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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________to _________
Commission file number 0-19267
ALKERMES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2472830
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
64 Sidney Street, Cambridge, MA 02139-4234
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 494-0171
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share ("Common Stock")
1994 Class A Warrants to purchase shares of Common Stock
Class A 1992 Warrants to purchase shares of Common Stock
Class A 1995 Warrants to purchase shares of Common Stock
Class B 1992 Warrant to purchase shares of Common Stock
Class B 1995 Warrant to purchase shares of Common Stock
Incentive Warrant to purchase shares of Common Stock
Affiliate Warrant to purchase shares of Common Stock
----------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]
Based upon the last sale price of the Registrant's Common Stock on June 7,
1996, the aggregate market value of the 16,533,492 outstanding shares of voting
stock held by non-affiliates of the Registrant was $150,868,115.
As of June 7, 1996, 18,348,306 shares of the Registrant's Common Stock were
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Report on Form 10-K:
1) Proxy Statement dated June 28, 1996 for the Registrant's Annual
Shareholders' Meeting to be held on July 25, 1996 (Part III).
PART I
ITEM 1. BUSINESS
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GENERAL
Alkermes, Inc. (together with its subsidiaries, "Alkermes" or the
"Registrant") is a leading drug delivery company in the development of
sophisticated drug delivery systems. Alkermes' core technologies are RMP-7/TM/,
a proprietary drug designed to facilitate drug delivery to the central nervous
system, and product candidates based on the Registrant's two injectable
sustained release drug delivery technologies: ProLease(R), for complex
biopharmaceutical products; and Medisorb(R), for more traditional small molecule
pharmaceutical products. RMP-7 is currently being tested in combination with the
chemotherapeutic agent carboplatin in four multi-center Phase II clinical trials
in patients with recurrent malignant glioma, a form of primary brain tumor, and
in one multi-center Phase I/II clinical trial in patients with metastatic brain
tumor. ProLease product candidates are being developed in collaboration with
some of the world's leading biotechnology and pharmaceutical companies. A Phase
I clinical trial commenced in February 1996 for a ProLease formulation of
Genentech, Inc.'s ("Genentech") human growth hormone ("hGH"). A Medisorb product
candidate is being developed for Janssen Pharmaceutica International ("Janssen")
under a license agreement. Janssen initiated a Phase I clinical trial in May
1996 for a Medisorb formulation of a Janssen proprietary product.
OVERVIEW OF DRUG DELIVERY
Drug delivery companies apply proprietary technologies to create new
pharmaceutical products based on drugs developed by others. These products are
generally novel, cost-effective dosage forms that provide any of several
benefits including control of drug concentration in the blood, improved safety
and efficacy, improved patient compliance and ease of use and expanded
indications. Drug delivery technologies can provide pharmaceutical companies
with a means of developing new products as well as expanding existing drug
franchises.
The drug delivery industry emerged to address the opportunities for
advanced delivery of traditional pharmaceutical compounds. These compounds are
generally stable, small molecules manufactured by conventional synthetic
methods, for which oral or transdermal (through the skin) delivery could be
enabled or enhanced by drug delivery technologies. Technologies such as passive
transdermal systems (patches) and advanced tablets and capsules have been
developed and successfully applied to a range of pharmaceutical products.
With the advent of biotechnology, new opportunities in drug delivery have
arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. At the same time, the scientific tools of biotechnology have enabled new
approaches to drug delivery based on exploiting particular biological phenomena,
for example utilizing natural properties of the blood-brain barrier to
facilitate drug delivery to the central nervous system.
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Biopharmaceuticals present drug delivery challenges because they are often
large molecules which degrade rapidly in the bloodstream, have limited ability
to cross cell membranes and cannot be delivered orally. As a result, many
biopharmaceuticals must be administered by injection, often multiple times per
day or per week. Consequently, the methods of administration of
biopharmaceuticals can limit their clinical applications to certain disease
states that warrant the expense and inconvenience of frequent injection.
Drug delivery to the central nervous system is complicated by the existence
of the blood-brain barrier, the layer of tightly joined endothelial cells which
comprise the walls of the capillaries of the brain and limit the free flow of
many blood constituents into the brain. Many drugs cannot easily cross the
blood-brain barrier, and therefore must be administered in relatively high doses
to provide a therapeutic benefit. Drugs with limited ability to cross the blood-
brain barrier include many water soluble chemotherapeutic and anti-infective
agents that are frequently used in the treatment of diseases outside of the
central nervous system.
New opportunities in drug delivery require new technological approaches.
Traditional drug delivery systems developed to improve the oral or transdermal
delivery of traditional pharmaceutical products will find limited applicability,
if any, in these applications.
BUSINESS STRATEGY
There are five key elements to the Registrant's strategy:
DEVELOP BROADLY APPLICABLE DRUG DELIVERY SYSTEMS AND APPLY THEM TO MULTIPLE
PHARMACEUTICAL PRODUCTS. The Registrant's strategy is to develop sophisticated
drug delivery systems to address significant new drug delivery opportunities
arising in the pharmaceutical industry. The Registrant has identified drug
delivery systems with the potential to be applied to multiple new product
opportunities through combination with different pharmaceutical and
biopharmaceutical compounds. By identifying and developing drug delivery systems
targeted to substantial markets and applicable to multiple products, Alkermes
has the potential for multiple, independent commercial opportunities.
COLLABORATE TO DEVELOP AND FINANCE PRODUCT CANDIDATES. In addition to
conducting product development activities on its own, the Registrant has entered
into collaborations with pharmaceutical and biotechnology companies and others
to develop product candidates incorporating the Registrant's technologies,
provide capital for product development independent of capital markets and share
development risk.
APPLY DRUG DELIVERY SYSTEMS INITIALLY TO APPROVED DRUGS. Alkermes is
initially applying RMP-7, ProLease and Medisorb to novel applications and
formulations of pharmaceutical and biopharmaceutical products that have already
been approved by the Food and Drug Administration ("FDA") or other regulatory
authorities. By doing so, the Registrant and its partners can develop a novel
dosage form or application with the benefit of knowledge of a drug's safety and
efficacy profile and a body of clinical experience from which to draw
information for the design of clinical trials and for regulatory submissions.
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ESTABLISH INDEPENDENT PRODUCT DEVELOPMENT CAPABILITIES FOR PROPRIETARY
PRODUCTS AND TO FACILITATE COLLABORATIONS. Alkermes has assembled its own
product development organization to enable the Registrant to proceed
independently for an extended period of time in the development of its product
candidates and to optimize the timing and structure of collaborations for RMP-7,
ProLease and Medisorb.
DEVELOP AND EXPAND SCIENTIFIC AND INTELLECTUAL PROPERTY LEADERSHIP
POSITION. Alkermes believes that it has a leadership position in the
development of technologies for improved drug delivery to the central nervous
system and for stabilizing and providing advanced drug delivery for complex
biomolecules, as well as traditional pharmaceuticals. The Registrant believes
that these areas are of increasing importance and value in the pharmaceutical
industry, and the Registrant intends to capitalize on its leadership position by
seeking broad patent protection for its inventions.
RMP-7
RMP-7, a member of a family of Receptor-Mediated Permeabilizers/TM/
("RMPs/TM/"), is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability. RMP-7
is a proprietary, synthetic analog of bradykinin developed by Alkermes to
increase transiently the permeability of the blood-brain barrier. Following
injection, RMP-7 increases permeability by triggering a brief relaxation of the
tight cellular junctions of the blood-brain barrier. During the time the tight
junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without RMP-7. Preclinical and clinical data also suggest
that RMP-7 can be administered at doses that selectively increase permeability
in the region of brain tumor and other pathology while not significantly
affecting permeability in healthy brain tissue.
In contrast to traditional drug delivery systems, RMP-7 exerts a
pharmacologic effect on the vasculature of the brain and does not itself bind to
or serve as a carrier for the drug of which it is facilitating delivery. The
Registrant is developing RMP-7 to be manufactured, packaged and dispensed as a
standalone product. In the clinical setting, RMP-7 is administered separately
from the therapeutic or diagnostic agent. Timing of RMP-7 administration
relative to that of the therapeutic or diagnostic agent is determined on a drug
by drug basis to optimize barrier permeability during the time of peak drug
plasma concentrations.
RMP-7 is intended to be marketed as an independent agent to increase the
utility of other therapeutic and diagnostic compounds given with it. The
Registrant believes RMP-7 may be administered along with cancer chemotherapeutic
and anti-infective agents not currently used in the treatment of central nervous
system disorders because of their limited ability to penetrate the blood-brain
barrier.
PRODUCT DEVELOPMENT STRATEGY. The Registrant's strategy to date has been
to advance RMP-7 through clinical trials independently while establishing its
safety and permeability effects in humans. To support the clinical development
of RMP-7, Alkermes formed, and transferred substantially all of its rights to
the RMP/TM/ technology to, Alkermes Clinical Partners, L.P. (the "Partnership"),
which completed a $46 million unit offering in April 1992. Alkermes has the
option to purchase all of the
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limited partnership interests in the Partnership. See "Collaborative
Arrangements -- Alkermes Clinical Partners."
RMP-7 has the potential to be used in combination with a variety of agents
in various disease settings. The Registrant's goal is to expand the applications
of RMP-7 through collaborations with pharmaceutical companies. First, Alkermes
may collaborate with companies having drugs whose uses could be expanded to
include central nervous system indications. In such cases, Alkermes and its
partner could collaborate in the clinical development of the combination without
any exchange of product rights. Second, Alkermes may collaborate with
development and marketing partners for RMP-7 in various business areas and
geographic territories. In such cases, Alkermes could license rights to RMP-7 to
its partner, subject to the rights of the Partnership. See "Collaborative
Arrangements -- Alkermes Clinical Partners."
TARGET INDICATIONS. RMP-7 is being tested initially for the treatment of
recurrent malignant glioma, an aggressive form of brain tumor. Alkermes believes
that RMP-7 may have applicability to the treatment and diagnosis of other types
of brain tumors and other diseases of the central nervous system. In that
regard, the Registrant initiated, in February 1996, a Phase I/II clinical trial
of RMP-7 in patients with metastatic brain tumor.
BRAIN TUMOR. Brain tumors can be classified into two major groups: Primary
brain tumors, which originate and recur in the brain, and metastatic brain
tumors, which are tumors that have spread to the brain from other parts of the
body. Each year in the United States and Europe a total of 40,000 patients are
diagnosed with primary brain tumors and 150,000 patients are diagnosed with
metastatic brain tumors.
Current treatment for primary brain tumors is limited and inadequate.
Standard treatment typically involves surgery to remove cancerous tissue,
followed by radiation therapy. Some primary brain tumor patients receive
chemotherapy, but its effectiveness is limited. Following surgery and radiation,
patients typically experience a period of time without evidence of disease
progression. With few exceptions, primary brain tumors recur after initial
treatment, at which time treatment options are limited. Upon recurrence of the
tumor, patients usually die within months.
Alkermes is first testing the efficacy of RMP-7 and the chemotherapeutic
agent carboplatin in the treatment of recurrent malignant brain tumor. Alkermes
is pursuing two alternative treatment strategies for RMP-7 and carboplatin in
patients with recurrent malignant glioma: intravenous and intra-arterial
administration. By pursuing both treatment methods, the Registrant believes it
strengthens the scientific foundation of the clinical trials program and
increases the likelihood of observing a treatment effect in patients. If the
results of the Registrant's current Phase II clinical trials are favorable, the
Registrant intends to test the combination of RMP-7 and carboplatin or other
chemotherapeutic agents earlier in the treatment of primary malignant brain
tumor, prior to recurrence. In addition, the Registrant initiated a Phase I/II
clinical trial of RMP-7 and carboplatin in patients with metastatic brain tumor.
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OTHER APPLICATIONS. Alkermes continues to evaluate the potential for use of
RMP-7 in other applications, principally infectious diseases of the central
nervous system in combination with anti-infective drugs and diagnostic imaging
of the central nervous system in combination with contrast agents.
CLINICAL TRIALS EXPERIENCE. The Registrant's clinical strategy for RMP-7
has been to establish a foundation of safety and pharmacologic effect of
increasing blood-brain barrier permeability prior to entering Phase II efficacy
studies of RMP-7 administered in combination with therapeutic drugs. To date,
over 450 human subjects have received RMP-7 in a series of clinical trials. The
clinical trials of RMP-7 can be summarized as follows:
PHASE I. Phase I clinical trials of intravenous RMP-7 commenced in December
1991. During Phase I, 11 clinical trials were conducted in a total of 215 human
subjects. These studies tested RMP-7 as a single agent in healthy volunteers and
in patients with brain tumor and patients with AIDS who have increased risk of
central nervous system infections. The Phase I program was designed to provide
information regarding RMP-7's safety, to determine the maximum tolerated dose
and dose limiting toxicity of RMP-7 and to provide a limited amount of
information regarding RMP-7's vasoactivity and ability to affect central nervous
system permeability. Through the Phase I clinical trials, RMP-7 was shown to
have a good safety profile in volunteers and patients. Transient flushing and
nausea were the most consistent adverse events noted and nausea was determined
to be the dose limiting toxicity.
To evaluate RMP-7's permeability effects, brain imaging techniques such as
computed tomography, magnetic resonance imaging and single photon emission
computed tomography were employed in four of the Phase I clinical trials in
patients with brain tumors. Data from all four studies was limited due to the
difficulty of the methods used for obtaining quantitative permeability data from
human subjects, but provided evidence supporting RMP-7's effect on selectively
increasing permeability in the region of brain tumors.
PHASE I/II. Phase I/II clinical trials of intravenous RMP-7 were conducted
in a total of 80 patients in two patient populations: patients with brain tumors
and patients with cryptococcal meningitis, a fungal infection of the central
nervous system associated with immunocompromised patients, such as those with
AIDS. The Phase I/II studies were designed to test the safety of the combination
of various doses of RMP-7 and various doses of a therapeutic drug.
In two Phase I/II studies involving 24 patients with brain tumor, RMP-7 was
tested in combination with the chemotherapeutic agent, carboplatin. One study
was conducted at University of California San Francisco, the other at
Addenbrooke's Hospital in Cambridge, England. The results of the studies showed
no evidence of increased toxicity associated with the combination of RMP-7 and
carboplatin, and no evidence of change in pharmacokinetics of carboplatin. The
drug combination was well tolerated by patients.
Brain imaging techniques employing ultra-fast computed tomography were used
in a limited number of patients in the Phase I/II clinical trial in England and
provided preliminary data supportive of RMP-7's ability to selectively affect
permeability in the region of brain tumors.
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In addition to the two Phase I/II clinical trials of intravenous RMP-7 and
carboplatin, a third study, involving 12 patients with brain tumor,
investigating intra-arterial administration of the drug combination was
conducted at the University of California, Los Angeles. The results of the study
showed no evidence of increased toxicity associated with the combination of
RMP-7 and carboplatin. The drug combination was well-tolerated by patients.
In patients with cryptococcal meningitis, RMP-7 was tested in combination
with amphotericin B, an anti-fungal compound. The study involved 20 patients and
was conducted at nine sites in the United States. Due to a decrease in the
incidence of the disease resulting from novel and effective prophylaxis, the
clinical trial was closed prior to reaching full enrollment and the Registrant
decided in early 1995 not to proceed further in this indication. The results of
the truncated study showed no evidence of increased toxicity associated with the
combination of RMP-7 and amphotericin B and provided data supporting RMP-7's
effect on increasing amphotericin B concentrations in cerebrospinal fluid.
PHASE II. Based on the successful completion of Phase I and Phase I/II
clinical trials, Alkermes initiated Phase II clinical trials in Europe of
intravenous RMP-7 and carboplatin in patients with primary brain tumor in
February 1995. Three concurrent Phase II clinical trials are being conducted in
this indication in the United States and Europe, with a planned enrollment of
180 patients.
In the United States, the Phase II clinical trial commenced in March 1995
and is being conducted at ten centers. The study is designed as a double blind,
placebo controlled study in approximately 90 patients, comparing treatment with
intravenous RMP-7 and carboplatin to treatment with carboplatin alone in
patients with recurrent malignant glioma. In Europe, two separate studies
commenced in early 1995. These studies are multi-center, open label studies
testing the efficacy of intravenous RMP-7 and carboplatin in approximately 90
patients with recurrent malignant glioma.
Alkermes initiated an open label multi-center Phase II clinical trial in
the United States of intra-arterial RMP-7 and carboplatin in March 1996. The
study is expected to involve approximately 45 patients and to be conducted at
nine centers.
Alkermes initiated a multi-center Phase I/II clinical trial in Europe of
intravenous RMP-7 and carboplatin in patients with metastatic brain tumor in
February 1996. The study is open label, will be conducted at two centers, and is
expected to involve approximately 14 patients.
PROLEASE
ProLease is a proprietary method of encapsulating fragile, protein-based
biopharmaceuticals in microspheres made of common medical polymers. The
Registrant's proprietary expertise in this field lies in its ability to
encapsulate drugs, to stabilize fragile molecules within polymers, to preserve
their biological activity over an extended period of time and to manufacture
these formulations using components and processes believed to be suitable for
human pharmaceutical use. ProLease is designed to enable novel formulations of
biopharmaceutical products by replacing frequent injections with controlled,
sustained release over time. The Registrant believes ProLease formulations have
the potential to improve patient compliance by reducing the need for frequent
self-injection, to lower
7
costs by reducing the need for frequent office visits and to improve safety and
efficacy by reducing both the variability in drug levels inherent in frequent
injections and the aggregate amount of drug given over the course of therapy. In
addition, ProLease may provide access to important new markets currently
inaccessible to products that require frequent injections and for drugs
administered orally.
The ProLease formulation process has been designed to assure stability of
fragile compounds during the manufacturing process, during storage and
throughout the release phase in the body. The formulation and manufacturing
process consists of two basic steps: First, the drug is formulated with
stabilizing agents and dried to create a fine powder. Second, the powder is
microencapsulated at very low temperatures. Incorporation of the drug substance
as a stabilized solid under cold temperatures is critical to protecting fragile
molecules from degradation during the manufacturing process and is a key element
of the ProLease technology. The microspheres then are suspended in a small
volume of liquid and administered to a patient by injection under the skin or
into a muscle. Drug release from ProLease can be controlled to last from days to
months.
Drug release from the microsphere is controlled by diffusion of the
bioactive molecule through the microsphere and by biodegradation of the polymer.
These processes can be modulated through a number of formulation and fabrication
variables including drug substance and microsphere particle sizing and choice of
polymers and excipients.
The ProLease manufacturing process is tailored to preserve the biological
activity of fragile biopharmaceutical compounds. A complete aseptic process
using a closed system with steam-in-place vessels and scaleable unit operations
has been completed and is in the process of being validated. Scale-up to large
quantity production for clinical studies is currently underway.
PRODUCT DEVELOPMENT STRATEGY. The Registrant's strategy is to generate
multiple product opportunities by applying ProLease technology to the
development of superior formulations of several significant biotechnology
products. The Registrant believes these formulations have the potential to
expand the utilization of these products and improve the competitive advantage
of its partners in major markets.
The Registrant's goal is to develop ProLease formulations in collaboration
with partners having expertise, established marketing strength and patent
protection relating to important biopharmaceutical products. The Registrant's
first commercial applications of ProLease are intended to be advanced
formulations of major biotechnology products which have already received
regulatory approvals and have been marketed by the Registrant's partners for
several years. Since January 1995, Alkermes has entered into or expanded several
collaborative agreements with pharmaceutical companies, including Genentech and
Schering-Plough Corporation ("Schering-Plough"). See "Collaborative
Arrangements."
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, the Registrant, either on its own
or pursuant to a collaboration, conducts initial feasibility work to test
various ProLease formulations for a particular drug in vitro and in vivo.
Following the successful completion of the feasibility stage, preclinical
development and manufacturing scale-up activities directed toward the initiation
of clinical trials of the ProLease formulation would be conducted in
collaboration with a partner.
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The first phase of clinical trials will be designed primarily to test the
safety and drug release profile of the ProLease formulation. The Registrant and
its partner may elect to conduct several early clinical trials of various
ProLease formulations of the same drug in order to select a lead formulation to
advance into later stage clinical trials. Alkermes may conduct such early stage
clinical trials of certain ProLease product candidates or they may be conducted
by its partners. If targeted drug release levels are achieved over the desired
duration and if the safety and tolerability of the ProLease product is adequate,
the Registrant expects that it and its partner would elect to proceed into
expanded clinical trials of the ProLease formulation in order to support
regulatory approvals. Late stage clinical trials are expected to be conducted by
the Registrant's partners.
PROLEASE PRODUCTS IN DEVELOPMENT
PROLEASE HUMAN GROWTH HORMONE. Alkermes is developing a ProLease
formulation of Genentech's hGH in collaboration with Genentech. Genentech is the
leading supplier of hGH in the United States. hGH is approved for use in the
treatment of children with growth hormone deficiency and other indications and
is being tested in additional indications in adults. hGH is currently
administered frequently, often daily, by subcutaneous injection. In 1995,
Genentech reported sales of $219 million for its hGH products Protropin(R) and
Nutropin(R).
PROLEASE ALPHA INTERFERON. Alkermes is developing a ProLease formulation of
Schering-Plough's Intron(R) A (interferon alpha 2b) product in collaboration
with Schering-Plough. Schering-Plough is the leading supplier of alpha
interferon in the world. Intron A is approved for use in several infectious
disease and oncology indications including hepatitis, hairy cell leukemia and
Kaposi's sarcoma. Intron A is currently administered by frequent injection. In
1995, Schering-Plough reported sales of $433 million for Intron A.
PROLEASE EXPERIENCE. The Registrant's experience with the application of
ProLease to a wide range of biopharmaceuticals has shown that high incorporation
efficiencies and high protein loads can be achieved. Through formulation and
manufacturing at the research scale, biopharmaceuticals incorporated into
ProLease microspheres have shown excellent integrity (low levels of aggregates
or other degradation products) and stability and biological activity for up to
30 days in in vitro experiments.
The results of animal studies with several different ProLease formulations
have shown that ProLease can release targeted levels of drugs over extended
periods of time and that the pharmacodynamic response with ProLease formulations
can match that of continuous drug infusion. Suitable in vivo delivery patterns
in rodents and primates have been achieved with different therapeutic proteins.
MEDISORB
The Medisorb technology is a proprietary method of encapsulating
traditional pharmaceuticals in microspheres made of common medical polymers.
Medisorb is designed to enable novel formulations of traditional pharmaceuticals
by replacing frequent injections with controlled, sustained
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release over time. The Registrant believes that Medisorb formulations also have
the potential to improve patient compliance by reducing the need for frequent
self injection, to lower costs by reducing the need for frequent office visits
and to improve safety and efficacy by reducing both the variability in drug
levels inherent in frequent injections and the aggregate amount of drug given
over the course of therapy. In addition, Medisorb may provide access to
important new markets currently inaccessible to products that require frequent
injections and for drugs administered orally.
The Medisorb formulation process has been designed to assure stability of
pharmaceuticals during manufacture, storage and throughout the release phase in
the body. The formulation and manufacturing process consists of three basic
steps. First, the drug is combined with a polymer solution. Second, the
drug/polymer solution is mixed in water to form liquid microspheres (an
emulsion). Third, the liquid microspheres are dried to produce finished product.
The microspheres are then administered to a patient by injection under the skin
or into a muscle. Drug release from Medisorb can be controlled to last from days
to weeks.
Drug release from the microsphere is controlled by diffusion of the
pharmaceutical through the microsphere and by biodegradation of the polymer.
These processes can be modulated through a number of formulation and fabrication
variables, including drug substance and microsphere particle sizing and choice
of polymers and excipients.
PRODUCT DEVELOPMENT STRATEGY. The Registrant's strategy is to generate
multiple product opportunities by applying Medisorb technology to the
development of superior formulations of traditional pharmaceutical products. The
Registrant believes these formulations have the potential to expand the
utilization of these products and improve the competitive advantage of its
partners in major markets.
The Registrant's goal is to develop Medisorb formulations in collaboration
with partners having expertise, established marketing strength and patent
protection relating to important pharmaceutical products. The Registrant's first
commercial applications of Medisorb are intended to be advanced formulations of
major pharmaceutical products which have already received regulatory approvals
and have been marketed by the Registrant's partners for several years. Alkermes
has licensed the technology necessary to formulate a Medisorb product candidate
to Janssen, a subsidiary of Johnson & Johnson. See "Collaborative Arrangements."
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, the Registrant, either on its own
or pursuant to a collaboration, conducts initial feasibility work to test
various Medisorb formulations for a particular drug in vitro and in vivo.
Following the successful completion of the feasibility stage, preclinical
development and manufacturing scale-up activities directed toward the initiation
of clinical trials of the Medisorb formulation would be conducted in
collaboration with a partner.
The first phase of clinical trials will be designed primarily to test the
safety and drug release profile of the Medisorb formulation. The Registrant and
its partner may elect to conduct several early clinical trials of various
Medisorb formulations of the same drug in order to select a lead formulation to
advance into later stage clinical trials. Alkermes may conduct such early stage
clinical trials of certain Medisorb product candidates or they may be conducted
by its partner. If targeted drug release
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levels are achieved over the desired duration and if the safety and tolerability
of the Medisorb product is adequate, the Registrant expects that it and its
partner would elect to proceed into expanded clinical trials of the Medisorb
formulation in order to support regulatory approvals. Late stage clinical trials
are expected to be conducted by the Registrant's partner.
MEDISORB PRODUCTS IN DEVELOPMENT
MEDISORB PRODUCT CANDIDATE. Alkermes is developing and manufacturing a
Medisorb product candidate for Janssen under a license agreement. Janssen
initiated a Phase I clinical trial in May 1996 for this Medisorb product
candidate.
COLLABORATIVE ARRANGEMENTS
The Registrant's business strategy includes forming collaborations with
other pharmaceutical companies to provide technological, financial, marketing,
manufacturing and other resources. The Registrant has entered into the following
corporate collaborations:
Schering-Plough
Under an amended Development and License Agreement with Schering-Plough,
the Registrant has agreed to develop an injectable delivery system which
incorporates Intron A as an active ingredient utilizing the Registrant's
ProLease delivery system and has granted to Schering-Plough an exclusive
worldwide license to manufacture, use and sell any such system that may be
developed pursuant to the amended agreement. Under the amended agreement,
Schering-Plough will also be responsible for conducting clinical trials and
securing regulatory approvals. The amended agreement provides for development
funding to the Registrant and provides for certain payments to be made by
Schering-Plough to the Registrant for its achievement of certain milestones. The
Registrant and Schering-Plough entered into a Prepaid Royalty Agreement pursuant
to which Schering-Plough has prepaid certain royalties. In total, payments to
the Registrant are expected to approximate $7.0 million by September 30, 1996,
and future milestone payments could exceed an additional $5.0 million.
Schering-Plough has the right to terminate the amended agreement upon 60
days' written notice upon the occurrence of certain events, including if the
Registrant fails to meet product specifications or an agreed upon delivery
schedule, the results of a safety and pharmacokinetics study provide Schering-
Plough with reasonable justification not to proceed to a Phase II clinical
trial, the use of the product results in adverse effects that justify
termination of clinical trials, Schering-Plough is unable to manufacture the
product on a commercial scale, or upon completion or permanent discontinuation
of the clinical study. Either party may terminate the amended agreement upon the
insolvency or bankruptcy of the other party or upon a breach by the other party
which has not been cured after 60 days' notice. Schering-Plough also has the
right to terminate the amended agreement upon 90 days' written notice or
continue the development project on its own in the event Alkermes fails by an
agreed upon date to deliver batches of a ProLease formulation of Intron A that
meet agreed upon specifications. In the event Schering-Plough elects to continue
the development project, it will remain obligated to pay Alkermes milestone
payments and royalties upon commercial sale. In the
11
event Schering-Plough terminates the amended agreement for any reason, Alkermes
must repay the prepaid royalties received from Schering-Plough with interest.
Such repayment obligation would be evidenced by an interest-bearing note and
would be payable in full on the third anniversary of the date of the note.
Alkermes will have the right, subject to the satisfaction of certain conditions,
to satisfy its repayment obligation through the issuance of shares of its Common
Stock. The number of shares that may be issued would be based upon the average
closing price of Alkermes Common Stock on the Nasdaq National Market for the 30
business days immediately preceding the date on which the shares are delivered.
Any Common Stock issued to Schering-Plough must be freely resaleable.
Genentech
In January 1995, Alkermes entered into a collaborative agreement with
Genentech, pursuant to which the Registrant agreed to develop sustained release
formulations of up to two Genentech proteins utilizing the Registrant's ProLease
microencapsulation technology. One of these proteins is hGH and the other
protein has not been publicly disclosed. In the initial phase of the
collaboration, the Registrant will develop a sustained release formulation of
hGH, which is approved for marketing in the United States for the treatment of
children with growth hormone deficiencies and growth failure due to renal
insufficiency. The Registrant commenced a Phase I clinical trial for hGH in
February 1996.
The initial phase of the Genentech collaboration is expected to be
completed within two years. During the initial phase, the parties have agreed to
work exclusively with each other regarding the use of the Registrant's ProLease
technology for the encapsulation of hGH.
At any time prior to the date that is six months after the conclusion of
the Phase I clinical trial for the ProLease formulation of hGH, Genentech has
the option to obtain a worldwide exclusive license to make, use and sell
products incorporating hGH and/or the other Genentech protein and the
Registrant's ProLease encapsulation technology. In the event Genentech exercises
such option, the parties have agreed to negotiate in good faith regarding the
terms of the definitive license agreement, which shall include royalties,
milestone payments and other terms which have already been agreed upon by the
parties. If Genentech elects to exercise its option to develop ProLease
formulations of both proteins, and assuming the successful development and
regulatory approval of the ProLease formulations of both proteins, total
milestone payments to Alkermes could reach $16.5 million.
To fund the Registrant's activities during the initial phase of the
collaboration, Genentech has loaned the Registrant the aggregate amount of $3.5
million pursuant to a Convertible Promissory Note dated January 31, 1995 (the
"Note"). The outstanding principal amount of the Note accrues interest at the
prime rate of interest as reported by the Bank of America NT & SA from time to
time. The outstanding principal amount of the Note and accrued but unpaid
interest thereon becomes due and payable on January 31, 2000.
Under the terms of the Note, Alkermes has the option to convert, at any
time, all outstanding principal and accrued but unpaid interest thereon (as such
amount may exist from time to time, the "Conversion Amount") into shares of
Common Stock. The number of shares into which the Note will be converted shall
be determined by dividing the Conversion Amount by the average closing price of
the Common Stock on the Nasdaq National Market for the 20 trading days
immediately preceding the
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conversion date (the "Conversion Price"). In addition, Genentech shall have the
right to convert the Conversion Amount into shares of Common Stock at the
Conversion Price if at any time the total cash, cash equivalents and marketable
debt instruments of the Registrant shall be less than the sum of (i) all
indebtedness which ranks senior to the indebtedness evidenced by the Note, and
(ii) the Conversion Amount. Genentech also has the right to demand that the
Common Stock be registered under certain circumstances.
Pursuant to the collaboration agreement, both Alkermes and Genentech have
the right to terminate the agreement upon the other's material breach which is
not cured within 30 days' written notice or upon the other's insolvency or
bankruptcy. Genentech also has the right to terminate the agreement at any time
upon 30 days' written notice to Alkermes.
Janssen
Pursuant to a Development Agreement, the Registrant is collaborating
exclusively with Janssen in the development of sustained release formulations of
a Medisorb product candidate. Under the Development Agreement, the Registrant is
responsible for production of the Medisorb product candidate for clinical
trials. Janssen is responsible for conducting clinical trials of the Medisorb
product candidate and securing all necessary regulatory approvals. Janssen
initiated a Phase I clinical trial in May 1996 for this Medisorb product
candidate.
Under related license agreements (the "License Agreements"), Janssen and an
affiliate have exclusive world-wide licenses from the Registrant to manufacture
and have manufactured, to use and to have used, and to sell and have sold, the
Medisorb product candidate. If Janssen decides to employ third-party suppliers
of the Medisorb product candidate, the Registrant has a right of first refusal
for the manufacture and supply to Janssen of all Medisorb product candidate, and
component bio-absorbable polymers thereof, developed under the Development
Agreement. Under the License Agreements, Janssen is required to pay Alkermes
certain royalties with respect to all Medisorb product candidate sold to
customers.
Janssen can terminate the Development Agreement or the License Agreements
upon 30 days' prior written notice to Alkermes.
Alkermes Clinical Partners
In April 1992, Units consisting of limited partnership interests in the
Partnership and warrants to purchase the Registrant's Common Stock were sold to
investors in a private placement (the "Private Placement"). See "Corporate
Matters -- Private Placement and Warrant Exchange." The net proceeds of the $46
million Private Placement are being used to fund the further development and
clinical testing of RMPs for human pharmaceutical use in the United States and
Canada.
Pursuant to a Product Development Agreement, dated March 6, 1992, Alkermes
transferred substantially all of its rights to the RMP technology to the
Partnership. Alkermes has an option to purchase all of the limited partnership
interests in the Partnership and thereby reacquire the transferred technology.
13
Research and development of RMPs is being conducted by Alkermes for the
Partnership pursuant to the Product Development Agreement. Alkermes has been
reimbursed by the Partnership for its actual costs incurred in conducting such
research and development, and has received a management fee of 10% of such
costs. During the fiscal year ended March 31, 1996, Alkermes recorded revenue of
approximately $11.2 million from the Partnership. The revenues recorded by
Alkermes from the Partnership during the fiscal year ended March 31, 1996
constituted approximately 70% of the Registrant's net revenues during such
period. The Partnership's funding obligations will end in the quarter ending
June 30, 1996 and Alkermes intends thereafter to fund the development of RMPs,
but may be forced to seek alternative sources of funding.
The Partnership may terminate the research program for any or all products
if the directors of the general partner of the Partnership, Alkermes Development
Corporation II ("ADC II"), a wholly owned subsidiary of Alkermes, determine, by
an affirmative vote of 75% of such directors, that such research is not feasible
or is uneconomic. The Partnership may terminate the marketing program for any or
all products upon the affirmative vote of 75% of the directors of ADC II based
on the directors' good faith business judgment. The Partnership may also
terminate the research or marketing program if Alkermes has materially breached
the agreement and not cured such breach within 30 days' written notice. Both
parties may terminate the research or marketing program upon mutual consent to
terminate or upon the insolvency or bankruptcy of the other party.
The Partnership has granted Alkermes an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United States
and Canada. Upon the first marketing approval of an RMP product by the FDA,
Alkermes is obligated to make a payment to the Partnership equal to 20% of the
aggregate capital contributions of all limited partners. Additionally, Alkermes
will pay royalty payments equal to 12% of United States and Canadian revenues
and, in certain circumstances, 10% of European revenues from any sales of RMPs
by Alkermes. The interim license will terminate if Alkermes does not exercise
its option to acquire all of the limited partners' interests in the Partnership.
The general partner of the Partnership is ADC II. Fifty percent of the
members of the board of directors of ADC II are persons not affiliated with
Alkermes. Such non-affiliated persons were nominated by the sales agent for the
Private Placement. The sales agent will continue to have the right to nominate
at least half of the members of ADC II's board of directors unless certain
events occur.
OTHER RESEARCH ACTIVITIES
Alkermes is evaluating other drug delivery technologies principally through
research collaborations with academic institutions. These research projects are
focused typically on novel drug delivery systems that fit the Registrant's
strategic focus on sophisticated technologies potentially applicable to multiple
product candidates.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid and
substantial technological change. Alkermes faces, and will continue to face,
intense competition in the
14
development, manufacturing, marketing and commercialization of its product
candidates from academic institutions, government agencies, research
institutions and biotechnology and pharmaceutical companies. There can be no
assurance that developments by others will not render the Registrant's product
candidates or technologies obsolete or noncompetitive. At the present time,
Alkermes has no sales force or marketing experience and limited commercial
manufacturing capability. In addition, many of the Registrant's competitors and
potential competitors have substantially greater capital resources,
manufacturing and marketing experience, research and development resources, and
production facilities than does Alkermes. Many of these competitors also have
significantly greater experience than Alkermes in undertaking preclinical
testing and clinical trials of new pharmaceutical products and obtaining FDA and
other regulatory approvals.
With respect to RMP-7, there are currently no products approved by the FDA
for increasing the permeability of the blood-brain barrier. Guilford
Pharmaceuticals, Inc., however, has filed for approval of a surgically
implantable polymer wafer containing BCNU, a chemotherapeutic agent, for the
treatment of brain tumor.
The Registrant is aware of certain programs under development by
competitors that are focused on the delivery of biopharmaceuticals utilizing a
sustained release vehicle. However, the Registrant is not aware of any company
that has initiated clinical trials involving the Registrant's partners' products
or products which would compete with the Registrant's programs. Many of these
competitors have greater resources than the Registrant. There can be no
assurance that the Registrant will be able to compete successfully with such
companies. The existence of products developed by the Registrant's competitors,
or other products or treatments of which the Registrant is not aware, or
products or treatments that may be developed in the future, may adversely affect
the marketability of products developed by the Registrant.
PATENTS AND PROPRIETARY RIGHTS
The Registrant's success will be dependent, in part, on its ability to
obtain patent protection for its and the Partnership's products, to maintain
trade secret protection and to operate without infringing upon the proprietary
rights of others.
The Registrant has a proprietary portfolio of patent rights and exclusive
licenses to patents and patent applications. The Registrant has filed numerous
U.S. and international patent applications directed to composition of matter as
well as processes of preparation and methods of use, including applications
relating to: permeabilizers, certain rights to which have been licensed to the
Partnership, of which one U.S. patent was issued in each of May 1992, December
1993 and April 1996; carriers for enabling passage into the brain of therapeutic
compounds, of which one U.S. patent was issued in each of October 1992, January
1993 and June 1996; therapeutic applications of cationized antibodies; the
ProLease microencapsulation process, of which one U.S. patent was issued in
December 1993; the formulation of ProLease product candidates of which one U.S.
patent was issued in May 1995; the Medisorb microencapsulation process of which
one U.S. patent was issued in June 1983; two additional U.S. patents related to
processes of preparation of which one was issued in each of June 1993 and
February 1994; and the formulation of product candidates, of which nine U.S.
patents were issued between July 1985 and June 1995. In the future, the
Registrant plans to file further U.S. and foreign patent applications directed
to new or improved products and processes. The U.S. patents
15
issued to the Registrant will expire between 2000 and 2013. Alkermes intends to
file additional patent applications when appropriate and intends to defend its
patent position aggressively.
Alkermes has exclusive rights through licensing agreements with several
institutions to nine issued U.S. patents, a number of U.S. patent applications
and to corresponding foreign patents and patent applications in many countries,
subject in certain instances to the rights of the U.S. government to use the
technology covered by such patents and patent applications. The Registrant has
an exclusive option for exclusive rights to one U.S. patent application and a
related international patent application for gene therapy. The U.S. patents
that have been licensed to the Registrant will expire between the years 2003 and
2013. Under certain licensing agreements, the Registrant currently pays license
maintenance fees and/or minimum annual royalties. During the fiscal year ended
March 31, 1996, such fees were approximately $127,000. In addition, under all
licensing agreements, Alkermes is obligated to pay royalties on future sales of
products, if any, covered by the licensed patents.
Two applications for patents were filed by a third party in the United
States and in Europe that contain claims covering certain analogs and uses
thereof of the same naturally occurring molecule on which RMP-7 is based. One
U.S. patent has issued from these applications. Based on an opinion of the
Registrant's patent counsel, Alkermes believes that the claims of the issued
U.S. patent are not infringed by the Partnership's or the Registrant's proposed
manufacture, use or sale of RMP-7. However, there can be no assurance that the
claims of the issued U.S. patent are not infringed and the claims of future
patents issuing from these applications, if any, will not be infringed by the
Partnership's or the Registrant's proposed manufacture, use or sale of RMP-7.
There can be no assurance that Alkermes or the Partnership would prevail in any
legal action seeking damages or injunctive relief for infringement of any patent
that might issue under such applications or that any license required under any
such patent would be made available or, if available, would be available on
acceptable terms. Failure to obtain a required license could result in the
inability to proceed with RMP-based products.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
firms, including Alkermes, are generally uncertain and involve complex legal and
factual questions. In addition, there can be no assurance that the Registrant's
or its licensors' current patent applications will be allowed or that the claims
of any patents issued to Alkermes or its licensors (in connection with either
or both the Registrant's product candidates or the Partnership's product
candidate) will be sufficiently broad to protect the Registrant's or the
Partnership's technology or to provide Alkermes or the Partnership with any
competitive advantages. Moreover, no assurance can be given that patents issued
to Alkermes (in connection with either or both the Registrant's product
candidates or the Partnership's product candidate), or its respective licensors,
if any, will not be contested, invalidated or circumvented. In addition, if
Alkermes or the Partnership is required to defend against a charge of patent
infringement or to protect its own proprietary rights against third parties,
substantial costs could be incurred.
In the future, Alkermes may be required to obtain additional licenses to
patents or other proprietary rights of third parties. There can be no assurance
that any such licenses will be available on acceptable terms, if at all, and
failure to obtain such licenses could result in delays in marketing the
Registrant's products or the inability to proceed with the development,
manufacture or sale of product candidates requiring such licenses.
16
The Registrant also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Registrant would have adequate remedies for any breach, or
that the Registrant's trade secrets will not otherwise become known or be
independently discovered by competitors.
The Registrant's practice is to require its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with the Registrant. The agreements
provide that all confidential information developed or made known to an
individual during the course of the employment or consulting relationship shall
be kept confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual while employed by the Registrant shall be
the exclusive property of the Registrant. There can be no assurance, however,
that these agreements will provide meaningful protection for the Registrant's
trade secrets in the event of unauthorized use or disclosure of such
information.
MANUFACTURING
RMP-7 is a small peptide manufactured using standard synthetic techniques.
Alkermes relies on an independent European pharmaceutical company for the
manufacture and supply of RMP-7. Alkermes believes that, if necessary, there are
other companies which could manufacture and supply its requirements for RMP-7.
Nevertheless, there can be no assurance that any manufacturer of RMP-7 will meet
the Registrant's demands for quality, quantity, cost and timeliness.
The Medisorb manufacturing process is significantly different from the
ProLease process and is based on a method of encapsulating small molecule drugs,
provided by the Registrant's collaborator, in polymers using a large scale
emulsification. Alkermes is manufacturing, in accordance with Good
Manufacturing Practices ("GMP"), a product candidate incorporating its Medisorb
sustained release delivery system, for use in clinical trials, at its recently
acquired facility in Wilmington, Ohio. It does not manufacture such product
candidates on a commercial scale.
ProLease manufacturing involves microencapsulation of drug substances
provided to Alkermes by its collaborators. Alkermes has completed construction
of an in-house pilot production facility which is in the process of being
validated. This facility will be used to manufacture, in accordance with GMP,
product candidates incorporating its ProLease sustained release delivery system
for use in clinical trials. Pursuant to agreements with certain of its
partners, Alkermes may obtain the right to manufacture ProLease products for
commercial sale.
The manufacture of either Medisorb or ProLease products on a commercial
scale would require significant start-up expenses and expansion of facilities
and personnel, and no assurance can be given that Alkermes can develop such
manufacturing capability successfully.
If Alkermes is not able to develop manufacturing capacity and experience or
to continue to contract for manufacturing capabilities on acceptable terms, its
ability to conduct preclinical testing
17
and clinical trials will be compromised, and delays in obtaining regulatory
approvals might result. Such delays could materially adversely affect the
Registrant's competitive position and its business, financial condition and
results of operations.
MARKETING
Alkermes plans to market and sell RMP-7, if successfully developed and
approved, either directly or through co-promotion or other licensing
arrangements with third parties. Such arrangements may be exclusive or
nonexclusive and may provide for marketing rights worldwide or in a specific
market.
Alkermes intends to market any ProLease and Medisorb products through its
corporate partners. Alkermes has entered into development agreements, including
sales and marketing, for ProLease product candidates with Genentech and
Schering-Plough, and for a Medisorb product candidate with Janssen. See
"Collaborative Arrangements."
Alkermes has no marketing experience and there can be no assurance that it
will successfully develop such experience or that it will be able to enter into
marketing agreements with others on acceptable terms. To the extent the
Registrant enters into co-promotion arrangements, any revenues received by the
Registrant will be dependent on the efforts of third parties, and there can be
no assurance that such efforts will be successful.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing facilities
are also regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application ("IND"),
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria.
18
Prior to marketing, any product developed by Alkermes must undergo an
extensive regulatory approval process, which includes preclinical testing and
clinical trials of such product candidate to demonstrate safety and efficacy.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated which may result in delay or failure
to receive FDA approval. Similar delays or failures may be encountered in
foreign countries. Delays and costs in obtaining regulatory approvals would have
a material adverse effect on the Registrant's business, financial condition and
results of operations.
Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
on an ongoing basis with GMP. An Establishment License Application ("ELA") must
be submitted for approval by the FDA with information about manufacturing
facilities. Before approval of the ELA, the FDA will perform a prelicensing
inspection of the facility to determine its compliance with GMP and other rules
and regulations. In complying with GMP, manufacturers must continue to expend
time, money and effort in the area of production and quality control to ensure
full technical compliance. After the establishment is licensed, it is subject to
periodic inspections by the FDA.
The requirements which the Registrant must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its products in such countries can be as rigorous and costly as those
described above.
The Registrant is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Registrant's research. Compliance with laws
and regulations relating to the protection of the environment has not had a
material effect on capital expenditures, earnings or the competitive position of
the Registrant. However, the extent of government regulation which might result
from any legislative or administrative action cannot be accurately predicted.
EMPLOYEES
As of June 24, 1996, the Registrant had 159 full-time employees, of whom 25
held M.D. degrees or Ph.D. degrees in the fields of analytical chemistry,
pharmaceutics, chemical engineering, organic polymer chemistry, biochemistry,
cell biochemistry, microbiology, molecular biology, oncology, pharmacology,
pharmacy and polymer science and engineering. A significant number of the
Registrant's management and professional employees have had prior experience
with pharmaceutical, biotechnology or medical product companies. Alkermes
believes that it has been highly successful in attracting skilled and
experienced scientific personnel; however, competition for such personnel is
intense. None of the Registrant's employees is covered by a collective
bargaining agreement.
19
CORPORATE MATTERS
Alkermes, a Pennsylvania corporation, was organized in 1987.
Medisorb Transaction
In March 1996, a wholly owned subsidiary of the Registrant, Alkermes
Controlled Therapeutics Inc. II ("ACT II") acquired certain Medisorb technology
and assets owned or used by Medisorb Technologies International L.P., a
privately owned limited partnership. Included in the acquisition was a 14,000
square foot pharmaceutical production facility located in Wilmington, Ohio. The
purchase was made with cash.
Enzytech Merger
In February 1993, Enzytech, Inc. ("Enzytech"), an unrelated entity, was
merged with and into Alkermes Controlled Therapeutics, Inc., a wholly owned
subsidiary of the Registrant (the "Merger"). The Merger was consummated by
converting the shares of all classes of Enzytech capital stock then outstanding
into shares of the Registrant's Common Stock. The Registrant also granted to
certain of Enzytech's employees and consultants options to purchase shares of
the Registrant's Common Stock. The business acquired in the Merger is focused on
the development of products incorporating proprietary drug delivery systems
based on microencapsulation technologies which may enable injectable sustained
release or oral formulations to be made of biopharmaceutical products such as
proteins and peptides.
Private Placement and Warrant Exchange
On April 10, 1992, Alkermes and the Partnership sold in the Private
Placement (i) 920 Class A units, each unit consisting of one Class A limited
partnership interest in the Partnership, a 1992 warrant to purchase 2,800 shares
of the Registrant's Common Stock, par value $.01 per share ("Common Stock"), and
a 1995 warrant to purchase 300 shares of Common Stock, and (ii) one Class B unit
consisting of one Class B limited partnership interest in the Partnership, a
1992 warrant to purchase 5,600 shares of Common Stock and a 1995 warrant to
purchase 600 shares of Common Stock. The purchase price was $50,000 for each
Class A Unit (subject to certain reductions for certain investors) and $100,000
for the Class B Unit. The purchase price for the Class A and Class B Units was
payable in installments due on an annual basis which commenced in 1992 and ended
in 1995.
The Class A 1992 Warrants, the Class A 1995 Warrants, the Class B 1992
Warrant and the Class B 1995 Warrant were issued by the Registrant in
consideration of the grant by each limited partner to the Registrant of an
option to purchase, under certain circumstances, the limited partnership
interest held by such limited partner.
The Class A 1992 Warrants and the Class B 1992 Warrant may be exercised
during the period which began on August 1994 and ends on July 31, 1999, and upon
the payment of a warrant exercise price per share of $20.03. The Class A 1995
Warrants and the Class B 1995 Warrant may
20
be exercised during the period which began on April 15, 1995 and ends on April
14, 2000, and upon the payment of a warrant exercise price per share of $3.54.
PaineWebber Development Corporation, the sales agent for the Units (the
"Sales Agent"), purchased the Class B Unit in the Private Placement. An
affiliate of the Sales Agent (the "Fund Affiliate") purchased 133 Class A units
in the Private Placement. In consideration of such purchase, the Registrant
issued to the Sales Agent Affiliate a warrant to purchase 13,300 shares of
Common Stock (the "Fund Warrant"). The Fund Warrant had the same exercise period
and exercise price ($20.03) as the Class A 1992 Warrants. As part of the Private
Placement, the Registrant also issued to an affiliate of the Sales Agent (the
"Incentive Affiliate") a warrant to purchase 77,100 shares of Common Stock (the
"Incentive Warrant"). The Incentive Warrant had an exercise period which began
on August 1, 1994 and ends on July 31, 1997 and had a warrant exercise price per
share of $20.83.
The Registrant completed an exchange offer on January 27, 1995 with respect
to the foregoing warrants. Pursuant to the exchange offer, Class A limited
partners had the option to exchange both the Class A 1992 Warrants and the Class
A 1995 Warrants for a new 1994 Class A Warrant to purchase, at $5.00 per share,
1,700 shares of the Registrant's Common Stock for every 3,100 shares of Common
Stock issuable upon exercise of the Class A 1992 Warrant and Class A 1995
Warrant exchanged therefor. The Sales Agent had the option to exchange both the
Class B 1992 Warrant and the Class B 1995 Warrant for a new 1994 Class B Warrant
to purchase 3,400 shares of the Registrant's Common Stock at $5.00 per share.
The Fund Affiliate had the option to exchange the Fund Warrant for a new 1994
Fund Warrant to purchase 7,293 shares of Common Stock at $5.00 per share. The
Incentive Affiliate had the option to exchange the Incentive Warrant for a new
1994 Incentive Warrant to purchase 42,280 shares of Common Stock at $5.25 per
share. The 1994 Class A Warrants, 1994 Class B Warrant, and 1994 Fund Warrant
are exercisable during the period which began on April 1, 1995 and ends on March
31, 2000. The 1994 Incentive Warrant is exercisable during the period which
began on April 1, 1995 and ends on March 31, 1998.
Holders of approximately 92% of the Class A 1992 Warrants and the Class A
1995 Warrants originally issued exchanged such warrants in response to the
exchange offer. The Sales Agent, the Fund Affiliate and the Incentive Affiliate
also exchanged the warrants they acquired in the Private Placement for new 1994
warrants.
In February and April 1996, the Registrant purchased an aggregate of 74
Class A Units that were owned by investors who defaulted on their payment
obligations. The aggregate purchase price for such Units was the aggregate
amount of the unpaid installments, approximately $2,052,000.
ITEM 2. PROPERTIES
----------
The Registrant leases and occupies approximately 90,000 square feet of
laboratory and office space in Cambridge, Massachusetts under five leases
expiring in the years 1998 to 2002. The leases contain provisions permitting the
Registrant to extend the term of such leases for up to ten years. The Registrant
has completed construction of a GMP pilot suite at its Massachusetts facility
which is in the process of being validated. Such suite is for the manufacture of
product candidates incorporating the ProLease delivery system for preclinical
and clinical trials. The Registrant believes
21
that its Massachusetts facility is adequate for its preclinical and clinical
operations. The Registrant does not manufacture and does not expect to
manufacture RMPs for clinical trials. The Registrant has engaged a third party
to manufacture preclinical, clinical and commercial supplies of RMPs.
Alkermes Europe, Ltd., a wholly owned subsidiary of the Registrant, leases
and occupies approximately 1,500 square feet of office space in Cambridge,
England under a lease expiring in the year 1997. The Registrant believes that
such office space is adequate for the operations of Alkermes Europe, Ltd.
The Registrant owns and occupies approximately 14,000 square feet of
manufacturing, office and laboratory space in Wilmington, Ohio. The facility
contains a state-of-the-art GMP sterile production facility specifically
designed for the production of Medisorb microspheres. The Registrant believes
that its Wilmington facility is adequate for its preclinical and clinical
operations.
The Registrant also leases and occupies approximately 25,000 square feet of
laboratory and office space in Blue Ash, Ohio under a lease expiring in 1997.
The lease contains a provision permitting the Registrant to extend the term of
such lease for one year. The Registrant believes that the Blue Ash facility is
adequate for its operations.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Registrant's common stock is traded on the Nasdaq National Market
under the symbol ALKS. Set forth below for the indicated periods are the high
and low sale prices for Alkermes' common stock.
Fiscal 1996 Fiscal 1995
------------------- ---------------
High Low High Low
----------- ------ ------ -------
1st Quarter $ 4 1/2 $2 5/8 $7 3/8 $3 3/4
2nd Quarter 9 1/4 3 5/8 4 5/8 2 7/8
3rd Quarter 8 5/8 5 3/4 3 3/4 1 7/8
4th Quarter 11 1/4 7 1/8 3 3/8 1 15/16
The number of shareholders of record on June 7, 1996 was 658. No
dividends have been paid on the common stock to date, and the Registrant does
not expect to pay cash dividends in the foreseeable future.
23
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
ALKERMES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
YEAR ENDED MARCH 31,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues............ $ 15,919 $ 13,903 $ 9,460 $ 11,806 $ 1,656
Research and development
expenses................. 21,586 18,955 20,480 16,709 7,005
Total expenses............ 29,666 25,807 26,736 51,953 9,708
Net loss.................. $(13,747) $(11,904) $(17,275) $(40,147)(1) $(8,052)
Net loss per weighted
average number of common
shares................... $ (0.93) $ (0.88) $ (1.29) $ (3.77)(1) $ (0.98)
Weighted average number of
common shares
outstanding.............. 14,775 13,535 13,362 10,653 8,193
MARCH 31,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents
and short-term
investments.............. $ 32,374 $ 21,351 $ 27,948 $ 32,859 $45,679
Total assets.............. 45,752 36,708 46,322 54,025 55,706
Long-term obligations..... 9,876 8,376 6,598 2,149 244
Shareholder's equity...... 23,513 21,163 31,874 47,731 54,187
- --------
(1) Includes a one time non-cash charge of $31.3 million for the purchase of
in-process research and development as a result of the Company's
acquisition of Enzytech, Inc.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
INTRODUCTION
Alkermes is developing sophisticated products based on innovative drug
delivery technologies. Since its inception in 1987, the Company has devoted
substantially all of its resources to its research and development programs.
Alkermes has not received any revenue from the sales of products. The Company
has been unprofitable since inception and expects to incur substantial
additional operating losses over the next several years. At March 31, 1996,
the Company had an accumulated deficit of $101 million.
The Company has funded its operations primarily through public offerings and
private placements of equity securities, bank loans and payments under
research and development agreements with collaborators, including Alkermes
Clinical Partners, L.P. (Clinical Partners), a research and development
limited partnership whose operations commenced in April 1992. The Company
intends to develop its product candidates in collaboration with others on whom
the Company will rely for funding, development, manufacturing and/or
marketing.
FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally by the
Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company makes such statements based on assumptions which it believes to be
reasonable, the Company's business is subject to significant risks and there
can be no assurance that actual results will not differ materially from the
Company's expectations. Accordingly, the Company hereby identifies the
following important factors, among others, which could cause its results to
differ from any results which might be projected, forecasted or estimated by
the Company in any such forward-looking statements: (i) the Company and its
collaborators could not be permitted by regulatory authorities to undertake
additional clinical trials for RMP-7(TM) or ProLease(R) or to commence
clinical trials for Medisorb(R); (ii) product candidates could be ineffective
or unsafe during clinical trials; (iii) difficulties or set-backs in obtaining
the substantial additional funding required to continue research and
development programs and clinical trials; (iv) even if product candidates
appear promising at an early stage of development, product candidates could
fail to receive necessary regulatory approvals, be difficult to manufacture on
a large scale, be uneconomical, fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties; (v)
technological change in the biotechnology or pharmaceutical industries could
render the Company's product candidates obsolete or noncompetitive;(vi)
disputes with collaborators, termination of collaborations or failure to
negotiate acceptable new collaborative arrangements for ProLease and Medisorb
technologies, which are not independently commercializable; (vii) disputes
with Clinical Partners over rights to the RMP(TM) technology and RMP-7, or the
Company could fail to purchase this technology from Clinical Partners, or, if
the Company did purchase RMP technology from Clinical Partners (a) in shares
of the Company's common stock, the Company's shareholders would be
substantially diluted or (b) in cash, the Company's capital resources would be
substantially depleted; and (viii) difficulties or set-backs in obtaining and
enforcing Alkermes' patents and with the patent rights of others.
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative
arrangement with related party was $11,182,741, $9,277,371 and $7,449,700 for
the fiscal years ended in 1996, 1995 and 1994, respectively. This revenue was
received from Clinical Partners under a product development agreement entered
into in March 1992. The increase in such revenue for fiscal 1996 as compared
to fiscal 1995 and for fiscal 1995 as compared to fiscal 1994 was a result of
increased reimbursable costs incurred by the Company pursuant to such product
development agreement. The Company's research and development revenue under
collaborative arrangements was $2,848,510, $3,049,106 and $361,920 for the
fiscal years ended in 1996, 1995 and 1994, respectively. The decrease in such
revenue for fiscal 1996 as compared to fiscal 1995 was primarily a result of
the completion of the feasibility phase of a collaborative agreement with
Boehringer Mannheim GmbH, partially offset by an
25
expanded collaboration with Schering-Plough Corporation. The increase in such
revenue for fiscal 1995 as compared to fiscal 1994 was primarily a result of
research and development performed under such agreement with Boehringer
Mannheim GmbH.
Interest income was $1,887,275, $1,576,794 and $1,648,833 for the fiscal
years ended in 1996, 1995 and 1994, respectively. The increase in such revenue
for fiscal 1996 as compared to fiscal 1995 was primarily a result of the
investment of the net proceeds of approximately $14,800,000 received upon the
consummation of the public offering of the Company's common stock in September
and October 1995, as well as funds received from other financing arrangements
completed during fiscal 1996. The decrease in fiscal 1995 as compared to
fiscal 1994 was mainly a result of decreased cash, cash equivalents and
investments due to negative cash flow resulting from continued research and
development and other expenditures. Such decrease was partially offset by an
increase in interest rates during fiscal 1995.
The Company's total operating expenses were $29,665,610 for the fiscal year
ended in 1996 as compared to $25,807,424 and $26,735,558 for the fiscal years
ended in 1995 and 1994, respectively. The Company recorded a $750,000
nonrecurring charge in March 1996 for Medisorb technology purchased but not
yet commercially viable. The Company's research and development expenses were
$21,586,316 for the fiscal year ended in 1996 compared to $18,955,347 and
$20,479,682 for the fiscal years ended in 1995 and 1994, respectively. The
increase for fiscal 1996 as compared to fiscal 1995 was mainly the result of
an increase in the purchase of lab supplies and preclinical and clinical
expenses related primarily to the Company's RMP-7 and ProLease programs. The
decrease for fiscal 1995 as compared to fiscal 1994 was mainly the result of
the Company's decision in September 1994 to focus on its two principal
technologies, RMP-7 and ProLease, as well as the completion of certain
preclinical and clinical studies and a bulk product purchase of RMP-7 during
fiscal year 1994. Included in fiscal 1994 is a payment of $550,000 related to
the Company's now terminated collaboration with Cortex Pharmaceuticals, Inc.
General and administrative expenses were $6,285,700, $5,104,062 and
$5,921,572 for the fiscal years ended in 1996, 1995 and 1994, respectively.
The increase for fiscal 1996 as compared to fiscal 1995 was primarily the
result of non-cash charges related to the write-down of the Company's
investments in Clinical Partners and an increase in patent legal costs and
other legal costs associated with financing and other transactions. The
decrease for fiscal 1995 as compared to fiscal 1994 was primarily the result
of a reduction of non-cash compensation charges relating to the grant of
certain stock options and awards made, which was partially offset by now
accounting for the Company's investment in Clinical Partners under the equity
method of accounting.
The Company does not believe that inflation and changing prices has had a
material impact on its consolidated results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had current assets totaling $34,331,841,
primarily consisting of $445,150 in cash and cash equivalents and $31,929,214
in U.S. Treasury Notes and other Government obligations having a maturity of
less than one year; and current liabilities of $6,447,934. The Company's
short-term investment objectives are, first, to assure conservation of
principal, and second, to obtain investment income. As a result, the Company
invests primarily in high grade government or government-backed securities.
In May 1996, the Company completed a direct public offering of 2,300,000
shares of its common stock at $10 per share. Net proceeds to the Company were
approximately $22,930,000.
The Company's research and development costs to date have been financed
primarily by sales of equity securities and research and development
collaborative arrangements. The Company expects to incur significant research
and development and other costs, including costs related to preclinical
studies, clinical trials and facilities expansion. The research and
development revenue from Clinical Partners will end during the quarter ending
June 30, 1996. Such funding will not be sufficient to complete clinical trials
and seek regulatory approval
26
of RMP-7. As a result, Alkermes intends to use its own resources to develop
RMP-7, but may be forced to seek alternative sources of funding, including
additional collaborators. Therefore, the Company expects that such costs will
exceed revenues significantly for the next several years, which will result in
continuing losses from operations. The Company's capital expenditures for
equipment, facilities and building improvements have been financed to date
primarily with proceeds from bank loans and the sales of equity securities.
The Company will continue to pursue opportunities to obtain additional
financing in the future. Such financing may be sought through various sources,
including equity offerings, bank borrowings, lease arrangements relating to
fixed assets or other financing methods. The source, timing and availability
of any financings will depend on market conditions, interest rates and other
factors.
The Company believes its current cash, cash equivalents and short-term
investments, combined with anticipated interest income, research and
development revenues under collaborative arrangements from Clinical Partners
and the proceeds of the direct public offering discussed above, will be
sufficient to meet its anticipated capital requirements through March 31,
1998. The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of these programs, progress with preclinical and
clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent
claims, competing technological and market developments, the establishment of
additional collaborative arrangements, the cost of manufacturing facilities
and of commercialization activities and arrangements and the cost of product
in-licensing and any possible acquisitions.
The Company will need to raise substantial additional funds for longer-term
product development, regulatory approvals and manufacturing or marketing
activities that it might undertake in the future. There can be no assurance
that additional funds will be available on favorable terms, if at all. If
adequate funds are not available, the Company may be required to curtail
significantly one or more of its research and development programs and/or
obtain funds through arrangements with collaborative partners or others that
may require the Company to relinquish rights to certain of its technologies,
product candidates or future products.
As disclosed in Note 2 to the Consolidated Financial Statements, the
adoption of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of" and SFAS No. 123, "Accounting for Stock-Based Compensation"
in fiscal 1997 is not expected to have a material effect on the Company's
consolidated financial position, results of operations and cash flows.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF
MARCH 31, 1996 AND 1995 AND FOR EACH OF
THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 1996
AND INDEPENDENT AUDITORS' REPORT
28
INDEPENDENT AUDITORS' REPORT
Board of Directors
Alkermes, Inc.
Cambridge, Massachusetts
We have audited the accompanying consolidated balance sheets of Alkermes, Inc.
and subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Alkermes, Inc. and subsidiaries as
of March 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
May 24, 1996
29
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
- ------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 445,150 $ 1,086,627
Short-term investments 31,929,214 20,264,141
Prepaid expenses and other current assets 1,957,477 777,549
Note receivable from related party - 4,735,000
----------- -----------
Total current assets 34,331,841 26,863,317
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 225,000 -
Building 1,275,000 -
Furniture, fixtures and equipment 9,864,501 6,406,046
Leasehold improvements 2,008,193 1,492,440
Construction in progress 147,326 -
----------- -----------
13,520,020 7,898,486
Less accumulated depreciation and amortization (5,097,882) (3,447,239)
----------- -----------
8,422,138 4,451,247
----------- -----------
INVESTMENTS 1,372,789 4,367,226
----------- -----------
OTHER ASSETS 747,377 662,845
----------- -----------
OTHER INVESTMENTS 877,928 363,707
----------- -----------
$45,752,073 $36,708,342
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,522,178 $ 2,553,628
Deferred revenue from Alkermes Clinical
Partners, L.P. - 1,585,000
Long-term obligations - current portion 2,925,756 2,655,929
------------- ------------
Total current liabilities 6,447,934 6,794,557
------------- ------------
LONG-TERM OBLIGATIONS 9,876,347 8,376,201
------------- ------------
OTHER LONG-TERM LIABILITIES 915,241 374,835
------------- ------------
DEFERRED REVENUE 5,000,000 -
------------- ------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Capital stock, par value $.01 per share:
authorized, 5,000,000 shares; none issued
Common stock, par value $.01 per share:
authorized, 40,000,000 shares; issued,
15,966,942 shares in 1996 and 13,571,838
shares in 1995 159,669 135,718
Additional paid-in capital 124,239,023 109,149,171
Receivable for warrants and deferred
compensation (317,682) (812,318)
Cumulative foreign currency translation
adjustments (24,354) (10,301)
Unrealized gain on marketable securities 502,500 -
Accumulated deficit (101,046,605) (87,299,521)
------------- ------------
Total shareholders' equity 23,512,551 21,162,749
------------- ------------
$ 45,752,073 $ 36,708,342
============= ============
See notes to consolidated financial statements.
30
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------------
1996 1995 1994
REVENUES:
Research and development revenue under
collaborative arrangements $ 2,848,510 $ 3,049,106 $ 361,920
Research and development revenue under
collaborative arrangement with related party 11,182,741 9,277,371 7,449,700
Interest income 1,887,275 1,576,794 1,648,833
------------ ------------ ------------
15,918,526 13,903,271 9,460,453
------------ ------------ ------------
EXPENSES:
Research and development 21,586,316 18,955,347 20,479,682
General and administrative 6,285,700 5,104,062 5,921,572
Interest expense 1,043,594 608,015 334,304
Purchase of in-process research and development 750,000 - -
Write-down of other investment - 1,140,000 -
------------ ------------ ------------
29,665,610 25,807,424 26,735,558
------------ ------------ ------------
NET LOSS $(13,747,084) $(11,904,153) $(17,275,105)
============ ============ ============
NET LOSS PER WEIGHTED AVERAGE NUMBER OF
COMMON SHARES $ (0.93) $ (0.88) $ (1.29)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 14,774,584 13,535,339 13,361,618
============ ============ ============
See notes to consolidated financial statements.
- 31 -
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------
RECEIVABLE CUMULATIVE
FOR FOREIGN UNREALIZED
ADDITIONAL WARRANTS AND CURRENCY GAIN (LOSS) ON
COMMON STOCK PAID-IN DEFERRED TRANSLATION MARKETABLE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENTS SECURITIES DEFICIT TOTAL
BALANCE, APRIL 1, 1993 13,164,526 $131,645 $109,188,902 $(3,469,045) $ - $ - $(58,120,263) $47,731,239
Issuance of common stock
April 1993 through March
1994 355,565 3,556 258,231 - - - - 261,787
Amortization of
receivable for warrants - - - 450,300 - - - 450,300
Compensation relating to
grant of stock options
and awards made - - 51,517 (51,517) - - - -
Amortization of compen-
sation relating to
grant of stock options
and awards made - - - 1 ,050,487 - - - 1,050,487
Unrealized loss on
marketable securities - - - - - (330,000) - (330,000)
Cumulative foreign
currency translation
adjustments - - - - (14,451) - - (14,451)
Net loss for year - - - - - - (17,275,105) (17,275,105)
---------- -------- ------------ ----------- ---------- -------- ------------ -----------
BALANCE, MARCH 31, 1994 13,520,091 135,201 109,498,650 (2,019,775) (14,451) (330,000) (75,395,368) 31,874,257
Issuance of common stock
April 1994 through March
1995 51,747 517 39,228 - - - - 39,745
Warrant exchange and
amortization of
receivable for warrants - - (354,090) 841,719 - - - 487,629
Compensation relating to
grant of stock options
and awards made - - 103,320 (103,320) - - - -
Amortization of compen-
sation relating to
grant of stock options
and awards made - - (137,937) 469,058 - - - 331,121
Carrying value
adjustments - - - - - 330,000 - 330,000
Cumulative foreign
currency translation
adjustments - - - - 4,150 - - 4,150
Net loss for year - - - - - - (11,904,153) (11,904,153)
---------- -------- ------------ ----------- ---------- -------- ------------ -----------
BALANCE, MARCH 31, 1995 13,571,838 135,718 109,149,171 (812,318) (10,301) - (87,299,521) (21,162,749)
(Continued)
- 32 -
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- -----------------------------------------
Receivable Cumulative
for Foreign Unrealized
Additional Warrants and Currency Gain (Loss) on
Common Stock Paid-in Deferred Translation Marketable Accumulated
Shares Amount Capital Compensation Adjustments Securities Deficit Total
BALANCE, MARCH 31,1995 (CARRIED
FORWARD) 13,571,838 135,718 109,149,171 (812,318) (10,301) - (87,299,521) 21,162,749
Issuance of common stock, April
1995 through March 1996, net of
issuance costs of $1,281,445 2,395,104 23,951 15,002,862 - - - - 15,026,813
Amortization of receivable for
warrants - - - 402,259 - - - 402,259
Amortization of compensation
relating to grant of stock
options and awards made - - 86,990 92,377 - - - 179,367
Unrealized gain on marketable
securities - - - - - 502,500 - 502,500
Cumulative foreign currency
translation adjustments - - - - (14,053) - - (14,053)
Net loss for year - - - - - - (13,747,084) (13,747,084)
---------- -------- ------------ --------- -------- -------- ------------- -----------
BALANCE, MARCH 31, 1996 15,966,942 $159,669 $124,239,023 $(317,682) $(24,354) $502,500 $(101,046,605) $23,512,551
========== ======== ============ ========= ======== ======== ============= ===========
(Concluded)
See notes to consolidated financial statements.
- 33 -
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,747,084) $(11,904,153) $(17,275,105)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 1,770,242 1,426,068 1,256,862
Amortization of amounts receivable for warrants and
compensation relating to grant of stock options and awards made 581,626 818,750 1,500,787
Adjustments to other investments 101,742 1,474,934 -
Changes in assets and liabilities:
Prepaid expenses and other current assets 830,500 26,049 162,367
Accounts payable and accrued expenses 960,670 256,067 (792,519)
Deferred revenue from Alkermes Clinical Partners, L.P. (1,585,000) (1,215,000) 2,800,000
Other long-term liabilities 540,406 61,611 61,611
Deferred revenue 5,000,000 - -
------------ ------------ ------------
Net cash used by operating activities (5,546,898) (9,055,674) (12,285,997)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (5,606,737) (629,935) (1,935,063)
(Purchases) sales of short-term investments, net (11,665,073) 5,031,130 7,269,462
Sales of investments, net 2,994,437 1,133,969 3,145,264
Investment in Alkermes Clinical Partners, L.P. (2,122,463) (126,959) (113,543)
Other assets (209,500) 20,500 (53,568)
Repayment of loan to Alkermes Clinical Partners, L.P. 4,735,000 - -
------------ ------------ ------------
Net cash (used by) provided by investing activities (11,874,336) 5,428,705 8,312,552
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 15,026,813 39,745 261,787
Proceeds from issuance of long-term debt 4,500,000 4,500,000 7,094,086
Payment of long-term obligations (2,733,061) (2,479,359) (1,009,743)
------------ ------------ ------------
Net cash provided by financing activities 16,793,752 2,060,386 6,346,130
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (13,995) 619 (14,451)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (641,477) (1,565,964) 2,358,234
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,086,627 2,652,591 294,357
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 445,150 $ 1,086,627 $ 2,652,591
============ ============ ============
SUPPLEMENTARY INFORMATION - Interest paid $ 492,731 $ 568,198 $ 238,536
============ ============ ============
See notes to consolidated financial statements.
-34-
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. FORMATION OF COMPANY
Alkermes, Inc. (the Company) was incorporated in July 1987 and is an
emerging pharmaceutical company that is focused on the development and
commercialization of therapeutic products based on sophisticated drug
delivery technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Alkermes, Inc. and its wholly owned subsidiaries, Alkermes
Controlled Therapeutics, Inc. (ACTI), Alkermes Controlled Therapeutics Inc.
II (ACT II) (see Note 3), Alkermes Investments, Inc., Alkermes Development
Corporation II (ADC II) and Alkermes Europe, Ltd. ADC II serves as the one
percent general partner of Alkermes Clinical Partners, L.P. (Clinical
Partners), a limited partnership engaged in a research and development
project with the Company (see Note 7). All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosures About Fair Value of Financial
Instruments" requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
payable and accrued expenses approximate fair value because of their short-
term nature. Marketable equity securities are recorded in the consolidated
financial statements at aggregate fair value. The carrying amounts of the
Company's debt instruments approximate fair value.
NET LOSS PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES - Net loss per share
is computed using the weighted average number of common shares outstanding
during the period.
RESEARCH AND DEVELOPMENT REVENUES - Research and development revenues are
recorded as services are performed.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to operations as incurred.
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires the recognition of
deferred tax assets and liabilities relating to the expected future tax
consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns (see Note 6).
-35-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS - Cash equivalents, with original maturities of three
months or less, consist of money market accounts.
INVESTMENTS - The Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective April 1, 1994. Prior
years financial statements have not been restated, and the effects of the
adoption were immaterial. Under SFAS No. 115, securities that the Company
has the positive intent and ability to hold to maturity are reported at
amortized cost and are classified as "held-to-maturity".
Short-term investments and investments consist of U.S. Treasury and other
government securities which are classified as "held-to-maturity" and
reported at amortized cost. Short-term investments and investments have
maturity dates within one year of the balance sheet date. Investments
classified as long-term includes securities held as collateral. The
carrying value of all investments approximated market value at March 31,
1996 and 1995.
Included in other investments is an investment in Cortex Pharmaceutical
Inc.'s common stock, which is classified as "available-for-sale" and
reported at fair value. During the year ended March 31, 1995, the Company
recorded a charge to operations of $1,140,000 due to other than temporary
reductions in the market value of such investment. Other investments also
include ADC II's investment in Clinical Partners, which is accounted for
under the equity method of accounting.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets (3 to 25 years) or, in
the case of leasehold improvements and capital leases, over the lease terms
(3 to 10 years).
DEFERRED REVENUE - LONG-TERM - During fiscal 1996, the Company received a
$5,000,000 prepayment of royalties under a collaborative agreement. This
amount has been recorded as deferred revenue at March 31, 1996 and accrues
interest at a rate (6.1375% at March 31, 1996) equal to .20% above the
LIBOR rate.
LICENSE AGREEMENTS AND PURCHASED PATENTS - License agreements and purchased
patents, included in other assets, are amortized on a straight-line basis
over a period of five years.
RECEIVABLE FOR WARRANTS AND DEFERRED COMPENSATION - Receivable for warrants
is comprised of amounts receivable related to warrants issued in connection
with the capitalization of Clinical Partners and is amortized as revenues
are earned from Clinical Partners. Deferred compensation is related to both
the Company's 1991 Restricted Common Stock Award Plan and compensatory
stock options and is amortized over vesting periods ranging from one to
five years.
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires the Company to review for impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In certain situations, an impairment loss
would be recognized. SFAS No. 121 is effective for the Company's 1997
fiscal year. The Company is evaluating the impact of the new standard on
its consolidated financial position, results of operations and cash flows,
and expects the effect to be immaterial.
-36-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) - In October 1995, the FASB
issued SFAS No. 123, "Accounting for Stock-Based Compensation". The Company
intends to continue to account for its stock-based transactions with
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and will include the pro forma
disclosures required by SFAS No. 123 in fiscal 1997.
3. ACQUISITION OF CERTAIN ASSETS AND TECHNOLOGY
On March 8, 1996, ACT II acquired certain assets and technology owned or
used by Medisorb Technologies International L.P., a leader in the
development of injectable controlled release drug delivery technologies for
the pharmaceutical industry. The assets acquired included a large scale
pharmaceutical production facility and equipment. The Company paid
$4,000,000 in cash for the assets and technology. A nonrecurring charge
totaling $750,000 for technology purchased but not yet commercially viable
was recorded by the Company at the acquisition date. This charge represents
that portion of the purchase price of the acquired technology that was
allocated to research and development in-process.
4. SHAREHOLDERS' EQUITY
In September and October 1995, the Company completed an underwritten public
offering of 2,300,000 shares of its common stock at $7.00 per share. Net
proceeds to the Company were approximately $14,800,000.
5. LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consist of:
1996 1995
Notes payable - banks $ 9,246,427 $ 7,414,282
Note payable - other 3,500,000 3,500,000
Capital lease obligations - 34,212
Other 55,676 83,636
----------- -----------
12,802,103 11,032,130
Less current portion 2,925,756 2,655,929
----------- -----------
$ 9,876,347 $ 8,376,201
=========== ===========
-37-
5. LONG-TERM OBLIGATIONS (CONTINUED)
In December 1995, the Company increased the principal amount of its
equipment loan with a bank by $1,500,000 to $3,594,640 ($3,246,427
outstanding at March 31, 1996). The loan is secured by cash collateral
(included in long-term investments at March 31, 1996) having a minimum
market value of the lesser of $1,000,000 or the outstanding principal
amount of the loan. This additional principal amount of the loan is payable
in equal monthly installments of $25,000, which commenced January 2, 1996
and bears interest at the fixed rate of 8% per annum. The original
principal amount of the loan is payable in equal monthly installments of
$91,071, which commenced January 3, 1995, together with interest at the
rate of 8.46% per annum. Under the terms of the loan agreement, the Company
is required to maintain a minimum unencumbered balance of cash and
permitted investments and a minimum ratio of unencumbered cash and
permitted investments to indebtedness. Certain equipment is also pledged as
collateral under this loan.
In December 1993, the Company borrowed $6,000,000 from a second bank. The
principal amount of the loan is payable in equal quarterly installments of
$375,000, which commenced April 1, 1994, together with interest at the rate
of 6.35% per annum. In December 1995, the Company increased the outstanding
principal amount of this loan by $3,000,000 to $6,000,000 ($6,000,000
outstanding at March 31, 1996). This additional principal balance of the
loan is payable in equal quarterly installments of $375,000, commencing
April 1, 1998. The additional $3,000,000 bears interest at a rate (7.125%
at March 31, 1996) equal to 1 1/2% above the LIBOR rate. The loan agreement
requires the Company to maintain a minimum net worth, a maximum ratio of
total liabilities to net worth, a minimum current ratio and a minimum
unencumbered balance of cash and permitted investments. Upon the breach of
any of these financial covenants or the occurrence of any other event of
default under the loan agreement, the Company would be required to deposit
an amount equal to the then outstanding principal balance of the loan plus
three months' interest into a restricted account at the bank. Under the
terms of the loan agreement, the bank would have the right to liquidate
such account and apply the proceeds to repayment of the loan if the
Company's unencumbered cash and investment balance falls below $5,000,000.
In January 1995, the Company borrowed $3,500,000 from a corporate partner.
The principal amount of the loan, together with interest accrued at the
prime rate of interest (8.25% at March 31, 1996), is payable in the
Company's common stock or cash, at the Company's option, in five years.
Included in property, plant and equipment at March 31, 1995 are costs of
approximately $569,000 and net book values of approximately $200,000 in
equipment and leasehold improvements acquired under capital leases.
At March 31, 1996, the maturities of the long-term obligations are as
follows:
Notes Payable
and Other
1997 $ 2,925,756
1998 2,547,618
1999 1,803,729
2000 5,300,000
2001 225,000
-----------
$12,802,103
===========
-38-
6. INCOME TAXES
The Company has approximately $39,419,000 of net operating loss (NOL)
carryforwards for federal income tax purposes and approximately $2,790,000
of research and development tax credits available to offset future federal
income tax, subject to limitations for alternative minimum tax. The NOL and
research and development credit carryforwards are subject to examination by
the tax authorities and expire in various years from 2002 through 2011.
The components of the net deferred income tax asset at March 31 are as
follows:
1996 1995
Acquired technology $ 884,000 $ 884,000
Capitalized research and development
expenses, net of amortization 12,146,000 11,664,000
NOL carryforwards 15,557,000 12,331,000
Tax credit carryforwards 3,491,000 3,261,000
Alkermes Europe NOL carryforward 1,373,000 779,000
Other 709,000 -
Less valuation allowance (34,160,000) (28,919,000)
------------ ------------
$ - $ -
============ ============
The valuation allowance has been provided because of the uncertainty of
realizing the future benefits of the net deferred income tax assets. In
fiscal 1995, the valuation allowance increased by $3,986,000.
The ACTI NOL carryforwards and ACTI research and development credit
carryforwards of approximately $4,780,000 and $790,000, respectively,
acquired from Enzytech, Inc. are only available to offset future taxable
income of ACTI.
7. RELATED-PARTY TRANSACTIONS
On April 10, 1992, the Company and Clinical Partners, a limited partnership
of which ADC II is the general partner, sold in a private placement (i) 920
Class A units, each unit (a Class A Unit) consisting of one Class A limited
partnership interest in Clinical Partners, a 1992 warrant (a 1992 Warrant)
to purchase 2,800 shares of the Company's common stock and a 1995 warrant
(a 1995 Warrant) to purchase 300 shares of the Company's common stock, and
(ii) one Class B unit (the Class B Unit), consisting of one Class B limited
partnership interest in Clinical Partners, a 1992 warrant (the Class B 1992
Warrant) to purchase 5,600 shares of the Company's common stock and a 1995
warrant (the Class B 1995 Warrant) to purchase 600 shares of the Company's
common stock. The purchase price was $50,000 for each Class A Unit and
$100,000 for the Class B Unit, the unpaid portions of which were evidenced
by investor notes which were payable in annual installments through April
15, 1995.
In connection with the offering, the Company also issued, to an affiliate
of the sales agent for the Class A Units, warrants (the Incentive Warrants)
to purchase 77,100 shares of the Company's common stock and issued, to
another affiliate of the sales agent, a warrant (the Affiliate Warrant) to
purchase 13,300 shares of the Company's common stock.
-39-
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
The net proceeds of the offering are being used and will be used primarily
to fund the further development and clinical testing of a family of
molecules designated by the Company as Receptor-Mediated Permeabilizers
(RMPs) for human pharmaceutical use in the United States and Canada.
Proprietary RMP molecules developed by the Company may enhance the passage
of small drug molecules from the bloodstream into the brain. Pursuant to
the Product Development Agreement entered into in March 1992, the Company
licensed to Clinical Partners certain of its technology relating to RMPs.
Research and development of RMPs is being conducted by the Company for
Clinical Partners pursuant to the Product Development Agreement. The
Company is being reimbursed by Clinical Partners for its actual costs
incurred in conducting such research and development and is also receiving
a management fee of 10% of such costs. Such funding will end during the
quarter ending June 30, 1996. Such funding will not be sufficient to
complete clinical trials and obtain regulatory approval of RMP-7. As a
result, Alkermes intends to use its own resources to develop RMP-7, but may
be forced to seek alternative sources of funding, including additional
collaborators.
Clinical Partners has granted the Company an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of an RMP product by
the United States Food and Drug Administration, the Company is obligated to
make a payment Clinical Partners equal to 20% of the aggregate capital
contributions of all partners (the milestone payment). Additionally, the
Company will make royalty payments to Clinical Partners equal to 12% of
United States and Canadian revenues and 10% of European revenues, in
certain circumstances, from any sales of RMPs by the Company. The interim
license will terminate if the Company does not exercise its purchase option
to acquire all of the limited partners' interests in Clinical Partners, as
discussed below.
The 1992 Warrants, the 1995 Warrants (collectively, the Class A Warrants),
the Class B 1992 Warrant and the Class B 1995 Warrant (collectively, the
Class B Warrants) were issued by the Company in consideration of the grant
by each limited partner to the Company of an option to purchase, under
certain circumstances, the limited partnership interest in Clinical
Partners held by such limited partner. Upon exercise of such purchase
option, each Class A limited partner will be entitled to receive an initial
payment, at the Company's option, of $40,000 in cash or approximately
$42,100 in the Company's common stock, as well as certain additional
payments (which are subject to certain limitations) based on the Company's
net revenues from sales of RMPs in the United States, Canada and Europe as
follows:
. 12% of net revenues to the Company on sales of RMPs in the United States
and Canada and 10% of net revenues to the Company on sales of RMPs in
Europe, until each Class A limited partner has received an aggregate of
$400,000 per interest from the initial payment and the royalty stream;
thereafter,
. 9% of net revenues to the Company on sales of RMPs in the United States,
Canada and Europe, until each Class A limited partner has received an
aggregate of $500,000 per interest from the initial payment and the
royalty stream; and thereafter,
. 4% of net revenues to the Company on sales of RMPs in the United States,
Canada and Europe.
-40-
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
Royalties on sales of RMPs in Europe will be payable only to the extent
necessary to pay projected distributions in any year. If royalties on sales
of RMPs in the United States and Canada in any year equal or exceed the
projected distributions for such year, no royalties on European sales will
be paid in that year.
The 1992 Warrants and the Class B 1992 Warrant may be exercised during the
period beginning on August 1, 1994 and ending on July 31, 1999, and upon
the payment of a warrant exercise price per share of $20.03. The 1995
Warrants and the Class B 1995 Warrant may be exercised during the period
beginning on April 15, 1995 and ending on April 14, 2000, and upon the
payment of a warrant exercise price of $3.54. The exercise periods of all
warrants may be accelerated upon the occurrence of certain reorganization
events of the Company.
The Company completed an exchange offer on January 27, 1995 with respect to
the warrants issued in 1992 in connection with the formation of Clinical
Partners. Pursuant to the exchange offer, Class A limited partners had the
option to exchange both their Class A 1992 Warrants and Class A 1995
Warrants for a new 1994 Class A Warrant to purchase, at $5.00 per share,
and during the period beginning on April 1, 1995 and ending on March 31,
2000, 1,700 shares of the Company's common stock for every 3,100 shares of
common stock issuable upon exercise of the Class A 1992 Warrant and Class A
1995 Warrant exchanged therefor. The Class B limited partner had the option
to exchange both the Class B 1992 and Class B 1995 Warrants for a new 1994
Class B Warrant to purchase 3,400 shares of the Company's common stock at
$5.00 per share. The 1994 Class B Warrant is exercisable during the same
period as the 1994 Class A Warrants.
Of the Class A 1992 Warrants and Class A 1995 Warrants originally issued,
approximately 92% were exchanged in response to the exchange offer. The
Class B 1992 Warrant and the Class B 1995 Warrant, the Affiliate Warrant
and the Incentive Warrants were also exchanged in the exchange offer for
new warrants entitling the holders thereof to purchase an aggregate of
3,400, 7,293 and 42,280 shares of common stock, respectively. The exchange
offer resulted in a decrease of 1,225,927 shares of common stock which are
issuable upon exercise of the Company's outstanding warrants.
In order to fund organizational and offering costs, the Company loaned
Clinical Partners, at the closing of the private placement, $4,735,000. The
loan was secured by a pledge of the investor notes, bore interest at 7.5%
per annum, payable annually in arrears, and was paid in April 1995.
In February and April 1996, the Company purchased from Clinical Partners an
aggregate of 74 Class A Units that were owned by investors who defaulted on
their payment obligations. The total purchase price for such Units was the
aggregate amount of unpaid installments, approximately $2,052,000.
-41-
8. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into several collaborative agreements with
corporate partners (partners) to provide research and development
activities relating to the partners' products. In connection with these
agreements, the Company has granted certain licenses or the right to obtain
certain licenses to technology developed by the Company. In return for such
grants, the Company will receive certain payments upon the achievement of
certain milestones and will receive royalties on sales of products
developed under the terms of the agreements. In addition to research and
development funding, during fiscal 1996 the Company received $300,000 for
two milestone payments under these agreements. Additionally, the Company
may obtain the right to manufacture and supply products developed under
certain of these agreements.
9. COMMITMENTS
LEASE COMMITMENTS - The Company leases certain offices and research
laboratories under operating leases with initial terms of one to ten years
expiring between 1997 and 2002. The leases contain provisions for
extensions for up to ten years. Total annual future minimum lease payments
are as follows:
1997 $2,516,000
1998 1,884,000
1999 1,874,000
2000 1,874,000
2001 1,235,000
Thereafter 912,000
Rent expense charged to operations was approximately $2,439,000, $2,589,000
and $2,341,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
Additionally, a U.S. Treasury Bill with a total principal amount of
$257,000 is being held by a bank in the Company's name as a security
deposit on the leases and, accordingly, has been classified as a long-term
investment at March 31, 1996.
LICENSE AND ROYALTY COMMITMENTS - The Company has entered into license
agreements with certain corporations and universities which require the
Company to pay royalties based on a percentage of revenues from sales of
certain products and royalties from sublicenses granted by the Company.
Amounts paid under these agreements were approximately $127,000, $117,000
and $180,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
-42-
10. STOCK OPTIONS AND AWARDS
During fiscal 1996, the Board of Directors approved, subject to shareholder
approval, the Stock Option Plan for Non-Employee Directors (the Director
Plan), which provides for the granting of stock options to non-employee
directors of the Company. The Company's Amended and Restated 1989 Non-
Qualified Stock Option Plan (the 1989 Plan), Amended and Restated 1990
Omnibus Stock Option Plan (the 1990 Plan) and 1992 Non-Qualified Stock
Option Plan (the 1992 Plan) provide for the granting of stock options to
employees, officers and directors of, and consultants to, the Company.
Nonqualified options to purchase up to 225,000 shares of the Company's
common stock may be granted under the 1989 Plan, nonqualified and incentive
options to purchase up to 1,500,000 shares of the Company's common stock
may be granted under the 1990 Plan, nonqualified options to purchase up to
1,000,000 shares of the Company's common stock may be granted under the
1992 Plan and nonqualified options to purchase up to 150,000 shares of the
Company's common stock may be granted under the Director Plan. Unless
sooner terminated, the 1989 Plan will terminate on July 18, 1999, the 1990
Plan will terminate on September 19, 2000, the 1992 Plan will terminate on
November 11, 2002 and the Director Plan will terminate on March 18, 2006.
The Compensation Committee of the Board of Directors administers the 1989
Plan, the 1990 Plan and the 1992 Plan and determines who is to receive
options and the exercise price and terms of such options. The Board of
Directors administers the Director Plan. The option exercise price of stock
options granted under the 1989 Plan, the 1990 Plan and the Director Plan
may not be less than 100% of the fair market value of the common stock on
the date of grant. Under the terms of the 1992 Plan, the option exercise
price may be below the fair market value, but not below par value, of the
underlying stock at the time the option is granted.
The 1989 Plan, the 1990 Plan and the 1992 Plan also provide that the
Compensation Committee may grant Limited Stock Appreciation Rights (LSARs)
with respect to all or any portion of the shares covered by stock options
granted to directors and executive officers. LSARs may be granted with the
grant of a nonqualified stock option or at any time during the term of such
option but may only be granted with the grant of an incentive stock option.
The grant of LSARs will not be effective until six months after their date
of grant. Upon the occurrence of certain triggering events, the options
with respect to which LSARs have been granted shall become immediately
exercisable and the persons who have received LSARs will automatically
receive a cash payment in lieu of shares. Through March 31, 1996, LSARs
have been granted under the 1990 Plan with respect to options to purchase
425,750 shares.
During fiscal 1992, the Company adopted the 1991 Restricted Common Stock
Award Plan (the Award Plan). The Award Plan provides for the award to
certain eligible employees, officers and directors of, and consultants to,
the Company of up to a maximum of 250,000 shares of common stock. The Award
Plan is administered by the Compensation Committee. Awards generally vest
over five years. Through March 31, 1996, 1995 and 1994, an aggregate of
77,000, 77,000 and 49,000 shares of common stock, respectively, have been
awarded under the Award Plan, of which 13,200, 7,900 and 5,200 shares
vested and were issued during the years ended March 31, 1996, 1995 and
1994, respectively. In addition, 5,000, 6,900 and 1,200 shares were
canceled during the years ended March 31, 1996, 1995 and 1994,
respectively. The Award Plan will terminate on November 15, 2001, unless
sooner terminated by the Board of Directors.
The Company has reserved a total of 2,271,827 shares of common stock for
issuance under the five plans.
-43-
10. STOCK OPTIONS AND AWARDS (CONTINUED)
A summary of option activity under the 1989, 1990, 1992 and Director Plans
is as follows:
Exercise
Number Price
of Per
Shares Share
Balance, April 1, 1993 1,576,328 $.04 - $21.00
Granted 346,000 .56 - 8.50
Exercised (350,865) .04 - 1.00
Canceled (242,962) .56 - 21.00
-----------
Balance, March 31, 1994 1,328,501 .56 - 21.00
Granted 1,210,765 2.01 - 7.00
Exercised (43,847) .56 - 1.00
Canceled (1,038,126) .60 - 21.00
-----------
Balance, March 31, 1995 1,457,293 .56 - 14.875
Granted 445,450 2.81 - 10.31
Exercised (60,199) .56 - 3.69
Canceled (106,540) 1.00 - 9.13
-----------
Balance, March 31, 1996 1,736,004 $.56 - $14.875
===========
During fiscal 1995, a significant number of outstanding options were
canceled in exchange for the grant of fewer options with an exercise price
equal to the fair market value of the common stock on the date of grant of
$3.69 per share. These options vest over three years. Other options granted
generally vest over four years, except options granted under the Director
Plan which vest after six months. At March 31, 1996, options to purchase
611,926 shares were exercisable under the above-mentioned plans.
For certain stock options granted and awards made, the Company recognizes,
as compensation expense, the excess of the deemed value for accounting
purposes of the common stock issuable upon exercise of such stock options
over the aggregate exercise price thereof and in connection with stock
awards the fair market value of the Company's common stock on the date of
the award. This compensation expense is amortized ratably over the vesting
period of each stock option and stock award. For the years ended March 31,
1996, 1995 and 1994, compensation expense of $179,367, $331,121 and
$1,050,487, respectively, was recorded and will aggregate a maximum of
$282,995 over the remaining terms of such stock options granted and stock
awards made.
11. SUBSEQUENT EVENT
In May 1996, the Company completed a direct public offering of 2,300,000
shares of its common stock at $10.00 per share. Net proceeds to the Company
were approximately $22,930,000.
* * * * * *
-44-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a) Directors. The information with respect to directors required by
this item is incorporated herein by reference to pages 2, 3, 12 and 18-20 of the
Registrant's Proxy Statement dated June 28, 1996 for the Registrant's annual
shareholders' meeting to be held on July 25, 1996 (the "1996 Proxy Statement").
(b) Executive Officers.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, who are elected to serve at the
pleasure of the Board of Directors, are as follows:
Name Age Position
- ---- --- --------
Richard F. Pops 34 Chief Executive Officer and Director
Robert A. Breyer 52 President, Chief Operating Officer and Director
Raymond Bartus 49 Senior Vice President, Neurobiolgy
Michael J. Landine 42 Senior Vice President, Chief Financial Officer
and Treasurer
Don G. Burstyn 41 Vice President, Regulatory Affairs
J. Duncan Higgons 41 Vice President, Business Development
Scott D. Putney 42 Vice President, Molecular Biology
James L. Wright 48 Vice President, Pharmaceutical Development
Mr. Pops has been Chief Executive Officer and a Director of the Registrant
since February 1991. From February 1991 to June 1994, Mr. Pops was also
President of the Registrant. Mr. Pops currently serves on the Board of Directors
of the Biotechnology Industry Organization (BIO) and The Brain Tumor Society (a
non-profit organization).
45
Mr. Breyer has been President and Chief Operating Officer and a Director of
the Registrant since July 1994. From August 1991 to December 1993, Mr. Breyer
was President and General Manager of Eli Lilly Italy, a subsidiary of Eli Lilly
& Co. From September 1987 to August 1991, he was Senior Vice President,
Marketing and Sales of IVAC Corporation, a medical device company and a
subsidiary of Eli Lilly & Co.
Dr. Bartus has served as Senior Vice President, Neurobiology of the
Registrant since November 1992. From June 1988 to November 1992, Dr. Bartus held
various positions with Cortex Pharmaceuticals, Inc., most recently as Executive
Vice President and Chief Operating Officer. He holds an M.S. in Experimental
Psychology and a Ph.D. in Physiological Psychology from North Carolina State
University.
Mr. Landine has been the Chief Financial Officer of the Registrant since
March 1988. From March 1988 to December 1994, he also served as a Vice
President, and since December 1994 as a Senior Vice President. He has also been
Treasurer of the Registrant since April 1991. He is currently an advisor to
Walker Magnetics Group, an international manufacturer of industrial equipment.
Mr. Landine is a certified public accountant.
Dr. Burstyn became Vice President, Regulatory Affairs in October 1993. From
1987 to 1993, Dr. Burstyn was employed in various capacities at Biogen, Inc.,
most recently as Director, Development Operations. Dr. Burstyn received his
B.S., M.S. and Ph.D. from the University of Maryland.
Mr. Higgons became Vice President, Business Development in December 1994.
From 1986 to 1994, he was employed in various capacities at IVAC Corporation,
most recently as Senior Director of Sales, Western Area.
Dr. Putney has been Vice President, Molecular Biology since October 1991.
From 1985 to October 1991, Dr. Putney served as Director of Molecular Biology at
Repligen Corporation, a biotechnology company, and from 1988 to October 1991,
Dr. Putney was also a Vice President at Repligen Corporation. Dr. Putney
received a B.S. in Biology and a B.A. in Chemistry from the University of
California, Irvine and a Ph.D. in Chemistry from the Massachusetts Institute of
Technology.
Dr. Wright became Vice President, Pharmaceutical Development in December
1994. From 1989 to 1994, he was employed at Boehringer Ingelheim
Pharmaceuticals, Inc., most recently as a Director. Dr. Wright received a B.A.
in Chemistry and Biology from the University of California, Santa Barbara, and
an M.S. in Pharmacy and a Ph.D. in Pharmacy from the University of Wisconsin.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required under this item is incorporated herein by
reference to pages 6 through 17 of the 1996 Proxy Statement.
46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
The information required by this item is incorporated herein by reference
to pages 18 through 20 of the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is incorporated herein by reference
to page 20 of the 1996 Proxy Statement.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K
-----------
(a) Documents filed as part of the Report:
(1) Consolidated Financial Statements of the Registrant and
Independent Auditors' Report thereon:
Consolidated Balance Sheets, March 31, 1996 and 1995.
Consolidated Statements of Operations for the Years Ended
March 31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the
Years Ended March 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules have been omitted because of the absence of
conditions under which they are required or because the
required information is included in the financial
statements or the notes thereto.
(3) Exhibits
Exhibit No.
- ----------
3.1(a) Second Amended and Restated Articles of Incorporation of Alkermes,
Inc. effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(a) to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1991).
3.1(b) Statement of Change of Registered Office of Alkermes, Inc. effective
July 23, 1991. (Incorporated by reference to Exhibit 4.1(b) to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1991).
3.1(c) Amendment to Second Amended and Restated Articles of Incorporation,
as filed with the Pennsylvania Secretary of State on November 1,
1991. (Incorporated by
48
reference to Exhibit 4.1(c) to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1991).
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania Secretary
of State on February 12, 1993. (Incorporated by reference to Exhibit
4.1(d) to the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1992).
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of July
1, 1994. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1994).
4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated
by reference to Exhibit 4 to the Registrant's Registration Statement
on Form S-1, as amended (File No. 33-40250)).
4.2 Form of 1992 Warrant to purchase 2,800 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1992).
4.3 Form of 1995 Warrant to purchase 300 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1992).
4.4 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.5 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.6 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by referenced to Exhibit 4.8 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994).
4.7 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994).
4.8 Warrant Agreement, dated as of November 18, 1994, by and between the
Registrant and The First National Bank of Boston. (Incorporated by
reference to Exhibit 4.10 to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 1994).
49
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 4.2(c) to the
Registrant's Registration Statement on Form S-8 (File No. 33-
44752)).+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as amended
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1995).+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by
reference to Exhibit 4.2(a) to the Registrant's Registration
Statement on Form S-8 (File No. 33-44752)).+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.26 to the Registrant's Registration Statement on
Form S-4, as amended (File No. 33-54932)).+
10.5 Stock Option Plan for Non-Employee Directors.+
10.6 Lease, dated as of September 18, 1991, between Forest City 64
Sidney Street, Inc. and the Registrant. (Incorporated by reference
to Exhibit 10.19 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992).
10.6(a) First Amendment of Lease, dated September 18, 1992, between Forest
City 64 Sidney Street, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.24 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932)).
10.7 Lease, dated as of March 16, 1990, between Forest City 64 Sidney
Street, Inc. and Enzytech, Inc. (Incorporated by reference to
Exhibit 10.25 to the Registrant's Registration Statement on
Form S-4, as amended (File No. 33-54932)).
10.8 Product Development Agreement, dated as of March 6, 1992, between
the Partnership and the Registrant. (Incorporated by reference to
Exhibit 10.21 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992).
10.9 Purchase Agreement, dated as of March 6, 1992, by and among the
Registrant and each of the Limited Partners, from time to time, of
the Partnership. (Incorporated by reference to Exhibit 10.22 to
the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992).
10.10 Alkermes Clinical Partners, L.P. Agreement of Limited Partnership,
dated as of February 7, 1992. (Incorporated by reference to
Exhibit 10.23 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992).
50
10.10(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of September 29, 1992. (Incorporated
by reference to Exhibit 10.22(a) to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932)).
10.10(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of March 30, 1993. (Incorporated by
reference to Exhibit 10.22(b) to the Registrant's Registration
Statement on Form S-3, as amended (File No. 33-64964)).
10.11 Class A Note of Alkermes Development Corporation II, dated April
10, 1992, to PaineWebber Development Corporation in the amount of
$100.00. (Incorporated by reference to Exhibit 10.24 to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1992).
10.12 License Agreement, dated February 5, 1990, between Enzytech, Inc.
and Massachusetts Institute of Technology. (Incorporated by
reference to Exhibit 10.36 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932)).*
10.13 Development and License Agreement, dated February 4, 1992, between
Enzytech, Inc. and Schering Corporation. (Incorporated by
reference to Exhibit 10.38 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932)).*
10.13(a) Amendment to Development and License Agreement, dated July 26,
1995, between Alkermes Controlled Therapeutics, Inc. and Schering
Corporation (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1995).**
10.14 Prepaid Royalty Agreement, dated July 26, 1995, between Alkermes
Controlled Therapeutics, Inc. and Schering Corporation.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1995).**
10.15 Collaborative Development Agreement, dated as of January 9, 1995,
by and between Genentech, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit 10.27 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994).****
10.16 Note Purchase Agreement, dated as of January 9, 1995, by the
between the Registrant and Genentech, Inc. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 1994).
51
10.17 Convertible Promissory Note of the Registrant dated January 31,
1995. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1994).
10.18 Development Agreement, dated as of December 23, 1993, between
Medisorb Technologies International L.P. and Janssen Pharmaceutica
International.++
10.18(a) First Amendment to Development Agreement, dated as of December 23,
1993, between Medisorb Technologies International L.P. and Janssen
Pharmaceutica International.++
10.19 License Agreement, dated as of February 13, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica
International (United States).++
10.20 License Agreement, dated as of February 21, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica
International (worldwide except United States).++
10.21 Loan Agreement, dated December 30, 1993, among the Registrant,
Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.33 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1993).
10.21(a) Amendment No. 1 to Loan Agreement, dated as of December 31, 1994,
among the Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited.
10.21(b) Amendment to Loan Agreement, dated as of December 29, 1995, by and
among Registrant, Alkermes Investments, Inc. and The Daiwa Bank,
Limited (Incorporated by reference to Exhibit 10.3 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1995).
10.22 Amended and Restated Note, dated December 29, 1995, by Registrant
and Alkermes Investments, Inc. to The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1995).
10.23 Loan Agreement, dated November 19, 1992, between Fleet Bank of
Massachusetts, N.A. and the Registrant. (Incorporated by reference
to Exhibit 10.33 to the Registrant's Registration Statement on
Form S-4, as amended (File No. 33-54932)).
10.23(a) Loan Modification Agreement, dated as of November 24, 1993,
between Fleet Bank of Massachusetts, N.A. and the Registrant.
(Incorporated by reference to Exhibit 10.27(a) to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1993).
52
10.23(b) Second Loan Modification Agreement, dated as of December 23,
1994, between Fleet Bank of Massachusetts, N.A. and the
Registrant. (Incorporated by reference to Exhibit 10.19(b) to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1994).
10.23(c) Third Loan Modification Agreement, dated as of February __, 1995,
between the Registrant and Fleet Bank of Massachusetts, N.A.
10.23(d) Letter Agreement, dated August 18, 1995, between the Registrant
and Fleet Bank of Massachusetts, N.A.++
10.23(e) Modification Agreement, dated as of December 19, 1995, by and
between Registrant and Fleet Bank of Massachusetts, N.A.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1995).
10.24 Promissory Note of the Registrant, dated December 23, 1994, to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference to
Exhibit 10.20 to the Registrant's Report on Form 10-Q for the
quarter ended December 31, 1994).
10.25 Promissory Note, dated December 19, 1995, by Registrant to Fleet
Bank of Massachusetts, N.A. (Incorporated by reference to Exhibit
10.2 to the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1995).
10.26 Employment Agreement, entered into as of February 7, 1991, between
Richard F. Pops and the Registrant. (Incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form
S-1, as amended (File No. 33-40250)).+
10.27 Employment Agreement, entered into as of June 13, 1994, by and
between Robert A. Breyer and the Registrant. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1994).+
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
22 Proxy Statement dated June 28, 1996.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
53
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such provisions
have been filed separately with the Commission.
** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted September 19, 1995. Such provisions have
been filed separately with the Commission.
*** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted March 24, 1995. Such provisions have been
filed separately with the Commission.
++ Confidential status has been requested for certain portions thereof. Such
provisions have been filed separately with the Commission.
+ Constitutes a management contract or compensatory plan required to be filed
as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.
(b) Since the beginning of the quarter ended March 31, 1996, the
Registrant filed a report on Form 8-K, dated March 11, 1996,
reporting under Item 5, the completion of an acquisition of
certain technology and assets owned or used by Medisorb
Technologies International L.P. on March 8, 1996.
UNDERTAKING
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into Registrant's Registration Statements on Form S-8,
Nos. 33-44752, 33-58330 and 33-97468.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
54
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.
ALKERMES, INC.
June 28, 1996 By: /s/ Richard F. Pops
----------------------------------------
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael A. Wall Director and Chairman of the June 28, 1996
- ----------------------- Board
Michael A. Wall
/s/ Richard F. Pops Director and Chief Executive Officer June 28, 1996
- ----------------------- (Principal Executive Officer)
Richard F. Pops
/s/ Michael J. Landine Senior Vice President, Chief June 28, 1996
- ----------------------- Financial Officer and
Michael J. Landine Treasurer (Principal
Financial and Accounting
Officer)
/s/ Floyd Bloom Director June 28, 1996
- ----------------------
Floyd Bloom
/s/ Robert A. Breyer President and Chief Operating June 28, 1996
- ----------------------- Officer and Director
Robert A. Breyer
55
/s/ John K. Clarke Director June 28, 1996
- -----------------------
John K. Clarke
/s/ Robert S. Langer Director June 28, 1996
- -----------------------
Robert S. Langer
/s/ Alexander Rich Director June 28, 1996
- -----------------------
Alexander Rich
/s/ Paul Schimmel Director June 28, 1996
- -----------------------
Paul Schimmel
56