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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-12574
TEXAS BIOTECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3532643
(State of Incorporation) (I.R.S. Employer
Identification Number)
7000 FANNIN, 20(TH) FLOOR
HOUSTON, TEXAS 77030
(713) 796-8822
(Address and telephone number of principal executive offices and zip code)
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.005 par value American Stock Exchange
Redeemable common stock purchase warrants American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 [ ]
The approximate aggregate market value of voting stock held by
nonaffiliates of the registrant is $683,669,000 as of February 29, 2000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares outstanding of each of the registrant's classes of
common stock as of February 29, 2000:
TITLE OF CLASS NUMBER OF SHARES
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Common Stock, $.005 par value 34,550,800
Documents incorporated by reference:
DOCUMENT FORM 10-K PARTS
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Definitive Proxy Statement, to be filed within III
120 days of December 31, 1999
(specified portions)
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in and incorporated by reference into this Form 10-K are forward-
looking statements. These forward looking statements include, without
limitation, statements regarding our estimate of the sufficiency of our existing
capital resources and our ability to raise additional capital to fund cash
requirements for future operations, and regarding the uncertainties involved in
the drug development process and the timing of regulatory approvals required to
market these drugs. Although we believe that the expectations reflected in these
forward looking statements are reasonable, we can not give any assurance that
such expectations reflected in these forward looking statements will prove to
have been correct.
When used in this Form 10-K, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Additional Risk
Factors" and elsewhere in this Form 10-K.
You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in these risk
factors and elsewhere in this Form 10-K could substantially harm our business,
results of operations and financial condition and that upon the occurrence of
any of these events, the trading price of our common stock could decline, and
you could lose all or part of your investment.
We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-K after the date of this
Form 10-K.
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PART I
ITEM 1 -- BUSINESS
OVERVIEW
Texas Biotechnology is a biopharmaceutical company focused on the
discovery, development and commercialization of novel, synthetic, small molecule
compounds for the treatment of a variety of vascular and related inflammatory
diseases. Our research and development programs are focused on inhibitors (also
referred to as antagonists or blockers) that can interrupt certain disease
processes.
We currently have six programs:
- The Thrombosis Program. We have developed NOVASTAN(R), our lead product,
which is a synthetic, small molecule anticoagulant drug designed for the
prevention or treatment of thrombosis in patients with heparin-induced
thrombocytopenia (decrease in platelet count), commonly referred to as
HIT, and HIT with thrombosis syndrome (HIT with blood clots), or HITTS.
We refer to both HIT and HITTS as HIT. We have received an approvable
letter from the U.S. Food and Drug Administration, commonly referred to
as the FDA, with respect to the HIT indications and expect final FDA
approval in the second quarter of 2000. SmithKline Beecham plc is our
marketing, manufacturing and distribution partner in this endeavor.
- The Vasospasm/Hypertension Program. We are developing sitaxsentan as an
endothelin(A) receptor antagonist, or ET(A), for the treatment of heart
failure, hypertension and pulmonary hypertension. We are currently in
Phase II clinical trials with sitaxsentan and have another compound in
preclinical development for the treatment of these same diseases.
- The Vascular Inflammation Program. We are developing a selectin
antagonist, TBC1269, for the treatment of asthma. The intravenous form of
the drug is currently in Phase II clinical trials. Inhaled and topically
applied TBC1269 are currently in the preclinical stage for the treatment
of asthma and psoriasis, respectively. We are also in research with
respect to vascular cell adhesion molecules, or VCAM, and very late stage
antigen 4, or VLA-4, a member of the integrin family, chemokine
receptors, such as CCR1 and CCR3, and other integrins, such as
(alpha)4(beta)7 antagonists for the treatment of asthma, rheumatoid
arthritis, multiple sclerosis and inflammatory bowel disease.
- Apoptosis Program. We are conducting research into the development of
inhibitors of apoptosis. Apoptosis involves programmed cell death and is
thought to play a role in many vascular and inflammatory diseases.
Currently, we have three different groups of inhibitors of apoptosis -
caspase antagonists that could be useful in preventing cell death
following ischemic stroke or congestive heart failure; tumor necrosis
factor (alpha), or TNF(alpha) antagonist, that could potentially be
useful in treating rheumatoid arthritis; and a receptor for age-dependent
glycation end-products, or RAGE antagonists, that may be useful in
preventing certain complications of diabetes due to cell death in the
blood vessels.
- Angiogenesis Program. Angiogenesis involves the formation of new blood
vessels from existing vessels and is associated with a number of diseases
including tumor growth, rheumatoid arthritis, atherosclerosis, various
retinopathies and certain skin diseases. Our research is focused on the
development of small molecule inhibitors of vascular endothelial growth
factor, or VEGF, for the treatment of cancer and diabetic retinopathy.
- Vascular Proliferation Disease Program. Smooth muscle cells in the blood
vessel proliferate in response to injury to a blood vessel and is the
cause of blood vessel thickening. Our research program for this area is
focused on identifying an antagonist to fibroblast growth factor, or FGF,
to interrupt its role in causing blood vessels to narrow due to excessive
smooth muscle growth. We believe our FGF antagonist could be useful in
the treatment of coronary retenosis that may occur as a result of vessel
injury during angioplasty.
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BUSINESS STRATEGY
The key elements of our business strategy are as follows:
Commercialize and Gain Broader Approval for NOVASTAN(R)
We and our marketing, manufacturing and distribution partner SmithKline,
are preparing for the commercial launch of NOVASTAN(R) upon our receipt of final
FDA approval which we expect to receive in the second quarter of 2000. In
addition
- we are preparing a supplemental new drug application, or NDA, for
NOVASTAN(R) for use in HIT patients undergoing angioplasty;
- we filed a Canadian New Drug Submission which has been approved for
priority review and expect a response from Canadian regulatory
authorities in the third quarter of 2000; and
- we are examining the use of NOVASTAN(R) for other indications, including
those for which it has been approved in Japan for over 10 years.
Focus on the identification and development of new drugs for the treatment of
diseases involving the vascular endothelium
Injury to the vascular endothelium is a common cause of many of the most
profound diseases affecting patients today, such as ischemic heart disease,
acute coronary syndrome, hypertension, congestive heart failure, and asthma. By
concentrating on this area, we can be relatively efficient in our drug
discovery, development and commercialization efforts. This efficiency extends to
the following areas:
- Research -- Our efforts are predominantly devoted toward the treatment
and prevention of interrelated diseases of the vascular endothelium, and
we employ a large group of vascular biologists;
- Computer aided drug design -- We utilize computers to develop rapidly
drug candidates derived from our vascular biological efforts and to
identify new targets from information discovered by the Human Genome
Project;
- Regulatory -- Since diseases of the vascular endothelium involve
substantial morbidity and mortality, our indications are generally
suitable for fast-track FDA approval; and
- Clinical investigators and consultants -- We work with key opinion
leaders and consultants experienced in diseases of the vascular
endothelium to assist in clinical development and the regulatory approval
process.
Focus on the identification and development of small molecule drug
candidates -- Small molecule therapeutics have many advantages over large
molecules, such as proteins, peptides and monoclonal antibodies. Small molecules
can frequently be administered orally on an outpatient basis. By contrast, to
date, large molecule therapeutics can very rarely be formulated to accommodate
oral outpatient administration. Since small molecules generally are not
immunogenic, use of small molecules avoids the potential for immune reactions
which can occur with protein therapeutics. In addition, small molecules can
typically be protected with composition-of-matter patents that generally provide
a large degree of intellectual property protection. Our emphasis on small
molecule therapeutics means that our drug candidates can be produced by
conventional pharmaceutical manufacturing methods with the potential for modest
cost of goods sold.
Participate in the sales and marketing in the United States and Canada of
the drugs we develop -- In the biopharmaceutical industry, a substantial
percentage of the profits generated from successful drug development are
typically retained by the entity directly involved in the sales and marketing of
the drug. Licensing our drug candidates to a third party who will complete
development and provide sales and marketing resources in exchange for upfront
payments, milestone payments and a royalty on sales may reduce some of our
risks, particularly for diseases outside our strategic interest or in
territories outside of the United States and Canada. However, in certain
instances, we may decide that the risk-return profile favors developing and then
marketing and selling products on a co-promotion basis or by ourselves.
Therefore, when and if we deem it appropriate, we intend to participate in the
sales and marketing of our products in the United States and Canada.
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THERAPEUTIC PROGRAMS AND PRODUCTS IN DEVELOPMENT
The following table summarizes the potential therapeutic indications and
development status for certain of our clinical, preclinical and research product
candidates and is qualified in its entirety by the more detailed information
appearing elsewhere in this Form 10-K.
TARGET COMPOUND/ POTENTIAL
PROGRAM DOSE FORM INDICATION STATUS(1)
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THROMBOSIS NOVASTAN(R)
Intravenous Anticoagulant therapy in HIT/HITTS Approvable Letter Received
patients February 18, 2000
Intravenous Anticoagulant therapy in HIT Phase III
patients undergoing angioplasty
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VASOSPASM/ ENDOTHELIN(A) RECEPTOR
HYPERTENSION ANTAGONIST
Sitaxsentan (TBC11251)
Intravenous Congestive Heart Failure Phase II
Oral Pulmonary Hypertension Phase II
Hypertension Phase II
Congestive Heart Failure Phase II
TBC3711
Oral Congestive Heart Failure Preclinical
Hypertension Preclinical
TBC3214
Oral Cancer Preclinical
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VASCULAR SELECTIN ANTAGONIST
INFLAMMATION TBC1269
Intravenous Asthma Phase II
Inhaled Asthma Preclinical
Topical Psoriasis Preclinical
VCAM/VLA-4 ANTAGONIST
TBC4257
Oral Asthma Research
Rheumatoid Arthritis Research
CCR 1 ANTAGONIST Multiple Sclerosis Research
CCR 3 ANTAGONIST
TBC4095
Oral Asthma Research
(alpha)4(beta)7 ANTAGONIST
TBC3804
Oral Inflammatory Bowel Disease Research
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APOPTOSIS CASPASE INHIBITOR
TBC4521 Acute Myocardial Infarction Research
Ischemic Stroke Research
RAGE ANTAGONIST Diabetic Complications Research
TNF(alpha) ANTAGONIST Rheumatoid Arthritis Research
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ANGIOGENESIS VEGF ANTAGONIST
TBC2576 Cancer and Diabetic Retinopathy Research
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VASCULAR FGF ANTAGONIST
PROLIFERATIVE DISEASE TBC1635 Post-Angioplasty Coronary Restenosis Research
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(1) Preclinical compounds are compounds undergoing toxicology and pharmaceutical
development in preparation for human clinical testing. Research compounds
are compounds undergoing basic evaluation and optimization to establish a
lead clinical candidate.
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THROMBOSIS PROGRAM
Background. Thrombosis, the lodging of a blood clot in a vessel, causes
various vascular diseases, depending on the location of the clot. An arterial
clot may lead to heart attack if lodged in a coronary artery, or stroke if
lodged in an artery that supplies oxygen to the brain. Venous clots occur
principally in the arms or legs (deep vein thrombosis), and may cause local
inflammation, chronic pain and other complications. In some cases, a venous clot
can cause lung injury (pulmonary embolism) by migrating from the veins to the
lungs.
Thrombosis can be treated surgically or through drug therapy with
anticoagulant and thrombolytic drugs. Anticoagulant drugs, which prevent clots
from forming, are characterized as either antithrombotic or antiplatelet drugs.
Antithrombotic drugs block the action of the blood protein thrombin and may be
used to treat both arterial and venous clots. Antiplatelet drugs prevent
platelets from clumping together and are only effective in treating arterial
clots. Heparin and aspirin are the most widely-used antithrombotic and
antiplatelet drugs, respectively.
Heparin, first discovered over 80 years ago, is the most widely used
injectable anticoagulant. In the U.S., approximately ten million patients
annually receive therapeutic heparin to treat a variety of conditions that
require inhibition of the body's natural clotting mechanism. Each year over
300,000 of these patients develop a profound immunological reaction to heparin
that is known as heparin-induced thrombocytopenia or HIT. The condition is
characterized by a strong tendency to clot that puts the patient at risk of
major complications such as acute myocardial infarction, ischemic stroke,
amputation or death. It is also very difficult to administer heparin dosages. A
small change in dosage levels can cause the anticoagulant action of the drug to
become ineffective or cause the patient to bleed.
Current Therapy. The current treatments for HIT include the cessation of
heparin use and the administration of Refludan(R) or other antithrombotic
agents. We believe Refludan(R) may only be used on a limited basis by physicians
because up to 40% of all patients on the drug develop an adverse immune response
that may limit the predictability of the drug's effect. Other antithrombotics
such as Orgaran(R) and low-molecular weight heparin can cross react with the
antiheparin antibody which causes HIT and thereby exacerbate the condition.
Additional measures, such as inline filters, are sometimes used to remove clots,
but are highly invasive and involve patient trauma. Simply stopping heparin
alone may be insufficient as a significant number of patients will progress to
exhibit severe outcomes.
Product Candidate -- NOVASTAN(R). NOVASTAN(R) is a synthetic direct
thrombin inhibitor that directly and selectively binds to and inactivates
thrombin in the blood plasma. In conjunction with SmithKline, we are developing
NOVASTAN(R) as an anticoagulant alternative to heparin for the U.S. and Canadian
markets. NOVASTAN(R) is also effective against thrombin that is contained within
blood clots. NOVASTAN(R) is manufactured and marketed in Japan by Mitsubishi
where it is approved as a treatment for ischemic stroke, peripheral arterial
occlusion and hemodialysis in patients with antithrombin III deficiency, a
clotting disorder that does not respond to heparin. Since the product's
introduction in 1990, approximately 100,000 patients have been treated with
NOVASTAN(R) in Japan.
In the clinical studies that we have conducted in the U.S., a significant
correlation has been found between the administered dose of NOVASTAN(R) and the
degree of anticoagulation achieved. This is potentially important as it suggests
that the relationship between dose and effect of NOVASTAN(R) is generally very
predictable over the expected dose-range. As a result, there is little risk of
either insufficient or excessive anticoagulation occurring from small dose
changes of NOVASTAN(R). Other potential product advantages for NOVASTAN(R)
include a rapid onset of action, a relatively short half-life and an absence of
immunogenicity.
Clinical Trial Status. Because NOVASTAN(R) does not invoke the immune
reaction caused by heparin, we have developed NOVASTAN(R) initially as a
treatment for patients diagnosed with HIT, which if left untreated can progress
to HITTS. The clinical development plan for NOVASTAN(R) included two Phase III
trials designed to evaluate the efficacy and safety of NOVASTAN(R) as an
anticoagulant therapy in patients with HIT and HITTS. The data from the trials
were analyzed using two statistical methods:
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time-to-event and categorical. A time-to-event analysis provides the incidence
of clinical endpoints, or outcomes, over a period of time. A categorical
analysis provides the incidence of clinical endpoints at a point in time.
Our first trial, ARG-911, was a multicenter Phase III study that compared
304 patients treated with NOVASTAN(R) for up to 14 days, with data outlining the
reaction of 193 patients previously treated with heparin. We call previously
treated patients historical control patients. While most clinical trials compare
the drug under evaluation with either a placebo or another active drug, due to
the life-threatening effects of HIT and the lack of existing treatments at the
time we were conducting clinical trials for NOVASTAN(R), the FDA asked that we
compare NOVASTAN(R) to data from historical HIT cases. The data for our
historical control patients were derived from hospital records of patients that
closely resembled the patient population that we treated with NOVASTAN(R).
In the ARG-911 time-to-event analysis (over 37 days), historical control
patients with HIT had a 68% greater risk of experiencing death, amputation or
new thrombosis; while historical control patients with HITTS exhibited a 75%
greater risk of experiencing one of the same endpoints. Statistical significance
was achieved in both the HIT and HITTS arms of this analysis. The ARG-911
categorical analysis (at 37 days) showed historical control patients with HIT
had a 51% greater risk of experiencing death, amputation or new thrombosis,
while historical control patients with HITTS exhibited a 30% greater risk of
experiencing one of these clinical endpoints. Statistical significance was
achieved only in the HIT arm of this analysis. We believe that we did not
demonstrate statistical significance in the HITTS arm due to the low number of
historical control patients used in this arm of the analysis.
A second study, ARG-915, involving 264 patients treated with NOVASTAN(R),
was also conducted and compared to the same group of historical control
patients. The primary endpoints in ARG-915's categorical analysis were the
composite or overall endpoints of all-cause death, all-cause amputation or new
thrombosis at 37 days. The secondary endpoints evaluated were the resolution of
thrombocytopenia and achievement of adequate anticoagulation. We also conducted
a time-to-event analysis (over 37 days) as part of the ARG-915 study involving
these same primary and secondary endpoints.
In both the ARG-911 and ARG-915 trials, NOVASTAN(R) significantly improved
clinical outcomes, provided rapid, adequate anticoagulation and, relative to
controls, a positive influence on restoring patient's platelet counts.
NOVASTAN(R) also proved to be safe and well-tolerated and it did not increase a
patient's risk of bleeding, a common side effect of anticoagulant drugs. Based
on these data and the additional data in the NDA that support the use and
marketing of NOVASTAN(R), the FDA issued an approvable letter for NOVASTAN(R) as
an anticoagulant for prevention or treatment of thrombosis in patients with HIT
and HITTS.
Competition in HIT. Primary competitors for NOVASTAN(R) in its initial
indication are Refludan(R) (lepirudin), manufactured by Aventis S.A., and
Orgaran(R) (danaparoid sodium), manufactured by N.V. Organon, a unit of Akzo
Nobel.
Refludan(R) (lepirudin, Aventis). This product received approval in
Europe in 1997 and in the U.S. in 1998 for anticoagulation in patients with
HITTS to prevent further thromboembolic (clotting) complications.
Refludan(R) has been associated with the development of an adverse immune
response in up to 40% of patients receiving that drug. Although the full
clinical impact of development of these antibodies is unknown, we
understand that the anticoagulant effects of Refludan(R) may become
unpredictable in patients developing these antibodies. Based on certain
information from clinical trials, we also believe NOVASTAN(R) has a
significantly better safety profile than Refludan(R).
Orgaran(R) (danaparoid, Organon). This product is a low molecular
weight heparinoid, a heparin-like compound extracted from pigs. The product
has been approved in the U.S. for prevention of deep venous thrombosis
following hip surgery. However, approximately one in ten HIT patients
receiving danaparoid will develop the HIT syndrome exactly as if the
patient received heparin. Danaparoid is not approved for HIT and is used on
an off-label basis only.
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Other Indications. NOVASTAN(R) may be useful in other disease settings
where predictable anticoagulation is desired. NOVASTAN(R) may be effective in
hemodialysis, particularly in patients who are problematic when given heparin.
Additionally, due to its ability to inhibit clot bound thrombin, NOVASTAN(R) may
be useful as a treatment for ischemic stroke by itself or in combination with
the approved agent Activase(R), also known as tPA.
Competition for NOVASTAN(R) in Other Indications. Competitors for
NOVASTAN(R) in other applications include other direct thrombin inhibitors with
the same mechanism of action:
- Revasc(R) (desirudin, Aventis/Novartis A.G.), recombinant hirudin, is
approved in Europe for the prevention of deep vein thrombosis following
hip surgery, but has been associated with intracranial hemorrhage and
antibody production;
- Angiomax(R) (bivalirudin, The Medicines Company) is in Phase III trials
and has demonstrated improved safety versus the standard anticoagulant,
heparin, but only equivalent efficacy for its intended indications; and
- Melagatran (AstraZeneca plc) is in Phase II trials and is being developed
as a treatment for deep vein thrombosis.
VASOSPASM/HYPERTENSION PROGRAM
Background. Smooth muscle cells in the blood vessel are responsible
directly for mediating vessel diameter. The regulation of blood flow depends on
a delicate balance between physical and chemical stimuli that cause smooth
muscle cells to relax (vasodilatation) or contract (vasoconstriction). Chronic
periods of excessive vasoconstriction in the peripheral circulation can lead to
disturbances in blood pressure (hypertension) or heart function (congestive
heart failure), whereas acute episodes of intense vasoconstriction (vasospasm)
can restrict blood flow leading to severe tissue damage and organ failure
(myocardial infarction or kidney failure). Recently, it has been determined that
the vascular endothelium (innermost lining) plays a pivotal role in maintaining
normal blood vessel tone, including blood flow, by producing substances that
regulate the balance between vasodilatation and vasoconstriction.
Endothelins are a family of three peptides that are believed to play a
critical role in the control of blood flow. It has been determined that the
multiplicity of endothelin actions on different cell types can be explained by
endothelins' interactions with two distinct receptors, ET(A) and ET(B), on cell
surfaces. In general, ET(A) receptors are associated with vasoconstriction and
cardiovascular disorders, while ET(B) receptors are primarily associated with
vasodilatation. There is substantial evidence that endothelins are involved in a
variety of diseases where blood flow is important. These include vasospasm,
congestive heart failure and certain types of hypertension.
Current Therapies. Congestive heart failure, or CHF, and systemic
hypertension are currently treated with a combination of drugs depending on the
severity of the disease. CHF therapy may include diuretics to lower fluid
volume, digoxin and beta-blockers to improve heart performance and angiotensin
converting enzyme inhibitors (ACE inhibitors), which lower blood pressure. Even
with these existing therapies, five year mortality rates for CHF are greater
than 50%. Endothelin antagonists have been demonstrated to provide additional
benefits to animals and patients when used with these existing therapies. In the
case of hypertension, similar existing therapies are used; however, not all
patients respond to currently available drugs. The only approved therapy for
severe pulmonary hypertension is Flolan(R), a drug marketed by GlaxoWellcome
plc, which is an intravenous form of prostacyclin. Patients must wear a
continuous delivery infusion pump and the cost of therapy is quite high. No drug
is currently approved for moderately ill patients with pulmonary hypertension,
who have a high mortality and morbidity rate. An oral endothelin antagonist, if
successful, may provide a significant benefit to these patients.
Product Candidate -- Sitaxsentan. Our research program in the
vasospasm/hypertension area is aimed at developing small molecules that inhibit
the binding of ET to its cell surface receptors. Our scientists believe that
specific agents for each receptor subtype may provide the best clinical utility
and
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safety. Our initial focus has been to develop a highly potent and selective
small molecule based ET(A) receptor antagonist. An antagonist, or inhibitor,
blocks the effects of a ligand at its receptor. A ligand is a chemical messenger
which binds to a specific site on a target molecule or cell. Our scientists have
discovered a novel class of low molecular weight compounds, having a molecular
weight of less than 500 daltons that antagonize ET binding to the ET(A) receptor
with high potency. These compounds block ET binding at low compound
concentration. We identified lead compounds which mimicked the ability of ET to
bind to the ET(A) receptor. We then used further optimization techniques to
develop more potent compounds until the current series of leads was identified.
In addition to their ability to block receptor binding, these compounds
functionally inhibit ET action on isolated blood vessels in vitro acting as
full, competitive antagonists. The lead compounds in this series have been shown
to exhibit in vivo efficacy using various animal models.
Sitaxsentan, a selective ET(A) inhibitor, has been identified as our lead
compound in this program. A second compound, TBC3711, has been selected as our
next clinical candidate. We believe that a substantial market opportunity for
sitaxsentan exists for the treatment of congestive heart failure and pulmonary
hypertension. Congestive heart failure is currently estimated to affect
approximately five million people in the U.S. annually, and pulmonary
hypertension afflicts approximately 100,000 people in the U.S.
Clinical Trial Status. We filed an investigational new drug application,
also referred to as an IND, with the FDA for sitaxsentan in late 1996. To date,
we have completed two Phase IIA clinical trials, one in congestive heart failure
patients and one in hypertension patients. Based on these positive results, we
are moving forward with a third Phase IIA trial in pulmonary hypertension and
expect to complete this trial during the third quarter of 2000. With additional
resources or upon entering into a collaboration agreement with a partner, we may
elect to conduct further studies in the congestive heart failure and
hypertension indications. We are currently seeking a partner to collaborate on
our endothelin program.
Other Indications. We believe endothelin antagonist compounds may provide
therapeutic value in several other indications. We are in preclinical studies
with TBC3711 for systematic hypertension and with TBC3214 for prostate cancer.
Competition. A number of companies including Abbott Laboratories, Knoll
Pharmaceuticals, Ltd., Bristol-Meyers Squibb Company and Tanabe Seiyaku Co.,
Ltd., have ET(A) receptor selective antagonist compounds in Phase I/II clinical
development. ET(A) receptor-selective compounds from Abbott and Knoll are in
early Phase II development in indications of interest to us. We believe our
compounds are competitive with those from the other companies in terms of
bioavailability (how much reaches the appropriate body system), half-life (how
long the drugs last in the body) and potency. Several companies have
non-selective ET antagonists in development. In particular, Actelion Ltd., a
biotechnology company located in Switzerland, is developing bosentan, a
non-selective ET blocker in-licensed from Roche Holding, Ltd. for pulmonary
hypertension and chronic heart failure. Actelion is believed to be enrolling
patients in a Phase II trail for pulmonary hypertension. We believe that
selective ET blockers like sitaxsentan will be preferred therapy by physicians
and patients for cardiopulmonary diseases since selective ET(A) blockers are
likely to block the negative effects of endothelin by blocking the ET(A)
receptor while preserving the beneficial effects of endothelin by not inhibiting
the ET(B) receptor. Non-selective antagonists block both the ET(A) and the ET(B)
receptors.
VASCULAR INFLAMMATION PROGRAM
Background. Inflammation is the body's natural defense mechanism that fends
off bacterial, viral and parasitic infections. The inflammatory response
involves a series of events by which the body attempts to limit or destroy a
foreign agent. These steps include the production of proteins that attract white
blood cells, or leukocytes, to the site of inflammation, the production of
chemicals to destroy the foreign agent and the removal of the resulting debris.
This process is normally self-limiting and not harmful to the individual.
However, in certain instances, the process may be overly active, such as during
an acute asthma attack where an immediate inflammatory reaction occurs. In
addition, in diseases such as atherosclerosis or
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rheumatoid arthritis, the inflammatory reaction leads to a build up of white
blood cells and debris at the inflammation site that causes tissue damage over
longer periods of time.
The initial interaction between white blood cells and the endothelial cell
layer is mediated by a group of adhesion molecules known as selectins. The
selectins are a family of three proteins, two of which are found on inflamed
endothelium, which bind to the carbohydrate sialyl Lewis x, also referred to as
sLe(X), found on the surface of white blood cells. White blood cells are able to
migrate into inflamed areas because sLe(X) present on the surface of white blood
cells binds to selectin molecules present on activated endothelium. This binding
slows the flow of white blood cells or leukocytes through the bloodstream. This
is one of the first steps in the movement of white blood cells from the blood
into the tissue. The second step in this process is vascular cell adhesion
molecule, referred to as VCAM, mediated white blood cell attachment and
migration which helps to localize white blood cells in areas of injury or
infection. The presence of VCAM at sites of endothelial injury leads to an
accumulation at these sites of the integrin very late antigen-4, or VLA-4, which
are contained in white blood cells. Such accumulation can provoke an
inflammatory response.
Current Therapies. The major anti-inflammatory compounds are steroids,
leukotriene blockers and immunosuppressants such as cyclosporin. While
effective, the time to onset of action of these compounds may be significant.
Steroids also have significant side effects including growth suppression in
children, cataract formation, and general intolerance. The antagonist compounds
we are developing may provide efficacy with fewer of these side effects.
Product Candidate -- TBC1269. Our scientists have developed a computer
model of the selectin/sLe(X) complex and used it to produce a novel class of
synthetic, small molecule compounds that inhibit the selectin-mediated cellular
adhesion that occurs during inflammation. The lead compound in the series,
TBC1269, has shown efficacy both in cell-based and biochemical assays, and in
animal models of inflammation. A Phase IIA clinical trial for TBC1269's
intravenous use in asthma was completed in 1998. Results of this trial, which
involved 21 patients, demonstrated significant reductions in cellular
inflammation and allowed improved breathing. The inhaled form of TBC1269 is in
preclinical trials for use in the treatment of asthma (estimated 14 million U.S.
patients) and the topical form is in preclinical trials for use in the treatment
of psoriasis (estimated 5.5 million U.S. patients).
Product Candidate -- VCAM/VLA-4 Antagonists. We have also identified
antagonists for the VCAM-dependent intercellular adhesion observed in asthma
which block the ability of white blood cells to interact through VCAM and VLA-4.
These lead compounds are being modified in an attempt to develop an orally
available clinical candidate. In preclinical animal studies, our scientists have
demonstrated that a small molecule VLA-4 antagonist can be effective in blocking
acute inflammation, suggesting that VCAM/VLA-4 plays a role in this disease
process. We expect to have the clinical candidate begin human trials in the
first half of 2001.
Product Candidate -- Chemokine Receptor Antagonists. Chemokines, such as
MIP1(alpha) and eotaxin, are proteins which attract white blood cells to sites
of inflammation. They act by binding to the cell surface receptors CCR1 and
CCR3. Inhibitors of this action could be beneficial in treating inflammatory
diseases such as asthma and multiple sclerosis (estimated 300,000 U.S.
patients). We have identified small molecule lead inhibitors which are being
optimized prior to selecting a clinical candidate.
Product Candidate -- (alpha)4(beta)7 Antagonists. The integrin
(alpha)4(beta)7, which is closely related to VLA-4, is present on leukocytes
which locate in the gastrointestinal system. Inhibitors of (alpha)4(beta)7 may
be useful in treating inflammatory conditions of the gut such as inflammatory
bowel disease (estimated 300,000 U.S. patients).
Competition. TBC1269 is the only small molecule selectin antagonist in
clinical development for asthma and other inflammatory conditions. Several
companies have programs aimed at inhibiting chemokines, like MIP1(alpha) and
eotaxin, and integrins, like (alpha)4(beta)7 and VCAM/VLA-4. We are not aware of
any competing product antagonists of these classes which are currently in
clinical development.
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APOPTOSIS PROGRAM
Background. Over the past few years it has become evident that cells have a
built-in mechanism for programmed death, termed apoptotic death, which is
important in the formation, organization and remodeling of tissues during
development. This mechanism contrasts with necrotic death which is often the
result of hypoxic injury to tissues. There appear to be certain conditions,
however, where apoptosis appears to contribute to the progression of a disease
state. In particular, much of the tissue damage which develops over time
following an ischemic stroke (resulting from a blood clot) or a heart attack is
thought to be the result of apoptotic death occurring in the tissue.
Additionally, diseases such as rheumatoid arthritis may have components of
apoptosis. In this case, the death of certain cells in a joint, in combination
with over-proliferation of other cells, contributes to the local irritation that
is observed. Evidence suggests this process may be stimulated by inflammatory
cells in the tissue. Thus, inhibitors of apoptosis may be useful in treating a
number of disease conditions.
Current Therapies. There are currently no therapies which prevent apoptotic
cell death. The current therapies for treating ischemic stroke include treatment
with tPA to reopen arteries, but only if the patient arrives at the hospital
within three hours of the onset of the stroke. Otherwise, symptomatic treatment
is all that can be done. For acute myocardial infarction, treatments include
thrombolytic therapy, angioplasty, and coronary artery bypass grafts. These
procedures are useful at restoring blood flow to the heart. However, they do not
address the role of apoptotic death in the growth of the necrotic area.
Product Candidates -- Caspase Inhibitors, TNF(alpha) Antagonist, and RAGE
Antagonist. Our research in this area is focused on the identification of
factors which contribute to apoptotic death in the heart and brain following a
heart attack or stroke, which occur in approximately 1.5 million and
approximately 450,000 patients, respectively, in the U.S. annually. One of the
factors which has been identified as being important in these and other disease
settings is tumor necrosis factor, or TNF(alpha). Our scientists have identified
small molecule antagonists of this factor which block TNF(alpha)'s ability to
bind to and kill cells in vitro. These compounds are currently undergoing
additional optimization prior to selection of a clinical candidate. In addition
to use in acute myocardial infarction or ischemic stroke, we estimate that there
are approximately two million rheumatoid arthritis patients in the U.S. that
could utilize a TNF(alpha) antagonist. Caspases are proteases which are
responsible for mediating the cell death signal in various cell types. We have
identified lead inhibitors of caspases which may be useful in preventing cell
death following ischemic stroke or acute myocardial infarction. The receptor for
age-dependent glycation end-products (RAGE) has been associated with the
induction of apoptotic death in the vasculature. This action may be responsible
for several complications related to diabetes, including vascular leakiness and
nonresponsiveness. Antagonists to RAGE may be useful for preventing these
complications. We are currently attempting to identify lead compounds that block
this receptor.
Competition. Although there are no competing small molecule drugs currently
approved, we are aware of many research programs into apoptosis. To the extent
one of these projects reaches the market ahead of ours, our sales results, if
any, in this program could be materially adversely affected. Two TNF(alpha)
antagonists, EMBREL(R) and REMICADE(R), have been approved for use in rheumatoid
arthritis and Crohn's disease. These are recombinant proteins. If and when
developed, our small molecule drugs may prove to have advantages over these
approved products because recombinant proteins cannot be administered orally and
are difficult to manufacture.
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ANGIOGENESIS PROGRAM
Background. Angiogenesis, the formation of new blood vessels from
pre-existing vessels, depends on a delicate balance of local physical and
chemical stimuli acting on the vascular endothelium. Angiogenesis is associated
with numerous physiological processes, including embryogenesis, wound healing,
organ regeneration, and the female reproductive cycle. However, angiogenesis
also plays a major role in the pathogenesis of tumor growth, rheumatoid
arthritis, atherosclerosis, various retinopathies and certain skin diseases. One
of the key factors required for angiogenesis is Vascular Endothelial Growth
Factor, often referred to as VEGF. Increases in VEGF expression may be a common
mechanism underlying diverse, yet interrelated pathologies such as tumor growth,
retinal neovascularization (new blood vessel development in the back of the eye)
and rheumatoid arthritis where tissue hypoxia (loss of oxygen) is a central
component. The VEGF protein is produced by smooth muscle cells and other
tissues, including tumor cells, and is essential for the formation of the new
blood vessels. Antagonists to VEGF may be useful for the prevention of the
vascular complications of diabetes and for limiting the growth of solid tumors.
Current Therapies. For solid tumors, current therapy includes tumor
removal, radiation therapy and chemotherapy aimed at eliminating the tumor mass.
Depending on the type of tumor, these therapies have a variable degree of
effectiveness, from highly effective to completely ineffective.
Product Candidate -- VEGF Antagonist. Our research program is directed
toward the development of small molecule inhibitors of VEGF. VEGF is a member of
the heparin binding growth factor family. Our lead compound has been shown to
prevent effectively VEGF function in vitro. The compound also prevents the
vascular actions of VEGF in rodent models of angiogenesis. We are currently
attempting to optimize further our VEGF inhibitor to identify a clinical
candidate. We estimate that approximately 700,000 diabetic retinopathy cases and
approximately three million solid organ cancer patient cases occur in the U.S.
annually which could utilize a VEGF antagonist in their treatment.
Competition. While there are many competitive programs aimed at preventing
angiogenesis, we believe that a selective, orally available VEGF blocker, which
is the type we are seeking to develop, may have significant advantages.
VASCULAR PROLIFERATIVE DISEASE PROGRAM
Background. Smooth muscle cells in the blood vessel wall proliferate in
response to injury to the vessel. When the endothelial cell layer is damaged,
platelets attach to the vessel surface. Platelets and other cells begin to
release cellular growth factors, including the proteins FGF, platelet-derived
growth factor and thrombin. In response to these growth factors, specific genes
are activated in the smooth muscle cells. The products of these genes stimulate
the smooth muscle cells to move and divide. When the initial damage is slight,
the proliferation is limited to endothelial cell repair. If the damage is more
extensive, the smooth muscle cells continue to proliferate. Eventually, the
proliferation process thickens the vessel wall, reduces the interior size of the
blood vessel and produces stenosis. This stenosis is comprised primarily of
smooth muscle cells and protein called fibroproliferative material. The process
of producing this fibroproliferative material is referred to as the
fibroproliferative response. Fibroproliferative stenosis differs from stenosis
produced by atherosclerotic plaque, which contains smooth muscle cells, fatty
deposits and macrophages (a type of white blood cell). As with atherosclerotic
plaque stenosis, however, blood flow is restricted, and the tissue served by the
vessel is deprived of oxygen. If the stenosis occurs in a coronary artery, the
heart muscle is deprived of oxygen, and an acute myocardial infarction may
result.
Fibroproliferative material is generally produced in response to extensive
damage to the blood vessel wall as a result of a mechanical injury. Mechanical
injury sufficient to produce the fibroproliferative response often occurs during
procedures designed to repair blood vessels that are occluded by plaque or
thrombus material, such as mechanical reopening of arteries (angioplasty) and
coronary artery bypass graft surgery. Other surgical procedures, including vein
grafts and organ transplants, can also produce fibroproliferative stenosis. When
fibroproliferative stenosis occurs following the removal of the stenosis by
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surgical or other means, it is referred to as restenosis. Irrespective of how
the injury is produced, the conditions which lead to the fibroproliferative
response are termed vascular proliferative diseases.
Current Therapies. There is currently no effective treatment to prevent
post angioplasty coronary restenosis.
Product Candidate -- FGF Antagonist. Our research program for vascular
proliferative disease is focused on identifying the factors that activate cell
proliferation and on developing small molecule antagonists to these factors.
Using their knowledge of the signaling pathways through which these factors
stimulate cells to proliferate, our scientists seek to develop compounds that
disrupt the signaling process between cells and prevent unnecessary smooth
muscle cell proliferation. We have focused on FGF because of a growing body of
evidence that points to its central role in blood vessel formation. Thus far,
our research has shown that some components of the signaling pathways used by
FGF are important for smooth muscle cell proliferation. Our current focus on FGF
involves the development of small molecules designed to prevent activation of
latent FGF and to block FGF receptor targets. These compounds are currently
undergoing additional optimization prior to selection of a clinical candidate.
We estimate that approximately 685,000 annual patient cases exist in the U.S.
which could utilize an FGF antagonist in the treatment of coronary restenosis.
Competition. Many companies are developing strategies for blocking FGF.
However, we are not aware of any FGF antagonists which have entered clinical
development.
RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS
We have established, and intend to continue to establish, collaborations
with a number of corporations, research institutions and scientists to further
our research and development objectives and expedite the commercialization of
our products. These collaborations are generally conducted pursuant to
agreements that:
- grant us a license to, or the option to license, technology; or
- grant other companies the right to develop and market certain technology,
patent rights or material that may be valuable to us and our
collaborators.
Our major licensing and collaboration agreements are summarized below:
Mitsubishi. We have entered into an agreement with Mitsubishi to
license Mitsubishi's rights and technology relating to NOVASTAN(R) and
to license Mitsubishi's own proprietary technology developed with
respect to NOVASTAN(R). Under the agreement with Mitsubishi, we have an
exclusive license to use and sell NOVASTAN(R) in the U.S. and Canada for
all cardiovascular, renal, neurological and immunological purposes other
than use for the coating of stents. We are required to pay Mitsubishi
specified royalties on net sales of NOVASTAN(R) by us and our
sublicensees after its commercial introduction in the U.S. and Canada.
Either party may terminate the agreement with Mitsubishi on 60 days
notice if the other party defaults in its material obligations under the
agreement, declares bankruptcy or becomes insolvent, or if a substantial
portion of its property is subject to levy. Unless terminated sooner,
the agreement with Mitsubishi expires on the later of termination of
patent rights in a particular country or 20 years after first commercial
sale of products in a particular country. Under the Mitsubishi
Agreement, we have access to an improved formulation patent granted in
the U.S. in 1993 which expires in 2010 and a use patent in the U.S.
which expires in 2009. We have agreed to pay a consultant involved in
the negotiation of this agreement a royalty based on net sales of
NOVASTAN(R).
SmithKline. In connection with our development and
commercialization of NOVASTAN(R), on August 5, 1997, we entered an
agreement with SmithKline whereby SmithKline was granted an exclusive
sublicense in the U.S. and Canada for the indications of NOVASTAN(R)
that we have licensed from Mitsubishi. SmithKline has paid $8.5 million
in upfront license fees and
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$5.0 million in milestone payments and has agreed to pay up to an
additional $15.0 million in additional milestone payments based on the
clinical development and FDA approval of NOVASTAN(R) for the HIT and
acute myocardial infarction indications. At this time, SmithKline has no
plans to conduct development work for the acute myocardial infarction
and stroke indications. We are evaluating the feasibility of development
of NOVASTAN(R) for ischemic stroke and other indications.
We were responsible for completing the HIT clinical trials.
SmithKline agreed to pay 60% of the costs for any additional HIT trials
other than Phase IV trials. SmithKline will pay 100% of the costs of
certain Phase IV trials, if such trials are needed. SmithKline is
responsible for the marketing of NOVASTAN(R) in the licensed territory
for those indications which SmithKline agrees to develop, subject to our
right to use our sales force to co-promote NOVASTAN(R) on a profit
sharing basis following the regulatory approval of NOVASTAN(R) for
additional indications beyond HIT.
The agreement with SmithKline provides for the formation of a joint
development committee to analyze the development of additional
NOVASTAN(R) indications (such as ischemic stroke) covered by our license
from Mitsubishi. The joint development is to be funded 60% by
SmithKline. Except as discussed below, SmithKline has the exclusive
right to commercialize all products arising out of the collaboration,
subject to the obligation to pay royalties on net sales to us and our
rights to co-promote these products through our own sales force in
certain circumstances. We will retain the rights to any indications that
SmithKline determines it does not wish to pursue, subject to the
requirement that we may not grant marketing rights to any third parties,
and must use our own sales force to commercialize any such indications.
Any indications that we and SmithKline elect not to develop will be
returned to Mitsubishi, subject to the rights of SmithKline and us to
commercialize these indications at their election, with SmithKline
having the first opportunity to commercialize. Mitsubishi may also
request the joint development committee to develop new indications
inside or outside the licensed field of use, and if the joint
development committee determines that it does not want to proceed with
any such indication, all rights under the agreement with Mitsubishi
regarding such indication will revert to Mitsubishi subject to our and
SmithKline's right to commercialize the indication, with SmithKline
having the first opportunity to commercialize.
The agreement with SmithKline generally terminates on a country by
country basis upon the earlier of the termination of our rights under
the agreement with Mitsubishi, the expiration of applicable patent
rights, or in the case of certain royalty payments, the commencement of
substantial third-party competition. SmithKline also has the right to
terminate the agreement on a country by country basis by giving us at
least three months written notice that the commercial profile of the
product in question would not justify continued development or marketing
in that country. In addition, either party may terminate the agreement
on 60 days notice if the other party defaults in its obligations under
the agreement, declares bankruptcy or becomes insolvent. We agreed to
pay an agent involved in the negotiation of this agreement a fee based
on a percentage of all consideration we receive, including royalties,
from sales of NOVASTAN(R).
At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and
has entered into an agreement with SmithKline to supply NOVASTAN(R) in
bulk to meet SmithKline's and our needs. Should Mitsubishi fail during
any consecutive nine-month period to supply SmithKline at least 80% of
its requirements, and such requirements cannot be satisfied by existing
inventories, the agreement provides for the nonexclusive transfer of the
production technology to SmithKline. If SmithKline cannot commence
manufacturing of NOVASTAN(R) in a timely manner or if alternate sources
of supply are unavailable or uneconomic, our results of operations would
be harmed.
In connection with the execution of our agreement with SmithKline,
SmithKline purchased 176,922 shares of common stock for $1.0 million and
an additional 400,000 shares of common
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stock for $2.0 million in connection with the secondary public offering
which closed on October 1, 1997.
LG Chemical. On October 10, 1996, we signed a strategic alliance
agreement with LG Chemical to develop and market compounds derived from
our endothelin receptor and selectin antagonist programs in Korea,
China, India and certain other Asian countries, excluding Japan for
certain disease indications. Upon consummation of the transaction, LG
Chemical purchased 1,250,000 shares of common stock for a total of $5.0
million. LG Chemical has committed to pay $10.7 million in research
payments. Of this amount, $6.1 million has already been paid, and $1.0
million will be paid on June 30 and December 31 of 2000, and $1.3
million will be paid on June 30 and December 31, 2001. LG Chemical has
the right to terminate future research payments if we fail to meet
certain milestones, which milestones will be established by the parties
in accordance with the agreement. LG Chemical will pay us royalties,
based on net sales, in those geographic areas covered by the agreement.
We have agreed to pay our agents in the contract negotiations a
commission on all consideration received including a royalty on net
sales.
LICENSES AND PATENTS
Because of the substantial length of time and expense associated with
developing new pharmaceutical products, the biotechnology industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Our policy is to file patent applications
to protect technology, inventions and improvements that are important to the
development of our business. We have 22 pending U.S. patent applications (2 of
which have been allowed) and 19 issued U.S. patents covering compounds including
selectin inhibitors, endothelin antagonists and VCAM/VLA-4 antagonists. In
addition, we have exclusive licenses to three patents covering rational drug
design technology. We have also filed patent applications in certain foreign
jurisdictions covering projects that are the subject of U.S. applications and
intend to file additional patent applications as our research projects develop.
We in-licensed the U.S. and Canadian rights to NOVASTAN(R) in 1993, which
included access to an improved formulation patent granted in 1993 which expires
in 2010 and a use patent which expires in 2009. If any of the NOVASTAN(R)
patents remain outstanding at the time NOVASTAN(R) receives FDA approval, we may
apply, under the Waxman/Hatch Act, for up to a five-year extension of one such
patent. If all such patents have expired at the time NOVASTAN(R) receives FDA
approval, the Waxman/Hatch Act will grant us NDA exclusivity for up to five
years, during which time the FDA may not accept or approve abbreviated
applications for generic variations of NOVASTAN(R). Although we believe that the
expiration of the NOVASTAN(R) patents will not have a material adverse effect on
the commercialization of NOVASTAN(R), we cannot assure you that we will be able
to take advantage of either the patent term extension or NDA exclusivity
provisions of the Waxman/Hatch Act. Moreover, even if we receive either a patent
term extension or NDA exclusivity, we cannot assure you that generic
pharmaceutical manufacturers will not ultimately enter the market and compete
with us.
The patent positions of biopharmaceutical firms, including us, are
uncertain and involve complex legal and factual questions. Consequently, we do
not know whether any of its applications will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the U.S. are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, we cannot be certain that we were the first creator of inventions
covered by our pending patent applications or that we were the first to file
patent applications for such inventions. Moreover, we may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office,
commonly known as the PTO, to determine priority of invention, which could
result in substantial cost to us, even if the eventual outcome is favorable to
us. We have no interference proceedings pending which involve compounds not
currently of commercial interest to us. We cannot assure you that our patents,
if issued, would be held valid by a court of competent jurisdiction. An adverse
outcome could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease using
such technology.
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The development of therapeutic products for cardiovascular applications is
intensely competitive. Many pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in this field. Some of these applications or patents may be
competitive with our applications or conflict in certain respects with claims
made under our applications. Such conflict could result in a significant
reduction of the coverage of our patents, if issued. In addition, if patents are
issued to other companies that contain competitive or conflicting claims and
such claims are ultimately determined to be valid, we cannot assure you that we
would be able to obtain licenses to these patents at a reasonable cost or
develop or obtain alternative technology.
We also rely upon trade secret protection for our confidential and
proprietary information. We cannot assure you that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose such technology, or that
we can meaningfully protect our trade secrets.
We require our employees, consultants, members of our scientific advisory
board, outside scientific collaborators and sponsored researchers and certain
other advisors to enter into confidentiality agreements with us that contain
assignment of invention clauses. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of our employees,
the agreements provide that all inventions conceived by the employee are our
exclusive property. We cannot assure you, however, that these agreements will
provide meaningful protection or adequate remedies for our trade secrets in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The research, testing, manufacture and marketing of drug products are
extensively regulated by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous
regulation by the FDA. The Federal Food, Drug and Cosmetic Act, and other
federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, recordkeeping, labeling,
promotion and marketing and distribution of pharmaceutical products. Failure to
comply with applicable regulatory requirements may subject a company to
administrative or judicially imposed sanctions such as:
- warning letters;
- civil penalties;
- criminal prosecution;
- injunctions;
- product seizure;
- product recalls;
- total or partial suspension of production; and
- FDA refusal to approve pending NDA applications or NDA supplements to
approved applications.
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include:
- preclinical laboratory tests, animal tests and formulation studies;
- the submission to the FDA of an IND, which must become effective before
clinical testing may commence;
- adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug for each indication;
- the submission of an NDA to the FDA; and
- FDA review and approval of the NDA prior to any commercial sale or
shipment of the drug.
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Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal trials to assess the potential safety and
efficacy of the product. Preclinical tests must be conducted in compliance with
Good Laboratory Practice regulations and compounds for clinical use must be
formulated according to compliance with Good Manufacturing Practice, or cGMP,
requirements. The results of preclinical testing are submitted to the FDA as
part of an IND.
A 30-day waiting period after the filing of each IND is required prior to
the commencement of clinical testing in humans. If the FDA has not commented on
or questioned the IND within this 30-day period, clinical trials may begin. If
the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND application process can result in substantial delay and
expenses.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with Good Clinical
Practice, under protocols detailing the objectives of the trial, the parameters
to be used in monitoring safety and the effectiveness criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the IND. The study
protocol and informed consent information for patients in clinical trials must
also be approved by the institutional review board at each institution where the
trials will be conducted.
Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
drug into healthy human subjects or patients, the drug is tested to assess
metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses. Phase II usually involves trials
in a limited patient population to:
- determine dosage tolerance and optimal dosage;
- identify possible adverse effects and safety risks; and
- preliminarily support the efficacy of the drug in specific, targeted
indications.
If a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluation, Phase III trials are undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical trial sites. There can
be no assurance that Phase I, Phase II or Phase III testing of our product
candidates will be completed successfully within any specified time period, if
at all.
After completion of the required clinical testing, generally an NDA is
prepared and submitted to the FDA. FDA approval of the NDA is required before
marketing may begin in the United States. The NDA must include the results of
extensive clinical and other testing and the compilation of data relating to the
product's chemistry, pharmacology and manufacture. The cost of an NDA is
substantial.
The FDA has 60 days from its receipt of the NDA to determine whether the
application will be accepted for filing based on the threshold determination
that the NDA is sufficiently complete to permit substantive review. Once the
submission is accepted for filing, the FDA begins an in-depth review of the NDA.
Currently, the FDA takes approximately twelve months in which to review the NDA
and respond to the applicant. In 1997, Congress enacted the Food and Drug
Administration Modernization Act, in part, to ensure the availability of safe
and effective drugs by expediting the FDA review process for new products. This
act establishes a statutory program for the approval of fast track products.
Under this act, the FDA has six months in which to review the NDA and respond to
the applicant. The review process is often significantly extended by FDA
requests for additional information or clarification regarding information
already provided in the submission. The FDA typically will refer the application
to the appropriate advisory committee, typically a panel of clinicians, for
review, evaluation and a recommendation as to whether the application should be
approved. The FDA is not bound by the recommendation of an advisory committee.
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If FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue an approval letter, or, in some cases, an
approvable letter followed by an approval letter. Both letters usually contain a
number of conditions that must be met in order to secure final approval of the
NDA. When and if those conditions have been met to the FDA's satisfaction, the
FDA will issue an approval letter. The approval letter authorizes commercial
marketing of the drug for specific indications. As a condition of NDA approval,
the FDA may require postmarketing testing and surveillance to monitor the drug's
safety or efficacy, or impose other conditions, commonly referred to as Phase IV
clinical trials.
If the FDA's evaluation of either the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue a
not approvable letter. The not approvable letter outlines the deficiencies in
the submission and often requires additional testing or information.
Notwithstanding the submission of any requested additional data or information
in response to an approvable or not approvable letter, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for
approval. Once granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems occur following initial
marketing.
Manufacturing. Each domestic drug manufacturing facility must be registered
with FDA. Domestic drug manufacturing establishments are subject to periodic
inspection by the FDA and must comply with cGMP. Further, we or our third party
manufacturer must pass a preapproval inspection of its manufacturing facilities
by the FDA before obtaining marketing approval of any products. To supply
products for use in the United States, foreign manufacturing establishments must
comply with cGMP and are subject to periodic inspection by the FDA or
corresponding regulatory agencies in countries under reciprocal agreements with
the FDA. We use and will continue to use third party manufacturers to produce
our products in clinical and commercial quantities. There can be no guarantee
that future FDA inspections will proceed without any compliance issues requiring
the expenditure of money or other resources.
Foreign Regulation of Drug Compounds. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities may be
necessary in foreign countries prior to the commencement of marketing of the
product in those countries. The approval procedure varies among countries and
can involve additional testing. The time required may differ from that required
for FDA approval. Although there are some procedures for unified filings for
some European countries with the sponsorship of the country which first granted
marketing approval, in general each country has its own procedures and
requirements, many of which are time consuming and expensive. Thus, there can be
substantial delays in obtaining required approvals from foreign regulatory
authorities after the relevant applications are filed.
In Europe, marketing authorizations may be submitted at a centralized, a
decentralized or a national level. The centralized procedure is mandatory for
the approval of biotechnology products and provides for the grant of a single
marketing authorization which is valid in all European Union member states. As
of January 1995, a mutual recognition procedure is available at the request of
the applicant for all medicinal products which are not subject to the
centralized procedure. We will choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory approvals. There can
be no assurance that the chosen regulatory strategy will secure regulatory
approvals on a timely basis or at all.
Hazardous Materials. Our research and development processes involve the
controlled use of hazardous materials, chemicals and radioactive materials and
produce waste products. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely. In
the event of an accident, we could be held liable for any damages that result.
This liability could exceed our resources or not be covered by our insurance.
Although we believe that we are in compliance in all material respects with
applicable environmental laws and regulations, there can be no assurance that we
will not be required to incur significant costs to comply with environmental
laws and regulations in the
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future. There can also be no assurance that our operations, business or assets
will not be materially adversely affected by current or future environmental
laws or regulations.
COMPETITION
The development and sale of new drugs for the treatment of vascular and
other inflammatory diseases is highly competitive and we will face intense
competition from major pharmaceutical companies and biotechnology companies all
over the world. Competition is likely to increase as a result of advances made
in the commercial application of technologies and greater availability of funds
for investment in these fields. Companies that complete clinical trials, obtain
required regulatory approvals and initiate commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, significant research in biotechnology and vascular medicine may occur
in universities and other nonprofit research institutions. These entities have
become increasingly active in seeking patent protection and licensing revenues
for their research results. They also compete with us in recruiting talented
scientists.
We believe that our ability to compete successfully will depend on our
ability to create and maintain scientifically-advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for our products, obtain required regulatory approvals and
manufacture and successfully market products through other companies, through
co-promotion agreements or alone. Many of our competitors have substantially
greater financial, marketing, and human resources than we do. We expect to
encounter significant competition.
MANUFACTURING AND MARKETING
We rely on our internal resources and third-party manufacturers to produce
compounds for preclinical development. Currently, we have no manufacturing
facilities for either the production of biochemicals or the manufacture of final
dosage forms. We believe small molecule drugs are less expensive to manufacture
than protein-based therapeutics, and that all of our existing compounds can be
produced using established manufacturing methods, including traditional
pharmaceutical synthesis.
We have established supply arrangements with third-party manufacturers for
certain clinical trials and have established and will establish supply
arrangements ultimately for commercial distribution, although there can be no
assurance that such arrangements will be established on reasonable terms. Our
long-range plan may involve establishing internal manufacturing of small
molecule therapeutics, including the ability to formulate, fill, label, package
and distribute our products. However, for the foreseeable future we plan to
outsource such manufacturing. We do not anticipate developing an internal
manufacturing capability for some time, nor are we able to determine which of
our potential products, if any, will be appropriate for internal manufacturing.
The primary factors we will consider in making this determination are the
availability and cost of third-party sources, the expertise required to
manufacture the product and the anticipated manufacturing volume. Pursuant to
our agreement with SmithKline, SmithKline entered into an agreement with
Mitsubishi regarding the manufacture and supply of NOVASTAN(R), and we will not,
therefore, have any direct responsibility regarding the manufacture and supply
of NOVASTAN(R) as it relates to the agreement with SmithKline.
EMPLOYEES
As of December 31, 1999, we employed 86 individuals. Of our work force, 71
employees are engaged directly in research and development activities and 15 in
general and administrative positions. None of our employees are represented by a
labor union. We have experienced no work stoppages and believe that relations
with our employees are good. We also maintain consulting agreements with a
number of scientists at various universities and other research institutions.
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SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
We have assembled a scientific advisory board composed of distinguished
professors from some of the most prestigious medical schools. The scientific
advisory board assists us in identifying research and development opportunities,
in reviewing with management the progress of our projects and in recruiting and
evaluating scientific staff. Although we expect to receive guidance from the
members of our scientific advisory board, all of its members are employed on a
full-time basis by others and, accordingly, are able to devote only a small
portion of their time to us. Management expects to meet with its scientific
advisory board members as a group approximately once each year and individually
from time to time on an informal basis. We have entered into a consulting
agreement with each member of the scientific advisory board. The Scientific
Advisory Board includes James T. Willerson, M.D., as Chairman, and the following
scientists.
Ferid Murad, M.D., Ph.D. is Professor and Chairman of the Department of
Integrative Biology and Pharmacology at the University of Texas-Houston Medical
School and the Director of the Institute of Molecular Medicine. Dr. Murad has
received many honors including the Nobel Prize in Medicine in 1998, the Ciba
Award in 1988 and the Albert and Mary Lasker Award in Basic Medical Research in
1996. He is also a member of many professional and honorary societies and is the
author or co-author of more than 300 scientific articles.
Joseph F. Sambrook, Ph.D. is a Professor of Pathology at Melbourne
University, Australia and Director of Research at Peter MacCallum Cancer
Institute. He is a member of various honorary and professional societies,
editorial boards and is the author of more than 150 scientific articles.
Professor Sambrook previously worked for 20 years in the U.S. where he served on
many blue ribbon government and non-government committees.
Ajit Varki, M.D. has been a Professor of Medicine since 1991 and is
currently serving in that position as well as leader of the glycobiology program
at the University of California, San Diego. Dr. Varki served as Instructor in
Medicine at Washington University School of Medicine from 1980 to 1982. He also
served as Assistant Professor of Medicine from 1982 to 1987 and as Associate
Professor of Medicine from 1987 to 1991 at the University of California, San
Diego. In 1975, Dr. Varki received an M.D. from Christian Medical College and
his Post-Doctorate in Biochemistry from Washington University from 1979 to 1982.
He is a member of various professional societies and has won numerous awards
since 1969. He is currently president of the American Society for Clinical
Investigation. Dr. Varki is the author or co-author of 160 scientific
publications.
Denton Cooley, M.D., Surgeon-in-Chief of the Texas Heart Institute, acts as
an advisory director to us.
We also have agreements with various outside scientific consultants who
assist us in formulating our research and development strategy. All of our
consultants and advisors are employed by other employers and may have
commitments to or consulting or advisory contracts with other entities that may
affect their ability to work with us.
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ADDITIONAL RISK FACTORS
Stockholders and potential investors in shares of the Company's stock
should carefully consider the following risk factors, in addition to other
information in this Form 10-K. The Company is identifying these risk factors as
important factors that could cause the Company's actual results to differ
materially from those contained in any written or oral forward-looking
statements made by or on behalf of the Company. The Company is relying upon the
safe-harbor for forward-looking statements and any such statements made by or on
behalf of the Company are qualified by reference to the following cautionary
statements, as well as to those set forth elsewhere in this Form 10-K.
RISKS RELATED TO OUR BUSINESS, INDUSTRY AND STRATEGY
THERE IS UNCERTAINTY IN THE DEVELOPMENT OF OUR PRODUCTS AND IF WE DO NOT
SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS, WE WILL NOT BE PROFITABLE.
We have not produced or marketed any products and, accordingly, have not
begun to generate revenues from the commercialization of our product candidates.
To date, our resources have been dedicated to the research and development of
NOVASTAN(R) and other small molecule drugs for certain vascular and related
inflammatory diseases. We have developed lead compounds in our vasospasm/
hypertension and vascular inflammation programs. The commercial applications of
our product candidates will require further investment, research, development,
preclinical and clinical testing and regulatory approvals, both foreign and
domestic. We cannot assure you that we will be able to develop, produce at
reasonable cost, or market successfully, any of our product candidates. Further,
these product candidates may require complex delivery systems that may prevent
or limit their commercial use. All of our products will require regulatory
approval before they may be commercialized. Products, if any, resulting from our
research and development programs other than NOVASTAN(R), are not expected to be
commercially available for a number of years, and we cannot assure you that any
successfully developed products will generate substantial revenues or that we
will ever be profitable.
WE FACE SUBSTANTIAL COMPETITION THAT MAY RESULT IN OTHERS DEVELOPING AND
COMMERCIALIZING PRODUCTS MORE SUCCESSFULLY THAN WE DO.
The biopharmaceutical industry is highly competitive. Our success will
depend on our ability to develop products and apply technology and to establish
and maintain a market for our products. Potential competitors in the U.S. and
other countries include major pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions. Many of our
competitors have substantially greater research and development capabilities and
experience and greater manufacturing, marketing and financial resources than we
do. Accordingly, our competitors may develop products or other novel
technologies that are more effective, safer or less costly than any that have
been or are being developed by us or may obtain FDA approval for products more
rapidly than we are able.
We expect significant competition for NOVASTAN(R) for the treatment of HIT.
The products that compete with NOVASTAN(R) include:
- Refludan(R), which was approved by the FDA in 1997 for the treatment of
HITTS; and
- Orgaran(R), which is a low molecular weight heparinoid that has been
approved for the treatment of deep vein thrombosis, but is being used off-label
for the treatment of HIT.
We may also face competition for NOVASTAN(R) in indications other than HIT,
when and if such indications are approved by the FDA, including:
- Revasc(R), which is used in the treatment of deep vein thrombosis
following hip surgery and has received regulatory approval in Europe;
- Angiomax(R), which is being developed as an anticoagulant and is in Phase
III trials; and
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- Melagatran, which is being developed as a treatment for deep vein
thrombosis and is in Phase II trials.
We cannot assure you that technological development by others will not render
our products or product candidates uncompetitive or that we will be successful
in establishing or maintaining technological competitiveness.
WE ARE DEPENDENT ON SMITHKLINE, MITSUBISHI AND OTHER THIRD PARTIES TO FUND,
MARKET AND DEVELOP OUR PRODUCTS, INCLUDING NOVASTAN(R).
We rely on strategic relationships with our corporate partners to provide
the financing, marketing and technical support and, in certain cases, the
technology necessary to develop and commercialize certain of our product
candidates. We have entered into an agreement with Mitsubishi to license rights
and technology relating to NOVASTAN(R) in the U.S. and Canada for specified
therapeutic indications. Either party may terminate the Mitsubishi agreement on
60 days notice if the other party defaults in its material obligations under the
agreement, declares bankruptcy or becomes insolvent, or if a substantial portion
of its property is subject to levy. Unless terminated sooner due to the above
described termination provisions, the agreement with Mitsubishi expires on the
later of the termination of patent rights in a particular country or 20 years
after the first commercial sale of products in a particular country.
We also entered into an agreement with SmithKline in 1997 whereby we
granted an exclusive sublicense to SmithKline relating to the continued
development and commercialization of NOVASTAN(R). This agreement provides for
the payment of royalties and certain milestone payments upon the completion of
various regulatory filings and receipt of regulatory approvals. The agreement
generally terminates on a country by country basis upon the earlier of the
termination of our rights under the agreement with Mitsubishi, the expiration of
applicable patent rights, or in the case of certain royalty payments, the
introduction of a substantial competitor for NOVASTAN(R) by another
pharmaceutical company. SmithKline also has the right to terminate the agreement
on a country by country basis by giving us at least three months written notice
based on a reasonable determination by SmithKline that the commercial profile of
the therapeutic indication in question would not justify continued development
or marketing in that country. In addition, either we or SmithKline may terminate
our agreement on 60 days notice if the other party defaults in its obligations
under the agreement, declares bankruptcy or becomes insolvent.
Our strategic alliance with LG Chemical, which was signed in 1996 to
develop and market compounds derived from our endothelin receptor and selectin
antagonist programs, provides us with research and development funds. This
alliance gives LG Chemical commercialization rights on some of our products in
Korea, China, India and certain other Asian countries, excluding Japan. LG
Chemical has the right to terminate future research payments if we fail to meet
milestones that were established by the parties, in accordance with the
agreement, on an ongoing basis.
Our success will depend on these and any future strategic alliances. There
can be no assurance that we will satisfy the conditions required to obtain
additional research or milestone payments under the existing agreements or that
we can prevent the termination of these agreements. We cannot assure you that we
will be able to enter into future strategic alliances on acceptable terms. The
termination of any existing strategic alliances or the inability to establish
additional collaborative arrangements may limit our ability to develop our
technology and may have a material adverse effect on our business or financial
condition.
RISKS RELATING TO CLINICAL AND REGULATORY MATTERS
THE REGULATORY APPROVAL PROCESS IS COSTLY AND LENGTHY AND WE MAY NOT BE ABLE
TO SUCCESSFULLY OBTAIN ALL REQUIRED REGULATORY APPROVALS.
The preclinical development, clinical trials, manufacturing, marketing and
labeling of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the U.S. and other countries. We must
obtain regulatory approval for each of our product candidates before marketing
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or selling any of them. It is not possible to predict how long the approval
processes of the FDA or any other applicable federal, state or foreign
regulatory authority or agency for any of our products will take or whether any
such approvals ultimately will be granted. Positive results in preclinical
testing and/or early phases of clinical studies offer no assurance of success in
later phases of the approval process. Generally, preclinical and clinical
testing of products can take many years, and require the expenditure of
substantial resources, and the data obtained from these tests and trials can be
susceptible to varying interpretation that could delay, limit or prevent
regulatory approval. Any delay in obtaining, or failure to obtain, approvals
could adversely affect the marketing of our products and our ability to generate
product revenue.
The risks associated with the approval process include:
- delays or rejections in the regulatory approval process based on the
failure of clinical or other data to meet expectations, or the failure of
the product to meet a regulatory agency's requirements for safety,
efficacy and quality; and
- regulatory approval, if obtained, may significantly limit the indicated
uses for which a product may be marketed.
OUR CLINICAL TRIALS COULD TAKE LONGER TO COMPLETE AND COST MORE THAN WE
EXPECT, WHICH MAY RESULT IN OUR DEVELOPMENT PLANS BEING SIGNIFICANTLY DELAYED.
We will need to conduct clinical studies of all of our product candidates.
These studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could cause us to expend substantial
additional funds or to delay or modify our plans significantly, which would harm
our business, financial condition and results of operations. The factors that
could contribute to such cost, delays or modifications include:
- the cost of conducting human clinical trials for any potential product.
These costs can vary dramatically based on a number of factors, including
the order and timing of clinical indications pursued and the development
and financial support from corporate partners; and
- intense competition in the pharmaceutical market, which may make it
difficult for us to obtain sufficient patient populations or clinician
support to conduct our clinical trials as planned.
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY OVERSIGHT WHICH MAY AFFECT THE SUCCESS OF OUR PRODUCTS.
Any regulatory approvals that we receive for a product may be subject to
limitations on the indicated uses for which the product may be marketed or
contain requirements for potentially costly post-marketing follow-up Phase IV
studies. After we obtain marketing approval for any product, the manufacturer
and the manufacturing facilities for that product will be subject to continual
review and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product or with the
manufacturer or facility, may result in restrictions on the product or
manufacturer, including withdrawal of the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
RISKS RELATING TO FINANCING OUR BUSINESS
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY
NOT BE SUCCESSFUL IN RAISING ADDITIONAL FUNDS IN THE FUTURE.
We have been unprofitable to date and expect to incur operating losses for
the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products.
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We have accumulated approximately $99.9 million in net losses through December
31, 1999. Estimates of our future capital requirements will depend on many
factors, including:
- market acceptance and commercial success of NOVASTAN(R);
- continued scientific progress in our drug discovery programs;
- the magnitude of these programs;
- progress with preclinical testing 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 and changes in our
existing research relationships;
- our ability to maintain and establish additional collaborative
arrangements;
- effective commercialization activities and arrangements; and
- the amount of proceeds, if any, that we receive upon the exercise of our
outstanding warrants.
Subject to these factors, we anticipate that our existing capital resources
and other revenue sources, should be sufficient to fund our cash requirements
through the end of 2000 without considering the impact of revenues from
NOVASTAN(R). Notwithstanding revenues, which may be produced through sales of
potential future products if approved, we anticipate that we will need to secure
additional funds to continue the required levels of research and development to
reach our long-term goals. We intend to seek such additional funding through
collaborative arrangements and/or through public or private financings.
We cannot assure you that additional financing will be available, or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing securities, further dilution of the equity ownership of
existing stockholders will result. If adequate funds are not available, we may
be required to delay, scale back or eliminate one or more of our drug discovery
or development programs or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or products that we would not otherwise
relinquish.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.
We have historically experienced, and expect to continue to experience for
the foreseeable future, significant fluctuations in our quarterly operating
results. These fluctuations are due to a number of factors, many of which are
outside of our control, and may result in volatility of our stock price. Future
operating results will depend on many factors, including:
- demand for our products;
- regulatory approvals for our products;
- the timing of the introduction and market acceptance of new products by
us or competing companies; and
- the timing and magnitude of certain research and development expenses.
RISKS RELATED TO ONGOING OPERATIONS
WE ARE DEPENDENT ON QUALIFIED PERSONNEL.
Our success is highly dependent on our ability to attract and retain
qualified scientific and management personnel. The loss of the services of the
principal members of our management and scientific staff including David B.
McWilliams, our President and Chief Executive Officer, and
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Richard A.F. Dixon, Ph.D., our Vice President of Research and Development, may
impede our ability to bring products to market. In order to commercialize
products, we must maintain and expand our personnel as needs arise in the areas
of research, clinical trial management, manufacturing, sales and marketing. We
face intense competition for such personnel from other companies, academic
institutions, government entities and other organizations. We cannot assure you
that we will be successful in hiring or retaining qualified personnel. Managing
the integration of new personnel and our growth in general could pose
significant risks to our development and progress.
We also rely on consultants and advisors to assist us in formulating our
research and development strategy. All our consultants and advisors are either
self-employed or employed by other organizations, and they may have other
commitments such as consulting or advisory contracts with other organizations
that may affect their ability to contribute to us.
THE HAZARDOUS MATERIAL WE USE IN OUR RESEARCH AND DEVELOPMENT COULD RESULT IN
SIGNIFICANT LIABILITIES, WHICH MAY EXCEED OUR INSURANCE COVERAGE.
Our research and development activities involve the use of hazardous
materials. While we believe that we are currently in substantial compliance with
federal, state and local laws and regulations governing the use of these
materials, accidental injury or contamination may occur. Any such accident or
contamination could result in substantial liabilities, which could exceed the
policy limits of our insurance coverage and financial resources. Additionally,
the cost of compliance with environmental and safety laws and regulations may
increase in the future.
WE MAY BE SUED FOR PRODUCT LIABILITY, WHICH MAY PREVENT OR INTERFERE WITH THE
DEVELOPMENT OR COMMERCIALIZATION OF OUR PRODUCTS.
Because our products and product candidates are new treatments, with
limited, if any, past use on humans, serious undesirable and unintended side
effects may arise. We may be subject to product liability claims that are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. These claims could expose us to significant liabilities that could
prevent or interfere with the development or commercialization of our products
and seriously impair our financial position. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours. We maintain
product liability insurance coverage in the total amount of $2.0 million for
claims arising from the use of our products in clinical trials prior to FDA
approval. Under the agreements with Mitsubishi and SmithKline, we are obligated
to acquire additional coverage upon the commencement of sale of NOVASTAN(R). Our
existing coverage will not be adequate as we further develop products and start
to sell NOVASTAN(R). We cannot assure you that we will be able to maintain our
existing insurance coverage or obtain additional coverage on commercially
reasonable terms for liability arising from the use of our other products in the
future. Also, this insurance coverage and our resources may not be sufficient to
satisfy any liability resulting from product liability claims and a product
liability claim may have a material adverse effect on our business, financial
condition or results of operations.
RISKS RELATING TO PRODUCT MANUFACTURING AND SALES
WE HAVE NO MANUFACTURING, MARKETING OR SALES EXPERIENCE.
We have no manufacturing, marketing or product sales experience. If we
develop any commercially marketable products, we cannot assure you that contract
manufacturing services will be available in sufficient capacity to supply our
product needs on a timely basis. If we decide to build or acquire commercial
scale manufacturing capabilities, we will require additional management and
technical personnel and additional capital.
If in the future, we decide to perform sales and marketing activities
ourselves, we would face a number of additional risks, including:
- we may not be able to attract and build a significant marketing or sales
force;
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- the cost of establishing a marketing or sales force may not be
justifiable in light of product revenues; and
- our direct sales and marketing efforts may not be successful.
WE CANNOT ASSURE YOU THAT THE RAW MATERIALS NECESSARY FOR THE MANUFACTURE OF
OUR PRODUCTS WILL BE AVAILABLE IN SUFFICIENT QUANTITIES OR AT A REASONABLE
COST.
Complications or delays in obtaining raw materials or in product
manufacturing could delay the submission of products for regulatory approval and
the initiation of new development programs, each of which could materially
impair our competitive position and potential profitability. We can give no
assurance that we will be able to enter into any other supply arrangements on
acceptable terms, if at all.
WE ARE DEPENDENT ON A SINGLE SUPPLIER OF NOVASTAN(R).
At the present time, Mitsubishi is the only manufacturer of NOVASTAN(R) in
bulk form. Mitsubishi has entered into a supply agreement with SmithKline to
supply NOVASTAN(R) in bulk to meet SmithKline's and our needs. Should Mitsubishi
fail during any consecutive nine-month period to supply SmithKline with at least
80% of its requirements, and such requirements cannot be satisfied by existing
inventories, the supply agreement with Mitsubishi provides for the nonexclusive
transfer of the production technology to SmithKline. However, in the event
Mitsubishi terminates manufacturing NOVASTAN(R) or defaults in its supply
commitment, we cannot assure you that SmithKline will be able to commence
manufacturing of NOVASTAN(R) in a timely manner or that alternate sources of
bulk NOVASTAN(R) will be available at reasonable cost, if at all. If SmithKline
cannot commence the manufacturing of NOVASTAN(R) or alternate sources of supply
are unavailable or are not available on commercially reasonable terms, it could
harm our profitability. In addition, finishing and packaging has only been
arranged with one manufacturing facility in the U.S.
OUR PRODUCTS, INCLUDING NOVASTAN(R), EVEN IF APPROVED BY THE FDA OR FOREIGN
REGULATORY AGENCIES, MAY NOT BE ACCEPTED BY HOSPITALS, INSURERS OR PATIENTS.
The FDA granted us an approvable letter on February 18, 2000 for our lead
product, NOVASTAN(R). A final approval from the FDA to market NOVASTAN(R) is
dependent upon our agreement with the FDA on final labeling and is contingent
upon any Phase IV clinical studies which may be required in post marketing
studies. We can give no guarantee that we will be able to attain final FDA
approval.
If any of our products, including NOVASTAN(R), after receiving FDA or other
foreign regulatory approval, fail to achieve market acceptance, our ability to
become profitable in the future will be adversely affected. We believe that
market acceptance will depend on our ability to provide acceptable evidence of
safety, efficacy and cost effectiveness. In addition, market acceptance depends
on the effectiveness of our marketing strategy and the availability of
reimbursement for our products.
THE SUCCESSFUL COMMERCIALIZATION OF OUR PRODUCTS IS DEPENDENT ON
PHARMACEUTICAL PRICING AND THIRD-PARTY REIMBURSEMENT.
In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. In addition,
government and private third-party payors are increasingly attempting to contain
health care costs by limiting both the coverage and the level of reimbursement
of drug products. Consequently, the reimbursement status of newly approved
health care products is highly uncertain, and there can be no assurance that
third-party coverage will be available or that available third-party coverage
will enable us to maintain price levels sufficient to realize an appropriate
return on our investment in product development. Our long-term ability to market
products successfully may depend in part on the extent to which reimbursement
for the cost of such products and related treatment will be available.
Third-party payors are increasingly challenging the prices of medical products
and services. Furthermore, inadequate third-party
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coverage may reduce market acceptance of our products. Significant changes in
the health care system in the United States or elsewhere could have a material
adverse effect on our business and financial performance.
RISKS RELATING TO INTELLECTUAL PROPERTY
WE MAY NOT BE ABLE TO PROTECT PROPRIETARY INFORMATION AND OBTAIN PATENT
PROTECTION.
We actively seek patent protection for our proprietary technology, both in
the U.S. and in other areas of the world. However, the patent positions of
pharmaceutical and biotechnology companies, including us, are generally
uncertain and involve complex legal, scientific and factual issues. Intellectual
property is an uncertain and developing area of the law that is potentially
subject to significant change. Our success will depend significantly on our
ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We cannot assure you that patents issued to or licensed by us will not be
challenged, invalidated or circumvented, or that the rights granted will provide
competitive advantages to us. We cannot assure you that our patent applications
or pending patent applications, if and when issued, will be valid and
enforceable and withstand litigation. We cannot assure you that others will not
independently develop substantially equivalent or superseding proprietary
technology or that an equivalent product will not be marketed in competition
with our products, thereby substantially reducing the value of our proprietary
rights. We may experience a significant delay in obtaining patent protection for
our products as a result of a substantial backlog of pharmaceutical and
biotechnology patent applications at the PTO. Because patent applications in the
U.S. are maintained in secrecy until patents issue, other competitors may have
filed or maintained patent applications for technology used by us or covered by
pending applications without our being aware of these applications. In addition,
patent protection, even if obtained, is affected by the limited period of time
for which a patent is effective.
We could also incur substantial costs in defending any patent infringement
suits or in asserting any patent rights, including those granted by third
parties, in a suit with another party. The PTO could institute interference
proceedings involving us in connection with one or more of our patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The PTO or a comparable agency in a foreign jurisdiction
could also institute re-examination or opposition proceedings against us in
connection with one or more of our patents or patent applications and such
proceedings could result in an adverse decision as to the validity or scope of
the patents.
We may be required to obtain licenses to patents or other proprietary
rights from third parties. We cannot assure you that any licenses required under
any patents or proprietary rights would be made available on acceptable terms,
if at all. If we are unable to obtain required licenses, we could encounter
delays in product introductions while we attempt to design around blocking
patents, or we could find that the development, manufacture or sale of products
requiring such licenses could be foreclosed.
IF WE ARE UNABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US.
We rely significantly on trade secrets, know-how and continuing
technological advancement to maintain our competitive position. We try to
protect this information by entering into confidentiality agreements with our
employees and consultants, which contain assignment of invention provisions.
Notwithstanding these agreements, others may gain access to these trade secrets,
such agreements may not
26
28
be honored and we may not be able to protect effectively our rights to our
unpatented trade secrets. Moreover, our trade secrets may otherwise become known
or independently developed by our competitors.
RISKS RELATED TO OUR COMMON STOCK OUTSTANDING
OUR STOCK PRICE COULD BE VOLATILE.
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In particular, the market price of our common stock, like
that of the securities of other biopharmaceutical companies, has been and may be
highly volatile. Factors such as announcements concerning technological
innovations, new commercial products or procedures by us or our competitors,
proposed governmental regulations and developments in both the U.S. and foreign
countries, disputes relating to patents or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by us or our competitors, public concern as to the safety of
biotechnology products, and economic and other external factors, as well as
period-to-period fluctuations and financial results, may have a significant
effect on the market price of our common stock and public warrants.
From time to time, there has been limited trading volume with respect to
our common stock. In addition, there can be no assurance that there will
continue to be a trading market or that any securities research analysts will
continue to provide research coverage with respect to our common stock. It is
possible that such factors will adversely affect the market for our common
stock.
THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE, INCLUDING
WARRANTS WHICH ARE CURRENTLY EXERCISABLE, COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR STOCK.
As of December 31, 1999, substantially all of our outstanding shares of
common stock were eligible for immediate sale in the public market. Moreover,
the resale of approximately 2.5 million outstanding shares are covered by
currently effective Form S-3 registration statements.
As part of our initial public offering, warrants covering approximately 4.1
million shares of common stock were issued. Warrants covering 3,995,394 shares
remain outstanding and the shares of common stock issuable upon exercise are
registered for resale under a registration statement. These warrants trade on
American Stock Exchange and are presently exercisable at a price of $8.44. The
warrants expire on December 31, 2000 and are callable upon the stock reaching
certain benchmarks. If all of these warrants are exercised, our currently
outstanding shares will number 38,388,303, and we will receive $33.7 million in
proceeds from the exercise.
As of December 31, 1999, we have reserved approximately 8.1 million shares
of common stock for issuance under outstanding options, warrants (including the
publicly traded warrants) and other contingent agreements. Approximately 7.4
million of these shares of reserved common stock are registered for sale or
resale on currently effective registration statements, and substantially all of
the remaining shares of reserved common stock are entitled to registration
rights. The issuance of a significant number of shares of common stock upon the
exercise of stock options and warrants, or the sale of a substantial number of
shares of common stock under Rule 144 or otherwise, could adversely affect the
market price of the common stock.
CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND
DELAWARE LAW MAY DETER OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY, EVEN IF
THAT CHANGE WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Our Certificate of Incorporation and the provisions of Section 203 of the
Delaware General Corporation Law contain certain provisions that may delay or
prevent an attempt by a third party to acquire control of us. In addition, the
severance provisions of employment agreements with certain members of management
could impede an attempted change of control by a third party.
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29
ITEM 2 -- PROPERTIES
We lease 37,500 square feet of office and laboratory space in Houston,
Texas, including a 16,671 square foot laboratory facility and a 3,909 square
foot animal facility. The remaining area is being used for clinical development,
computer modeling, administrative offices, storage space and additional offices
for scientists. Our lease expires in December 2000 and includes a renewal
option. We may require additional space to accommodate future research and
laboratory needs as necessary to bring products into development and clinical
trials. We believe that these facilities are adequate for our present needs.
ITEM 3 -- LEGAL PROCEEDINGS
On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. The plaintiffs were two
individuals who purchased our shares on December 16, 1993 following our initial
public offering, or IPO. In their complaint, the plaintiffs sued us, certain
members of our board of directors and certain of our officers alleging
violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended.
A subsequently filed class action arising out of the initial public offering was
dismissed in June 1996, leaving the first class action as the only pending
litigation arising out of the initial public offering.
In May 1999, we reached an agreement in principle to settle the pending
class action. The agreement in principle achieved with the plaintiff's counsel
provided for dismissal of all claims against us and the officers and directors
named as defendants. The settlement amount is $800,000, of which approximately
$187,500 was paid by us into escrow during January 2000 and approximately
$612,500 will be paid by our insurer.
On December 21, 1999, we and the plaintiffs filed a stipulation of
settlement of all claims against certain defendants. Notification of the
settlement to potential class members was delivered on or about February 4,
2000, and a hearing to approve the settlement is scheduled for April 5, 2000.
The court's approval of the settlement and dismissal of all claims against us
and our directors and officers will become final upon expiration of the deadline
for appeal of that order.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our shareholders during the fourth
quarter of our fiscal year ended December 31, 1999.
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30
PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock and our common stock purchase warrants are traded on the
American Stock Exchange. Our common stock trades under the symbol "TXB" and our
redeemable common stock purchase warrant trades under the symbol "TXB.WS." The
following table sets forth, for the periods indicated, the high and low sale
prices for the common stock and redeemable common stock purchase warrants as
reported by the consolidated transaction reporting system.
COMMON STOCK PUBLIC WARRANTS
------------- ---------------
HIGH LOW HIGH LOW
---- --- ----- ----
YEAR ENDED DECEMBER 31, 1998
First Quarter.................................... 7 13/16 5 3/8 1 1/2 9/16
Second Quarter................................... 9 1/2 3 3/4 2 3/4 1/8
Third Quarter.................................... 6 2 9/16 5/8 1/8
Fourth Quarter................................... 5 1/4 2 7/16 3/4 1/16
YEAR ENDED DECEMBER 31, 1999
First Quarter.................................... 5 1/8 3 5/8 3/4 5/16
Second Quarter................................... 4 13/16 3 1/2 5/8 5/16
Third Quarter.................................... 5 1/16 3 1/2 3/4 1/4
Fourth Quarter................................... 7 15/16 3 11/16 2 3/8
YEAR ENDED DECEMBER 31, 2000
First Quarter (through March 14)................. 23 3/4 6 3/8 15 1 1/2
As of March 14, 2000 there were approximately 502 holders of our common
stock and approximately 19,500 beneficial holders. In addition, there were
approximately 19 holders of record of our redeemable common stock purchase
warrants and approximately 1,000 beneficial holders.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain any future earnings to finance our growth strategy and ongoing business.
Payment of future dividends, if any, will be at the discretion of the board of
directors after reviewing various factors, including our financial condition and
operating results, current and anticipated cash needs and restrictions which may
be in effect in any future financing agreement.
RECENT SALES OF UNREGISTERED SECURITIES
Previously reported in Form 10-Qs.
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31
ITEM 6 -- SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected financial data set forth below for each of the years in the
five-year period ended December 31, 1999 are derived from our consolidated
audited financial statements. The selected financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and notes
thereto included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 7,234 $ 5,406 $16,908 $ 2,252 $ 2,083
Expenses:
Research and development................... 14,950 22,252 16,833 14,123 12,793
Charge for purchase of in-process research
and development......................... 2,061 -- 1,075 134 --
General and administrative................. 4,693 4,068 5,760 4,597 5,799
Restructuring and impairment of intangible
assets.................................. 644 421 -- -- --
------- ------- ------- ------- -------
Total expenses..................... 22,348 26,741 23,668 18,854 18,592
------- ------- ------- ------- -------
Operating loss............................... 15,114 21,335 6,760 16,602 16,509
------- ------- ------- ------- -------
Other income (expense):
Interest income............................ 1,201 898 1,123 2,088 1,212
Interest expense........................... (1) -- -- -- --
Other...................................... -- -- 2 --
------- ------- ------- ------- -------
Other income, net.................. 1,200 898 1,125 2,088 1,212
------- ------- ------- ------- -------
Net loss..................................... 13,914 20,437 5,635 14,514 15,297
Preferred dividend requirement............. -- -- 1,153 2 --
------- ------- ------- ------- -------
Net loss applicable to common shares....... $13,914 $20,437 $ 6,788 $14,516 $15,297
======= ======= ======= ======= =======
Net loss per share basic and diluted......... $ 0.83 $ 0.87 $ 0.24 $ 0.43 $ 0.45
======= ======= ======= ======= =======
Weighted average common shares used to
compute basic and diluted net loss per
share...................................... 16,749 23,616 27,746 33,930 34,226
======= ======= ======= ======= =======
DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short and
long-term investments...................... $13,920 $13,390 $43,707 $30,376 $15,170
Working capital.............................. 11,927 10,110 42,815 27,907 14,477
Total assets................................. 18,926 18,180 48,798 36,106 20,805
Shareholders' equity......................... 15,710 13,627 46,167 33,236 18,590
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ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes to the financial statements included elsewhere
in this Form 10-K.
Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery research and development. We have been unprofitable to
date and expect to incur substantial operating losses for the next several years
as we invest in product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$99.9 million from the date of our inception to December 31, 1999. We have
primarily financed our operations to date through:
- private placements of common stock, which raised an aggregate of $34.3
million in net proceeds;
- our initial public offering, which raised an aggregate of $24.2 million
in net proceeds including the over-allotment sold in January 1994;
- a private placement of 5% preferred stock on March 14, 1997, which raised
approximately $6.0 million in net proceeds; and
- a subsequent public offering, which closed during October 1997 and raised
approximately $26.7 million in net proceeds.
On July 25, 1994, we acquired all of the outstanding stock of
ImmunoPharmaceutics in exchange for 1,599,958 shares of our common stock, and
later issued an additional 1,399,917 shares of our common stock upon
satisfaction of certain research milestones. ImmunoPharmaceutics' financial
results have been included in our financial statements since August 1, 1994. In
March 1996, ImmunoPharmaceutics' remaining operations in California were
consolidated into our Houston operations.
During October 1996, we signed a research and common stock purchase
agreement with LG Chemical. LG Chemical purchased 1,250,000 shares of our common
stock for $5.0 million and committed to pay us up to $10.7 million over a five
year period to develop two compounds in clinical development. Of this amount,
$6.1 million has been paid (of which $1.0 million was receivable at December 31,
1999). Furthermore, $1.0 million will be paid on June 30 and December 31, 2000,
and $1.3 million will be paid on June 30 and December 31, 2001.
In August 1997, we entered into an agreement with SmithKline whereby we
granted SmithKline the exclusive right to work with us in the development and
commercialization of NOVASTAN(R) in the U.S. and Canada for specified
indications. Upon execution of the agreement, SmithKline paid an $8.5 million
license fee, a $5.0 million milestone payment in October 1997 and has also
committed to pay up to a total of $15.0 million in additional milestone payments
based on the clinical development and FDA approval of NOVASTAN(R) for the
indications of HIT and acute myocardial infarction. Future milestone payments
for the acute myocardial infarction indication are subject to SmithKline's
agreement to market NOVASTAN(R) for the acute myocardial infarction indication.
At this time, SmithKline has no plans to conduct development work for the acute
myocardial infarction and stroke indications. We are evaluating the feasibility
of developing NOVASTAN(R) for ischemic stroke and possibly other indications. In
connection with the agreement, SmithKline purchased 176,922 shares of our common
stock for $1.0 million and an additional 400,000 shares of our common stock for
$2.0 million in conjunction with our public offering, which closed during
October 1997.
Our operating results have fluctuated significantly during each quarter,
and we anticipate that such fluctuations, which are largely attributable to
varying research and development commitments and expenditures, will continue for
the next several years.
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RESULTS OF OPERATIONS
Revenues were $2.1 million, $2.3 million and $16.9 million during 1999,
1998 and 1997, respectively. For the years 1999, 1998 and 1997, revenues
included $2.0 million, $2.3 million and $16.9 million from research agreements,
commercialization agreements and collaborations with various other companies.
Revenues from research agreements in 1999 and 1998 include research payments
from LG Chemical. In 1997 revenues include research payments from LG Chemical
and a license fee of $8.5 million and a milestone payment of $5.0 million from
SmithKline. Interest income was $1.2 million, $2.1 million and $1.1 million, for
the years 1999, 1998 and 1997, respectively. Interest income for the year 1998
was significantly higher over 1999 and 1997 due to investment of funds received
in conjunction with the agreement with SmithKline and a secondary public
offering of common stock completed in October 1997.
Research and development expenses decreased 9% from $14.1 million in 1998
to $12.8 million in 1999 and decreased 16% from $16.8 million in 1997 to $14.1
million in 1998. The decrease from 1998 to 1999 was due primarily to the
completion of certain Phase II clinical trials related to sitaxsentan (TBC11251)
and the selectin antagonist programs net of expenses incurred during 1998 for
the NDA submission for NOVASTAN(R). The decrease from 1997 to 1998 was due
primarily to reduced spending on clinical trials for NOVASTAN(R) that were
completed in 1998 and one-time charges during 1997 associated with the license
of NOVASTAN(R).
Non-cash charges for the purchase of in-process research and development
decreased from $1.1 million in 1997 to $134,000 in 1998 because of common stock
issued pursuant to the NOVASTAN(R) license agreement and for stock issued under
a research collaboration agreement signed in 1998, respectively. During 2000, if
a final approval is granted by the FDA for NOVASTAN(R), we will issue 71,429
shares of common stock to Genentech, the prior licensee of NOVASTAN(R). Upon
approval, the value of the stock will be charged to expense over future periods
based on the remaining patent life of NOVASTAN(R).
General and administrative expenses increased 26% from $4.6 million in 1998
to $5.8 million in 1999 and decreased 20% from $5.8 million in 1997 to $4.6
million in 1998. The increase in 1999 over 1998 was due primarily to
approximately $187,500 accrued for settlement of a lawsuit, increased patent
legal fees and increased consulting fees related to NOVASTAN(R) incurred in
1999. The decrease in 1998 from 1997 was primarily because of a $1.0 million
non-cash charge related to the 1997 extension of the exercise period for certain
stock options and higher patent legal fees in 1997.
Rent and related building services, which are a component of both research
and development and general and administrative expenses, were approximately $1.0
million in 1999, 1998 and 1997. There was an increase of approximately $69,000
in 1999 from 1998 due primarily to an increase in leased space during 1999.
We incurred net losses applicable to common shares of $15.3 million, $14.5
million and $6.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our research and development activities to date
principally through:
- private placements of our common and preferred stock;
- our initial public offering and subsequent offerings of our common stock;
- issuances of common stock in conjunction with acquisitions, research and
collaboration agreements and upon exercises of stock options and
warrants;
- milestone and research payments received in conjunction with research and
collaborative agreements; and
- investment income, net of interest expense.
32
34
At December 31, 1999 we had cash, cash equivalents and short-term and
long-term investments of $15.2 million.
We expect to incur substantial research and development expenditures as we
design and develop biopharmaceutical products for the prevention and treatment
of cardiovascular and other diseases. We anticipate that our operating expenses
will increase during 2000 and subsequent years because:
- We will incur significant clinical trial costs for sitaxsentan and
TBC1269 compounds and expect to begin to incur costs for clinical trials
related to additional compounds. These costs include:
- hiring personnel to direct and carry out all operations related to
clinical trials;
- hospital and procedural costs;
- services of a contract research organization; and
- purchasing and formulating large quantities of the compound to be
used in such trials.
- There will be additional costs in future periods related to NOVASTAN(R)
in complying with ongoing FDA requirements and possible clinical trial
expenditures for additional therapeutic indications.
Furthermore, we anticipate that the administrative costs associated with our
efforts will be significant. The amount and timing of expenditures will depend,
among other things, on our progress in ongoing research, clinical development
and commercialization efforts.
We anticipate that our existing capital resources and our other revenue
sources, should be sufficient to fund our cash requirements through the end of
2000 without considering the impact of revenues from NOVASTAN(R). This date is
contingent upon various factors, including the rates of patient enrollment and
spending associated with clinical trials for sitaxsentan and TBC1269 and the
level of research and development expenditures for our other compounds. We
cannot assure you that there will be market acceptance and commercial success of
NOVASTAN(R), which could significantly impact our cash flow.
We anticipate that we may need to raise substantial funds for future
operations, which may be raised through collaborative arrangements, public or
private issuance of debt and equity, or other arrangements. We expect that
additional expenditures will be required if additional product candidates enter
clinical trials, which may require additional expenditures for laboratory space,
scientific and administrative personnel, and services of contract research
organizations. We cannot assure you that we will be able to obtain such
additional financings on acceptable terms or in time to fund any necessary or
desirable expenditures. In the event such financings are not obtained, our drug
discovery or development programs may be delayed, scaled back or eliminated; or
we may be required to obtain funds through arrangements with collaborative
partners or others that may require that we relinquish rights to certain of our
technologies, product candidates or products that would not otherwise be
relinquished. Our ability to raise additional funding is contingent upon a
number of factors which include:
- the market acceptance and commercial success of NOVASTAN(R);
- the ongoing cost of research and development activities;
- the attainment of research and clinical goals of product candidates;
- the timely approval of our product candidates by appropriate governmental
and regulatory agencies;
- the presence and effect of competitive products;
- our ability to manufacture and market products commercially;
- the retention of key personnel; and
- conditions in the capital markets.
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35
IMPACT OF INFLATION AND CHANGING PRICES
The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on our
operations.
YEAR 2000
The Year 2000, or Y2K, problem has not caused any material disruptions to
our facilities or operations and has not resulted in any material costs. We have
developed reasonable contingency plans to avoid, to the extent practicable, Year
2000-related problems that may yet occur due to hidden defects in computer
hardware or software. We anticipate, but cannot guarantee, that the Year 2000
problem will not create material disruptions to our facilities or operations and
will not cause us to incur material costs.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements we are required to include in this Item 8 are set
forth in Item 14 of this Form 10-K.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their respective ages and
positions as of December 31, 1999, are as follows:
NAME AGE POSITION
- ---- --- --------
John M. Pietruski(1)(2)................ 66 Chairman of the Board of Directors
David B. McWilliams(1)................. 56 President, Chief Executive Officer and
Director
Richard A. F. Dixon, Ph.D.(1).......... 46 Vice President, Research and Director
Stephen L. Mueller..................... 52 Vice President, Finance and
Administration, Secretary and Treasurer
Pamela M. Murphy....................... 49 Vice President, Corporate
Communications
Joseph M. Welch........................ 59 Vice President, Business Development
James T. Willerson, M.D.(1)(3)......... 60 Chairman of the Scientific Advisory
Board and Director
Ron J. Anderson, M.D.(3)............... 53 Director
Frank C. Carlucci(2)................... 69 Director
Robert J. Cruikshank(3)................ 69 Director
Suzanne Oparil, M.D.(3) ............... 58 Director
James A. Thomson, Ph.D.(2)............. 55 Director
- ---------------
(1) Member, Executive Committee of the Board of Directors
(2) Member, Compensation and Personnel Committee of the Board of Directors
(3) Member, Audit Committee of the Board of Directors
The additional information requested by this item will be contained on the
Company's definitive Proxy Statement ("Proxy Statement") for its 2000 Annual
Meeting of Stockholders to be held on June 8, 2000 and is incorporated by
reference from the sections titled "Election of Directors" and "Other
Information -- Executive Officers and -- Section 16(a) Beneficial Ownership
Reporting Compliance". Such Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days subsequent to December 31, 1999.
ITEM 11 -- EXECUTIVE COMPENSATION
The information requested by this item is incorporated by reference from
the section titled "Other Information -- Executive Compensation" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on June 8, 2000.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested by this item is incorporated by reference from
the section titled "Other Information -- Principal Stockholders" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on June 8, 2000.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested by this item is incorporated by reference from
the sections titled "Other Information -- Compensation Committee Interlocks and
Insider Participation" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on June 8, 2000.
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37
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the Consolidated Financial Statements, the reports
thereon, and the notes thereto commencing at Page F-1 of this Annual Report
on Form 10-K, set forth below is an index to such Financial Statements and
Schedules
PAGE
----
Independent Auditors' Report...................... F-1
Consolidated Balance Sheets....................... F-2
Consolidated Statements of Operations............. F-3
Consolidated Statements of Stockholders' Equity... F-4
Consolidated Statements of Cash Flows............. F-5
Notes to Consolidated Financial Statements........ F-6
2. INDEX TO EXHIBITS
Information with respect to this Item is contained in the attached Index to
Exhibits.
The Company will furnish a copy of any one or more of these exhibits to a
shareholder who so requests upon receipt of payment for the costs of
duplication and mailing the requested item.
(B) REPORTS ON FORM 8-K
One report on Form 8-K dated February 22, 2000 was filed after the quarter
ended December 31, 1999, but prior to the filing of this Form 10-K,
regarding our approvable letter from the FDA for NOVASTAN(R).
All schedules have been omitted since the information is not required or is
not material to require submission of the schedule, or because the
information is included in the financial statements or the notes thereto.
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38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Houston
and State of Texas on the 15th day of March, 1999.
TEXAS BIOTECHNOLOGY CORPORATION
By: /s/ STEPHEN L. MUELLER
----------------------------------
Stephen L. Mueller
Vice President, Finance and
Administration,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons and in the capacities
indicated on the 15th day of March, 1999.
SIGNATURE TITLE
--------- -----
/s/ JOHN M. PIETRUSKI Chairman of the Board of Directors
- -----------------------------------------------------
John M. Pietruski
/s/ DAVID B. MCWILLIAMS Director, President and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
David B. McWilliams
/s/ RICHARD A.F. DIXON Director and Vice President, Research
- -----------------------------------------------------
Richard A.F. Dixon, Ph.D.
/s/ STEPHEN L. MUELLER Vice President, Finance and Administration,
- ----------------------------------------------------- Secretary and Treasurer (Principal Financial
Stephen L. Mueller and Accounting Officer)
/s/ RON J. ANDERSON Director
- -----------------------------------------------------
Ron J. Anderson, M.D.
/s/ FRANK C. CARLUCCI Director
- -----------------------------------------------------
Frank C. Carlucci
/s/ ROBERT J. CRUIKSHANK Director
- -----------------------------------------------------
Robert J. Cruikshank
/s/ SUZANNE OPARIL, M.D. Director
- -----------------------------------------------------
Suzanne Oparil, M.D.
/s/ JAMES A. THOMSON Director
- -----------------------------------------------------
James A. Thomson, Ph.D.
/s/ JAMES T. WILLERSON Director
- -----------------------------------------------------
James T. Willerson, M.D.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Texas Biotechnology Corporation:
We have audited the accompanying consolidated balance sheets of Texas
Biotechnology Corporation and subsidiary (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Biotechnology Corporation and subsidiary as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Houston, Texas
February 25, 2000
F-1
40
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
Current assets:
Cash and cash equivalents................................. $ 2,804,270 $ 4,176,911
Short-term investments.................................... 11,366,066 24,199,091
Other current receivables................................. 1,067,738 1,426,959
Prepaid expenses.......................................... 1,453,090 963,590
Other current assets...................................... -- 10,400
------------ ------------
Total current assets.............................. 16,691,164 30,776,951
Long-term investments....................................... 1,000,000 2,000,000
Equipment and leasehold improvements, net................... 2,998,431 3,269,438
Other assets................................................ 115,096 59,591
------------ ------------
Total assets...................................... $ 20,804,691 $ 36,105,980
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 556,664 $ 912,396
Accrued expenses.......................................... 1,657,706 1,957,364
------------ ------------
Total current liabilities......................... 2,214,370 2,869,760
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock, par value $.005 per share. At December
31, 1999 and 1998, 5,000,000 shares authorized; none
outstanding............................................ -- --
Common stock, par value $.005 per share. At December 31,
1999, 75,000,000 shares authorized; 34,392,909 shares
issued and outstanding. At December 31, 1998,
75,000,000 shares authorized; 34,128,017 shares issued
and outstanding........................................ 171,964 170,640
Additional paid-in capital................................ 118,317,599 117,667,479
Accumulated deficit....................................... (99,899,242) (84,601,899)
------------ ------------
Total stockholders' equity........................ 18,590,321 33,236,220
------------ ------------
Total liabilities and stockholders' equity........ $ 20,804,691 $ 36,105,980
============ ============
See accompanying notes to consolidated financial statements
F-2
41
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues:
Research agreements................................. $ 2,082,924 $ 2,251,681 $ 8,400,280
License fee income.................................. -- -- 8,500,000
Products and services............................... -- -- 7,500
----------- ----------- -----------
Total revenues.............................. 2,082,924 2,251,681 16,907,780
----------- ----------- -----------
Expenses:
Research and development............................ 12,793,282 14,122,671 16,833,135
Charge for purchase of in-process research and
development...................................... -- 133,875 1,075,191
General and administrative.......................... 5,798,966 4,597,014 5,759,792
----------- ----------- -----------
Total expenses.............................. 18,592,248 18,853,560 23,668,118
----------- ----------- -----------
Operating loss.............................. 16,509,324 16,601,879 6,760,338
----------- ----------- -----------
Other income:
Interest income..................................... 1,211,981 2,087,707 1,122,900
Other............................................... -- -- 2,253
----------- ----------- -----------
Total other income.......................... 1,211,981 2,087,707 1,125,153
----------- ----------- -----------
Net loss.................................... 15,297,343 14,514,172 5,635,185
Preferred dividend requirement........................ -- 1,690 1,153,282
----------- ----------- -----------
Net loss applicable to common shares........ $15,297,343 $14,515,862 $ 6,788,467
=========== =========== ===========
Net loss per share basic and diluted.................. $ 0.45 $ 0.43 $ 0.24
=========== =========== ===========
Weighted average common shares used to compute basic
and diluted net loss per share................... 34,226,224 33,930,276 27,745,700
=========== =========== ===========
See accompanying notes to consolidated financial statements
F-3
42
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
PREFERRED STOCK COMMON STOCK
---------------- --------------------- ADDITIONAL TOTAL
SHARES SHARES PAID-IN ACCUMULATED STOCKHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ---------- -------- ------------ ------------ -------------
Balance at January 1, 1997............... -- $ -- 25,490,269 $127,451 $ 77,808,331 $(64,308,376) $ 13,627,406
Issuance of common stock for stock option
exercises.............................. -- -- 58,841 294 183,925 -- 184,219
Issuance of common stock for warrant
exercises.............................. -- -- 548,438 2,742 2,028,206 -- 2,030,948
Issuance of convertible preferred stock
through private placement, net of
expenses............................... 6,000 30 -- -- 5,925,239 -- 5,925,269
Issuance of common stock in lieu of board
fees................................... -- -- 2,944 15 14,900 -- 14,915
Compensation expense related to stock
option extensions...................... -- -- -- -- 1,303,094 -- 1,303,094
Conversion of preferred stock into common
shares................................. (5,700) (28) 1,344,149 6,721 123,872 -- 130,565
Issuance of common stock to SmithKline
Beecham plc for cash, net of
expenses............................... -- -- 176,992 885 964,714 -- 965,599
Issuance of common stock through public
offering, net of expenses.............. -- -- 5,750,000 28,750 26,658,771 -- 26,687,521
Issuance of common stock to Genentech,
Inc. pursuant to contract.............. -- -- 214,286 1,071 1,074,120 -- 1,075,191
Net loss................................. -- -- (5,635,185) (5,635,185)
Preferred dividends...................... -- -- -- -- -- (142,476) (142,476)
------- ---- ---------- -------- ------------ ------------ ------------
Balance at December 31, 1997........... 300 $ 2 33,585,919 $167,929 $116,085,172 $(70,086,037) $ 46,167,066
Issuance of common stock for stock option
exercises.............................. -- -- 127,947 640 322,141 -- 322,781
Issuance of common stock for warrant
exercises.............................. -- -- 304,850 1,524 1,091,335 -- 1,092,859
Issuance of common stock in lieu of board
fees................................... -- -- 4,506 23 21,876 -- 21,899
Conversion of preferred stock into common
shares................................. (300) (2) 64,795 324 13,280 -- 13,602
Issuance of common stock to Hedral
Therapeutics, Inc. pursuant to
contract............................... -- -- 40,000 200 133,675 -- 133,875
Net loss................................. -- -- -- -- -- (14,514,172) (14,514,172)
Preferred dividends...................... -- -- -- -- -- (1,690) (1,690)
------- ---- ---------- -------- ------------ ------------ ------------
Balance at December 31, 1998........... -- $ -- 34,128,017 $170,640 $117,667,479 $(84,601,899) $ 33,236,220
Issuance of common stock for stock option
exercises.............................. -- -- 257,720 1,289 514,541 -- 515,830
Issuance of common stock for warrant
exercises.............................. -- -- 1,400 7 11,809 -- 11,816
Issuance of common stock in lieu of board
fees................................... -- -- 5,772 28 23,877 -- 23,905
Compensation expense related to stock
options................................ -- -- -- -- 99,893 -- 99,893
Net loss................................. -- -- -- -- -- (15,297,343) (15,297,343)
------- ---- ---------- -------- ------------ ------------ ------------
Balance at December 31, 1999........... -- $ -- 34,392,909 $171,964 $118,317,599 $(99,899,242) $ 18,590,321
======= ==== ========== ======== ============ ============ ============
See accompanying notes to consolidated financial statements
F-4
43
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net loss......................................... $(15,297,343) $(14,514,172) $ (5,635,185)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 890,822 806,251 751,397
Charge for purchase of in-process research and
development................................. -- 133,875 1,075,191
Expenses paid with stock...................... 23,905 21,899 14,914
Compensation expense related to stock
options..................................... 99,893 -- 1,303,094
Preferred dividends payable not included in
net loss.................................... -- 11,912 (11,912)
Loss on disposition of fixed assets........... 227 11,620 --
Change in operating assets and liabilities:
Increase in prepaid expenses.................. (489,500) (410,005) (6,833)
(Increase) decrease in other current
receivables................................. 359,221 (251,679) (462,205)
Decrease in other current assets.............. 10,400 -- 2,000
Increase in other assets...................... (55,505) -- --
Increase (decrease) in current liabilities.... (655,390) 238,544 (1,296,499)
Decrease in deferred revenue.................. -- -- (625,000)
------------ ------------ ------------
Net cash used in operating activities.... (15,113,270) (13,951,755) (4,891,038)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements.................................. (620,773) (798,247) (585,446)
Proceeds from disposition of equipment and
leasehold improvements........................ 731 3,000 --
Purchase of investments.......................... (17,184,214) (54,391,953) (39,163,424)
Maturity of investments.......................... 30,826,040 57,455,360 21,537,653
Decrease (increase) in interest receivable
included in short-term investments............ 191,199 121,293 (495,727)
------------ ------------ ------------
Net cash provided by (used in) investing
activities............................. 13,212,983 2,389,453 (18,706,944)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net...... -- -- 26,687,521
Proceeds from sale of preferred stock, net....... -- -- 5,925,269
Proceeds from sale of common stock and option and
warrant exercises, net........................ 527,646 1,415,640 3,180,766
------------ ------------ ------------
Net cash provided by financing
activities............................. 527,646 1,415,640 35,793,556
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents............................ (1,372,641) (10,146,662) 12,195,574
Cash and cash equivalents at beginning of year..... 4,176,911 14,323,573 2,127,999
------------ ------------ ------------
Cash and cash equivalents at end of year........... $ 2,804,270 $ 4,176,911 $ 14,323,573
============ ============ ============
Supplemental schedule of noncash financing
activities: Issuance of Common Stock for research
and development and services..................... $ 23,905 $ 155,774 $ 1,090,105
============ ============ ============
See accompanying notes to consolidated financial statements
F-5
44
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Texas Biotechnology Corporation (the "Company" or "TBC") is a
biopharmaceutical company focused on the discovery, development and
commercialization of novel synthetic small molecule compounds for the treatment
of a variety of vascular diseases. Since its formation in 1989, the Company has
been engaged principally in research and drug discovery programs and clinical
development of certain drug compounds. On July 25, 1994, the Company acquired
all of the outstanding Common Stock of ImmunoPharmaceutics, Inc. ("IPI") in
exchange for Common Stock of the Company.
The Company is presently working on a number of long-term development
projects which involve experimental and unproven technology, which may require
many years and substantial expenditures to complete, and which may be
unsuccessful. To date, other than compounds and services produced and sold by
IPI, a wholly-owned subsidiary, the Company has not sold any products.
(b) Basis of Consolidation
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, IPI. All material intercompany balances
and transactions have been eliminated.
(c) Cash, Cash Equivalents, Short-Term Investments and Long-Term Investments
Cash equivalents are considered to be those securities or instruments with
original maturities, when purchased, of three months or less. At December 31,
1999, approximately $996,000 was invested in demand and money market accounts.
Short-term investments are those investments which have a remaining maturity of
less than one year at the balance sheet date. At December 31, 1999, the
Company's short-term investments consisted of approximately $11,366,000 in
Corporate Commercial Paper and Government Agency bonds, and long-term
investments consisted of $1,000,000 in a Government Agency bond with a remaining
maturity of more than one year. Cash equivalents, short-term and long-term
investments are stated at cost plus accrued interest, which approximates market
value. Interest income is accrued as earned. The Company classifies all
short-term and long-term investments as held to maturity.
(d) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation of furniture and equipment is
provided on the straight-line method over the estimated useful lives of the
respective assets (3 to 10 years). Amortization of leasehold improvements is
provided on the straight-line method over the remaining minimum lease term.
(e) Intangible Assets
Intangible assets are amortized on a straight line basis over the estimated
useful lives. As of December 31, 1999 and 1998, the Company had no intangible
assets.
(f) Research and Development Costs
All research and development costs are expensed as incurred and include
salaries of research and development employees, certain rent and related
building services, research supplies and services, clinical trial expenses and
other associated costs. With respect to research and development, salaries and
benefits for the year ended December 31, 1999, 1998 and 1997, totaled
approximately $6,781,000, $6,286,000 and $5,645,000, respectively, of which
approximately $5,129,000, $4,725,000 and $4,262,000, respectively, was
F-6
45
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
charged to research and development. Payments related to the acquisition of
in-process research and development are expensed as incurred.
(g) Net Loss Per Common Share
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares after preferred dividend requirements by the
weighted average number of common and common equivalent shares outstanding
during the period. For the years 1999, 1998 and 1997, there were no potential
common shares used in the calculation of weighted average common shares
outstanding. Preferred dividend requirements for the period ended December 31,
1997 included $142,476 of accrued dividends and deemed dividends attributable to
the conversion discount factor at issuance of the Preferred Stock of $1,010,806.
For the years ended December 31, 1999, 1998 and 1997, the weighted average
common shares used to compute basic net loss per common share totaled
34,226,224, 33,930,276 and 27,745,700, respectively. The conversion of
securities convertible into Common Stock and the exercise of stock options and
warrants were not assumed in the calculation of diluted net loss per common
share because the effect would have been antidilutive.
(h) Reclassifications
Certain reclassifications have been made to prior period financial
statements to conform with the December 31, 1999 presentation with no effect on
net loss previously reported.
(i) Revenue Recognition
Revenue from service contracts is recognized as the services are performed
and/or as milestones are achieved. Milestone payments related to contractual
agreements are recognized as the milestones are achieved. Revenue from products
and services is recognized when the products are shipped or the services are
performed. Revenue from licensing fees is recorded when the license is granted.
Revenue from grants is recognized as earned under the terms of the related grant
agreements. Amounts received in advance of services to be performed under
contracts are recorded as deferred revenue.
(j) Patent Application Costs
Costs incurred in filing for patents are expensed as incurred.
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
(2) CAPITAL STOCK
In December, 1993, the Company completed an initial public offering
comprised of 4,082,500 units, each unit consisting of one share of Common Stock
(par value $.005 per share) and one warrant to purchase one share of Common
Stock. Proceeds to the Company were approximately $24.2 million, net of selling
expenses of approximately $3.3 million. The securities included in the unit
subsequently separated into its Common Stock and warrant components. The
warrants are exercisable at $8.44 per share. On December 13, 1998, the
expiration date of the warrants was extended from December 14, 1998 to September
30, 1999 for those warrant holders electing such extension. On September 13,
1999, the expiration date of the warrants was further extended to December 31,
2000. There are 3,995,394 warrants
F-7
46
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding as of December 31, 1999. The warrants are redeemable for $.05 per
warrant, at the option of the Company, upon 30 days' prior written notice at any
time after the last sale price of the Common Stock has been at least $11.82 for
30 consecutive business days ending within 15 days of the date of the notice of
redemption. All of the warrants must be redeemed if any are redeemed. The
underwriter received approximately $2.9 million in commissions and expense
reimbursement and purchased options to purchase 355,000 units at an exercise
price of $11.14. These options were sold for $.001 each and expired on December
15, 1998.
In February 1996, the Company completed a private placement of Common
Stock. The Company issued 6,550,990 shares of Common Stock at $2.125 per share
with proceeds of approximately $13.0 million, net of selling commissions and
expenses of approximately $900,000. In connection with the private placement,
the Company paid selling commissions of $759,283 and issued 730,461 warrants to
purchase Common Stock. These warrants expire on February 13, 2001, with exercise
prices of between $3.05 and $4.58 per share. The resale of the underlying Common
Stock is subject to certain registration rights.
On October 10, 1996 the Company signed a strategic alliance agreement and
Common Stock purchase agreement with LG Chemical, Ltd. ("LG Chemical"), a Korean
corporation. In conjunction with the agreement, LG Chemical purchased 1,250,000
shares of Common Stock for $4.00 per share for a total of $5 million. The
Company's agents in the contract negotiations received $420,000 in commissions
and 113,636 warrants to purchase Common Stock, expiring on October 10, 2001,
exercisable at $4.40 per share with the resale of the underlying Common Stock
being subject to certain piggyback registration rights.
On March 14, 1997, the Company completed a $6.0 million private placement
of 5% Cumulative Convertible Preferred Stock ("the 5% Preferred"), which
provided net proceeds to the Company of approximately $5.9 million. The 5%
Preferred was convertible into Common Stock at discounts ranging from 6% to 17%
from the average of the daily low trading price of the Common Stock for the ten
consecutive trading days immediately preceding the conversion date. A total of
6,000 shares of 5% Preferred were sold at a price of $1,000 per share to two
institutional investors. During 1997 and 1998, all 6,000 shares of the 5%
Preferred and accrued dividends of $144,166 on such shares were converted into
1,408,944 shares of Common Stock.
During August 1997 the Company sold 176,992 shares of Common Stock for $1
million less commissions and expenses of approximately $34,000 pursuant to a
commercialization agreement. These shares are subject to certain registration
rights. See note 10.
In October 1997 the Company sold 5,750,000 shares of Common Stock for $5.00
per share pursuant to an underwritten secondary public offering. The net
proceeds to the Company for the 5,750,000 shares sold were approximately $26.7
million after deducting selling commissions and expenses of approximately $2.1
million related to the offering.
In addition, during October 1997 the Company issued 214,286 shares of
Common Stock and a warrant to purchase 142,858 shares of Common Stock
exercisable at $14.00 per share until October 9, 2004, pursuant to a license
agreement. These shares are subject to certain registration rights. See note 9.
(3) STOCK OPTIONS AND WARRANTS
The Company has in effect the following stock option plans:
The Amended and Restated 1990 Incentive Stock Option Plan ("1990
Plan") allows for the issuance of incentive and non-qualified options to
employees, directors, officers, non-employee
F-8
47
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
independent contractors and non-employee directors, pursuant to which
202,967 shares of Common Stock are reserved for issuance out of authorized
but unissued shares of the Company.
The Amended and Restated 1992 Incentive Stock Option Plan ("1992
Plan") allows for the issuance of incentive and non-qualified options to
employees, directors, officers, non-employee independent contractors and
non-employee directors, pursuant to which 1,172,079 shares of Common Stock
are reserved for issuance out of authorized but unissued shares of the
Company.
The Amended and Restated Stock Option Plan for Non-Employee Directors
("Director Plan") allows for the issuance of non-qualified options to
non-employee directors, pursuant to which 34,242 shares of Common Stock are
reserved for issuance out of authorized but unissued shares of the Company
to be issued to non-employee members of the Board of Directors of the
Company based on a formula. No new issuances are being made under the
Director Plan.
The Amended and Restated 1995 Stock Option Plan ("1995 Plan") allows
for the issuance of incentive and non-qualified options, shares of
restricted stock and stock bonuses to employees, officers, and non-employee
independent contractors, pursuant to which 1,953,149 shares of Common Stock
are reserved for issuance out of authorized but unissued shares of the
Company.
The Amended and Restated 1995 Non-Employee Director Stock Option Plan
("1995 Director Plan") allows for the issuance of non-qualified options to
non-employee directors, pursuant to which 275,869 shares of Common Stock
are reserved for issuance out of authorized but unissued shares of the
Company to be issued to non-employee members of the Board of Directors of
the Company based on a formula.
During December 1996, the Compensation and Personnel Committee of the
Board of Directors authorized the extension of options originally granted
for a five year period to ten years upon election by individual option
holders. During 1997, option holders elected to extend 1,022,833 options,
originally expiring during 1997, 1998, 1999 and 2000, for an additional
five years. Accordingly, the Company recorded a non-cash charge of
$1,303,094 during 1997. Of the total, approximately $350,000 was charged to
research and development expenses and the remainder to general and
administrative expenses for the difference between the original option
exercise price and fair market value as of the effective date of election.
The 1999 Stock Incentive Plan ("1999 Plan") allows for the issuance of
incentive and non-qualified options, shares of restricted stock and stock
bonuses to directors, employees, officers and non-employee independent
contractors, pursuant to which 1,000,000 shares of Common Stock are
reserved for issuance out of authorized but unissued shares of the Company.
A summary of stock options as of December 31, 1999, follows:
EXERCISE PRICE EXERCISED/ AVAILABLE
STOCK OPTION PLANS PER SHARE AUTHORIZED OUTSTANDING OTHER EXERCISABLE FOR GRANT
- ------------------ -------------- ---------- ----------- ---------- ----------- ---------
1990 Plan............. $1.38-$5.59 285,715 152,260 82,748 150,428 50,707
1992 Plan............. $1.41-$5.36 1,700,000 1,038,512 527,921 864,962 133,567
Director Plan......... $3.50-$4.54 71,429 34,242 37,187 34,242 --
1995 Plan............. $1.31-$8.13 2,000,000 1,781,700 46,851 1,063,920 171,449
1995 Director Plan.... $1.38-$5.69 300,000 217,505 24,131 168,505 58,364
1999 Plan............. -- 1,000,000 -- -- -- 1,000,000
--------- --------- ------- ----------- ---------
TOTALS......... 5,357,144 3,224,219 718,838 2,282,057 1,414,087
========= ========= ======= =========== =========
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Had compensation costs for the Company's
stock-based compensation plans been determined
F-9
48
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consistent with SFAS No. 123, the Company's pro forma net loss and pro forma net
loss applicable to common shares for the year ended December 31, 1999 would have
been $17,178,428 and $0.50, respectively, for December 31, 1998 would have been
$16,758,119 and $0.49, respectively and for December 31, 1997 would have been
$9,438,748 and $0.34, respectively.
The fair value of options granted during the years ended December 31, 1999,
1998 and 1997 for employee services were estimated on the date of grant using
the Black-Scholes Pricing Model with the following weighted average assumptions:
risk-free interest rate of between 4.45 and 6.63 percent, expected life of
between 2 and 7 years, expected volatility of between 57 and 75 percent and no
dividends.
A summary of the status of the Company's stock option plans as of December
31, 1999, 1998 and 1997 and the changes during the years then ended is presented
below:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
Outstanding at January 1, 1997............................ 2,168,764 $3.22
Granted................................................. 1,682,909 4.34
Canceled................................................ (986,534) 3.13
Exercised............................................... (58,841) 3.32
Prior Period Adjustments................................ 55,718 --
---------
Outstanding at December 31, 1997.......................... 2,862,016 3.85
Granted................................................. 850,025 6.41
Canceled................................................ (250,800) 5.60
Exercised............................................... (127,947) 2.52
---------
Outstanding at December 31, 1998.......................... 3,333,294 4.42
Granted................................................. 441,050 4.27
Canceled................................................ (292,405) 5.13
Exercised............................................... (257,720) 2.51
---------
Outstanding at December 31, 1999.......................... 3,224,219 $4.53
=========
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
Weighted-average fair value of options granted during
the period at an exercise price equal to market at
issue date............................................ $2.16 $4.06 $3.45
The following tables summarize information about the Company's stock
options outstanding as of December 31, 1999, 1998 and 1997, respectively:
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/99 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/99 OF EXERCISABLE
- -------------- -------------- ---------------- --------------- -------------- --------------
$1.31-$3.50 890,096 3.77 $2.33 888,430 $2.33
$3.51-$5.88 1,793,473 6.92 $4.81 1,187,886 $4.93
$5.89-$8.13 540,650 8.17 $7.20 205,741 $7.20
--------- ---------
$1.31-$8.13 3,224,219 6.26 $4.53 2,282,057 $4.12
F-10
49
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/98 OF EXERCISABLE
- -------------- -------------- ---------------- -------------- -------------- --------------
$1.31-$3.50 1,141,454 4.27 $2.23 1,126,954 $2.21
$3.51-$5.88 1,640,190 7.21 $5.01 976,128 $4.95
$5.89-$8.13 551,650 9.17 $7.20 38,167 $7.19
--------- ---------
$1.31-$8.13 3,333,294 6.53 $4.42 2,141,249 $3.55
WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OPTION OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICE AS OF 12/31/97 CONTRACTUAL LIFE OF OUTSTANDING AS OF 12/31/97 OF EXERCISABLE
- -------------- -------------- ---------------- -------------- -------------- --------------
$1.31-$3.50 1,222,528 5.16 $2.17 1,047,958 $2.28
$3.51-$5.88 1,639,488 7.94 $5.09 573,482 $4.75
--------- ---------
$1.31-$5.88 2,862,016 6.75 $3.85 1,621,440 $3.16
The fair value of warrants issued during the years ended December 31, 1999,
1998 and 1997 for other than employee services were estimated on the date of
grant using the Black-Scholes Pricing Model with the following weighted average
assumptions: risk-free interest rate of between 6.12 and 6.63 percent, expected
life of between 3 and 7 years, expected volatility of between 57 and 75 percent
and no dividends. During 1999, 105,000 new warrants were issued for non-employee
services at an exercise price of $4.25 expiring on August 14, 2004. Several
existing warrants were exchanged by the original holder for the benefit of a new
holder with terms identical to those of the original.
A summary of the status of the Company's warrants as of December 31, 1999,
1998 and 1997, and changes during the years then ended is presented below:
WEIGHTED-AVERAGE
WARRANTS EXERCISE PRICE
---------- ----------------
Outstanding at January 1, 1997........................... 5,490,541 $ 7.23
Issued................................................. 142,858 14.00
Forfeited.............................................. -- --
Canceled............................................... (356,453) 3.60
Exercised.............................................. (549,095) 3.69
Reissued............................................... 356,453 3.60
----------
Outstanding at December 31, 1997......................... 5,084,304 7.80
Issued................................................. -- --
Forfeited.............................................. (40,662) 3.50
Canceled............................................... (4,366,218) 8.14
Exercised.............................................. (304,850) 3.58
Reissued............................................... 4,283,398 8.13
----------
Outstanding at December 31, 1998......................... 4,655,972 8.10
Issued................................................. 105,000 4.25
Forfeited.............................................. -- --
Canceled............................................... (54,773) 3.60
Exercised.............................................. (1,400) 8.44
Reissued............................................... 56,173 3.60
----------
Outstanding at December 31, 1999......................... 4,760,972 $ 8.01
==========
F-11
50
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 12, 1998, the Company announced an extension of the exercise
period of the Company's publicly traded redeemable common stock purchase
warrants from December 14, 1998 to September 30, 1999 for those warrant holders
electing such extension. On September 13, 1999, the expiration date of the
warrants was further extended to December 31, 2000. These publicly traded
warrants comprise 3,995,394 of the 4,760,972 warrants outstanding at December
31, 1999. The exercise price of $8.44 remains unchanged. The publicly traded
warrants are redeemable for $.05 per warrant, at the option of the Company, upon
30 days prior written notice at any time after the last sale price of the Common
Stock has been at least $11.82 for 30 consecutive business days ending within 15
days of the date of the notice of redemption. All of the warrants must be
redeemed if any are redeemed.
In addition, at December 31, 1997, there were outstanding underwriter
purchase options ("UPOs"), which were issued to the underwriters in the
Company's initial public offering in 1993, to purchase 355,000 units at $11.14
each. Each unit consists of one share of Common Stock and a warrant to purchase
one share of Common Stock at an exercise price equal to $11.14. The UPOs expired
on December 15, 1998.
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
Weighted-average fair value of warrants issued
during the year ended at an exercise price
equal to market at issue date................. $1.98 $ -- $ --
Weighted-average fair value of warrants issued
during the year ended at an exercise price
greater than market at issue date............. $ -- $ -- $2.71
The warrants shown above for 1999 were issued in connection with
non-employee services at an exercise price equal to market price at issue date.
The warrants shown above for 1997 were issued pursuant to a license agreement at
an exercise price in excess of market price at issue date. See note 9.
(4) INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
At December 31, 1999 and 1998, the net deferred tax asset, representing
primarily net operating loss carryforwards and start-up costs deferred for tax
purposes, totaled approximately $35,235,000 and $29,572,000, respectively. The
Company has established a valuation allowance for the full amount of these
deferred tax assets, as management believes that it is not more likely than not
that the Company will recover these assets. The Company did not incur any tax
expense in any year due to operating losses and the related increase in the
valuation allowance.
At December 31, 1999, 1998 and 1997, the Company had net operating loss
carryforwards of approximately $64,276,000, $54,192,000 and $44,375,000,
respectively, for federal income tax return purposes. Utilization of the
Company's net operating loss carryforwards is subject to certain limitations due
to specific stock ownership changes which have occurred or may occur. To the
extent not utilized, the carryforwards will expire during the years beginning
2002 through 2019.
F-12
51
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
Laboratory and office equipment............................ $ 5,760,113 $ 5,418,849
Leasehold improvements..................................... 3,974,942 3,701,772
----------- -----------
9,735,055 9,120,621
Less accumulated depreciation and amortization............. 6,736,624 5,851,183
----------- -----------
$ 2,998,431 $ 3,269,438
=========== ===========
(6) COMMON STOCK RESERVED
The Company has reserved Common Stock for issuance as of December 31, 1999
as follows:
Stock option plans.......................................... 4,638,306
Common Stock issuable under licensing agreement (see note
9)........................................................ 71,429
Publicly traded warrants outstanding........................ 3,995,394
Other warrants outstanding.................................. 765,578
---------
Total shares reserved............................. 9,470,707
=========
(7) CLINICAL RESEARCH AGREEMENTS
In November 1997, the Company entered into an agreement with Coromed, Inc.
to coordinate the clinical evaluation of TBC11251 to determine acute hemodynamic
efficacy and safety in congestive heart failure. Coromed, Inc. is currently
completing the final report for this study.
(8) RESEARCH AGREEMENTS
On October 10, 1996, the Company signed a strategic alliance agreement with
LG Chemical, a Korean corporation, to develop and market compounds derived from
the Company's endothelin receptor antagonist and selectin antagonist programs
for certain disease indications. Upon consummation of the transaction, LG
Chemical purchased 1,250,000 shares of Common Stock for $4.00 per share for a
total of $5 million. In addition, LG Chemical has committed to pay $10.7 million
in research payments. Of this amount, $6.1 million has been paid (of which $1.0
million was a receivable at December 31, 1999) and $1.0 million will be paid on
June 30 and December 31, 2000, and $1.3 million on June 30 and December 31,
2001. LG Chemical has the right to terminate future research payments if TBC
fails to meet certain milestones, which milestones will be established by the
parties from time to time in accordance with the agreement. LG Chemical will pay
royalties to TBC, based on net sales, in those geographic areas covered by the
agreement, which include Korea, China, India and certain other Asian countries,
excluding Japan. The Company will pay its agents in the contract negotiations, a
commission on all future research payments as well as a royalty on net sales.
During 1998, the Company entered into an agreement to license rights to
certain technology related to the research programs licensed from Hedral
Therapeutics, Inc. Upon execution of the agreement, the Company paid a license
fee of 40,000 shares of restricted Common Stock valued at $133,875. The
agreement includes a total of 40,000 additional shares of Common Stock to be
paid upon reaching certain milestones and cash royalty payments based on net
sales in the event a product is developed and commercialized under this
agreement.
F-13
52
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) LICENSE AGREEMENT
TBC has entered into an agreement with Mitsubishi-Tokyo Pharmaceuticals
("Mitsubishi") to license Mitsubishi's rights and technology relating to
NOVASTAN(R) and to license Mitsubishi's own proprietary technology developed
with respect to NOVASTAN(R) (the "Mitsubishi Agreement"). Under the Mitsubishi
Agreement, the Company has an exclusive license to use and sell NOVASTAN(R) in
the U.S. and Canada for all specified indications. The Company is required to
pay Mitsubishi specified royalties on net sales of NOVASTAN(R) by the Company
and its sublicensees after its commercial introduction in the U.S. and Canada.
Either party may terminate the Mitsubishi Agreement on 60 days notice if the
other party defaults in its material obligations under the agreement, declares
bankruptcy or is insolvent, or if a substantial portion of its property is
subject to levy. Unless terminated sooner pursuant to the above described
termination provisions, the Mitsubishi Agreement expires on the later of
termination of patent rights in a particular country or 20 years after first
commercial sale of products. Under the Mitsubishi Agreement, TBC has access to
an improved formulation patent granted in 1993 which expires in 2010 and a use
patent which expires in 2009. In conjunction with the Mitsubishi Agreement, a
consulting firm involved in negotiations related to the agreement will receive a
percentage of net sales received as a result of the agreement.
Mitsubishi further agreed to supply the Company with its requirements of
bulk NOVASTAN(R) throughout the term of the Mitsubishi Agreement for TBC's
clinical testing and commercial sales of NOVASTAN(R) in the U.S. and Canada. In
the event Mitsubishi should discontinue the manufacture of NOVASTAN(R),
Mitsubishi and TBC have agreed to discuss in good faith the means by which, and
the party to whom, NOVASTAN(R) production technology will be transferred. The
transferee may be a person or entity other than TBC. At present, Mitsubishi is
the only manufacturer of NOVASTAN(R). See note 10.
In exchange for the license to the Genentech, Inc, (the "Former Licensor")
NOVASTAN(R) technology, TBC issued the Former Licensor 285,714 shares of Common
Stock during 1993 and issued an additional 214,286 shares of Common Stock on
October 9, 1997, after acceptance of the filing of the first New Drug
Application ("NDA") with the United States Food and Drug Administration (the
"FDA") for NOVASTAN(R). The Company recorded a $1,075,191 noncash charge to
in-process research and development expense during the fourth quarter of 1997.
An additional 71,429 shares of Common Stock will be issued to the Former
Licensor within ten days after the FDA's first approval of an NDA for
NOVASTAN(R). Upon approval, the value of the stock will be charged to expense
over future periods based on the remaining patent life of NOVASTAN(R).
Additionally, on October 9, 1997, upon acceptance of the filing of the first NDA
for NOVASTAN(R) with the FDA, the Company granted the Former Licensor a warrant
to purchase an additional 142,858 shares of Common Stock at an exercise price of
$14.00 per share, subject to adjustment, which expires on October 9, 2004. The
Company will not be required to make any cash payment if the approval of the NDA
does not occur. TBC has also granted the Former Licensor demand and piggyback
registration rights with regard to shares of Common Stock issued to the Former
Licensor.
During the third quarter of 1997, the Company sublicensed certain rights to
NOVASTAN(R) to SmithKline Beecham plc ("SmithKline"). In conjunction with this
agreement, the Company agreed to make certain payments to Mitsubishi, which are
included in research and development expense, to pay an additional royalty to
Mitsubishi, beginning January 1, 2001 and to provide access to certain
NOVASTAN(R) clinical data to Mitsubishi in certain circumstances. In certain
circumstances, Mitsubishi and TBC will share equally in all upfront payments and
royalties should Mitsubishi use TBC's regulatory documents and data for
registration in certain territories. See note 10.
F-14
53
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMERCIALIZATION AGREEMENT
In connection with TBC's development and commercialization of NOVASTAN(R),
in August 1997, TBC entered into a Product Development, License and CoPromotion
Agreement with SmithKline Beecham plc (the "SmithKline Agreement") whereby
SmithKline was granted exclusive rights to work with TBC in the development and
commercialization of NOVASTAN(R) in the U.S. and Canada for specified
indications. SmithKline paid $8.5 million in upfront license fees during August
1997, a $5 million milestone payment in October 1997, and will make additional
milestone payments based on the clinical development and FDA approval of
NOVASTAN(R) for the heparin-induced thrombocytopenia ("HIT") and HIT with
thrombosis syndrome and acute myocardial infarction indications. Future
milestone payments for the acute myocardial infarction indication are subject to
SmithKline's agreement to market NOVASTAN(R) for such indication. The parties
have also formed a joint development committee to analyze the development of
additional NOVASTAN(R) indications to be funded 60% by SmithKline except for
certain Phase IV trials which shall be funded entirely by SmithKline. At this
time, SmithKline has no plans to conduct development work for the acute
myocardial infarction and stroke indications. TBC is evaluating the feasibility
of development of NOVASTAN(R) for ischemic stroke and other indications.
SmithKline has the exclusive right to commercialize all products arising out of
the collaboration, subject to the obligation to pay royalties on net sales to
TBC and to the rights of TBC to co-promote these products through its own sales
force in certain circumstances. TBC will retain the rights to any indications
which SmithKline determines it does not wish to pursue, subject to the
requirement that TBC must use its own sales force to commercialize any such
indications. Any indications which TBC elects not to pursue will be returned to
Mitsubishi. In conjunction with the SmithKline Agreement, a consulting firm
involved in negotiations related to the agreement will receive a percentage of
all consideration received by TBC as a result of the agreement.
At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and has
entered into the Mitsubishi Supply Agreement with SmithKline to supply
NOVASTAN(R) in bulk in order to meet SmithKline and TBC's needs under the
SmithKline Agreement. Should Mitsubishi fail during any consecutive nine-month
period to supply SmithKline at least 80% of its requirements, and such
requirements cannot be satisfied by existing inventories, the Mitsubishi Supply
Agreement provides for the nonexclusive transfer of the production technology to
SmithKline. If SmithKline cannot commence manufacturing of NOVASTAN(R) or
alternate sources of supply are unavailable or uneconomic, the Company's results
of operations would be materially and adversely affected.
The SmithKline Agreement generally terminates on a country by country basis
upon the earlier of the termination of TBC's rights under the Mitsubishi
Agreement, the expiration of applicable patent rights or, in the case of royalty
payments, the commencement of substantial third-party competition. SmithKline
also has the right to terminate the agreement on a country by country basis by
giving TBC at least three months written notice at any time before SmithKline
first markets products in that country based on a reasonable determination by
SmithKline that the commercial profile of the product in question would not
justify continued development in that country. SmithKline has similar rights to
terminate the SmithKline Agreement on a country by country basis after marketing
has commenced. In addition, either party may terminate the SmithKline Agreement
on 60 days notice if the other party defaults in its obligations under the
agreement, declares bankruptcy or is insolvent.
In connection with the execution of the SmithKline Agreement, SmithKline
purchased 176,992 shares of TBC's Common Stock for $1.0 million and additional
400,000 shares of Common Stock for $2.0 million in connection with the secondary
public offering, which closed on October 1, 1997.
F-15
54
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) REGULATORY FILING
On February 18, 2000, the Company received an approvable letter from the
FDA for NOVASTAN(R) as an anticoagulant for prevention or treatment of
thrombosis in patients with HIT. The Company is in the process of satisfying FDA
requirements for securing the final approval letter for NOVASTAN(R).
(12) 401(k) Plan
The Company adopted a 401(k) plan which became effective on September 1,
1993. Under the plan, all employees with three months of service are eligible to
participate in the plan and may contribute up to 15 percent of their
compensation, with a maximum of $10,000 per employee in 1999. At the present
time, no matching contributions have been authorized by the Board of Directors.
Costs associated with administering the plan totaled approximately $10,000 in
1999.
(13) COMMITMENTS AND CONTINGENCIES
(a) Employment Agreements
Since inception, the Company has entered into employment agreements with
certain officers and key employees. The Company has signed agreements with six
of its officers to provide certain benefits in the event of a "change of
control" as defined in these agreements and the occurrence of certain other
events. The agreements provide for a lump-sum payment in cash equal to eighteen
months to three years of annual base salary and annual bonus, if any. The base
salary portion of the agreements would aggregate approximately $2.2 million at
the current rate of compensation. In addition, the agreements provide for
gross-up for certain taxes on the lump-sum payment, continuation of certain
insurance and other benefits for periods of eighteen months to three years and
reimbursement of certain legal expenses in conjunction with the agreements.
These provisions are intended to replace compensation continuation provisions of
any other agreement in effect for an officer if the specified event occurs.
(b) Lease Agreements
The Company renegotiated its noncancelable lease agreement which began
December 1, 1990 for its facilities in Houston, Texas and executed a new lease
agreement. The new lease was effective January 1, 1995 and calls for a lease
term of six years. Currently, the lease calls for an annual rate of $871,856
through December 2000, subject to adjustments based on certain variable building
operating expenses. In addition, the lease has a five year renewal provision.
For the years ended December 31, 1999, 1998, 1997, rent and related building
services totaled approximately $1,027,000, $958,000 and $956,000, respectively,
of which approximately $863,000, $820,000 and $851,000, respectively, was
charged to research and development expense.
Total committed lease payments from January 1, 2000 through December 31,
2000 equal $871,856. The Company has also committed to pay for seventy-four
parking spaces during the lease at the facility established rate charged, which
currently approximates $44,000 per annum. The lease also includes a provision
for the Company to pay certain additional charges to obtain utilities and
building services during off-business hours. Currently, the amount of these
charges is approximately $262,000 per annum, payable in monthly installments.
These charges are subject to annual adjustments based on the local consumer
price index. Should the Company terminate the use of non-standard services, an
additional amount of up to $4,167 per month shall be due in addition to base
rent on the remaining lease payments through December 2000. In addition, the
lease grants certain credits to rent and utilities which at December 31, 1999
totaled approximately $50,000, and which are being amortized on a straight line
basis over the lease term.
F-16
55
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Legal Proceedings
On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs were two
individuals who purchased the Company's shares on December 16, 1993 following
the Company's initial public offering ("IPO"). In their complaint, plaintiffs
sued the Company, certain members of the board of directors and certain officers
alleging violations of Sections 11, 12 and 15 of the Securities Act of 1933, as
amended. A subsequently filed class action arising out of the IPO was dismissed
in June 1996, leaving the first class action as the only pending litigation
arising out of the IPO.
In May 1999, the Company reached an agreement in principle to settle the
pending class action. The agreement in principle achieved with plaintiff's
counsel provides for dismissal of all claims against the Company and the
officers and directors named as defendants. The settlement amount is $800,000,
of which approximately $187,500 was paid by the Company into escrow during
January 2000 and approximately $612,500 will be paid by the Company's insurer.
On December 21, 1999, the Company and the plaintiffs filed a Stipulation of
Settlement of All Claims Against Certain Defendants. Notification of the
settlement to potential class members was delivered on or about February 4,
2000, and a hearing to approve the settlement is scheduled for April 5, 2000.
The Court's approval of the settlement and dismissal of all claims against the
Company and its directors and officers will become final upon expiration of the
deadline for appeal of that Order.
F-17
56
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION OF EXHIBIT
---------- ----------------------
2.1(7)* -- Plan and Agreement of Merger, dated June 17, 1994, among
the Company, TBC Acquisition Company No. 1 and certain
major shareholders of ImmunoPharmaceutics, Inc.
3.1(1) -- Certificate of Incorporation, as amended
3.2(1) -- By-laws, as amended
3.3(1) -- Amendment to Article IV of By-laws
3.4(9) -- Amendment to the Certificate of Incorporation dated
November 30, 1993
3.5(9) -- Amendment to the Certificate of Incorporation dated May
20, 1994
3.6(15) -- Certificate of Amendment of Certificate of Incorporation
3.7(16) -- Amended and Restated By-laws of Texas Biotechnology
Corporation
4.1(1) -- Article II of the By-laws
4.4(1) -- Agreement with Dr. James T. Willerson dated March 6, 1990
4.5(1) -- Agreement with Dr. Richard Dixon dated February 23, 1990
4.6(6) -- Form of Warrant Agreement (with Form of Warrant)
4.8(17) -- Certificate of Designations of 5% Cumulative Convertible
Preferred Stock for Texas Biotechnology Corporation
4.9(23) -- Second Amendment to Warrant Agreement by and between
Texas Biotechnology Corporation and The Bank of New York
dated September 10, 1999. (Filed as an exhibit to the
Company's Form 8-K (File No. 0-20117) filed with the
Commission on August 26, 1999 and incorporated herein by
reference.)
4.10(21) -- First Amendment to Warrant Agreement dated November 12,
1998.
10.3(1) -- Employment Agreement with Dr. Richard A.F. Dixon dated
July 15, 1990
10.4(1) -- Consulting Agreement with Dr. James T. Willerson dated
January 1, 1990
10.6(1) -- Consulting Agreement with Mr. John M. Pietruski dated
January 1, 1992
10.11(2) -- Employment Agreement with David B. McWilliams dated July
15, 1992
10.12(3) -- Consulting Agreement with Hennessey & Associates, Ltd.
10.17(4)(5)* -- Sublicense and License Agreement dated May 27, 1993
between Company and Genentech, Inc., together with
exhibits
10.18(4)* -- Stock Agreement dated May 27, 1993 between the Company
and Genentech, Inc.
10.27(8)* -- License and Research and Development Agreement between
the Company and Synthelabo S.A. dated October 11, 1994
(the "License Agreement"), Schedule 1 -- Patent
Applications, Schedule 1.27 -- Territories, and Schedule
3.2(c) -- Work Plan for the Company's Restenosis Program
- Schedule 1 -- Patent Applications.
- Schedule 1.27 -- Territories.
- Schedule 3.2(c) -- Work Plan for the Company's Restenosis
Program.
10.31(10) -- Lease Agreement dated, February 24, 1995 between Texas
Biotechnology Corporation and Doctors Center, Inc.
10.33(10) -- Amended and Restated 1990 Incentive Stock Option Plan
10.34(10) -- Amended and Restated 1992 Incentive Stock Option Plan (as
of March 3, 1995)
57
EXHIBIT NO DESCRIPTION OF EXHIBIT
---------- ----------------------
10.36(10) -- Employment Agreement, dated February 7, 1995 between
Richard P. Schwarz Jr., Ph.D. and Texas Biotechnology
Corporation
10.38(11) -- Clinical Trial Research Agreement dated February 10, 1995
between Texas Biotechnology Corporation and Coromed, Inc.
10.39(12) -- Amended and Restated Stock Option Plan for Non-Employee
Directors
10.40(12) -- 1995 Stock Option Plan
10.42(13) -- Clinical Trial Research Agreement dated April 1, 1995
between Texas Biotechnology Corporation and Coromed, Inc.
10.43(13) -- Clinical Trial Research Agreement dated June 1, 1995
between Texas Biotechnology Corporation and Coromed, Inc.
10.46(13) -- Employee Agreement with Stephen L. Mueller and Texas
Biotechnology Corporation dated July 1, 1995.
10.47(13) -- Employee Agreement with David B. McWilliams and Texas
Biotechnology Corporation dated July 1, 1995.
10.48(13) -- Employee Agreement with Richard A. F. Dixon, Ph.D. and
Texas Biotechnology Corporation dated July 1, 1995.
10.49(13) -- Employee Agreement with Richard P. Schwarz, Jr., Ph. D.
and Texas Biotechnology Corporation dated July 1, 1995.
10.50(13) -- Employee Agreement with Joseph M. Welch and Texas
Biotechnology Corporation dated July 1, 1995.
10.51(14)* -- Letter Agreement regarding Argatroban Studies Information
dated December 14, 1995, between the Company and
Synthelabo Recherche
10.52(14) -- Amendment B to Clinical Trial Research Agreement dated
February 10, 1995 between Texas Biotechnology Corporation
and Coromed Inc.
10.53(15) -- Letter of Understanding between Texas Biotechnology
Corporation and Mitsubishi Chemical Corporation dated
July 10, 1996
10.54(15) -- Form of Indemnification Agreement between Texas
Biotechnology Corporation and its officers and directors
dated May 3, 1996
10.55(15) -- Amended and Restated 1995 Non-Employee Director Stock
Option Plan (as amended by the Board of Directors on June
30, 1996)
10.56(16)* -- Strategic Alliance Agreement between Texas Biotechnology
Corporation and LG Chemical, Ltd. dated October 10, 1996
10.57(16) -- Common Stock Purchase Agreement between Texas
Biotechnology Corporation and LG Chemical, Ltd. dated
October 10, 1996
10.58(18) -- Third Amendment dated January 1, 1997 to Consulting
Agreement with John M. Pietruski dated January 1, 1992.
10.59(18) -- Amendment to License and Research and Development
Agreement between the Company and Synthelabo S.A.
10.60(17) -- Preferred Stock Investment Agreement dated March 13, 1997
between Texas Biotechnology Corporation and certain
investors
10.61(17) -- Registration Rights Agreement dated March 13, 1997
between Texas Biotechnology Corporation and certain
investors
10.62(19) -- Amendment to the 1995 Stock Option Plan of Texas
Biotechnology Corporation dated March 4, 1997
10.63(20) -- Amendment to the 1995 Non-Employee Director Stock Option
Plan of Texas Biotechnology Corporation dated March 4,
1997
58
EXHIBIT NO DESCRIPTION OF EXHIBIT
---------- ----------------------
10.65(21) -- Employee Agreement with Dr. John McMurdo and Texas
Biotechnology Corporation dated December 10, 1998
10.66(21) -- Agreement between Joseph M. Welch and Texas Biotechnology
Corporation dated June 1, 1993.
10.68(22) -- Employment Agreement with Pamela M. Murphy and Texas
Biotechnology Corporation dated February 26, 1998.
10.69(22) -- Employee Agreement between Pamela M. Murphy and Texas
Biotechnology Corporation dated March 2, 1999.
10.70(22) -- Fourth Amendment dated January 1, 1999 to Consulting
Agreement with John M. Pietruski dated January 1, 1992.
10.71(22) -- Texas Biotechnology Corporation 1999 Stock Incentive
Plan.
10.72(23) -- Severance Agreement between Dr. John McMurdo and Texas
Biotechnology Corporation dated October 11, 1999.
10.73(23) -- Amendment to Lease Agreement between Texas Biotechnology
Corporation and the University of Texas Health Science
Center at Houston, dated April 1, 1999.
99.1(20) -- Agreement between Mitsubishi Chemical Corporation, Texas
Biotechnology Corporation and SmithKline Beecham plc
dated February 26, 1998
99.2(20) -- Product Development License and Co-Promotion Agreement
between Texas Biotechnology Corporation and SmithKline
Beecham plc dated August 5, 1997
99.3(20) -- Common Stock Purchase Agreement between Texas
Biotechnology Corporation and SmithKline Beecham plc
dated August 5, 1997
23.1 -- Independent Auditors' Consent
27.1(24) -- Financial Data Schedule
- ---------------
* The Company has omitted certain portions of these agreements in reliance on
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.
(1) Filed as an exhibit to the Company's Form 10 (File No. 0-20117) effective
June 26, 1992 (as amended) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended June 30, 1992 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended September 30, 1992 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended June 30, 1993 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Form 10-Q/A-1 (File No. 0-20117) for
the quarter ended June 30, 1993 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Form S-1 registration statement No.
33-70994 (File No. 0-20117) effective December 15, 1993 (as amended) and
incorporated herein by reference.
(7) Filed as an exhibit to the Company's Form 8-K (File No. 0-20117) filed with
the Securities and Exchange Commission (the "Commission") on October 5,
1994 (as amended) and incorporated herein by reference.
(8) Filed as an exhibit to the Company's Form 8-K/A (File No. 0-20117) filed
with the Commission on March 13, 1995 (as amended) and incorporated herein
by reference.
(9) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) filed
with the Commission on November 14, 1994.
59
(10) Filed as an exhibit to the Company's Form 10-K (File No. 0-20117) for the
year ended December 31, 1994 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended March 31, 1995 and incorporated herein by reference.
(12) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended June 30, 1995 and incorporated herein by reference.
(13) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended September 30, 1995 and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended March 31, 1996 and incorporated herein by reference.
(15) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended June 30, 1996 and incorporated herein by reference.
(16) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended September 30, 1996 and incorporated herein by reference.
(17) Filed as an exhibit to the Company's Form 8-K (File No. 1-12574) with the
Commission on April 2, 1997 and incorporated herein by reference.
(18) Filed as an exhibit to the Company's Form 10-K (File No. 1-12574) for the
year ended December 31, 1996 with the Commission on March 11, 1997 and
incorporated herein by reference.
(19) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended June 30, 1997 with the Commission on August 14, 1997 and
incorporated herein by reference.
(20) Filed as an exhibit to the Company's Form 8-K (File No. 1-12574) with the
Commission on August 25, 1997 and incorporated herein by reference.
(21) Filed as an exhibit to the Company's Form 10-K (File No. 1-12574) with the
Commission on March 25, 1999 and incorporated herein by reference.
(22) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
Quarter ended March 31, 1999 with the Commission on May 13, 1999 and
incorporated herein by reference.
(23) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
Quarter ended September 30, 1999 with the Commission on November 15, 1999
and incorporated herein by reference.
(24) Filed as an exhibit to the Company's Registration Statement on Form S-3
(File 333-31932) with the Commission on March 8, 1999.