified period.
13. PanGenex, Inc.
In June 2000, the Company founded PanGenex, Inc. (PanGenex), a majority-
owned subsidiary focused on identifying novel drug development targets using
the recently completed human genome sequence database. As of December 31,
2000, the Company provided funds and administrative services totaling $568,000
to support PanGenex's research and development efforts. Minority interests are
not reflected in the balance sheet as all losses of the entity are funded by
the Company with no obligation of reimbursement by the minority shareholders.
14. Cell Therapeutics (UK) Limited
In June 2000, the Company founded Cell Therapeutics (UK) Limited, a wholly-
owned, London-based subsidiary, to provide the necessary legal, regulatory and
administrative support for the filing of an ATO Marketing Authorization
Application in Europe, and to oversee the business interests of the Company in
that region.
51
15. Unaudited Quarterly Data
The following table presents summarized unaudited quarterly financial data
(in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2000
Revenues.............................. $ -- $ -- $ -- $ 502
Operating expenses.................... 11,355 12,392 14,618 18,040
Net loss.............................. (11,069) (11,831) (13,980) (15,048)
Net loss applicable to common shares.. (11,195) (11,958) (14,108) (15,176)
Net loss per common share--basic and
diluted.............................. (0.58) (0.49) (0.55) (0.47)
1999
Revenues.............................. $ -- $ -- $ -- $ --
Operating expenses.................... 8,510 10,263 10,185 8,513
Net loss.............................. (8,060) (9,919) (9,966) (8,334)
Net loss applicable to common shares.. (8,060) (9,919) (9,966) (13,535)
Net loss per common share--basic and
diluted.............................. (0.52) (0.64) (0.64) (0.87)
Item 9. Changes in Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
PART III
The information required under Part III, Items 10, 11, 12, and 13, is
included in our Proxy Statement relating to our annual meeting of
shareholders, and is incorporated herein by reference. Such Proxy Statement
will be filed with the Securities and Exchange Commission not later than 120
days after the close of our fiscal year end, December 31, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) Financial Statements and Financial Statement Schedules
(i) Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedules
II--Valuation and Qualifying Accounts
All other schedules have been omitted since they are either not
required, are not applicable, or the required information is shown in
the financial statements or related notes.
(iii) Exhibits
52
Exhibit
Number Description
------- -----------
3.1(1) Registrant's Restated Articles of Incorporation.
3.2(1) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series A
Convertible Preferred Stock).
3.3(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Reducing the Number of Authorized Shares of Series A
Convertible Preferred Stock.
3.4(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series B
Convertible Preferred Stock).
3.5(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation Establishing a Series of Preferred Stock (Series C
Preferred Stock).
3.6(2) Registrant's Articles of Amendment to Restated Articles of
Incorporation of Cell Therapeutics, Inc. Effecting a Reverse Stock
Split.
3.7(3) Registrant's Articles of Amendment to Restated Articles of
Incorporation of Undesignating Series A and Series B Preferred
Stock.
3.7(4) Registrant's Restated Bylaws.
4.1(5) Form of Rights Agreement dated as of November 11, 1996, between the
Registrant and Harris Trust Company of California, which includes
the Form of Rights Certificate as Exhibit A, the Summary of Rights
to Purchase Preferred Stock as Exhibit B and the Form of Certificate
of Designation of the Series C Preferred Stock as Exhibit C.
10.1(6) Lease Agreement between David A. Sabey and Sandra L. Sabey and the
Registrant, dated March 27, 1992, as amended March 31, 1993 and
October 13, 1993.
10.2(2) Third Amendment to Lease Agreement between David A. Sabey and Sandra
L. Sabey and the Registrant, dated as of September 10, 1996.
10.3(1) Assignment of Lease between Manlove Travel and the Registrant, dated
April 23, 1993.
10.4(2) Letter Agreement between David A. Sabey, Sandra L. Sabey and the
Registrant, dated as of September 6, 1996, amending the Assignment
of Lease.
10.5*(2) Employment Agreement between the Registrant and James A. Bianco,
dated as of December 17, 1996.
10.6*(6) Employment Agreement between the Registrant and Louis A. Bianco,
dated as of February 1, 1992, as amended May 27, 1994.
10.7*(1) Employment Agreement between the Registrant and Maurice J. Schwarz,
dated May 2, 1994.
10.8*(7) Employment Agreement between the Registrant and Jack W. Singer,
dated September 23, 1997.
10.9*(1) Severance Agreement between the Registrant and Robert A. Lewis,
dated April 1, 1996.
10.10*(2) Form of Strategic Management Team Severance Agreement.
10.11(1) Promissory Note between James A. Bianco, M.D. and the Registrant,
dated December 23, 1993.
10.12(1) Stock Pledge Agreement between James A. Bianco, M.D. and the
Registrant, dated December 23, 1993.
10.13*(1) 1994 Equity Incentive Plan, as amended.
10.14*(1) 1992 Stock Option Plan, as amended.
10.15*(1) 1996 Employee Stock Purchase Plan.
10.16(1) Form of Sales Agent Warrant for the 1992 Private Placement.
10.17(1) Warrant, dated November 25, 1992, between the Registrant and David
H. Smith, M.D.
53
Exhibit
Number Description
------- -----------
10.18(1) Registration Agreement between the Registrant and the other parties
included therein, dated as of November 23, 1993.
10.19(1) Form of Sales Agent Warrant for the 1993 Private Placement.
10.20(1) Subscription Agreement between the Registrant and the other parties
included therein, dated as of March 21, 1995.
10.21(1) Registration Rights Agreement between the Registrant and the other
parties included therein, dated as of March 21, 1995.
10.22(4) Registration Rights Agreement between the Company and the other
parties included therein, dated as of September 17, 1996, as
amended by Amendment No. 1 thereto dated as of October 11, 1996.
10.23(4) Letter Agreement between the Company and Kummell Investments
Limited, dated September 17, 1996.
10.24+(6) Collaboration Agreement by and between BioChem Therapeutic Inc. and
the Registrant, dated March 7, 1995, as amended November 30, 1995
and December 6, 1995.
10.25+(6) Supply Agreement by and between BioChem Therapeutic Inc. and the
Registrant, dated March 7, 1995.
10.26+(2) Supply Agreement by and between ChiRex, Ltd. and the Registrant,
dated January 21, 1997.
10.27+(8) Pre-Validation Agreement dated as of October 16, 1998, between the
Registrant and ChiRex, Ltd.
10.28+(2) Collaboration and License Agreement, dated as of November 8, 1996,
by and between the Registrant and Ortho Biotech Inc. and The R.W.
Johnson Pharmaceutical Research Institute, a division of Ortho
Pharmaceutical Corporation.
10.29+(10) Amendment No. 1, dated November 16, 1998, to the Collaboration and
License Agreement dated as of November 8, 1996, by and between the
Registrant and Ortho Biotech Inc. and The R.W. Johnson
Pharmaceutical Corporation.
10.30(2) Stock Purchase Agreement, dated as of November 8, 1996, by and
between the Registrant and Johnson & Johnson Development
Corporation.
10.31(1) Master Lease Agreement, dated as of December 28, 1994 between the
Registrant and Aberlyn Capital Management Limited Partnership.
10.32(1) Common Stock Purchase Warrant, dated December 28, 1994 between the
Registrant and Aberlyn Capital Management Limited Partnership.
10.33(1) Loan and Security Agreement, dated as of May 30, 1995, between the
Registrant and Financing for Science International, Inc.
10.34(9) Loan and Security Agreement, dated as of June 28, 1996, between the
Registrant and Financing for Science International, Inc.
10.35(1) Asset Purchase Agreement, dated of October 17, 1995, between
Lipomed Corporation, its Stockholders and the Registrant, as
amended.
10.36(6) Form of Scientific Advisory Board Consulting Agreement.
10.37(6) Form of Clinical Advisory Board Consulting Agreement.
10.38(7) Master Loan and Security Agreement between the Company and the
Transamerica Business Credit Corporation, dated as of December 9,
1997.
10.39+(10) License Agreement dated as of November 13, 1998, by and between PG-
TXL Company, L.P. and the Registrant.
21.1 Subsidiaries of the Registrant.
54
Exhibit
Number Description
------- -----------
23.1 Consent of Ernst & Young, LLP, independent auditors.
24.1 Power of Attorney (see page 55 of this Form 10-K).
- --------
* Indicates management contract or compensatory plan or arrangement.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
(1) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form S-1 (No. 33-4154).
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 333-20855).
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (No. 333-36603).
(4) Incorporated by reference to exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
(5) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 8-A.
(6) Incorporated by reference to exhibits to the Registrant's Registration
Statement on Form 10.
(7) Incorporated by reference to exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
(8) Incorporated by reference to exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
(9) Incorporated by reference to exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996.
(10) Filed with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
(b) Reports on Form 10-K
There were no reports on Form 8-K filed by us during the quarter ended
December 31, 2000.
55
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, in the City of
Seattle, State of Washington, on April 2, 2001.
Cell Therapeutics, Inc.
/s/ James A. Bianco, M.D.
By___________________________________
James A. Bianco, M.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James A. Bianco and Louis A. Bianco,
and each of them his attorney-in-fact, with the power of substitution, for him
in any and all capacities, to sign any amendment of post-effective amendment
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Max E. Link, Ph.D. Chairman of the Board and March 30, 2001
____________________________________ Director
Max E. Link, Ph.D.
/s/ James A. Bianco, M.D. President, Chief Executive March 30, 2001
____________________________________ Officer and Director
James A. Bianco, M.D. (Principal Executive
Officer)
/s/ Louis A Bianco Executive Vice President, March 30, 2001
____________________________________ Finance and Administration
Louis A. Bianco (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Jack W. Singer, M.D. Director March 30, 2001
____________________________________
Jack W. Singer, M.D.
/s/ Jack L. Bowman Director March 30, 2001
____________________________________
Jack L. Bowman
/s/ Wilfred E. Jaeger, M.D. Director March 30, 2001
____________________________________
Wilfred E. Jaeger, M.D.
56
Signature Title Date
--------- ----- ----
/s/ Mary O'Neil Mundinger, DrPH Director March 30, 2001
____________________________________
Mary O'Neil Mundinger, DrPH
/s/ Phillip M. Nudelman, Ph.D. Director March 30, 2001
____________________________________
Phillip M. Nudelman, Ph.D.
57
SCHEDULE II
CELL THERAPEUTICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 2000
Balance at Additions Balance at
Beginning Charged to End of
of Period Expense Deductions Period
---------- ---------- ---------- ----------
Year ended December 31, 2000
Reserve for sales returns and
allowances...................... $ -- $66,874 $ -- $66,874