Back to GetFilings.com
1
------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______________ to ______________
Commission file number 000-31191
THE MEDICINES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 04-3324394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 225-9099
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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 the Form 10-K. / /
The aggregate market value of voting Common Stock held by
non-affiliates of the registrant was $119,072,129 based on the last reported
sale price of the Common Stock on the Nasdaq National Market on March 28, 2001.
Number of shares of the registrant's class of Common Stock outstanding
as of March 28, 2001: 30,399,002.
DOCUMENTS INCORPORATED BY REFERENCE:
Document Description 10-K Part
- -------------------- ---------
Portions of the Registrant's Proxy Statement for the
2001 Annual Meeting of Stockholders Part III
2
PART I
ITEM 1. BUSINESS
OVERVIEW
The Medicines Company, incorporated in the State of Delaware in 1996, acquires,
develops and commercializes biopharmaceutical products that are in late stages
of development or have been approved for marketing. In December 2000, we
received marketing approval from the United States Food and Drug Administration,
or FDA, for Angiomax, our lead product, for use as an anticoagulant in
combination with aspirin in patients with unstable angina undergoing coronary
balloon angioplasty. Coronary angioplasty is a procedure used to restore normal
blood flow in an obstructed artery in the heart. We began selling Angiomax in
the United States in January 2001.
We are also developing Angiomax for additional potential applications for use in
the treatment of ischemic heart disease, a condition which occurs when organs
receive an inadequate supply of oxygen as a result of decreased blood flow. To
date, clinical investigators have administered Angiomax to approximately 12,600
patients in clinical trials in the treatment and prevention of blood clots in a
wide range of hospital applications. We believe that Angiomax will become the
leading replacement for heparin in hospital care. In the United States, heparin
is the most widely-used acute care anticoagulant and is used to treat
approximately five million hospitalized patients per year.
Angiomax directly blocks or inhibits the actions of thrombin, a key component in
the formation and growth of blood clots. By blocking thrombin directly, rather
than indirectly like heparin, Angiomax inhibits the actions of thrombin both in
the clot and in the blood. Angiomax's inhibition of thrombin is reversible,
which means that its thrombin-blocking effect wears off over time, allowing
thrombin to again work in the clotting process. This reversibility is associated
with a reduced risk of bleeding.
In the clinical trials in angioplasty, Angiomax has:
- - reduced the frequency of life-threatening coronary events including heart
attack and the need for emergency coronary procedures;
- - reduced the likelihood of major bleeding and the need for blood
transfusion;
- - demonstrated a predictable anticoagulant response to a specific Angiomax
dose, which enables simplified dosing; and
- - been used in combination with glycoprotien IIb/IIIa, also known as GP
IIb/IIIa, inhibitors and demonstrated no evidence of significant
interactions.
Our strategy is to build a commercial biopharmaceutical operation by acquiring,
developing and commercializing product candidates. We will actively manage the
development and commercialization of these product candidates. Our principal
objectives include:
- - launching Angiomax for use in patients with unstable angina undergoing
coronary balloon angioplasty;
- - developing and commercializing Angiomax as the leading replacement for
heparin for use in the treatment of ischemic heart disease;
- - acquiring additional products with (1) existing clinical data which
provides reasonable evidence of safety and efficacy, (2) an anticipated
time to market of four years or less and (3) potential cost savings to
payors or improved efficiency of patient care; and
- - making the best use of our resources through our relationships with
contract development, manufacturing and sales companies.
We are marketing Angiomax in the United States using a 52 person sales force
contracted from Innovex, Inc., which we manage. We intend to market our other
products in the United States by contracting with external organizations, which
we would manage, or by collaborating with other biopharmaceutical companies.
3
ANGIOMAX
In December 2000, we received marketing approval from the FDA for Angiomax for
use as an anticoagulant in combination with aspirin in patients with unstable
angina undergoing coronary balloon angioplasty. We began selling Angiomax in the
United States in January 2001. In September 1999, Angiomax was approved in New
Zealand for use in the treatment of patients undergoing coronary balloon
angioplasty.
We believe Angiomax will be a valuable replacement to heparin, an anticoagulant
used in almost all angioplasty procedures performed in the United States and
administered to a majority of patients treated in hospitals in the United States
for acute coronary syndromes, including heart attack. To date, clinical
investigators have administered Angiomax to approximately 12,600 patients in
clinical trials in the treatment and prevention of blood clots in a wide range
of hospital applications. In clinical trials in angioplasty, use of Angiomax has
resulted in fewer life-threatening coronary events and fewer bleeding events
which reduced the likelihood of the need for blood transfusion. The therapeutic
effect of Angiomax is more predictable than heparin, which enables simplified
dosing. Angiomax's therapeutic benefit is strongest in high-risk patients who
have previously experienced a heart attack or unstable angina.
We believe that Angiomax has additional potential applications for the treatment
of ischemic heart disease. We currently:
- - have a randomized, open-label Phase 3b trial program in angioplasty
underway comparing Angiomax to heparin, with and without GP IIb/IIIa
inhibitors;
- - have a 17,000 patient Phase 3 trial program underway studying the use of
Angiomax for the treatment of patients who have suffered a heart attack,
otherwise known as AMI;
- - have a Phase 3 trial program underway studying the use of Angiomax in the
treatment of patients undergoing angioplasty who experience reduced
platelet count and clotting due to an immunological reaction to heparin,
known as heparin-induced thrombocytopenia and heparin-induced
thrombocytopenia and thrombosis syndrome, or HIT/HITTS;
- - have a Phase 2 trial program underway studying the use of Angiomax as an
anticoagulant in patients undergoing coronary artery bypass graft surgery,
or CABG, without the use of a bypass pump; and
- - plan to commence a Phase 3 trial program to study the use of Angiomax in
patients with unstable angina, a condition in which patients experience
the new onset of severe chest pain, increasingly frequent chest pain or
chest pain that occurs while they are at rest.
Background
Clotting. Normally, blood loss at the site of an injury is limited by the
formation of blood clots, or thrombosis. In general, clotting serves a
life-saving function by reducing bleeding, but sometimes unwanted clots in
arteries can lead to heart attack, stroke or organ failure. A blood clot is a
collection of cross-linked strands of a protein called fibrin that forms a mesh
around activated platelets and red blood cells. Blood clots are formed through
precisely regulated interactions among the blood vessel wall, plasma clotting
factors, including thrombin and fibrinogen, and platelets.
The trigger for the clotting process in an artery is typically a tearing or
spontaneous rupture which exposes cholesterol and fat deposited on a blood
vessel wall to the bloodstream. This may happen without an apparent cause or may
be caused as a direct result of, for example, an angioplasty procedure. In
parallel, the clotting factor, thrombin, is activated, and a thin protective
layer of platelets is deposited at the rupture site. Thrombin and platelets
interact, and thrombin formation, fibrin formation and platelet clumping take
place. A full-blown clot may form rapidly as clot blocks the blood vessel and
may then cut off blood supply to the heart muscle. If this occurs, the muscle
stops working either in part, which is a heart attack, or myocardial infarction,
or completely, which may lead to cardiac arrest as the heart stops beating. This
may result in irreversible damage to the heart or death.
During medical procedures such as coronary angioplasty, the blood clotting
process must be slowed to avoid unwanted clotting in the coronary artery, and
the potential growth or movement of a clot along blood vessels to new sites.
- 2 -
4
The trigger for clotting in veins is usually slower than that in arteries. In
general, venous clots are caused by slow blood flow, which typically occurs when
patients are immobilized, such as after surgery and during pregnancy, or when
patients experience changes in the blood as a result of diseases such as cancer.
When a clot develops in large, deep veins, which return blood to the heart by
way of the lungs, this condition is referred to as deep vein thrombosis. In some
cases of deep vein thrombosis, part of the clot may break off and move to the
lungs with potentially fatal results.
Anticoagulation Therapy. Anticoagulation therapy attempts to modify actions of
the components in the blood system that cause clot-forming factors leading to
blood clots. The most important approach to the prevention and management of
arterial and venous clots is diet and exercise. When the risks of clot formation
cannot be avoided, or when medical procedures such as angioplasty almost
guarantee some degree of increased risk of clots, anticoagulation therapy is
indicated. Anticoagulation therapy involves the use of drugs to inhibit one or
more components of the clotting process, thereby reducing the risk of clots.
Anticoagulation therapy is usually started immediately after a diagnosis of
blood clots or after risk factors for clotting are identified. Because
anticoagulation therapy reduces clotting, it also may cause excessive bleeding.
THE CLOTTING PROCESS AND TARGETS FOR ANTICOAGULATION THERAPY
[Chart showing blood clotting mechanism]
To date, three principal components of the clotting process, thrombin, fibrin
and platelets, have been targeted for anticoagulation therapy:
- - The actions of thrombin in the clotting process may be inhibited by
indirect thrombin inhibitors, such as heparin, which act to turn off
coagulation factors and turn on natural anti-clotting factors such as
antithrombin-III, or AT-III. The actions of thrombin in the clotting
process also may be inhibited by direct thrombin inhibitors, which act
directly on thrombin.
- - Fibrin may be dissolved after clotting has occurred by products called
fibrinolytics.
- - The aggregation of platelets in the clotting process may be inhibited by
products called platelet inhibitors, which act on different pathways,
including specific enzyme pathways like the cyclo-oxygenase and the
adenosine diphosphate, or ADP, pathways and surface sites like the GP
IIb/IIIa receptor.
Drugs are currently used alone or in combination with other anticoagulant
therapy to target one or more components of the clotting process. These drugs
have anticoagulant effects but also increase the patient's risk of bleeding.
Excess bleeding is often a risk associated with these drugs due to the high
doses needed to produce anticoagulant effects. In order to reduce this risk,
physicians increasingly use combinations of drugs targeted at different
components of the clotting process at lower doses, which reduce the risk of
thrombosis while minimizing the risk of bleeding.
Indirect Thrombin Inhibitors. In the hospital environment, most patients
undergoing anticoagulation therapy for the prevention and treatment of arterial
and venous thrombosis receive heparin or low molecular weight heparin. In the
United States, approximately five million patients annually receive heparin.
Heparin is a standard component of acute anticoagulation therapy because of the
central role of thrombin in clotting and heparin's rapid anticoagulant effect.
Heparin's properties as an anticoagulant were discovered in 1916. It is prepared
from the intestines of pigs or cows. Heparin is a complex mixture of
animal-derived sugars with variable anticoagulant potencies. The anticoagulant
effects of heparin on any given patient are difficult to predict because heparin
binds non-specifically to human cells and circulating substances in the blood.
For these and other reasons, heparin, as a non-specific, indirect thrombin
inhibitor, presents a variety of clinical challenges including:
- 3 -
5
- - Weak effect in clots. Because it is an indirect thrombin inhibitor,
heparin is ineffective on thrombin when clots have formed.
- - Risk of bleeding. Patients who receive heparin have a high incidence of
bleeding. This is particularly the case with patients who are elderly,
female or underweight. Recent clinical trials have shown that bleeding
risk may also be increased when heparin is used in combination with
intravenous platelet inhibitors.
- - Unpredictability. The anticoagulant effect of a given dose of heparin is
unpredictable and therefore requires close monitoring.
- - Adverse reaction risk. Heparin can cause HIT/HITTS, a dangerous
immunological reaction.
- - Diminished effect in sick patients. Heparin's effect may be reduced in the
presence of blood factors found in patients stressed by disease, such as
heart attack patients.
- - Requires other factors for effect. Heparin can only bind to thrombin by
first binding to a blood factor called antithrombin-III, which may be
absent or present in insufficient amounts in some patients.
Physicians are increasingly using low molecular weight heparins as an
alternative to heparin, especially as chronic therapy. In contrast to heparin,
low molecular weight heparins tend to be more specific in their effect and may
be administered once or twice daily by subcutaneous injection on an outpatient
basis. Despite these advantages, low molecular weight heparins exhibit similar
clinical challenges to those of heparin, including a weak effect in clots that
have already formed and a comparable risk of bleeding. In addition, clinicians
are currently unable to monitor the anticoagulant effects of low molecular
weight heparins, making their use in angioplasty problematic.
Angiomax Potential Advantages
Angiomax is a peptide of 20 amino acids that is a quick-acting, direct and
specific inhibitor of thrombin and is administered by intravenous injection.
Angiomax is specific in that it only binds to thrombin and does not bind to any
other blood factors or cells.
Angiomax was engineered based on the biochemical structure of hirudin, a natural
65-amino acid protein anticoagulant. However, the effects of Angiomax are
reversible while the effects of hirudin are not. This reversibility is
associated with a reduced risk of bleeding.
- 4 -
6
Angiomax has numerous clinical advantages over heparin including:
- - Effective in clots. Angiomax, as a direct thrombin inhibitor, is equally
effective on thrombin in the clot as well as thrombin circulating in the
blood;
- - Reduced bleeding risk. As a reversible thrombin inhibitor, Angiomax has
consistently shown clinically meaningful reductions in bleeding as
compared to heparin;
- - Predictability. A specified dose of Angiomax results in a predictable
level of anticoagulation;
- - Diminished adverse reaction risk. To date, Angiomax has not caused
dangerous immunological reactions in clinical trials;
- - Effective in sick patients. Angiomax is effective even in the presence of
blood factors found in patients stressed by disease; and
- - Independent of other factors for effect. Unlike heparin, Angiomax's effect
does not require the presence of antithrombin-III or any other factors to
act on thrombin.
Angiomax Potential Applications
We believe that Angiomax will become the leading replacement for heparin in
acute cardiovascular care. We plan to commercialize Angiomax first for use in
patients undergoing coronary balloon angioplasty. In addition, we are developing
Angiomax for use as an alternative to heparin for the treatment of acute
coronary syndromes, with a Phase 3b trial called REPLACE underway in
angioplasty, a Phase 3 trial underway in AMI, a Phase 3 trial underway in
HIT/HITTS, a Phase 2 trial underway in CABG without the use of a bypass pump and
a Phase 3 trial planned in patients with unstable angina. Our development plan
is designed to highlight the clinical benefits of Angiomax initially in broad
patient populations treated with heparin at high risk of clots or bleeding. We
are also investigating other applications of Angiomax as an acute care product.
ANGIOMAX DEVELOPMENT PROGRAMS
[Graph depicting clinical
status of our products and potential indications]
Use of Angiomax in Angioplasty
Angioplasty. Angioplasty is a procedure involving the inflation of a balloon or
deployment of a stent or other device inside an obstructed artery to restore
normal blood flow. The coronary angioplasty procedure itself increases the risk
of coronary clotting potentially leading to myocardial infarction, or MI, urgent
revascularization through repeat angioplasty, or CABG, or death.
Based on the most recently available hospital discharge data, in the United
States, there were approximately 686,000 inpatient angioplasty procedures
performed in 1997 and approximately 55,000 outpatient angioplasty procedures
performed in 1996. We believe approximately one half of patients undergoing
angioplasty in an inpatient hospital setting were admitted through the emergency
room and may be categorized as high risk. Many of these high-risk patients have
previously experienced a heart attack or have unstable angina.
To prevent clotting, anticoagulation therapy is routinely administered to
patients undergoing angioplasty. Heparin is currently used as an anticoagulant
in virtually all patients undergoing angioplasty. In addition, platelet
inhibitors such as aspirin, an ADP inhibitor or a GP IIb/IIIa inhibitor are
often administered.
A segment of patients undergoing angioplasty and receiving anticoagulation
therapy are at risk of significant bleeding. For example, the risk is greater
for patients who are elderly, female or underweight.
Angiomax Clinical Experience in Angioplasty. To date, we and the licensor of
Angiomax, Biogen, have conducted clinical trials of Angiomax in over 6,000
patients undergoing angioplasty. These trials have shown that Angiomax is a
predictable anticoagulant, which can be used in combination with other therapies
and which results in fewer adverse clinical events when compared to heparin.
- 5 -
7
- --------------------------------------------------------------------------------------------------------------------------
ANGIOPLASTY TRIALS OF ANGIOMAX
- --------------------------------------------------------------------------------------------------------------------------
LEAD INVESTIGATORS COMPLETED PATIENTS PHASE TRIAL/STUDY DESCRIPTION
- --------------------------------------------------------------------------------------------------------------------------
E. Topol 1992 291 2 Angiomax dose-ranging trial
- --------------------------------------------------------------------------------------------------------------------------
J. Bittl 1994 4,312 3 Pivotal angioplasty trials comparing
Angiomax with high dose heparin in
unstable angina patients
- --------------------------------------------------------------------------------------------------------------------------
M. Abernathy, 1999 30 3 Interaction study of Angiomax with
P. Aylward Ticlid
- --------------------------------------------------------------------------------------------------------------------------
L. Wallentin 1999 40 3 Trial comparing Angiomax with heparin
in patients switched from low
molecular weight heparin
- --------------------------------------------------------------------------------------------------------------------------
H. White, P. Aylward 2000 26 3 Trial of Angiomax dosing in patients
with normal to moderately impaired
kidney function
- --------------------------------------------------------------------------------------------------------------------------
N. Kleiman 2000 42 3b Interaction study of Angiomax with
Integrilin
- --------------------------------------------------------------------------------------------------------------------------
E. Topol, N. Kleiman, 1999 60 3 CACHET-A trial comparing Angiomax
A.M. Lincoff, with heparin in full-dose ReoPro patients
R. Harrington
- --------------------------------------------------------------------------------------------------------------------------
E. Topol, N. Kleiman, 2000 210 3 CACHET-B/C trial comparing Angiomax
A. M. Lincoff, with ReoPro plus heparin in broad
R. Harrington patient group
- --------------------------------------------------------------------------------------------------------------------------
R. Califf, K. Mahaffey Ongoing 18 3 Study of Angiomax in HIT/HITTS
patients
- --------------------------------------------------------------------------------------------------------------------------
J. Ormiston 2000 49 3b Angiomax single intravenous dose
trial
- --------------------------------------------------------------------------------------------------------------------------
J. Ormiston 2000 33 3b Interaction study of Angiomax with
Aggrastat
- --------------------------------------------------------------------------------------------------------------------------
A.M. Lincoff Ongoing 1,057 3b REPLACE trial comparing Angiomax to
heparin, with and without GP IIb/IIIa
inhibitors
- --------------------------------------------------------------------------------------------------------------------------
Phase 3 Pivotal Trials in Angioplasty. Two similar, randomized double blind
clinical trials compared the use of Angiomax to heparin in a total of 4,312
patients with unstable angina undergoing coronary balloon angioplasty. High
doses of heparin were used in the trials. When measured seven days after
treatment in the hospital, in comparison to heparin-treated patients in the
trials, Angiomax-treated patients experienced:
- 6 -
8
- - 43% fewer clinical events as measured by death, MI, revascularization
procedures or major bleeding;
- - 22% fewer ischemic events as measured by death, revascularization or MI;
and
- - 62% or 65% less bleeding, as measured by a protocol-defined end point of
major bleeding or the transfusion of two or more units of blood,
respectively.
The following table summarizes the combined clinical results for all unstable
angina patients in the pivotal Phase 3 angioplasty trials.
PERCENTAGE
REDUCTION
IN ADVERSE
ANGIOMAX HEPARIN CLINICAL EVENT P-VALUE*
-------- ------- -------------- --------
Number of patients..................................... 2,161 2,151
In hospital up to 7 days
Death, MI, revascularization or major bleeding....... 8.3% 14.5% 43% <0.001
Death, MI or revascularization....................... 6.2% 7.9% 22% 0.039
Major bleeding....................................... 3.5% 9.3% 62% <0.001
Transfusion.......................................... 2.0% 5.7% 65% <0.001
At 90 days
Death, MI or revascularization....................... 15.7% 18.5% 15% 0.012
* The statistical significance of clinical results is determined by a
widely-used statistical method that establishes the p-value of clinical
results. For example, a p-value of less than 0.01 (p<0.01) means that the
chance of the clinical results occurring by accident is less than 1 in 100.
The trials included a prospectively defined and separately stratified group of
741 patients, who had experienced an MI during the two weeks prior to
angioplasty. The benefits of Angiomax as a direct thrombin inhibitor, compared
to heparin as an indirect thrombin inhibitor, were more pronounced for this
group of 741 patients who had experienced an MI during the two weeks prior to
angioplasty. When measured seven days after treatment in the hospital, the
Angiomax-treated patients experienced the following benefits:
- - 64% fewer clinical events as measured by death, MI, revascularization
procedures or major bleeding;
- - 51% fewer ischemic events as measured by death, revascularization or MI;
and
- - 76% or 80% less bleeding, as measured by a protocol-defined major bleeding
or as measured by a transfusion of two or more units of blood.
The following table summarizes the combined clinical results of the group of
patients who had experienced a heart attack or MI during the two weeks prior to
angioplasty in the pivotal Phase 3 angioplasty trials.
PERCENTAGE
REDUCTION
IN ADVERSE
ANGIOMAX HEPARIN CLINICAL EVENTS P-VALUE
-------- ------- --------------- -------
Number of patients.................................... 369 372
In hospital up to 7 days
Death, MI, revascularization or major bleeding...... 6.5% 18.3% 64% <0.001
Death, MI or revascularization...................... 4.9% 9.9% 51% 0.009
Major bleeding...................................... 2.4% 11.8% 80% <0.001
Transfusion......................................... 1.6% 6.7% 76% <0.001
At 90 days
Death, MI or revascularization...................... 11.7% 20.2% 42% <0.003
Recent trends in interventional cardiology have resulted in heparin doses lower
than those used in the Angiomax pivotal Phase 3 trials in angioplasty. We
believe that this trend has been encouraged by the increasing combined use of
platelet inhibitors and heparin in
- 7 -
9
angioplasty. In most recent major angioplasty trials with GP IIb/IIIa
inhibitors, lower heparin doses were used than in the Angiomax pivotal Phase 3
trials.
Heparin Dosing in Pivotal Phase 3 Angioplasty Trial. Analyses of data from a
wide array of recent angioplasty trials show that the bleeding rates for the
heparin patients in our trials were not higher than the bleeding rates for other
trials where lower doses of heparin were used. Ischemic event rates for patients
in the Angiomax pivotal Phase 3 trials were lower than for patients receiving
lower doses of heparin without a GP IIb/IIIa inhibitor in other clinical
studies.
CACHET-B/C Trials in Angioplasty. In February 2000, we completed the CACHET-B/C
study, a 210 patient randomized, multicenter study, in angioplasty. The trial
analyzed the use of Angiomax versus low-dose heparin. All heparin patients also
received doses of the GP IIb/IIIa inhibitor ReoPro. Although Angiomax patients
could receive ReoPro under certain circumstances, physicians in the trial opted
not to use ReoPro in 76% of the Angiomax patients.
The CACHET-B/C patient study population was broader than in earlier Angiomax
trials, targeting lower risk patients undergoing angioplasty with expected
stenting. Heparin and Angiomax doses were designed to achieve similar levels of
anticoagulation. Platelet inhibitors Aspirin in combination with Ticlid or
Plavix was used in most patients. As in previous trials, Angiomax provided
predictable levels of dose response anticoagulation.
The combined incidence of death, MI, revascularization or major bleeding
reported within seven days was 3.5% in Angiomax patients and 14.3% in heparin
and ReoPro patients with a p-value of 0.013.
Low platelet count, or thrombocytopenia, was significantly less frequent among
Angiomax patients than among heparin/ ReoPro patients with a p-value of 0.012.
Other adverse events occurred with similar frequency in both groups. Angiomax
showed no apparent pharmacological interaction with ReoPro.
The results of the CACHET-B/C study provides more support for the use of
Angiomax as a foundation anticoagulant for angioplasty. In this study, Angiomax
demonstrated predictable reversible anticoagulation and improved net clinical
benefit over heparin. In addition, by decreasing major bleeds and reducing the
need for revascularization and drug costs, we believe that on average
substantial cost savings are possible for hospitals treating patients with
Angiomax.
Interaction Studies. Specific interaction studies of Angiomax with GP IIb/IIIa
inhibitors ReoPro, Integrilin and Aggrastat have not revealed any drug-drug
interactions.
REPLACE Trial in Angioplasty. In November 2000, we began a randomized,
open-label two-part Phase 3b trial of the use of Angiomax in angioplasty. We
expect that the trial will be conducted at approximately 200 sites in the United
States. The first part of the trial, in which we have enrolled 1,000 patients,
is designed to assess the clinical outcomes and health economics of Angiomax
compared to heparin, with and without GP IIb/IIIa inhibitors. The second part of
the trial, which will include up to 6,000 patients who have been referred for
angioplasty, will include three randomized arms:
- - heparin with a GP IIb/IIIa inhibitor;
- - Angiomax with the provisional use of a GP IIb/IIIa inhibitor at the choice
of the physician; and
- - Angiomax with a GP IIb/IIIa inhibitor.
Angiomax Commercialization Plans for Angioplasty. We began selling Angiomax in
the United States in January 2001 using a 52 person sales force contracted from
Innovex, Inc., which we manage. In December 2000, we signed a master services
agreement and a work order with Innovex under which Innovex agreed to provide
the sales force, a sales territory management system and operational support for
the launch of Angiomax.
We are focusing our Angiomax marketing efforts on interventional cardiologists
and other key clinical decision-makers for Angiomax. Our 52 person sales force
has been configured to target the relatively small number of cardiac
catheterization laboratories in which most of the angioplasty procedures in the
United States are performed.
- 8 -
10
We expect Angiomax to provide cost savings to medical decision-makers who use
Angiomax as part of a safe and effective anticoagulant therapy. Many United
States hospitals receive a fixed reimbursement amount for the angioplasties they
perform. Because this amount is not based on the actual expenses the hospital
incurs, the use of Angiomax has the potential to reduce a hospital's cost of
treating an angioplasty patient by reducing bleeding and ischemic events and
reducing the need for other treatment therapies. From 1995 to 1997, the
incremental costs to a hospital averaged the following: approximately $12,000
for an angioplasty patient receiving a 2-unit transfusion; approximately $4,000
for revascularization in the form of a repeat angioplasty; and approximately
$17,000 for an angioplasty patient revascularized by means of coronary artery
bypass graft surgery. Our pricing structure for Angiomax is designed to provide
hospitals with cost savings based on reductions in clinical events and drug
costs.
If Angiomax is approved for use in other indications, such as AMI or unstable
angina, we intend to market Angiomax for these indications in the United States
by supplementing our commercial organization, or by collaborating with other
biopharmaceutical companies.
Acute Myocardial Infarction
Acute myocardial infarction is a leading cause of death. AMI occurs when
coronary arteries, which supply blood to the heart, become completely blocked
with clots. AMI patients are routinely treated with heparin, with and without
fibrinolytics. Heart attack patients are increasingly undergoing angioplasty as
a primary treatment to unblock clotted arteries.
Based on the most recently available hospital discharge data, in 1997 there were
approximately 871,000 AMI patients in the United States who were treated in a
hospital.
Angiomax Clinical Experience in AMI. To date, we and Biogen have conducted
clinical trials comparing Angiomax and heparin in over 16,500 AMI patients.
LEAD INVESTIGATORS COMPLETED PATIENTS PHASE TRIAL DESCRIPTION
- ------------------ --------- -------- ----- ------------------
P. Theroux.......................... 1992 45 2 Dose-ranging trial comparing
Angiomax with heparin administered prior
to a fibrinolytic
P. Theroux.......................... 1993 68 2 Dose-ranging trial comparing
Angiomax with heparin administered prior
to a fibrinolytic
H. White............................ 1996 412 2 HERO-1: Dose-ranging trial
comparing Angiomax with heparin administered
following a fibrinolytic
H. White, R. Califf,
F. Van de Werf,
P. Aylward.......................... Ongoing 16,287 3 HERO-2: Mortality trial comparing
Angiomax with heparin administered
prior to a fibrinolytic in up to
17,000 patients
- --------------
The first two trials compared the effect of two doses of Angiomax with heparin
as therapy administered in advance of streptokinase, a fibrinolytic, in heart
attack patients. The trials were designed to compare the difference in rates of
blood flow following therapy. The third trial, the Hirulog Early
Reperfusion/Occlusion-1 trial, or the HERO-1 trial, was a multi-center,
randomized, double blind comparison involving 412 patients. In this trial,
patients with AMI were administered heparin or one of two doses of Angiomax as
therapy following the administration of streptokinase and aspirin. Blood flow
rates after therapy were evaluated using a standard measure of coronary artery
blood flow.
- 9 -
11
The three Phase 2 trials demonstrated that use of Angiomax:
- - resulted in normal blood flow in at least 34% more patients than heparin;
and
- - resulted in substantially less bleeding and the need for fewer
transfusions than heparin.
The following table summarizes the clinical results for AMI patients in the
Phase 2 clinical trials comparing Angiomax to heparin as combined with a
fibrinolytic:
ANGIOMAX HEPARIN PERCENTAGE
PATIENTS PATIENTS IMPROVEMENT P-VALUE
-------- -------- ----------- -------
Theroux Montreal Heart Institute Study 1 (45 patients)
Full blood flow at 90 minutes.......................... 67% 40% 67% 0.08
Theroux Montreal Heart Institute Study 2 (68 patients)
Full blood flow at 90 minutes.......................... 71% 31% 129% 0.006
Transfusion............................................ 5% 31% 84% <0.02
HERO-1 Trial (412 patients)
Full blood flow at 90 minutes.......................... 47% 35% 34% 0.024
Major bleeding......................................... 17% 28% 39% <0.01
- -----------
Based on the results of these Phase 2 trials, we are conducting a worldwide
17,000 patient Phase 3 clinical trial in AMI. In this HERO-2 Phase 3 trial, AMI
patients receive Angiomax or heparin prior to treatment with a fibrinolytic. All
patients receive aspirin and Streptase, a fibrinolytic. This trial is designed
to demonstrate statistically significant improvement in 30-day cumulative
mortality among patients receiving Angiomax, thus establishing Angiomax as the
only direct thrombin inhibitor with mortality benefit compared to heparin in the
management of AMI.
We are coordinating the HERO-2 trial with the Virtual Coordinating Center for
Global Collaborative Cardiovascular Research Organization, commonly referred to
as VIGOUR, an academic consortium of leading cardiologists and their affiliated
institutions established to coordinate the efforts of large global clinical
trials in cardiology. The trial has been approved in 43 countries, has over 500
active sites and is enrolling approximately 800 patients per month. To date,
approximately 16,287 patients have been enrolled in the trial. We expect the
trial to complete enrollment by the first half of 2001.
Following enrollment of approximately 2,000, 5,000, 8,000 and 12,500 patients,
an independent panel, the Drug Safety Monitoring Board, reviewed safety data
from the trial to determine whether there were safety issues that would warrant
modification or early termination of the trial. The Board completed the fourth
planned review in January 2001, and the trial is proceeding without
modification. In contrast, two previous trials using high doses of hirudin in
patients including heart attack patients were stopped early because of excessive
bleeding in the hirudin patients.
Acute Coronary Syndromes/Unstable Angina
Unstable angina is a condition in which patients experience the new onset of
severe chest pain, increasingly frequent chest pain or chest pain that occurs
while they are resting. Unstable angina is caused most often by a rupture of
plaque on an arterial wall that ultimately decreases coronary blood flow but
does not cause complete blockage of the artery. There are approximately 948,000
cases of unstable angina in the United States reported each year. Unstable
angina is often treated in hospitals with anticoagulation therapy that may
include aspirin, indirect thrombin inhibitors such as heparin or low molecular
weight heparin and GP IIb/IIIa inhibitors. Many unstable angina patients undergo
angioplasty or CABG.
Angiomax Clinical Experience in Unstable Angina. To date, we and Biogen have
completed five Phase 2 trials of Angiomax in patients with unstable angina or
who had experienced a less serious form of MI known as non Q-wave MI. These
trials enrolled a total of 630 patients, of whom 553 received various doses of
Angiomax. These studies have demonstrated that Angiomax is an anticoagulant
which can be administered safely in patients with unstable angina.
The largest of these Phase 2 trials was a multicenter, double blind,
placebo-controlled and randomized study in 410 patients with unstable angina or
who had experienced non Q-wave MI. The trial compared the effect of three active
dose levels and one placebo dose level of Angiomax with respect to death, MI,
recurrent angina and major bleeding. Angiomax demonstrated a significant
correlation between dose and anticoagulant effect.
- 10 -
12
In comparison to 160 patients treated with placebo doses in the trial, 250
patients treated with active doses of Angiomax experienced:
- - a 68% reduction in death or MI in hospital with a p-value equal to 0.009;
and
- - a 59% reduction in death or MI after six weeks with a p-value equal to
0.014.
Other Indications
We and Biogen have conducted a number of additional clinical trials of Angiomax
for other indications.
HIT/HITTS. Approximately one to three percent of patients who have received
heparin for seven to 14 days experience a condition known as HIT/HITTS. The
underlying mechanism for the condition appears to be an immunological response
to a complex formed by heparin and another factor, resulting in the lowering of
platelet counts, commonly referred to as thrombocytopenia, and in some cases in
arterial or venous clotting, which may result in the need for limb amputation,
or death. Because further administration of heparin is not possible, an
alternative anticoagulant is necessary.
Prior to 1997, Angiomax was administered to a total of 39 HIT/HITTS patients
undergoing angioplasty requiring anticoagulation for invasive coronary
procedures or treatment of thrombosis. For those patients undergoing angioplasty
and other procedures, Angiomax provided adequate anticoagulation, was
well-tolerated and rarely resulted in bleeding complications.
Based upon the encouraging data in 39 patients, we are currently enrolling
patients in a trial designed to evaluate the use of Angiomax for treatment of
HIT/HITTS patients undergoing angioplasty. The trial has enrolled 18 patients to
date and plans to enroll 50 patients in total.
Deep Venous Thrombosis. Thirty-one patients with clots in the veins in their
legs and 222 patients undergoing orthopedic surgical procedures were treated
with Angiomax in two open-label, dose-ranging Phase 2 trials in 1990. Both
studies established that Angiomax was an active and well-tolerated anticoagulant
and that the anticoagulant effects correlated with the dose of Angiomax.
CABG. We have initiated a 100 patient Phase 2 trial of Angiomax comparing
Angiomax to heparin in patients undergoing off pump CABG. The trial was
initiated in November 2000 and 21 patients have been enrolled in the trial to
date.
We are actively considering further development plans to expand the uses of
Angiomax in venous thrombosis and other indications.
Regulatory Status
In December 2000, we received approval from the FDA for the use of Angiomax in
combination with aspirin in patients with unstable angina undergoing coronary
balloon angioplasty. In connection with this approval, the FDA has required us
to complete our ongoing trial evaluating the use of Angiomax for the treatment
of HIT/HITTS patients undergoing angioplasty. Angiomax is intended for use with
aspirin and has been studied only in patients also receiving aspirin.
In February 1998, we submitted a Marketing Authorization Application, or MAA, to
the European Agency for the Evaluation of Medicinal Products, or EMEA, for use
in unstable angina patients undergoing angioplasty. Following extended
interaction with European regulatory authorities, the Committee of Proprietary
Medicinal Products, or CPMP, of the EMEA voted in October 1999 not to recommend
Angiomax for approval in angioplasty. The United Kingdom and Ireland dissented
from this decision. We have withdrawn our application to the EMEA and are in
active dialogue with European regulators to determine our alternative courses of
action including seeking approval of Angiomax in Europe on a country-by-country
basis.
Angiomax was approved in New Zealand in September 1999 for use as an
anticoagulant in patients undergoing coronary balloon angioplasty, and we began
selling Angiomax in New Zealand in June 2000. We have submitted an application
in Canada to market Angiomax for use in unstable angina patients undergoing
angioplasty and are in active dialogue with Canadian regulators.
CTV-05
In 1999, we acquired from GyneLogix, Inc. exclusive worldwide rights to CTV-05,
a strain of bacteria under clinical investigation for a broad range of
applications in the areas of gynecological and reproductive health. We have
entered into a clinical trial agreement with the National Institutes of Allergy
and Infectious Diseases, a division of the National Institutes of Health,
commonly referred to as
- 11 -
13
NIH, to conduct a Phase 2 trial of CTV-05, a proprietary biotherapeutic agent
for the treatment of bacterial vaginosis, or BV. BV, the most common
gynecological infection in women of childbearing age, is an imbalance of
naturally occurring organisms in the vagina.
Bacterial Vaginosis
BV develops when certain bacteria normally present in the vagina in low levels
multiply to infectious levels. BV is associated with serious health risks such
as pelvic inflammatory disease, pre-term birth, post-surgical infection and an
increased susceptibility to sexually transmitted diseases, including AIDS. The
standard treatments currently prescribed for BV are oral or topical antibiotics
including metronidazole and clindamycin. These treatments are not optimal,
having significant recurrence rates. Moreover, antibiotic use depletes a
beneficial bacteria called lactobacilli.
CTV-05: Rationale, Product Profile and Clinical Studies
A healthy vagina is principally populated by lactobacilli. The presence of
lactobacilli in the vagina, particularly those that produce hydrogen peroxide
which is active against disease causing bacteria, has been linked to decreased
incidence of BV and other urinary tract and gynecological infections. However,
many women lack sufficient populations of hydrogen peroxide-producing
lactobacilli to maintain vaginal health, making them more susceptible to
infection.
Studies have shown that the CTV-05 strain of lactobacillus is able to restore
the natural balance of the bacteria in the vagina and produce both hydrogen
peroxide and lactic acid, substances which are active against disease-causing
bacteria and serve a protective role. Because of this, CTV-05 has the potential
to improve cure rates when used in conjunction with approved antibiotics, to
prevent BV recurrence and thus to reduce serious health risks.
In the Phase 2 safety and efficacy trial, funded by National Institute of
Health, CTV-05 is administered topically to BV patients. The study is primarily
designed to show whether CTV-05 improves cure rates of BV at 30 days. The study
is the first large trial to look at recurrence rates of BV at 90 days. To date,
we have enrolled over 200 patients in a 400 patient trial at three sites and
expect to conclude the trial in 2001.
Other Indications
Recently completed studies by GyneLogix under a Center for Disease Control and
Prevention grant, have shown that CTV-05 is active against the organisms which
cause yeast infections and gonorrhea. We plan to conduct pilot clinical studies
in these indications.
IS-159
In 1998, we acquired from Immunotech S.A. exclusive worldwide rights to IS-159,
a selective chemical that reacts with receptors found on cerebral blood vessels
and nerve terminals. We are seeking a collaborator to develop IS-159 and do not
intend to initiate further studies of IS-159 until we enter into a collaborative
arrangement.
PRODUCT ACQUISITION STRATEGY
We plan to continue to acquire, develop and commercialize late-stage product
candidates or approved products that make a clinical difference to patients
managed by focused groups of medical decision-makers. Our strategy is to acquire
late-stage development product candidates with an anticipated time to market of
four years or less and existing clinical data which provides reasonable evidence
of safety and efficacy. In addition, we aim to acquire approved products that
can be marketed by our commercial organization. In making our acquisition
decisions we attempt to select products that meet these criteria and achieve
high investment returns by:
- - understanding the market opportunity for initially-targeted uses of the
drug;
- - assessing the investment and development programs that will be necessary
to achieve a marketable product profile in these initial uses; and
- - attempting to structure the design of our development programs to obtain
critical information relating to the clinical and economic performance of
the product early in the development process, so that we can make key
development decisions.
To date, we have implemented this strategy with Angiomax, CTV-05 and IS-159.
- 12 -
14
We intend to acquire products and product candidates with possible uses and
markets beyond those on which our initial investment program will be focused. We
plan to acquire other products that will enhance the acute hospital product
franchise we are building around Angiomax. We are also seeking other specialty
anti-infective products and product candidates that will fit into the franchise
we expect to build around CTV-05.
We have assembled a management team with significant experience in drug
development and in drug product launches and commercialization.
MANUFACTURING
We do not intend to build or operate manufacturing facilities but instead intend
to enter into contracts for manufacturing development and/or commercial supply.
Angiomax
All Angiomax bulk drug substance used in non-clinical and clinical work
performed to date has been produced by UCB Bioproducts S.A. by means of a
chemical synthesis process. We have ordered, and for the foreseeable future will
order, Angiomax bulk drug substance from UCB Bioproducts under the validated
manufacturing process. Using this process, UCB Bioproducts has successfully
completed the manufacture of bulk drug substance to meet anticipated commercial
supply requirements in 2001.
Together with UCB Bioproducts, we have developed a second generation chemical
synthesis process to improve the economics of the manufacturing of Angiomax bulk
drug substance. This process, which must be approved by the FDA before it can be
used, is known as the Chemilog process and involves limited changes to the early
manufacturing steps of our current process in order to improve process
economics. We expect the Chemilog process to produce material that is chemically
equivalent to that produced using the current process. UCB Bioproducts has
completed initial development of the process and is currently manufacturing
validation batches.
We have entered into a commercial development and supply agreement with UCB
Bioproducts for production of Angiomax bulk drug substance utilizing the
Chemilog process. Under terms of the agreement, UCB Bioproducts will prepare and
file the necessary drug master file for regulatory approval of the Chemilog
process. If the Chemilog process is successfully developed and regulatory
approval is obtained, we expect this process will result in a reduced cost of
manufacturing.
Ben Venue Laboratories, Inc. has carried out all of our Angiomax fill-finish
activities and has released product for clinical trials and commercial sale. We
have developed reproducible analytical methods and processes for the manufacture
of Angiomax drug product by Ben Venue Laboratories.
CTV-05
To date, GyneLogix has manufactured all CTV-05 material used in clinical trials.
In order to scale up production to produce sufficient materials for later phase
clinical trials, we have entered into a manufacturing arrangement with The Dow
Chemical Company. We are currently in the process of transferring the CTV-05
manufacturing technology to Dow.
STRATEGIC RELATIONSHIPS
In order to develop and commercialize our products, we leverage our resources by
utilizing contract product development, manufacturing and sales companies.
UCB Bioproducts
In December 1999, we entered into a commercial development and supply agreement
with UCB Bioproducts for the development and supply of Angiomax bulk drug
substance. Under the terms of the agreement, UCB Bioproducts is also responsible
for developing the Chemilog process in coordination with us and obtaining
regulatory approval for use of the process. We have agreed to partially fund UCB
Bioproducts' development activities. This funding is due upon the completion by
UCB Bioproducts of development milestones. If UCB Bioproducts successfully
completes each of these development milestones, we anticipate that total
development funding paid by us will equal approximately $9.1 million. Of this
$9.1 million, $7.7 million will be paid to UCB Bioproducts for validation
batches of Angiomax manufactured using the Chemilog process, which we may use
for commercial sale following regulatory approval of the
- 13 -
15
Chemilog process. In addition, following successful development and regulatory
approval of the Chemilog process, we have agreed to purchase Angiomax bulk drug
substance exclusively from UCB Bioproducts at agreed upon prices for a period of
seven years from the date of the first commercial sale of Angiomax produced
using the Chemilog process. Following the expiration of the agreement, or if we
terminate the agreement prior to its expiration, UCB Bioproducts will transfer
the development technology to us. If we engage a third party to manufacture
Angiomax for us using this technology, we will be obligated to pay UCB
Bioproducts a royalty based on the amount paid by us to the third-party
manufacturer.
PharmaBio/Quintiles
In August 1996, we entered into a strategic alliance with PharmaBio Development,
Inc., a wholly owned subsidiary of Quintiles Transnational Corp. Under the terms
of the strategic alliance agreement, PharmaBio and any of its affiliates who
work on our projects will, at no cost to us, review and evaluate, jointly with
us, development programs we design related to potential or actual product
acquisitions. The purpose of this collaboration is to optimize the duration,
cost, specifications and quality aspects of such programs. PharmaBio and its
affiliates have also agreed to perform certain other services with respect to
our products, including clinical and non-clinical development services, project
management, project implementation, pharmacoeconomic services, regulatory
affairs and post-marketing surveillance services and statistical, statistical
programming, data processing and data management services. We have agreed to pay
PharmaBio its standard fee for these other services, with certain exceptions for
exceptional performance by PharmaBio.
Innovex
In January 1997, we entered into a consulting agreement with Innovex, Inc., a
subsidiary of Quintiles, which was subsequently superseded by a consulting
agreement we executed with Innovex in December 1998. Pursuant to the terms of
these agreements, Innovex has provided us with consulting services with respect
to pharmaceutical marketing and sales.
In December 2000, we signed a master services agreement and a work order with
Innovex to promote Angiomax. Under the agreement and work order, Innovex has
provided a sales force of 52 sales representatives, a sales territory management
system and operational support for the launch of Angiomax. Under the terms of
the agreement and work order, we have paid Innovex a total of approximately $1.1
million for its services through December 31, 2000.
COMPETITION
The development and commercialization of new drugs is competitive and we will
face competition from major pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies worldwide. 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 their products more rapidly than we may obtain approval for ours.
Due to the incidence and severity of cardiovascular diseases, the market for
anticoagulant therapies is large and competition is intense and growing. We are
developing Angiomax as an anticoagulant therapy for the treatment of ischemic
heart disease. There are a number of anticoagulant therapies currently on the
market, awaiting regulatory approval or in development.
In general, anticoagulant drugs may be classified in three groups: drugs that
directly or indirectly target and inhibit thrombin or its formation, drugs that
target and inhibit platelets activation and aggregation and drugs that break
down fibrin. Indirect thrombin inhibitors include heparin and low molecular
weight heparins such as Lovenox, Fragmin and pentasaccharide. Direct thrombin
inhibitors include Angiomax, Argatroban, Melagatran and hirudins such as
Refludan. Platelet inhibitors include aspirin, Ticlid and Plavix. GP IIb/IIIa
inhibitors include ReoPro, Integrilin and Aggrastat. Fibrinolytics include
Streptase, Activase, Retevase and TNKase.
Because each group of anticoagulants acts on different clotting factors, we
believe that there will be continued clinical work to determine the best
combination of drugs for clinical use. We plan to position Angiomax as an
alternative to heparin as baseline anticoagulation therapy for use in patients
with ischemic heart disease. We expect Angiomax to be used with aspirin alone or
in conjunction with other fibrinolytic drugs or platelet inhibitors. We will
compete with indirect and direct thrombin inhibitors on the basis of efficacy
and safety, ease of administration and economic value. Heparin's widespread use
and low cost to hospitals will provide a selling challenge.
We do not plan to position Angiomax as a direct competitor to platelet
inhibitors such as ReoPro from Centocor, Inc. and Eli Lilly and Company,
Aggrastat from Merck, Inc. or Integrilin from Cor Therapeutics, Inc. and
Schering-Plough Corporation. Similarly, we do
- 14 -
16
not plan to position Angiomax as a competitor to fibrinolytic drugs such as
Streptase from Aventis S.A., Retevase from Centocor, Inc., and Activase and
TNKase from Genentech Inc. Platelet inhibitors and fibrinolytic drugs may,
however, compete with Angiomax for the use of hospital financial resources. Many
U.S. hospitals receive a fixed reimbursement amount per procedure for the
angioplasties and other treatment therapies they perform. Because this amount is
not based on the actual expenses the hospital incurs, U.S. hospitals may be
forced to use either Angiomax or a platelet inhibitor or fibrinolytic drugs but
not both.
The acquisition or licensing of pharmaceutical products is a competitive area,
and a number of more established companies, which have acknowledged strategies
to license or acquire products, may have competitive advantages as may other
emerging companies taking similar or different approaches to product
acquisition. In addition, a number of established research-based pharmaceutical
and biotechnology companies may have acquired products in late stages of
development to augment their internal product lines. These established companies
may have a competitive advantage over us due to their size, cash flows and
institutional experience.
Many of our competitors will have substantially greater financial, technical and
human resources than we have. Additional mergers and acquisitions in the
pharmaceutical industry may result in even more resources being concentrated in
our competitors. Competition may increase further as a result of advances made
in the commercial applicability of technologies and greater availability of
capital for investment in these fields. Our success will be based in part on our
ability to build and actively manage a portfolio of drugs that addresses unmet
medical needs and create value in patient therapy.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
Our success will depend in part on our ability to protect the products we
acquire or license by obtaining and maintaining patent protection both in the
United States and in other countries. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position. We plan to prosecute and defend any patents
or patent applications we acquire or license, as well as any proprietary
technology.
We have exclusively licensed from Biogen patents and applications for patents
covering Angiomax and Angiomax analogs and other novel anticoagulants as
compositions of matter, and processes for using Angiomax and Angiomax analogs
and other novel anticoagulants. We have exclusively licensed from GyneLogix a
patent and patent applications covering formulations and uses of the
biotherapeutic agent CTV-05 for the treatment of urogenital and reproductive
health. We have also exclusively licensed from Immunotech a patent and patent
applications covering the pharmaceutical IS-159 and its use for the treatment of
acute migraine headache. In each case, we are responsible for prosecuting and
maintaining such patents and patent applications. In all, we exclusively license
10 issued United States patents and a broadly filed portfolio of corresponding
foreign patents and patent applications. We have not yet filed any independent
patent applications. The U.S. patents licensed by us expire at various dates
ranging from March 2010 to April 2017.
The patent positions of pharmaceutical and biotechnology firms like us are
generally uncertain and involve complex legal, scientific and factual questions.
In addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, we do not know whether any of
the applications we acquire or license will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or will be challenged, circumvented or invalidated. Because patent
applications in the United States 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 of the priority of
inventions covered by pending patent applications. Moreover, we may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office to determine priority of invention, or in opposition
proceedings in a foreign patent office, either of which could result in
substantial cost to us, even if the eventual outcome is favorable to us. There
can be no assurance that the 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.
- 15 -
17
The development of anticoagulants is intensely competitive. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions have filed patent applications or received patents in this field.
Some of these applications are competitive with applications we have acquired or
licensed, or conflict in certain respects with claims made under such
applications. Such conflict could result in a significant reduction of the
coverage of the patents we have acquired or licensed, if issued, which would
have a material adverse effect on our business, financial condition and results
of operations. In addition, if patents are issued to other companies that
contain competitive or conflicting claims and such claims are ultimately
determined to be valid, no assurance can be given that we would be able to
obtain licenses to these patents at a reasonable cost, or develop or obtain
alternative technology.
We also rely on trade secret protection for our confidential and proprietary
information. No assurance can be given 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.
It is our policy to require our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. 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 employees, the
agreements provide that all inventions conceived by the individual shall be our
exclusive property. There can be no assurance, however, that these agreements
will provide meaningful protection or adequate remedies for the our trade
secrets in the event of unauthorized use or disclosure of such information.
LICENSE AGREEMENTS
Biogen, Inc.
In March 1997, we entered into an agreement with Biogen for the license of the
anticoagulant pharmaceutical bivalirudin, which we have developed as Angiomax.
Under the terms of the agreement, we acquired exclusive worldwide rights to the
technology, patents, trademarks, inventories and know-how related to Angiomax.
In exchange for the license, we paid $2.0 million on the closing date and are
obligated to pay up to an additional $8.0 million upon reaching certain Angiomax
sales milestones, including the first commercial sales of Angiomax for the
treatment of AMI in the United States and Europe. In addition, we are obligated
to pay royalties on future sales of Angiomax and on any sublicense royalties
earned until the later of (1) 12 years after the date of the first commercial
sale of the product in a country or (2) the date in which the product or its
manufacture, use or sale is no longer covered by a valid claim of the licensed
patent rights in such country. The agreement also stipulates that we use
commercially reasonable efforts to meet certain milestones related to the
development and commercialization of Angiomax, including expending at least
$20.0 million for certain development and commercialization activities, which we
met in 1998. The licenses and rights under the agreement remain in force until
our obligation to pay royalties ceases. Either party may terminate the agreement
for material breach, and we may terminate the agreement for any reason upon 90
days prior written notice.
GyneLogix, Inc.
In August 1999, we entered into an agreement with GyneLogix for the license of
the biotherapeutic agent CTV-05, a strain of human lactobacillus currently under
clinical investigation for applications in the areas of urogenital and
reproductive health. Under the terms of the agreement, we acquired exclusive
worldwide rights to the patents and know-how related to CTV-05. In exchange for
the license, we have paid GyneLogix $400,000 and are obligated to pay up to an
additional $100,000 upon reaching certain development and regulatory milestones
and to fund agreed-upon operational costs of GyneLogix related to the
development of CTV-05 on a monthly basis subject to a limitation of $50,000 per
month. In addition, we are obligated to pay royalties on future sales of CTV-05
and on any sublicense royalties earned until the date on which the product is no
longer covered by a valid claim of the licensed patent rights in a country. The
agreement also stipulates that we must use commercially reasonable efforts in
pursuing the development, commercialization and marketing of CTV-05 to maintain
the license. The licenses and rights under the agreement remain in force until
our obligation to pay royalties ceases. Either party may terminate the agreement
for material breach, and we may terminate the agreement for any reason upon 60
days prior written notice.
Immunotech S.A.
In July 1998, we entered into an agreement with Immunotech for the license of
the pharmaceutical IS-159 for the treatment of acute migraine headache. Under
the terms of the agreement, we acquired exclusive worldwide rights to the
patents and know-how related to IS-159. In exchange for the license, we paid
$1.0 million on the closing date and are obligated to pay up to an additional
$4.5 million upon reaching certain development and regulatory milestones. In
addition, we are obligated to pay royalties on future sales of IS-159 and on any
sublicense royalties earned until the date on which the product is no longer
covered by a valid claim of the licensed patent rights in a country. The
agreement also stipulates that we must use commercially reasonable efforts in
pursuing the development, commercialization and marketing of IS-159 and meet
certain development and regulatory milestones to maintain the license. The
licenses and rights under the agreement remain in force until our obligation to
pay royalties ceases. Either party may terminate the agreement for material
breach, and we may terminate the agreement for any reason upon 60 days prior
written notice.
- 16 -
18
GOVERNMENT REGULATION
Government authorities in the United States and other countries extensively
regulate, among other things, the research, development, testing, manufacture,
labeling, promotion, advertising, distribution, and marketing of our products.
In the United States, the FDA regulates drugs under the Federal Food, Drug, and
Cosmetic Act, and, in the case of biologics, also under the Public Health
Service Act, and implementing regulations. Failure to comply with the applicable
U.S. requirements may subject us to administrative or judicial sanctions, such
as the FDA refusal to approve pending applications, warning letters, product
recalls, product seizures, total or partial suspension of production or
distribution, injunctions, and/or criminal prosecution.
The steps required before a drug may be marketed in the United States include:
- - pre-clinical laboratory tests, animal studies and formulation studies;
- - submission to the FDA of an investigational new drug exemption, or IND,
for human clinical testing, which must become effective before human
clinical trials may begin;
- - adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;
- - submission to the FDA of an NDA or biologics license application, or BLA;
- - satisfactory completion of an FDA inspection of the manufacturing facility
or facilities at which the drug is produced to assess compliance with
cGMP; and
- - FDA review and approval of the NDA or BLA.
Pre-clinical tests include laboratory evaluations of product chemistry,
toxicity, and formulation, as well as animal studies. The results of the
pre-clinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an IND, which must become effective before
human clinical trials may begin. An IND will automatically become effective 30
days after receipt by the FDA, unless before that time the FDA raises concerns
or questions about issues such as the conduct of the trials as outlined in the
IND. In such a case, the IND sponsor and the FDA must resolve any outstanding
FDA concerns or questions before clinical trials can proceed. Submission of an
IND may not result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the investigational drug to human
subjects under the supervision of qualified investigators. Clinical trials are
conducted under protocols detailing the objectives of the study, the parameters
to be used in monitoring safety, and the effectiveness criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the investigational new
drug exemption.
Clinical trials typically are conducted in three sequential Phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review Board before it can begin. Phase 1 usually
involves the initial introduction of the investigational drug into people to
evaluate its safety, dosage tolerance, phamacodynamics, and, if possible, to
gain an early indication of its effectiveness. Phase 2 usually involves trials
in a limited patient population to:
- - evaluate dosage tolerance and appropriate dosage;
- - identify possible adverse effects and safety risks; and
- - evaluate preliminarily the efficacy of the drug for specific indications.
Phase 3 trials usually further evaluate clinical efficacy and test further for
safety by using the drug in its final form in an expanded patient population. We
cannot guarantee that Phase 1, Phase 2 or Phase 3 testing will be completed
successfully within any specified period of time, if at all. Furthermore, we or
the FDA may suspend clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk.
Assuming successful completion of the required clinical testing, the results of
the preclinical studies and of the clinical studies, together with other
detailed information, including information on the manufacture and composition
of the drug, are submitted to the
- 17 -
19
FDA in the form of an NDA or BLA requesting approval to market the product for
one or more indications. Before approving an application, the FDA usually will
inspect the facility or the facilities at which the drug is manufactured, and
will not approve the product unless cGMP compliance is satisfactory. If the FDA
determines the application and the manufacturing facilities are acceptable, the
FDA will issue an approval letter. If the FDA determines the application or
manufacturing facilities are not acceptable, the FDA will outline the
deficiencies in the submission and often will request additional testing or
information. Notwithstanding the submission of any requested additional
information, the FDA ultimately may decide that the application does not satisfy
the regulatory criteria for approval. The testing and approval process requires
substantial time, effort, and financial resources, and we cannot be sure that
any approval will be granted on a timely basis, if at all. After approval,
certain changes to the approved product, such as adding new indications,
manufacturing changes, or additional labeling claims are subject to further FDA
review and approval.
In December 2000, we received marketing approval from the FDA for Angiomax for
use as an anticoagulant in combination with aspirin in patients with unstable
angina undergoing coronary balloon angioplasty.
After regulatory approval of a product is obtained, we are required to comply
with a number of post-approval requirements. For example, as a condition of
approval of an application, the FDA may require postmarketing testing and
surveillance to monitor the drug's safety or efficacy. In the case of Angiomax,
the FDA has required us to complete an ongoing 50 patient trial in which we are
treating patients with HIT/HITTS who need coronary balloon angioplasty.
In addition, holders of an approved NDA or BLA are required to report certain
adverse reactions and production problems, if any, to the FDA, and to comply
with certain requirements concerning advertising and promotional labeling for
their products. Also, quality control and manufacturing procedures must continue
to conform to cGMP after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with cGMP. Accordingly,
manufacturers must continue to expend time, money, and effort in the area of
production and quality control to maintain compliance with current good
manufacturing practices and other aspects of regulatory compliance.
We use and will continue to use third-party manufacturers to produce our
products in clinical and commercial quantities, and we cannot be sure that
future FDA inspections will not identify compliance issues at our facilities or
at the facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct. In addition,
discovery of problems with a product may result in restrictions on a product,
manufacturer, or holder of an approved NDA or BLA, including withdrawal of the
product from the market. Also, new government requirements may be established
that could delay or prevent regulatory approval of our products under
development.
EMPLOYEES
We believe that our success will depend greatly on our ability to identify,
attract and retain capable employees. We have assembled a management team with
significant experience in drug development and commercialization.
As of March 28, 2001, we employed 74 persons, of whom 11 hold M.D. and/or
Ph.D. degrees and 16 hold other advanced degrees. Our employees are not
represented by any collective bargaining unit, and we believe our relations with
our employees are good.
ITEM 2. PROPERTIES
We currently lease approximately 9,000 square feet of office space in Cambridge,
Massachusetts and approximately 6,660 square feet of office space in Parsippany,
New Jersey. We believe our current facilities will be sufficient to meet our
needs for the foreseeable future, but that additional space will be available on
commercially reasonable terms to meet space requirements if they arise. We also
have offices in Oxford, United Kingdom and Parnell, Auckland, New Zealand.
ITEM 3. LEGAL PROCEEDINGS
From time to time we have been and expect to continue to be subject to legal
proceedings and claims in the ordinary course of business. We currently are not
a party to any material legal proceeding.
- 18 -
20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 2000.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------------
Clive A. Meanwell, M.D., Ph.D.*..........................43 Chief Executive Officer, President and Director
Peyton J. Marshall, Ph.D.*...............................45 Senior Vice President and Chief Financial Officer
Glenn P. Sblendorio, M.B.A.*.............................44 Senior Vice President
David M. Stack*..........................................49 Senior Vice President
John M. Nystrom, Ph.D.*..................................55 Vice President and Chief Technical Officer
David C. Mitchell........................................47 Vice President
Frederick K. Paster, M.Sc., M.B.A........................35 Vice President
Thomas P. Quinn*.........................................42 Vice President
John D. Richards, D.Phil.*...............................44 Vice President
Fred M. Ryan, M.B.A......................................48 Vice President
John W. Villiger, Ph.D.*.................................46 Vice President
- ----------
* Executive Officer
Set forth below is certain information regarding the business experience during
the past five years for each of the above-named persons.
Clive A. Meanwell, M.D., Ph.D. has been our Chief Executive Officer and
President and a director since the inception of our company in July 1996. From
1995 to 1996, Dr. Meanwell was a Partner and Managing Director at MPM Capital
L.P., a venture capital firm. From 1986 to 1995, Dr. Meanwell held various
positions at Hoffmann-La Roche, Inc., a pharmaceutical company, including Senior
Vice President, from 1992 to 1995, Vice President from 1991 to 1992 and Director
of Product Development from 1986 to 1991. Dr. Meanwell was also a member of
Hoffmann-La Roche's pharmaceutical division operating board, its research and
development board and its portfolio management committee. During his tenure as
Director of Product Development, Dr. Meanwell had responsibility at Hoffmann-La
Roche for the development and launch of Neupogen. During his tenure as Vice
President, Worldwide Drug Regulatory Affairs, he had management responsibility
for the regulatory approval of eight new products and nine significant line
extensions of products. Dr. Meanwell also led an initiative at Hoffmann-La Roche
to reengineer the drug development process with the goal of cutting the time and
cost of drug development. Dr. Meanwell received his M.D. and Ph.D. from the
University of Birmingham, United Kingdom.
Peyton J. Marshall, Ph.D. has been a Senior Vice President since January 2000
and our Chief Financial Officer since joining us in October 1997. From 1995 to
October 1997, Dr. Marshall was based in London as a Managing Director and head
of European Corporate Financing and Risk Management Origination at Union Bank of
Switzerland, an investment banking firm. From 1986 to 1995, Dr. Marshall held
various investment banking positions at Goldman Sachs and Company, an investment
banking firm, including head of European product development from 1987 to 1993
and Executive Director, Derivatives Origination from 1993 to 1995. From 1981 to
1986, Dr. Marshall held several product development positions at The First
Boston Corporation, an investment banking firm, and was an Assistant Professor
of Economics at Vanderbilt University. Dr. Marshall received his Ph.D. in
economics from the Massachusetts Institute of Technology.
Glenn P. Sblendorio, M.B.A. has been a Senior Vice President since July 2000,
with primary responsibility for business development. From 1998 to July 2000,
Mr. Sblendorio was the Chief Executive Officer and Managing Director of MPM
Capital Advisors, LLC, an investment bank specializing in healthcare related
transactions. From 1997 to 1998, Mr. Sblendorio served as Managing Director at
Millennium Venture Management, LLC, a strategic consulting firm. From 1996 to
1997, Mr. Sblendorio was the Executive Vice President, Chief Financial Officer
and Treasurer at PlayNet Technologies, a publicly traded internet company that
develops entertainment systems. From 1993 to 1996, Mr. Sblendorio was the Senior
Vice President and Chief Financial Officer for Sony Interactive Entertainment
Inc. From 1981 to 1993, Mr. Sblendorio held several positions at Hoffmann-La
Roche, Inc., including Vice President of Finance & Administration for Roche
Molecular Systems and Controller Europe for the Amgen/Roche venture. Mr.
Sblendorio received his B.A. in accounting from Pace University and his M.B.A.
from Fairleigh Dickinson University. Mr. Sblendorio is also a CPA.
David M. Stack has been a Senior Vice President since April 2000. Under Mr.
Stack's employment agreement with us, Mr. Stack has agreed to devote at least 24
hours per week to our business. Since January 2000, Mr. Stack has also served as
President and General Partner of Stack Pharmaceuticals, Inc., a
commercialization, marketing and strategy consulting firm serving pharmaceutical
companies, and as a Senior Advisor to the Chief Executive Officer of Innovex
Inc., a contract pharmaceutical organization. Mr. Stack served as President and
General Manager of Innovex Inc. from May 1995 to December 1999. From April 1993
to May 1995, Mr. Stack served as Vice President, Business Development and
Marketing at Immunomedics, Inc., a biotechnology company specializing in
monoclonal antibodies in diagnostics and therapeutics. From September 1981 to
March 1993, Mr. Stack was employed by Roche Laboratories, a division of
Hoffmann-La Roche, where he was the Rocephin Product Director from June 1989 to
December 1992 and Director, Business Development and Planning, Infectious
Disease, Oncology and Virology from May 1992 to March 1993. Mr. Stack currently
serves as director of Bio Imaging Laboratories, Inc. Mr. Stack received his B.S.
in biology from Siena College and his B.S. in pharmacy from Albany College of
Pharmacy.
- 19 -
21
John M. Nystrom, Ph.D. has been a Vice President since October 1998 and our
Chief Technical Officer since December 1999. From July 1979 to October 1998, Dr.
Nystrom was employed by the Arthur D. Little, an international technology and
management consulting firm. During his 19 years with the firm he held numerous
positions consulting to the fine chemical, biotechnology and pharmaceutical
industries. In 1994 he was elected a Vice President of the firm, and his last
position was that of Vice President and Director. Dr. Nystrom currently serves
as a director of Cangene Corp. Dr. Nystrom received his B.S. and Ph.D. in
chemical engineering from the University of Rhode Island.
David C. Mitchell has been a Vice President since December 2000 with a focus on
information technology and information systems. His responsibilities include
planning and implementing worldwide information systems. From February 1999 to
December 2000, Mr. Mitchell was a Vice President of Information Technology for
Innovex Americas. From July 1997 to February 1999, Mr. Mitchell was Director of
Information Technology at NBC. Prior to joining NBC, Mr. Mitchell served as the
Director of Programming and Technology at Walt Disney Pictures and Television
for twelve years. Mr. Mitchell received his Bachelor of Music from Arizona State
University.
Frederick K. Paster, M.Sc., M.B.A. has been a Vice President since September
1999, with a focus on worldwide product partnering, product development strategy
and market/pricing analysis. Mr. Paster is also involved in new product
acquisitions and corporate partnerships. From 1994 until he joined us in
September 1998, Mr. Paster was a Manager with The Boston Consulting Group, a
management consulting firm. From 1990 to 1992, Mr. Paster was located in Germany
and Belgium as European Programs Manager for ESI, a computer software and
services firm. Mr. Paster received his B.S. and M.Sc. degrees in engineering
from the Massachusetts Institute of Technology and received his M.B.A. from the
Harvard Business School.
Thomas P. Quinn has been a Vice President since April 2000, with a focus on the
launch of Angiomax, business development and product in-licensing. Mr. Quinn has
served as a Partner of Stack Pharmaceuticals, Inc. since January 2000 and served
as the Vice President of Marketing of Stack Pharmaceuticals, Inc. from January
2000 through May 2000. From November 1997 to January 2000, Mr. Quinn was Senior
Vice President, Business Development at Innovex. From January 1996 to July 1997,
Mr. Quinn was employed by the Strategic Planning/New Business Development
Department of Bristol-Myers Squibb Inc., a pharmaceutical company, where his
responsibilities included domestic and global portfolio management and franchise
development. From April 1992 to December 1995, Mr. Quinn was involved in the
commercial start-up of the U.S. Therapeutics Division of Boehringer Mannheim
Corporation, a pharmaceutical company.
John D. Richards, D.Phil. joined us in October 1997 and has been a Vice
President since 1999, with a focus on product manufacturing and quality. From
1993 until he joined us in October 1997, Dr. Richards was Director of Process
Development and Manufacturing at Immulogic Pharmaceutical Corporation, a
pharmaceutical company. From 1989 to 1993, Dr. Richards was a Technical Manager
at Zeneca PLC, a pharmaceutical company, where he developed and implemented
processes for the manufacture of peptides as pharmaceutical active
intermediates. In 1986, Dr. Richards helped establish Cambridge Research
Biochemicals, a manufacturer of peptide-based products for pharmaceutical and
academic customers. Dr. Richards received his M.A. and D.Phil. in organic
chemistry from the University of Oxford, United Kingdom, and has carried out
post-doctoral research work at the Medical Research Councils Laboratory of
Molecular Biology in Cambridge, United Kingdom.
Fred M. Ryan, M.B.A. has been a Vice President since April 2000, with a focus on
corporate strategic development, new product acquisitions and Angiomax
commercial development. Under Mr. Ryan's employment agreement with us, Mr. Ryan
has agreed to devote at least 24 hours per week to our business. Since April
2000, Mr. Ryan has also served as a Partner and the Vice President of Business
Development of Stack Pharmaceuticals, Inc. From July 1991 to April 2000, he held
senior management positions with Novartis Pharmaceuticals, Inc. in the United
States in both the Consumer Pharmaceuticals and Prescription Pharmaceuticals
businesses in the areas of Finance, Strategic Planning, Business Development and
Marketing, serving from 1998 to April 2000 as Executive Director Mature Products
responsible for managing sales and marketing activities for a portfolio of
products having annual sales in excess of $500 million. From 1989 to 1991, he
served as Assistant Controller for Alusuisse-Lonza in the United States. From
1985 to 1988, he served as Senior Financial Manager for Ciba Consumer
Pharmaceuticals (Ciba). He received his B.S. and B.A. degrees from Bryant
College and his M.B.A. from Fairleigh Dickinson University.
John W. Villiger, Ph.D. has been a Vice President since March 1997, with a focus
on cardiovascular product development. From December 1986 until he joined us in
March 1997, Dr. Villiger held various positions in product development at
Hoffmann-La Roche, including Head of Global Project Management from 1995 to 1996
and International Project Director from 1991 to 1995. As Head of Global Project
Management, Dr. Villiger was responsible for overseeing the development of
Hoffmann-LaRoche's pharmaceutical portfolio, with management responsibility for
over 50 development programs. As International Project Director, Dr. Villiger
was responsible for the global development of Tolcapone also known as tasmar.
Dr. Villiger received his Ph.D. in neuropharmacology from the University of
Otago.
- 20 -
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
MARKET INFORMATION AND HOLDERS
Our common stock has been quoted on the Nasdaq National Market under the symbol
"MDCO" since August 7, 2000, the date of our initial public offering. The
following table sets forth, for the periods indicated, the high and low intraday
sales prices per share of our common stock as reported on the Nasdaq National
Market.
2000 HIGH LOW
- ---- ---- ---
Third Quarter (since August 7, 2000)................. $ 35.38 $ 16.50
Fourth Quarter....................................... $ 34.75 $ 17.13
2001
- ----
First Quarter (through March 28, 2001)............... $ 20.48 $ 8.75
Mellon Investor Services, LLC is the transfer agent and registrar for our common
stock. As of the close of business on March 28, 2001, we had 108 holders of
record of our common stock.
DIVIDENDS
We have never declared or paid cash dividends on our common stock. We anticipate
that we will retain all of our future earnings, if any, for use in the expansion
and operation of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors.
SALES OF UNREGISTERED SECURITIES
Set forth below is a description of all equity securities sold by us during the
fiscal year ended December 31, 2000 that were not registered under the
Securities Act of 1933. The sales made to investors were made in accordance with
Section 4(2) or Regulation D of the Securities Act. Sales to our employees,
directors and officers were deemed to be exempt from registration under the
Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions under compensatory benefit plans and contracts
relating to compensation provided under Rule 701.
In March 2000, we issued convertible promissory notes in the aggregate principal
amount of $13.3 million to existing investors. The notes bore interest at a rate
of 8% per year and were redeemable on January 15, 2001. In connection with the
issuance of the notes, we issued common stock purchase warrants to purchase an
aggregate of 2,255,687 shares of common stock with an exercise price of $5.92
per share. The warrants must be exercised by March 2, 2005.
In May 2000, we issued an aggregate of 1,411,000 shares of our series IV
convertible preferred stock to existing investors at a price per share of $4.32,
for a total purchase price of $6.1 million. In conjunction with this issuance,
the outstanding aggregate principal amount of the notes issued in October 1999
and March 2000, and accrued interest thereon, were converted into an aggregate
of 4,535,366 shares of our series IV convertible preferred stock.
In July 2000, we issued a stock dividend on all outstanding shares of series I
convertible preferred stock, series II convertible preferred stock, series III
convertible preferred stock and series IV convertible preferred stock. In
connection with the dividend we issued 187,458 shares of series I convertible
preferred stock, 790,358 shares of series II convertible preferred stock,
629,530 shares series III convertible preferred stock and 84,394 shares of
series IV convertible preferred stock. The dividend covered the period from
August 1, 1999 to July 31, 2000 with respect to the series I, II and III
convertible preferred stock and May 17, 2000 to July 31, 2000 with respect to
the series IV convertible preferred stock.
All outstanding shares of our convertible preferred stock, including accrued
dividends on such stock from August 1, 2000 through August 11, 2000, the date of
the closing of our initial public offering, automatically converted into an
aggregate of 22,381,735 shares of common stock upon the consummation of our
initial public offering.
During the fiscal year ended December 31, 2000, we issued 204,605 shares of
unregistered common stock upon the exercise of stock options under our 1998
stock incentive plan, at a weighted average exercise price per share of $1.26.
Of the 204,605 shares, 4,891 shares were subject to vesting and a repurchase
option. We filed a Registration Statement on Form S-8 on August 31, 2000
registering all shares of common stock issuable under our 1998 stock incentive
plan, 2000 outside director plan and 2000 employee stock purchase plan.
- 21 -
23
USES OF PROCEEDS FROM SALES OF REGISTERED SECURITIES
In August and September 2000, we completed an initial public offering pursuant
to a Registration Statement on Form S-1. The effective date and Securities and
Exchange Commission file number of the Registration Statement were August 7,
2000 and 333-37404, respectively. In the initial public offering, we sold an
aggregate of 6,900,000 shares of common stock (including an over-allotment
option of 900,000 shares) at $16.00 per share. We received aggregate net
proceeds of approximately $101.4 million, after deducting underwriting discounts
and commissions of approximately $7.7 million and expenses of the offering of
approximately $1.3 million. From August 7, 2000 through December 31, 2000, of
the net proceeds, the Company used approximately $22.1 million for general
corporate purposes, including operations, working capital and capital
expenditures, with the remaining $79.3 million in proceeds invested in cash,
cash equivalents and marketable securities. Of the approximately $22.1 million,
we paid approximately $140,000 to Stack Pharmaceuticals, Inc., and approximately
$1.2 million to Innovex, Inc. David Stack, one of our Senior Vice Presidents, is
also the President and General Partner of Stack Pharmaceuticals and a Senior
Advisor to the Chief Executive Officer of Innovex.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with our selected consolidated financial
data. We have prepared this information using our audited consolidated financial
statements for the period July 31, 1996 (date of inception) to December 31, 1996
and for the years ended December 31, 1997, 1998, 1999 and 2000. The pro forma
net loss per share data reflects the conversion of our convertible notes, and
accrued interest, and the conversion of our outstanding convertible preferred
stock, and accrued dividends, into common stock upon the closing of our initial
public offering in August 2000. The pro forma net loss per share data does not
include the effect of any options or warrants outstanding. For further
discussion of earnings per share, please see note 8 to the consolidated
financial statements.
PERIOD FROM
INCEPTION
(JULY 31, 1996)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------
1996 1997 1998 1999 2000
-------------- ----------- ------------- ------------- -------------
In thousands, except share and per share data
STATEMENTS OF OPERATIONS DATA
Operating expenses
Research and development........................ $ 827 $ 16,044 $ 24,005 $ 30,345 $ 39,572
Selling, general and administrative............. 702 2,421 6,248 5,008 15,034
-------- ----------- ---------- ----------- -----------
Total operating expenses................. 1,529 18,465 30,253 35,353 54,606
-------- ----------- ---------- ----------- -----------
Loss from operations.............................. (1,529) (18,465) (30,253) (35,353) (54,606)
Interest income (expense), net.................... 62 659 1,302 640 (16,686)
-------- ----------- ---------- ----------- -----------
Net loss.......................................... (1,467) (17,806) (28,951) (34,713) (71,292)
Dividends and accretion to redemption value of
redeemable convertible preferred stock.......... (118) (2,018) (3,959) (5,893) (30,343)
-------- ----------- ---------- ----------- -----------
Net loss attributable to common stockholders...... $ (1,585) $ (19,824) $ (32,910) $ (40,606) $ (101,635)
========= ============ =========== ============ ============
Net loss attributable to common stockholders
per common share, basic and diluted............. $ (2.85) $ (4.06) $ (6.03) $ (80.08) $ (8.43)
========== ============ =========== ============ =============
Shares used in computing net loss attributable
to common stockholders per common share,
basic and diluted............................... 557,178 4,887,230 5,454,653 507,065 12,059,275
Unaudited pro forma net loss attributable to
common stockholders per common share, basic
and diluted..................................... $ (1.94) $ (2.10)
Shares used in computing unaudited pro forma
net loss attributable to common stockholders
per common share, basic and diluted............. 17,799,876 24,719,075
AS OF DECEMBER 31,
-----------------------------------------------------
1996 1997 1998 1999 2000
--------- --------- --------- --------- ----------
In thousands
BALANCE SHEET DATA
Cash, cash equivalents, marketable securities and accrued interest
receivable...................................................... $ 3,421 $ 25,416 $ 29,086 $ 7,238 $ 80,718
Working capital (deficit)......................................... 3,174 18,779 24,570 (4,103) 68,023
Total assets...................................................... 3,473 25,595 29,831 7,991 84,363
Convertible notes................................................. -- -- -- 5,776 --
Redeemable convertible preferred stock............................ 4,793 40,306 79,384 85,277 --
Deficit accumulated during the development stage.................. (1,585) (21,409) (54,319) (94,925) (196,560)
Total stockholders' (deficit) equity.............................. (1,582) (21,387) (54,266) (94,558) 69,239
- 22 -
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We acquire, develop and commercialize biopharmaceutical products that are in
late stages of development or have been approved for marketing. In December
2000, we received marketing approval from the FDA for Angiomax, our lead
product, for use as an anticoagulant in combination with aspirin in patients
with unstable angina undergoing coronary balloon angioplasty. Coronary
angioplasty is a procedure used to restore normal blood flow in an obstructed
artery in the heart. We began selling Angiomax in the United States in January
2001. In August and September 2000, we consummated our initial public offering
resulting in $101.4 million in net proceeds.
Since our inception, we have incurred significant losses and, as of December 31,
2000, had a deficit accumulated during the development stage of $196.6 million.
Most of our expenditures to date have been for research and development
activities, selling, general and administrative expenses and interest expense.
Research and development expenses represent costs incurred for product
acquisition, clinical trials, activities relating to regulatory filings and
manufacturing development efforts. We generally outsource our clinical and
manufacturing development activities to independent organizations to maximize
efficiency and minimize our internal overhead. We expense our research and
development costs as they are incurred. Selling, general and administrative
expenses consist primarily of salaries and related expenses, general corporate
activities and costs associated with initial product marketing activities.
Interest expense consists of costs associated with convertible notes which were
issued to fund our business activities.
We expect to continue to incur operating losses for the foreseeable future as a
result of research and development activities attributable to new and existing
products and costs associated with the commercialization and launch of our
products. In 2001, we expect increased cash outlays for research and development
costs associated with our ongoing clinical trials and manufacturing development
activities. We also expect increased outlays during 2001 for sales, general and
administrative costs related to the commercial launch in the United States of
Angiomax. We will need to generate significant revenues to achieve and maintain
profitability. Through December 31, 2000, we have had no revenues from any
product sales, and we have not achieved profitability on a quarterly or annual
basis.
In March 1997, we acquired exclusive worldwide commercial rights from Biogen,
Inc. to the technology, patents, trademarks, inventories, know-how and all
regulatory and clinical information related to Angiomax. Under the Biogen
license, we paid $2.0 million upon execution of the license agreement and are
obligated to pay up to an additional $8.0 million upon reaching certain Angiomax
sales milestones, including the first sale of Angiomax for certain indications.
In addition, we will pay royalties on future sales of Angiomax and on any
sublicense royalties earned.
- 23 -
25
In August 1999, we acquired exclusive worldwide rights from GyneLogix, Inc. to
the patents and know-how related to the biotherapeutic agent CTV-05. Under the
GyneLogix license, we have paid $400,000 and are obligated to pay up to an
additional $100,000 upon reaching certain development and regulatory milestones
and to fund agreed-upon operational costs of GyneLogix related to the
development of CTV-05 on a monthly basis subject to a limitation of $50,000 per
month. In addition, we will pay royalties on future sales of CTV-05 and on any
sublicense royalties earned.
In July 1998, we acquired from Immunotech S.A., a wholly-owned subsidiary of
Beckman Coulter, Inc., exclusive worldwide rights to IS-159, which is under
clinical investigation for the treatment of acute migraine headache. Under the
Immunotech license, we paid $1.0 million upon execution of the license agreement
and are obligated to pay up to an additional $4.5 million upon reaching certain
development and regulatory milestones. In addition, we will pay royalties on
future sales of IS-159 and on any sublicense royalties earned. We are seeking a
collaborator to develop IS-159 and do not intend to initiate further studies of
IS-159 until we enter into a collaborative agreement.
During the year ended December 31, 2000, we recorded deferred stock compensation
on the grant of stock options of approximately $17.3 million, representing the
difference between the exercise price of such options and the fair market value
of our common stock at the date of grant of such options. The exercise prices of
these options were below the estimated fair market value of our common stock as
of the date of grant based on the estimated initial public offering price of our
common stock.
We amortize deferred stock compensation over the respective vesting periods of
the individual stock options. We recorded amortization expense for deferred
compensation of approximately $3.7 million for the year ended December 31, 2000.
We expect to record an amortization expense for deferred compensation as
follows, reduced, where applicable, for employee terminations: approximately
$4.2 million for 2001, approximately $3.9 million for 2002, approximately $3.9
million for 2003 and approximately $1.4 million for 2004.
In May 2000, we sold shares of series IV convertible preferred stock. These
shares contained a beneficial conversion feature based on the estimated fair
market value as of the date of such sale of the common stock into which such
shares were convertible. The total amount of such beneficial conversion was
approximately $25.5 million and has been reflected as a dividend in the period
of issuance, the second quarter of 2000. In the year ended December 31, 2000, we
also recorded approximately $19.4 million as interest expense, including the
discount on our convertible notes issued in October 1999 and March 2000.
Through December 31, 2000 we have not generated taxable income. At December 31,
2000, net operating losses available to offset future taxable income for federal
income tax purposes were approximately $122.2 million. If not utilized, federal
net operating loss carryforwards will expire at various dates beginning in 2011
and ending 2020. We have not recognized the potential tax benefit of our net
operating losses in our statements of operations. The future utilization of our
net operating loss carryforwards may be limited pursuant to regulations
promulgated under the Internal Revenue Code of 1986, as amended.
RESULTS OF OPERATIONS
Years Ended December 31, 2000 and 1999
Research and Development Expenses. Research and development expenses increased
30% from $30.3 million in 1999 to $39.6 million in 2000. The increase of $9.3
million was primarily due to the increased enrollment rate of our Phase 3
clinical trial in AMI, called HERO-2 during 2000, initiation in 2000 of a Phase
3b trial in angioplasty called REPLACE and by the recognition of $12.2 million
of research and development costs in connection with the completion of UCB
Bioproduct's manufacture of Angiomax bulk drug substance prior to FDA approval.
The increase in costs was partly offset by reduced development expenses
reflecting our termination of the semilog manufacturing development program with
Lonza AG in the fourth quarter of 1999 and a reduction in development activity
for IS-159 in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 200% from $5.0 million in 1999 to $15.0
million in 2000. The increase of $10.0 million was primarily due to an increase
in marketing and selling expenses and corporate infrastructure costs arising
from an increase in activity in preparation for the commercial launch of
Angiomax.
Interest Income and Interest Expense. Interest income increased 223% from
$838,000 in 1999 to $2.7 million in 2000. The increase of $1.9 million was
primarily due to interest income arising from investment of the proceeds of our
initial public offering.
- 24 -
26
Interest expense was $19.4 million in 2000 and was related to interest charges
and the amortization of the discount on our convertible notes issued in October
1999 and March 2000. The notes were converted into series IV convertible
preferred stock in May 2000, accelerating the remaining unamortized discount.
Years Ended December 31, 1999 and 1998
Research and Development Expenses. Research and development expenses increased
26% from $24.0 million in 1998 to $30.3 million in 1999. The increase of $6.3
million was due to the expansion in 1999 of our clinical development programs,
primarily those relating to our Angiomax HERO-2 Phase 3 clinical trial in AMI
which commenced in late 1998, our IS-159 development program and our Angiomax
trials in angioplasty.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 20% from $6.2 million in 1998 to $5.0 million
in 1999. The decrease of $1.2 million was primarily due to a decrease in
Angiomax-related marketing expenses.
Interest Income and Interest Expense. Interest income decreased 36% from $1.3
million in 1998 to $838,000 in 1999 due to a lower level of cash and marketable
securities available for investment during 1999 as compared to 1998. Interest
expense was $197,000 in 1999 and related to interest expense and amortization of
the discount on our convertible notes issued in the aggregate principal amount
of $6.0 million in October 1999.
LIQUIDITY AND CAPITAL RESOURCES
In August and September 2000, we received $101.4 million in net proceeds from
the sale of an aggregate of 6,900,000 shares of common stock in our initial
public offering at a price of $16.00 per share. Prior to our initial public
offering, we had financed our operations primarily through the private placement
of equity, convertible debt securities and warrants. Until our initial public
offering, we had received net proceeds of $79.4 million from the private
placement of equity securities, primarily redeemable convertible preferred
stock, and $19.4 million from the issuance of convertible notes and warrants.
As of December 31, 2000, we had $79.3 million in cash, cash equivalents and
marketable securities, as compared to $7.2 million and $28.3 million as of
December 31, 1999 and 1998, respectively.
During 2000, we used net cash of $48.1 million in operating activities. This
consisted of a net loss for the period of $71.3 million, combined with a
decrease in accounts payable of $1.8 million, an increase in inventory of $2.0
million and an increase in accrued interest receivable of $1.3 million, partly
offset by an increase in accrued expenses of $5.7 million, non-cash amortization
of discount on convertible notes of $19.0 million and deferred compensation of
$3.7 million. We spent $42.8 million for investing activities, which consisted
principally of purchases of marketable securities with net proceeds from our
initial public offering. We received $121.1 million from financing activities,
primarily from our initial public offering, which resulted in net proceeds of
$101.4 million, and from the issuance of convertible notes and preferred stock,
which resulted in proceeds of $19.4 million during 2000.
During 1999, we placed an order with UCB Bioproducts for the manufacture of
Angiomax bulk drug product. Manufacture of $14.2 million of this material was
completed in 2000, of which $12.2 million was expensed during that period. All
costs associated with the manufacture of Angiomax bulk drug product and finished
products to which title has transferred to us prior to the date of FDA approval
of Angiomax were expensed as research and development. We recorded Angiomax bulk
drug product to which we took title after the date of FDA approval of Angiomax
as inventory, which will increase our cost of sales in 2001 and possibly the
following year. In November 2000, we placed additional orders with UCB
Bioproducts for the manufacture of Angiomax bulk drug product. Under the terms
of these purchase orders, we are scheduled to take title to material and become
obligated to make payments totaling approximately $24.0 million in 2001 and
early 2002.
As of December 31, 2000, we had net operating loss carryforwards of
approximately $122.2 million to offset future federal taxable income expiring in
2011 through 2020 and approximately $116.0 million to offset future state
taxable income expiring in 2001 through 2004. Due to the degree of uncertainty
related to the ultimate realization of such net operating losses, no benefit has
been recognized in the financial statements as of December 31, 2000. If we
achieve profitability, such tax benefits would be recognized when their
realization was considered more likely than not. Our ability to utilize these
losses in future years, however, may be subject to limitation based upon changes
in ownership under the rules of the Internal Revenue Code.
We expect to devote substantial resources to continue our research and
development efforts and to expand our sales, marketing and manufacturing
programs associated with the commercialization and launch of our products. Our
funding requirements will depend on
- 25 -
27
numerous factors, including whether Angiomax is commercially successful, the
progress, level and timing of our research and development activities, the cost
and outcomes of regulatory reviews, the establishment, continuation or
termination of third party manufacturing or sales and marketing arrangements,
the cost and effectiveness of our sales and marketing programs, the status of
competitive products, our ability to defend and enforce our intellectual
property rights and the establishment of additional strategic or licensing
arrangements with other companies or acquisitions.
We anticipate that our existing capital resources will enable us to maintain our
current operations for at least the next 12 months. If our existing resources
are insufficient to satisfy our liquidity requirements, or if we acquire
additional product candidates or approved products, we may be required to seek
additional financing prior to that time. The sale of additional equity and debt
securities may result in additional dilution to our stockholders, and we cannot
be certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned research,
development and commercialization activities, which could harm our financial
condition and operating results.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
This Annual Report on 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. For this purpose, any statements contained in
this Report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "intends," "may" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by forward-looking statements contained
in this Report and presented elsewhere by management from time to time. These
factors include the risk factors set forth below.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES
AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
We are a development stage company with no revenues through December 31, 2000.
We have incurred net losses since our inception, including net losses of
approximately $71.3 million for the year ended December 31, 2000. As of December
31, 2000, we had an accumulated deficit of approximately $196.6 million. We
expect to make substantial expenditures to further develop and commercialize our
products and expect that our rate of spending will accelerate as the result of
costs and expenses associated with increased clinical trials, regulatory
approval and commercialization of products. As a result, we are unsure when we
will become profitable, if at all.
OUR BUSINESS WILL BE VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX
Other than Angiomax, our products are in clinical phases of development and,
even if approved by the FDA, are a number of years away from entering the
market. As a result, Angiomax will account for almost all of our revenues for
the foreseeable future. The commercial success of Angiomax will depend upon its
acceptance by physicians, patients and other key decision-makers as a
therapeutic and cost-effective alternative to heparin and other products used in
current practice. If Angiomax is not commercially successful, we will have to
find additional sources of revenues or curtail or cease operations.
FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT,
MANUFACTURE AND SALE OF OUR PRODUCTS
Our operations to date have generated substantial and increasing needs for cash.
Our negative cash flow from operations is expected to continue into the
foreseeable future. The clinical development of Angiomax for additional
indications, the development of our other product candidates and the acquisition
and development of additional product candidates by us will require a commitment
of substantial funds. Our future capital requirements are dependent upon many
factors and may be significantly greater than we expect.
We anticipate that our existing capital resources will enable us to maintain our
current operations for at least the next 12 months. If our existing resources
are insufficient to satisfy our liquidity requirements, or if we acquire any
additional product candidates, we may be required to seek additional financing
prior to that time. We intend to seek additional funding through collaborative
arrangements and private or public financings, including equity financings. Such
additional funding may not be available on acceptable terms, if at all. If
additional funds are not available to us, we may need to delay or significantly
curtail our acquisition, development or commercialization activities.
- 26 -
28
WE CANNOT EXPAND THE INDICATIONS FOR ANGIOMAX UNLESS WE RECEIVE FDA APPROVAL FOR
EACH ADDITIONAL INDICATION. FAILURE TO EXPAND THESE INDICATIONS WILL LIMIT THE
SIZE OF THE COMMERCIAL MARKET FOR ANGIOMAX
We received in December 2000 approval from the FDA of the use of Angiomax as an
anticoagulant in combination with aspirin in patients with unstable angina
undergoing coronary balloon angioplasty. One of our key objectives is to expand
the indications for which the FDA will approve Angiomax. In order to do this, we
will need to conduct additional clinical trials and obtain FDA approval for each
proposed indication. If we are unsuccessful in expanding the approved indication
for the use of Angiomax, the size of the commercial market for Angiomax will be
limited.
FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WILL PREVENT US
FROM MARKETING ANGIOMAX ABROAD
We intend to market our products in international markets, including Europe. In
order to market our products in the European Union and many other foreign
jurisdictions, we must obtain separate regulatory approvals. In February 1998,
we submitted a MAA to the EMEA for use in unstable angina patients undergoing
angioplasty. Following extended interaction with European regulatory
authorities, the CPMP of the EMEA voted in October 1999 not to recommend
Angiomax for approval in angioplasty. The United Kingdom and Ireland dissented
from this decision. We have withdrawn our application to the EMEA and are in
active dialog with European regulators to determine our course of action
including seeking approval of Angiomax in Europe on a country-by-country basis.
We may not be able to obtain approval from any or all of the jurisdictions in
which we seek approval to market Angiomax. Obtaining foreign approvals may
require additional trials and additional expense.
THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS MAY BE TERMINATED OR
DELAYED, AND THE COSTS OF DEVELOPMENT AND COMMERCIALIZATION MAY INCREASE, IF
THIRD PARTIES WHO WE RELY ON TO MANUFACTURE AND SUPPORT THE DEVELOPMENT AND
COMMERCIALIZATION OF OUR PRODUCTS DO NOT FULFILL THEIR OBLIGATIONS
Our development and commercialization strategy entails entering into
arrangements with corporate and academic collaborators, contract research
organizations, contract sales organizations, distributors, third-party
manufacturers, licensors, licensees and others to conduct development work,
manage our clinical trials and manufacture, market and sell our products.
Although we manage these services, we do not have the expertise or the resources
to conduct such activities on our own and, as a result, are particularly
dependent on third parties in most areas.
We may not be able to maintain our existing arrangements with respect to the
commercialization of Angiomax or establish and maintain arrangements to develop
and commercialize any additional products on terms that are acceptable to us.
Any current or future arrangements for the development and commercialization of
our products may not be successful. If we are not able to establish or maintain
our agreements relating to Angiomax or any additional products on terms which we
deem favorable, our financial condition would be materially adversely effected.
Third parties may not perform their obligations as expected. The amount and
timing of resources that third parties devote to developing, manufacturing and
commercializing our products may not be within our control. Furthermore, our
interests may differ from those of third parties that manufacture or
commercialize our products. Disagreements that may arise with these third
parties could delay or lead to the termination of the development or
commercialization of our product candidates, or result in litigation or
arbitration, which would be time consuming and expensive. If any third party
that manufactures or supports the development or commercialization of our
products breaches or terminates its agreement with us, or fails to conduct its
activities in a timely manner, such breach, termination or failure could:
- - delay the development or commercialization of Angiomax, our other product
candidates or any additional product candidates that we may acquire or
develop;
- - require us to undertake unforeseen additional responsibilities or devote
unforeseen additional resources to the development or commercialization of
our products; or
- - result in the termination of the development or commercialization of our
products.
WE ARE CURRENTLY DEPENDENT ON A SINGLE SUPPLIER FOR THE PRODUCTION OF ANGIOMAX
BULK DRUG SUBSTANCE AND A DIFFERENT SINGLE SUPPLIER TO CARRY OUT ALL FILL-FINISH
ACTIVITIES FOR ANGIOMAX
- 27 -
29
Currently, we obtain all of our Angiomax bulk drug substance from one
manufacturer, UCB Bioproducts, and rely on another manufacturer, Ben Venue
Laboratories, to carry out all fill-finish activities for Angiomax, which
includes final formulation and transfer of the drug into vials where it is then
freeze-dried and sealed. The FDA requires that all manufacturers of
pharmaceuticals for sale in or from the United States achieve and maintain
compliance with the FDA's current Good Manufacturing Practice, or cGMP,
regulations and guidelines. There are a limited number of manufacturers that
operate under cGMP regulations capable of manufacturing Angiomax. The FDA has
inspected Ben Venue Laboratories for cGMP compliance for the manufacture of
Angiomax and UCB Bioproducts for cGMP compliance in the manufacture of
pharmaceutical ingredients generally. Ben Venue Laboratories and UCB Bioproducts
have informed us that they have no material deficiencies in cGMP compliance. We
do not currently have alternative sources for production of Angiomax bulk drug
substance or to carry out fill-finish activities. In the event that either of
our current manufacturers is unable to carry out its respective manufacturing
obligations to our satisfaction, we may be unable to obtain alternative
manufacturing, or obtain such manufacturing on commercially reasonable terms or
on a timely basis.
Any delays in the manufacturing process may adversely impact our ability to meet
commercial demands for Angiomax on a timely basis and supply product for
clinical trials of Angiomax.
IF WE DO NOT SUCCEED IN DEVELOPING A SECOND GENERATION PROCESS FOR THE
PRODUCTION OF BULK ANGIOMAX DRUG SUBSTANCE, OUR GROSS MARGINS MAY BE BELOW
INDUSTRY AVERAGES
We are currently developing with UCB Bioproducts a second generation process for
the production of bulk Angiomax drug substance. This process involves limited
changes to the early manufacturing steps of our current process in order to
improve our gross margins on the future sales of Angiomax. If we cannot develop
the process successfully or regulatory approval of the process is not obtained
or is delayed, then our ability to improve our gross margins on future sales of
Angiomax may be limited.
CLINICAL TRIALS OF OUR PRODUCT CANDIDATES ARE EXPENSIVE AND TIME CONSUMING, AND
THE RESULTS OF THESE TRIALS ARE UNCERTAIN
Before we can obtain regulatory approvals for the commercial sale of any product
which we wish to develop, we will be required to complete pre-clinical studies
and extensive clinical trials in humans to demonstrate the safety and efficacy
of such product. We are currently conducting four clinical trials of Angiomax
for use in the treatment of ischemic heart disease. There are numerous factors
which could delay our clinical trials or prevent us from completing these trials
successfully. We or the FDA may suspend a clinical trial at any time on various
grounds, including a finding that patients are being exposed to unacceptable
health risks.
The rate of completion of clinical trials depends in part upon the rate of
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the trial, the existence of
competing clinical trials and the availability of alternative or new treatments.
In particular, the patient population targeted by some of our clinical trials
may be small. Delays in future planned patient enrollment may result in
increased costs and program delays.
In addition, clinical trials, if completed, may not show any potential product
to be safe or effective. Results obtained in pre-clinical studies or early
clinical trials are not always indicative of results that will be obtained in
later clinical trials. Moreover, data obtained from pre-clinical studies and
clinical trials may be subject to varying interpretations. As a result, the FDA
or other applicable regulatory authorities may not approve a product in a timely
fashion, or at all.
OUR FAILURE TO ACQUIRE AND DEVELOP ADDITIONAL PRODUCT CANDIDATES OR APPROVED
PRODUCTS WILL IMPAIR OUR ABILITY TO GROW
As part of our growth strategy, we intend to acquire and develop additional
pharmaceutical product candidates or approved products. The success of this
strategy depends upon our ability to identify, select and acquire pharmaceutical
products in late-stage development or that have been approved that meet the
criteria we have established. Because we do not have, nor intend to establish,
internal scientific research capabilities, we are dependent upon pharmaceutical
and biotechnology companies and other researchers to sell or license product
candidates to us.
Identifying suitable product candidates and approved products and proposing,
negotiating and implementing an economically viable acquisition is a lengthy and
complex process. In addition, other companies, including those with
substantially greater financial, marketing and sales resources, may compete with
us for the acquisition of product candidates and approved products. We may not
be able to acquire the rights to additional product candidates and approved
products on terms that we find acceptable, or at all.
IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION
RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT
ARE IMPORTANT TO OUR BUSINESS
- 28 -
30
We license commercialization rights to products and technology that are
important to our business, and we expect to enter into additional licenses in
the future. For instance, we acquired our first three products through exclusive
licensing arrangements. See "Item 1. Business -- License Agreements" for a
description of the terms of these licenses. Under these licenses we are subject
to commercialization and development, sublicensing, royalty, insurance and other
obligations. If we fail to comply with any of these requirements, or otherwise
breach these license agreements, the licensor may have the right to terminate
the license in whole or to terminate the exclusive nature of the license. In
addition, upon the termination of the license we may be required to license to
the licensor the intellectual property that we developed.
OUR ABILITY TO MANAGE OUR BUSINESS EFFECTIVELY COULD BE HAMPERED IF WE ARE
UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS
The biopharmaceutical industry has experienced a high rate of turnover of
management personnel in recent years. We are highly dependent on our ability to
attract and retain qualified personnel for the acquisition, development and
commercialization activities we conduct or sponsor. If we lose one or more of
the members of our senior management, including our chief executive officer, Dr.
Clive A. Meanwell, or other key employees or consultants, our business and
operating results could be seriously harmed. Our ability to replace these key
employees may be difficult and may take an extended period of time because of
the limited number of individuals in the biotechnology industry with the breadth
of skills and experience required to develop and commercialize products
successfully. Competition to hire from this limited pool is intense, and we may
be unable to hire, train, retain or motivate such additional personnel.
WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR 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 our ability to
establish and maintain a market for our products. Potential competitors in the
United States 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 competing or are being developed by us or may
obtain FDA approval for products more rapidly than we are able. Technological
development by others may render our products or product candidates
noncompetitive. We may not be successful in establishing or maintaining
technological competitiveness.
BECAUSE THE MARKET FOR THROMBIN INHIBITORS IS COMPETITIVE, OUR PRODUCT MAY NOT
OBTAIN WIDESPREAD USE
We plan to position Angiomax as a replacement to heparin, which is widely-used
and inexpensive, for use in patients with ischemic heart disease. Because
heparin is inexpensive and has been widely used for many years, medical
decision-makers may be hesitant to adopt our alternative treatment. In addition,
due to the high incidence and severity of cardiovascular diseases, the market
for thrombin inhibitors is large and competition is intense and growing. There
are a number of thrombin inhibitors currently on the market, awaiting regulatory
approval and in development, including orally administered agents.
THE LIMITED RESOURCES OF THIRD-PARTY PAYORS MAY LIMIT THE USE OF OUR PRODUCTS
In general, anticoagulant drugs may be classified in three groups: drugs that
directly or indirectly target and inhibit thrombin, drugs that target and
inhibit platelets and drugs that break down fibrin. Because each group of
anticoagulants acts on different components of the clotting process, we believe
that there will be continued clinical work to determine the best combination of
drugs for clinical use. We expect Angiomax to be used with aspirin alone or in
conjunction with other therapies. Although we do not plan to position Angiomax
as a direct competitor to platelet inhibitors or fibrinolytic drugs, platelet
inhibitors and fibrinolytic drugs may compete with Angiomax for the use of
hospital financial resources. Many U.S. hospitals receive a fixed reimbursement
amount per procedure for the angioplasties and other treatment therapies they
perform. Because this amount is not based on the actual expenses the hospital
incurs, U.S. hospitals may have to choose among Angiomax, platelet inhibitors
and fibrinolytic drugs.
FLUCTUATIONS IN OUR OPERATING RESULTS COULD AFFECT THE PRICE OF OUR COMMON STOCK
Our operating results may vary from period to period based on the amount and
timing of sales of Angiomax to customers in the United States, the availability
and timely delivery of a sufficient supply of Angiomax, the timing and expenses
of clinical trials, the availability and timing of third-party reimbursement and
the timing of approval for our product candidates. If our operating results do
not match the expectations of securities analysts and investors as a result of
these and other factors, the trading price of our common stock may fluctuate.
- 29 -
31
RISKS RELATED TO OUR INDUSTRY
IF WE DO NOT OBTAIN FDA APPROVALS FOR OUR PRODUCTS OR COMPLY WITH GOVERNMENT
REGULATIONS, WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS AND MAY BE SUBJECT TO
STRINGENT PENALTIES
Except for Angiomax, which has been approved for sale in the United States and
New Zealand, we do not have a product approved for sale in the United States or
any foreign market. We must obtain approval from the FDA in order to sell our
product candidates in the United States and from foreign regulatory authorities
in order to sell our product candidates in other countries. We must successfully
complete our clinical trials and demonstrate manufacturing capability before we
can file with the FDA for approval to sell our products. The FDA could require
us to repeat clinical trials as part of the regulatory review process. Delays in
obtaining or failure to obtain regulatory approvals may:
- - delay or prevent the successful commercialization of any of our product
candidates;
- - diminish our competitive advantage; and
- - defer or decrease our receipt of revenues or royalties.
The regulatory review and approval process is lengthy, expensive and uncertain.
Extensive pre-clinical data, clinical data and supporting information must be
submitted to the FDA for each additional indication to obtain such approvals,
and we cannot be certain when we will receive these regulatory approvals, if
ever.
In addition to initial regulatory approval, our products and product candidates
will be subject to extensive and rigorous ongoing domestic and foreign
government regulation, as we discuss in more detail in "Business -- Government
Regulation." Any approvals, once obtained, may be withdrawn if compliance with
regulatory requirements is not maintained or safety problems are identified.
Failure to comply with these requirements may also subject us to stringent
penalties.
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN PATENT PROTECTION FOR OUR PRODUCTS, AND
WE MAY INFRINGE THE PATENT RIGHTS OF OTHERS
The patent positions of pharmaceutical and biotechnology companies like us are
generally uncertain and involve complex legal, scientific and factual issues.
Our success depends significantly on our ability to:
- - obtain patents;
- - protect trade secrets;
- - operate without infringing the proprietary rights of others; and
- - prevent others from infringing our proprietary rights.
We may not have any patents issued from any patent applications that we own or
license. If patents are granted, the claims allowed may not be sufficiently
broad to protect our technology. In addition, issued patents that we own or
license may be challenged, invalidated or circumvented. Our patents also may not
afford us protection against competitors with similar technology. Because patent
applications in the United States are maintained in secrecy until patents issue,
others may have filed or maintained patent applications for technology used by
us or covered by our pending patent applications without our being aware of
these applications. In all, we exclusively license 10 issued United States
patents and a broadly filed portfolio of corresponding foreign patents and
patent applications. We have not yet filed any independent patent applications.
We may not hold proprietary rights to some patents related to our product
candidates. In some cases, others may own or control these patents. As a result,
we may be required to obtain licenses under third-party patents to market some
of our product candidates. If licenses are not available to us on acceptable
terms, we will not be able to market these products.
We may become a party to patent litigation or other proceedings regarding
intellectual property rights. The cost to us of any patent litigation or other
proceeding, even if resolved in our favor, could be substantial. If any patent
litigation or other intellectual property proceeding in which we are involved is
resolved unfavorably to us, we may be enjoined from manufacturing or selling our
products
- 30 -
32
and services without a license from the other party, and we may be held liable
for significant damages. We may not be able to obtain any required license on
commercially acceptable terms, or at all.
IF WE ARE NOT ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US
We rely significantly upon unpatented proprietary technology, information,
processes and know how. We seek to protect this information by confidentiality
agreements with our employees, consultants and other third-party contractors, as
well as through other security measures. We may not have adequate remedies for
any breach by a party to these confidentiality agreements. In addition, our
competitors may learn or independently develop our trade secrets.
WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO OBTAIN
INSURANCE AT ACCEPTABLE COSTS AND ADEQUATE LEVELS OR OTHERWISE PROTECT OURSELVES
AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability risks which are inherent
in the testing, manufacturing, marketing and sale of human healthcare products.
Product liability claims might be made by consumers, health care providers or
pharmaceutical companies or others that sell our products. These claims may be
made even with respect to those products that are manufactured in licensed and
regulated facilities or that otherwise possess regulatory approval for
commercial sale.
These claims could expose us to significant liabilities that could prevent or
interfere with the development or commercialization of our products. Product
liability claims could require us to spend significant time and money in
litigation or pay significant damages. We are currently covered, with respect to
our commercial sales in the United States and New Zealand and our clinical
trials, by primary product liability insurance in the amount of $20.0 million
per occurrence and $20.0 million annually in the aggregate on a claims-made
basis. This coverage may not be adequate to cover any product liability claims.
As we commence commercial sales of our products, we may wish to increase our
product liability insurance, and we will need to extend the coverage of our
product liability insurance to cover our commercial sales of Angiomax in the
United States. Product liability coverage is expensive. In the future, we may
not be able to maintain or obtain such product liability insurance on reasonable
terms, at a reasonable cost or in sufficient amounts to protect us against
losses due to product liability claims.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is confined to our cash, cash equivalents and
marketable securities. We place our investments in high-quality financial
instruments, primarily money market funds and corporate debt securities with
maturities or auction dates of less than one year, which we believe are subject
to limited credit risk. We currently do not hedge interest rate exposure. At
December 31, 2000, we held $79.3 million in cash, cash equivalents, and
marketable securities, all due within one year, which had an average interest
rate of approximately 6.5%.
We currently hold a $3.0 million principal investment in Southern California
Edison 5 7/8% bonds due January 15, 2001, which is accounted for in accordance
with Statement of Financial Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." We classify these securities as
available-for-sale and carry them at fair market value based on the quoted
market price. We have exposure to market risk related to the fluctuation of the
Southern California Edison bonds' price, which fluctuation has increased
significantly as a result of events which occurred after December 31, 2000,
including the non-payment of principal and interest on the bonds at maturity on
January 15, 2001. The value of our investment in these Southern California
Edison bonds was approximately $2.5 million as of March 28, 2001.
Most of our transactions are conducted in U.S. dollars. We do have certain
development and commercialization agreements with vendors located outside the
United States. Transactions under certain of these agreements are conducted in
U.S. dollars, subject to adjustment based on significant fluctuations in
currency exchange rates. Transactions under certain other of these agreements
are conducted in the local foreign currency. If the applicable exchange rate
undergoes a change of 10%, we do not believe that it would have a material
impact on our results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPLEMENTARY DATA
All financial statements required to be filed hereunder are filed as Appendix A
hereto, are listed under Item 14 (a) (1) and are incorporated herein by this
reference.
- 31 -
33
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - 13
The information required for Part III of this Annual Report on Form 10-K is
hereby incorporated by reference from portions of our definitive proxy statement
relating to the 2001 annual meeting of stockholders, which statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of our fiscal year. Such information will be contained in the sections
of such proxy statement captioned "Election of Directors," "Section 16(a)
Beneficial Ownership Reporting Compliance," "Compensation of Directors,"
"Compensation of Executive Officers," "Employment Agreements," "Certain
Relationships and Related Transactions," "Compensation Committee Interlocks and
Insider Participation," "Report of the Compensation Committee on Executive
Compensation," "Stock Performance Graph" and "Principal Stockholders."
Information regarding our executive officers and other key employees is
furnished in Part I of this Annual Report on Form 10-K under the heading,
"Executive Officers and Key Employees."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following documents are filed as Appendix A hereto and are included as part
of this Annual Report on Form 10-K:
Page
----
1. Report of Independent Auditors.................................................................................F-1
2. Consolidated Balance Sheets....................................................................................F-2
3. Consolidated Statements of Operations..........................................................................F-3
4. Consolidated Statements of Redeemable Preferred Stock and Stockholder's Equity/(Deficit).......................F-4
5. Consolidated Statements of Cash Flows..........................................................................F-5
6. Notes to Consolidated Financial Statements.....................................................................F-6
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a) (2) Exhibits
The list of exhibits filed as part of this Annual Report on Form 10-K is set
forth on the Exhibit Index immediately preceding such exhibits, and is
incorporated herein by this reference. This list includes a subset containing
each management contract, compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K.
(b) Reports on Form 8-K
None.
- 32 -
34
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, on March 28, 2001.
THE MEDICINES COMPANY
By: /s/ Clive A. Meanwell
-------------------------------------
Clive A. Meanwell
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on March
28, 2001:
SIGNATURE TITLE(S)
--------- --------
/s/ Clive A. Meanwell Chief Executive Officer and President (Principal Executive Officer)
- ---------------------------------------
Clive A. Meanwell
/s/ Peyton J. Marshall Chief Financial Officer (Principal Financial and Accounting Officer)
- ---------------------------------------
Peyton J. Marshall
/s/ Leonard Bell Director
- ---------------------------------------
Leonard Bell
/s/ Dennis B. Gillings Director
- ---------------------------------------
Dennis B. Gillings
/s/ Stewart J. Hen Director
- ---------------------------------------
Stewart J. Hen
_____________________________________ Director
Anders D. Hove
____________________________________ Director
M. Fazle Hussain
/s/ T. Scott Johnson Director
- ---------------------------------------
T. Scott Johnson
/s/ Armin M. Kessler Director
- ---------------------------------------
Armin M. Kessler
____________________________________ Director
Nicholas J. Lowcock
/s/ James E. Thomas Director
- ---------------------------------------
James E. Thomas
- 33 -
35
APPENDIX A
INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF
THE MEDICINES COMPANY
(a company in the development stage)
PAGE
----
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity/(Deficit)............................ F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
36
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Medicines Company
We have audited the accompanying consolidated balance sheets of The Medicines
Company (a company in the development stage) as of December 31, 1999 and 2000,
and the related consolidated statements of operations, redeemable preferred
stock and stockholders' equity/(deficit), and cash flows, for each of the three
years in the period ending December 31, 2000, and for the period July 31, 1996
(date of inception) to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Medicines Company at December 31, 1999 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, and for the period July 31, 1996 (date of inception) to
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 13, 2001, except
for the eighth paragraph
of Note 2, as to which
the date is February 20, 2001
F-2
37
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED BALANCE SHEETS
----------------------------
DECEMBER 31,
----------------------------
1999 2000
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,643,266 $ 36,802,356
Marketable securities..................................... 539,274 42,522,729
Accrued interest receivable............................... 55,225 1,392,928
------------ -------------
7,237,765 80,718,013
Inventory................................................. -- 1,963,491
Prepaid expenses and other current assets................. 154,967 465,650
------------ -------------
Total current assets.............................. 7,392,732 83,147,154
Fixed assets, net........................................... 430,061 965,832
Other assets................................................ 168,605 250,144
------------ -------------
Total assets...................................... $ 7,991,398 $ 84,363,130
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 7,815,028 $ 5,987,213
Accrued expenses.......................................... 3,680,293 9,136,934
------------ -------------
Total current liabilities......................... 11,495,321 15,124,147
Convertible notes........................................... 5,776,319 --
Commitments and contingencies
Redeemable Convertible Preferred Stock, $1 par value;
31,550,000 and 5,000,000 shares authorized at December 31,
1999 and 2000, respectively; shares issued and
outstanding: 22,962,350 and none at December 31, 1999 and
2000, respectively; at redemption value (Liquidation value
of $86,167,821 and $0 at December 31, 1999 and 2000,
respectively)............................................. 85,277,413 --
Stockholders' equity/(deficit):
Common stock, $.001 par value, 36,000,000 and 75,000,000
shares authorized at December 31, 1999 and 2000,
respectively; shares issued and outstanding: 833,400
and 30,320,455 at December 31, 1999 and 2000,
respectively........................................... 834 30,320
Additional paid-in capital................................ 339,144 279,126,337
Deferred stock compensation............................... -- (13,355,694)
Deficit accumulated during the development stage.......... (94,925,028) (196,560,034)
Accumulated other comprehensive income (loss)............. 27,395 (1,946)
------------ -------------
Total stockholders' equity (deficit).............. (94,557,655) 69,238,983
------------ -------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 7,991,398 $ 84,363,130
============ =============
See accompanying notes.
F-3
38
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD JULY 31, 1996
------------------------------------------- (DATE OF INCEPTION)
1998 1999 2000 TO DECEMBER 31, 2000
------------ ------------ ------------- -----------------------
Operating expenses:
Research and development................... $ 24,004,606 $ 30,344,892 $ 39,572,297 $ 110,793,397
Selling, general and administrative........ 6,248,265 5,008,387 15,033,585 29,411,917
------------ ------------ ------------- -------------
Total operating expenses........... 30,252,871 35,353,279 54,605,882 140,205,314
------------ ------------ ------------- -------------
Loss from operations......................... (30,252,871) (35,353,279) (54,605,882) (140,205,314)
Other income (expense):
Interest income............................ 1,302,073 837,839 2,704,126 5,593,904
Interest expense........................... -- (197,455) (19,390,414) (19,617,104)
------------ ------------ ------------- -------------
Net loss..................................... (28,950,798) (34,712,895) (71,292,170) (154,228,514)
Dividends and accretion to redemption value
of redeemable preferred stock.............. (3,958,903) (5,893,016) (30,342,988) (42,331,520)
------------ ------------ ------------- -------------
Net loss attributable to common
stockholders............................... $(32,909,701) $(40,605,911) $(101,635,158) $(196,560,034)
============ ============ ============= =============
Basic and diluted net loss attributable to
common stockholders per common share....... $ (6.03) $ (80.08) $ (8.43)
Unaudited pro forma basic and diluted net
loss attributable to common stockholders
per common share........................... $ -- $ (1.94) $ (2.10)
Shares used in computing net loss
attributable to common stockholders per
common share:
Basic and diluted.......................... 5,454,653 507,065 12,059,275
Unaudited pro forma basic and diluted...... -- 17,799,876 24,719,075
See accompanying notes.
F-4
39
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JULY 31, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 2000
-------------------------------------------------------------------------------------------
REDEEMABLE REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- --------------------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------------ ----------- ------------- ----------- ------- ------------
Issuance of common stock...... $ -- 2,042,175 $ 2,042 $ 755
Issuance of redeemable
preferred stock............. 4,675 $ 4,675,000
Accretion of preferred stock
to redemption value......... 118,348
Net loss......................
------- ------------ ----------- ------------- ----------- ------- ------------
Balance at December 31,
1996...................... 4,675 4,793,348 -- -- 2,042,175 2,042 755
Employee stock purchases...... 627,070 627 232
Issuance of common stock...... 7,186,537 7,187 2,658
Issuance of redeemable
preferred stock............. 34,456 33,498,408
Dividends on preferred
stock....................... 1,175 1,056,652
Accretion of preferred stock
to redemption value......... 957,592
Net loss......................
Currency translation
adjustment..................
Unrealized gain on marketable
securities..................
Comprehensive loss............
------- ------------ ----------- ------------- ----------- ------- ------------
Balance at December 31,
1997...................... 40,306 40,306,000 -- -- 9,855,782 9,856 3,645
Employee stock purchases...... 34,887 35 1,312
Repurchase of common stock.... (107,979) (108) (40)
Exchange of redeemable
preferred stock for
redeemable convertible
preferred stock............. (41,992) (41,992,000) 13,071,714 41,992,000 (8,892,912) (8,893) 8,893
Issuance of redeemable
convertible preferred
stock....................... 8,421,907 35,126,419
Dividends on preferred
stock....................... 1,686 1,686,0000
Accretion of preferred stock
to redemption value......... 2,266,051
Net loss......................
Currency translation
adjustment..................
Unrealized loss on marketable
securities..................
Comprehensive loss............
------- ------------ ----------- ------------- ----------- ------- ------------
Balance at December 31,
1998...................... -- -- 21,493,621 79,384,470 889,778 890 13,810
----------------------------------------------
DEFICIT
ACCUMULATED TOTAL
DEFERRED DURING THE COMPREHENSIVE STOCKHOLDERS'
STOCK DEVELOPMENT INCOME EQUITY
COMPENSATION STAGE (LOSS) (DEFICIT)
-------------- ------------- ------------- -------------
Issuance of common stock...... $ -- $ -- $ 2,797
Issuance of redeemable
preferred stock.............
Accretion of preferred stock
to redemption value......... $ (118,348) (118,348)
Net loss...................... (1,466,877) (1,466,877)
-------------- ------------- ------- ------------
Balance at December 31,
1996...................... -- (1,585,225) -- (1,582,428)
Employee stock purchases...... 859
Issuance of common stock...... 9,845
Issuance of redeemable
preferred stock.............
Dividends on preferred
stock....................... (1,060,673) (1,060,673)
Accretion of preferred stock
to redemption value......... (957,592) (957,592)
Net loss...................... (17,805,926) (17,805,926)
Currency translation
adjustment.................. 1,806 1,806
Unrealized gain on marketable
securities.................. 7,274 7,274
------------
Comprehensive loss............ (17,796,846)
-------------- ------------- ------- ------------
Balance at December 31,
1997...................... -- (21,409,416) 9,080 (21,386,835)
Employee stock purchases...... 1,347
Repurchase of common stock.... (148)
Exchange of redeemable
preferred stock for
redeemable convertible
preferred stock............. --
Issuance of redeemable
convertible preferred
stock.......................
Dividends on preferred
stock....................... (1,692,852) (1,692,852)
Accretion of preferred stock
to redemption value......... (2,266,051) (2,266,051)
Net loss...................... (28,950,798) (28,950,798)
Currency translation
adjustment.................. 31,562 31,562
Unrealized loss on marketable
securities.................. (1,984) (1,984)
------------
Comprehensive loss............ (28,921,220)
-------------- ------------- ------- ------------
Balance at December 31,
1998...................... -- (54,319,117) 38,658 (54,265,759)
See accompanying notes.
F-5
40
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
-------------------------------------------------------------------------------------------
REDEEMABLE REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- --------------------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------------ ----------- ------------- ----------- ------- ------------
Repurchase of common stock..... (56,378) (56) (21)
Dividends on preferred stock... 1,468,729 5,351,178
Accretion of preferred stock to
redemption value.............. 541,765
Issuance of warrants associated
with convertible notes........ 325,355
Net loss.......................
Currency translation
adjustment....................
Unrealized loss on marketable
securities....................
Comprehensive loss.............
------- ------------ ----------- ------------- ----------- ------- ------------
Balance at December 31,
1999........................ -- -- 22,962,350 85,277,413 833,400 834 339,144
Repurchase of common stock..... (22,205) (22)
Employee Stock purchases....... 227,525 226 286,068
Issuance of redeemable
convertible preferred stock... 5,946,366 25,688,284
Accretion and dividend on
preferred stock............... 1,751,241 4,898,537
Beneficial conversion of
redeemable convertible
preferred stock............... 25,444,299
Issuance of warrants associated
with convertible notes........ 18,789,805
Issuance of common stock
through initial public
offering...................... 6,900,000 6,900 101,343,162
Conversion of preferred stock
to common stock............... (30,659,957) (115,864,234) 22,381,735 22,382 115,841,732
Deferred compensation expense
associated with stock
options....................... 17,279,612
Adjustments to deferred
compensation for
terminations.................. (197,485)
Amortization of deferred
compensation..................
Net loss.......................
Currency translation
adjustment....................
Unrealized loss on marketable
securities....................
Comprehensive loss.............
------- ------------ ----------- ------------- ----------- ------- ------------
Balance at December 31,
2000........................ -- $ -- -- $ -- 30,320,455 $30,320 $279,126,337
======= ============ =========== ============= =========== ======= ============
----------------------------------------------
DEFICIT
ACCUMULATED TOTAL
DEFERRED DURING THE COMPREHENSIVE STOCKHOLDERS'
STOCK DEVELOPMENT INCOME EQUITY
COMPENSATION STAGE (LOSS) (DEFICIT)
-------------- ------------- ------------- -------------
Repurchase of common stock..... (77)
Dividends on preferred stock... (5,351,251) (5,351,251)
Accretion of preferred stock to
redemption value.............. (541,765) (541,765)
Issuance of warrants associated
with convertible notes........ 325,355
Net loss....................... (34,712,895) (34,712,895)
Currency translation
adjustment.................... (3,847) (3,847)
Unrealized loss on marketable
securities.................... (7,416) (7,416)
------------
Comprehensive loss............. (34,724,158)
------------ ------------- -------- ------------
Balance at December 31,
1999........................ -- (94,925,028) 27,395 (94,557,655)
Repurchase of common stock..... (22)
Employee Stock purchases....... 286,294
Issuance of redeemable
convertible preferred stock... --
Accretion and dividend on
preferred stock............... (4,898,537) (4,898,537)
Beneficial conversion of
redeemable convertible
preferred stock............... (25,444,299) --
Issuance of warrants associated
with convertible notes........ 18,789,805
Issuance of common stock
through initial public
offering...................... 101,350,062
Conversion of preferred stock
to common stock............... 115,864,114
Deferred compensation expense
associated with stock
options....................... (17,279,612) --
Adjustments to deferred
compensation for
terminations.................. 197,485 --
Amortization of deferred
compensation.................. 3,726,433 3,726,433
Net loss....................... (71,292,170) (71,292,170)
Currency translation
adjustment.................... 5,141 5,141
Unrealized loss on marketable
securities.................... (34,482) (34,482)
------------
Comprehensive loss............. (71,321,511)
------------ ------------- -------- ------------
Balance at December 31,
2000........................ $(13,355,694) $(196,560,034) $ (1,946) $ 69,238,983
============ ============= ======== ============
See accompanying notes.
F-6
41
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, PERIOD JULY 31, 1996
------------------------------------------ (DATE OF INCEPTION) TO
1998 1999 2000 DECEMBER 31, 2000
------------ ------------ ------------ ----------------------
Cash flows from operating activities:
Net loss.................................. $(28,950,798) $(34,712,895) $(71,292,170) $(154,228,514)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 98,413 207,663 277,307 618,677
Amortization of discount on convertible
notes................................ -- 101,674 19,013,486 19,115,160
Amortization of deferred stock
compensation......................... -- -- 3,726,433 3,726,433
Loss on sales of fixed assets............. -- -- 14,631 14,631
Changes in operating assets and
liabilities:
Accrued interest receivable............... (705,515) 690,290 (1,337,703) (1,392,928)
Inventory................................. -- (1,963,491) (1,963,491)
Prepaid expenses and other current
assets................................. (156,812) 39,141 (312,027) (466,548)
Other assets.............................. (152,165) (3,349) (82,391) (250,629)
Accounts payable.......................... (31,864) 5,528,544 (1,823,602) 5,990,320
Accrued expenses.......................... (1,928,001) 1,258,366 5,708,535 9,386,636
------------ ------------ ------------ -------------
Net cash used in operating activities....... (31,826,742) (26,890,566) (48,070,992) (119,450,253)
------------ ------------ ------------ -------------
Cash flows from investing activities:
Purchases of marketable securities........ (29,861,162) -- (51,098,901) (111,144,188)
Maturities and sales of marketable
securities............................. 28,722,483 18,796,493 9,083,090 68,586,977
Purchase of fixed assets.................. (357,103) (258,788) (834,160) (1,604,226)
------------ ------------ ------------ -------------
Net cash provided by (used in) investing
activities................................ (1,495,782) 18,537,705 (42,849,971) (44,161,437)
------------ ------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of convertible
notes and warrants..................... -- 6,000,000 13,348,779 19,348,779
Proceeds from issuance of preferred stock,
net.................................... 35,126,419 -- 6,095,338 79,395,165
Proceeds from issuance of common stock,
net.................................... 1,347 -- 101,636,356 101,651,204
Repurchases of common stock............... (148) (77) (22) (247)
Dividends paid in cash.................... (6,852) (73) (118) (11,064)
------------ ------------ ------------ -------------
Net cash provided by financing activities... 35,120,766 5,999,850 121,080,333 200,383,837
Effect of exchange rate changes on cash..... 29,928 (1,245) (280) 30,209
------------ ------------ ------------ -------------
Increase (decrease) in cash and cash
equivalents............................... 1,828,170 (2,354,256) 30,159,090 36,802,356
Cash and cash equivalents at beginning of
period.................................... 7,169,352 8,997,522 6,643,266 --
------------ ------------ ------------ -------------
Cash and cash equivalents at end of
period.................................... $ 8,997,522 $ 6,643,266 $ 36,802,356 $ 36,802,356
============ ============ ============ =============
Non-cash transactions:
Dividends on preferred stock.............. $ 1,686,000 $ 5,351,178 $ 31,894,474 $ 40,106,652
============ ============ ============ =============
Supplemental disclosure of cash flow
information:
Interest paid............................. $ -- $ -- $ 255,781 $ 285,016
============ ============ ============ =============
See accompanying notes.
F-7
42
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. NATURE OF BUSINESS
The Medicines Company (the Company) was incorporated in Delaware on July 31,
1996. The Company is a pharmaceutical company engaged in the acquisition,
development and commercialization of late-stage development drugs. The Company
is a development-stage enterprise, as defined in Statement of Financial
Accounting Standards No. 7, and has, since inception, been developing business
plans, acquiring product rights, conducting initial commercialization
activities, obtaining financing, performing research and development, conducting
regulatory activities and recruiting and training personnel. In December 2000,
The U.S. Food and Drug Administration (FDA) approved Angiomax(R) (bivalirudin),
the Company's lead product, for use as an anticoagulant in patients with
unstable angina undergoing percutaneous transluminal coronary angioplasty
(PTCA).
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Risks and Uncertainties
The Company is subject to risks common to companies in the pharmaceutical
industry including, but not limited to, uncertainties related to regulatory
approvals, dependence on key products, and protection of proprietary rights.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk include cash, cash equivalents and marketable securities. The
Company believes it minimizes its exposure to potential concentrations of credit
risk by placing investments in high-quality financial instruments. At December
31, 2000, approximately $23,300,000 of the cash and cash equivalents balance was
invested in the Merrill Lynch Premier Institutional Fund, a no-load money market
fund.
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of investments in money market funds, corporate bonds and taxable
auction securities. These investments are carried at cost, which approximates
fair value.
Marketable securities consist of securities with original maturities of greater
than three months. The Company classifies its marketable securities as
available-for-sale. Securities under this classification are recorded at fair
market value and unrealized gains and losses are recorded as a separate
component of stockholders' equity. The estimated fair value of the marketable
securities is determined based on quoted market prices or rates for similar
instruments. At December 31, 1999
F-8
43
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and 2000, marketable securities consisted of investments in corporate bonds with
maturities of less than one year and are summarized as follows:
UNREALIZED
COST GAIN (LOSS) FAIR VALUE
----------- ----------- -----------
December 31, 1999....................................... $ 541,400 $ (2,126) $ 539,274
December 31, 2000....................................... $42,559,337 $(36,608) $42,522,729
There were no sales of available-for-sale securities during the years ended
December 31, 1999 and 2000, although there were maturities of such securities as
disclosed in the accompanying consolidated statement of cash flows.
The Medicines Company currently holds a $3.0 million principal investment in
Southern California Edison 5 7/8% bonds due January 15, 2001, which is accounted
for in accordance with Statement of Financial Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." We classify these securities
as available-for-sale and carry them at fair market value based on the quoted
market price. We have exposure to market risk related to the fluctuation of the
Southern California Edison bonds' price, which fluctuation has increased
significantly as a result of events which occurred after December 31, 2000,
including the non-payment of principal and interest on the bonds at maturity on
January 15, 2001. At March 28, 2001, the value of the Company's investment in
these Southern California Edison bonds had declined to approximately $2.5
million.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were
approximately $1,491,000, $484,000 and $807,000 for the years ended December 31,
1998, 1999 and 2000, respectively.
Inventory
The Company records inventory upon the transfer of title from its vendor.
Inventory is stated at the lower of cost or market with cost determined using a
weighted average of actual costs. All costs associated with the manufacture of
Angiomax bulk drug product and finished product to which title transferred to
the Company prior to FDA approval of Angiomax was expensed as research and
development. On December 15, 2000, the Company received FDA approval for
Angiomax and any Angiomax bulk drug product to which the Company took title
after that date is recorded as inventory.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method based on estimated useful lives or, in the case of
leasehold improvements, over the lesser of the useful lives or the lease terms.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has elected to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
F-9
44
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Translation of Foreign Currencies
The functional currencies of the Company's foreign subsidiaries are the local
currencies; British pound sterling, Swiss franc and New Zealand dollar. The
Company translates its foreign operations using a current exchange rate. In
accordance with Statement of Financial Accounting Standards No. 52, assets and
liabilities are exchanged using the current exchange rate as of the balance
sheet date. Expenses and items of income are exchanged using a weighted average
exchange rate over the period ended on the balance sheet date. Adjustments
resulting from the translation of the financial statements of the Company's
foreign subsidiaries into U.S. dollars are excluded from the determination of
net loss and are accumulated in a separate component of stockholders' deficit.
Foreign exchange transaction gains and losses are included in the results of
operations and are not material to the Company's consolidated financial
statements.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities, as well as
net operating loss carryforwards, and are measured using the enacted tax rates
and laws that will be in effect when the differences reverse. Deferred tax
assets are reduced by a valuation allowance to reflect the uncertainty
associated with ultimate realization.
Comprehensive Income/(Loss)
The Company reports comprehensive income/loss and its components in accordance
with the provisions of SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income/loss includes all changes in equity for cumulative
translations adjustments resulting from the consolidation of foreign
subsidiaries' financial statements and unrealized gains and losses on
available-for-sale securities.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101, as amended, is
effective beginning the fourth quarter of calendar fiscal years beginning after
December 15, 1999 and requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation. Adoption of SAB 101 did not have a material impact on the
Company's financial position or results of operations, since the Company has no
revenues to date.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The effective
date of this statement was deferred to fiscal years beginning after June 15,
2000 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." The adoption of
this new standard is not expected to have a material impact on the Company's
financial condition or results of operations.
Net Loss Per Share
Basic net loss per share is computed using the weighted average number of shares
of common stock outstanding during the period reduced, where applicable, for
outstanding, yet unvested, shares. Diluted net loss per share includes the
effect of stock options, warrants and redeemable convertible preferred stock and
convertible notes outstanding during the period, if dilutive. Since the Company
has a net loss for all periods presented, the effect of all potentially dilutive
securities is antidilutive. Accordingly, basic and diluted net loss per share
are the same.
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma net loss per share is computed using the weighted average
number of common shares outstanding, including the pro forma effects of
automatic conversion of all outstanding redeemable convertible preferred stock
and
F-10
45
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accrued dividends and convertible notes and accrued interest through each
balance sheet date into shares of the Company's common stock effective upon the
closing of the Company's initial public offering, as if such conversion had
occurred at the date of original issuance.
Segments
The Company is a development stage company focused on the acquisition,
development and commercialization of late-stage development drugs. The Company
has license rights to three potential products, Angiomax, CTV-05 and IS-159. The
Company manages its business and operations as one segment. There are no
revenues to date for any potential products and the Company's assets are not
identifiable to its three potential products.
3. MANAGEMENT'S PLANS AND FINANCING
The Company is a development stage company and has incurred substantial losses
since inception. To date, the Company has funded its operations through the
issuance of debt and equity. The Company expects to continue to expend
substantial amounts for continued product research, development and initial
commercialization activities for the foreseeable future and management's plans
with respect to funding this development are to secure additional equity, if
possible, and to secure collaborative partnering arrangements that will provide
available cash funding for operations.
Should additional equity financing or collaborative partnering arrangements be
unavailable to the Company, management will restrict certain of the Company's
planned activities and operations, as necessary, to sustain operations and
conserve cash resources.
4. FIXED ASSETS
Fixed assets consist of the following:
---------------------------------------
DECEMBER 31,
ESTIMATED -----------------------
LIFE (YEARS) 1999 2000
------------ --------- ----------
Furniture, fixtures and equipment.......................... 3 $ 323,685 $ 547,748
Computer hardware and software............................. 3 213,376 728,333
Leasehold improvements..................................... 5 216,064 243,060
--------- ----------
753,125 1,519,141
Less: Accumulated depreciation............................. (323,064) (553,309)
--------- ----------
$ 430,061 $ 965,832
========= ==========
Depreciation expense was approximately $98,000, $208,000 and $277,000 for the
years ended December 31, 1998, 1999 and 2000, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1999 2000
---------- ----------
Development services........................................ $3,283,767 $5,998,117
Other....................................................... 396,526 3,138,817
---------- ----------
$3,680,293 $9,136,934
========== ==========
F-11
46
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. CONVERTIBLE NOTES
In October 1999, the Company issued $6,000,000 of 8% Convertible Notes ("the
Notes") and 1,013,877 Common Stock Purchase Warrants ("the Warrants") to
existing investors, raising proceeds of $6,000,000. The Notes were redeemable on
January 15, 2001 and pay interest semi-annually at a rate of 8% per annum. The
Notes were convertible into shares of stock of the Company upon a subsequent
sale of stock of the Company provided that such sale resulted in aggregate gross
proceeds of at least $6,000,000. The Notes were convertible into a number of
shares of stock determined by dividing the outstanding principal and interest on
the date of the subsequent sale by the price per share of such sale. Each
Warrant provides the holder with the right to purchase one share of Common Stock
of the Company at a price of $5.92 per share at any time prior to October 19,
2004. The exercise price and the number of shares underlying the Warrants could
be adjusted in certain circumstances related to future issuances of capital
stock. The Company recorded $325,355 as the fair value of the Warrants using the
Black-Scholes method and the estimated fair value of the Company's Common Stock
on the date of the issuance of warrants, and $5,674,645 as the value of the
Notes on the issuance date. The discount on the Notes was amortized to interest
expense over the expected term of the Notes, which the Company anticipated to be
to June 2000. Since the Notes were issued in October 1999, the carrying amount
approximates their fair value at December 31, 1999. Upon completion of the
Company's sale of Series IV Preferred Stock in May 2000, the principal and
accrued interest on the Notes was converted into 1,393,909 shares of Series IV
Preferred Stock.
In March 2000, the Company issued $13,348,779 of 8% Convertible Notes ("the
Notes") and 2,255,687 Common Stock Purchase Warrants ("the Warrants") to current
stockholders, raising proceeds of $13,348,779. The Notes were redeemable on
January 15, 2001 and accrue interest semi-annually at a rate of 8% per annum.
The Notes were convertible into shares of stock of the Company upon a subsequent
private sale of stock of the Company provided that such sale results in
aggregate gross proceeds of at least $6,000,000. The Notes were convertible into
a number of shares of stock determined by dividing the outstanding principal and
interest on the date of the subsequent sale by the price per share of such sale.
Each Warrant provides the holder with the right to purchase one share of Common
Stock of the Company at a price of $5.92 per share at any time prior to March
2005. The exercise price and the number of shares underlying the Warrants could
be adjusted in certain circumstances related to future issuances of stock. The
Company recorded approximately $18,800,000 as the value of the Warrants using
the Black-Scholes method and the estimated fair value of the Company's common
stock on the date of the issuance of the warrants. The discount on the Notes was
amortized over the expected term of the Notes, which the Company anticipated to
be to June 2000. For the year ended December 31, 2000, amortization of the
discount was approximately $18,800,000 and is included with the interest expense
in the accompanying financial statements. Upon completion of the Company's sale
of Series IV Preferred Stock in May 2000, the principal and accrued interest on
the Notes was converted into 3,141,457 shares of Series IV Preferred Stock.
7. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
On June 29, 2000, the Company's Board of Directors approved a reverse split of
.73 shares for every one share of common stock then outstanding. The reverse
stock split became effective on August 4, 2000. The accompanying financial
statements and footnotes, including all share and per share amounts, reflect the
reverse stock split.
F-12
47
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Series I, Series II, Series III and Series IV Redeemable Convertible Preferred
Stock
During 1999 and 2000, the Company had designated four series of redeemable
convertible preferred stock. A summary of the Series I, Series II, Series III
and Series IV Redeemable Convertible Preferred Stock is as follows.
--------------------------
DECEMBER 31,
--------------------------
1999 2000
----------- -----------
Series I, $1 par value, 3,550,000 shares authorized at
December 31, 1999 and none at December 31, 2000, 2,678,005
shares and none issued and outstanding as of December 31,
1999 and 2000, respectively ($5,512,225 liquidation value
at December 31, 1999 and $0 at December 31, 2000)......... $ 5,512,225 $ --
Series II, $1 par value, 15,850,000 shares authorized at
December 31, 1999 and none at December 31, 2000,
11,290,928 shares and none issued and outstanding as of
December 31, 1999 and 2000, respectively ($40,670,864
liquidation value at December 31, 1999 and $0 at December
31, 2000)................................................. 40,670,864 --
Series III, $1 par value, 12,150,000 shares authorized at
December 31, 1999 and none at December 31, 2000, 8,993,417
shares and none issued and outstanding as of December 31,
1999 and 2000, respectively ($39,984,732 liquidation value
at December 31, 1999 and $0 at December 31, 2000)......... 39,094,324 --
Series IV, $1 par value, 12,150,000 shares authorized during
December 31, 2000 and none at December 31, 1999, none
issued and outstanding as of December 31, 2000............ -- --
----------- -----------
Total............................................. $85,277,413 $ --
=========== ===========
In August 1998, the Company executed an agreement (the "Exchange Agreement")
under which 8,892,912 shares of common stock and 41,992 shares of Series A
Redeemable Preferred Stock were exchanged for 2,506,000 shares of Series I
Redeemable Convertible Preferred Stock and 10,565,714 shares of Series II
Redeemable Convertible Preferred Stock. Holders of Series A Redeemable Preferred
Stock were entitled to receive preferential cumulative annual dividends payable
in additional shares of Series A Redeemable Preferred Stock at the rate of 7%
per annum of the stated value. Prior to the Exchange Agreement, dividends earned
from January 1, 1998 through the date of the Exchange Agreement were paid to the
holders of Series A Redeemable Preferred Stock. During 1997, certain preferred
shareholders waived their right to a portion of earned dividends and the Company
paid agreed-upon amounts through December 31, 1997. To the extent that all or
any part of the Stock would have resulted in the issuance of a fractional share
of the Series A Preferred stock, the amount of such fraction, multiplied by the
stated value, was paid in cash.
On May 17, 2000, the Company issued 1,411,000 shares of Series IV Redeemable
Convertible Preferred Stock for net proceeds of $6,095,520. In addition, on May
17, 2000, the convertible notes and accrued interest were converted into
4,535,366 shares of Series IV Redeemable convertible Preferred Stock. The Series
IV preferred stock carries terms and conditions similar to the Series I, II, III
preferred stock. The Series IV preferred stock was convertible into common stock
at a 1-for-0.73 conversion rate and automatically converted upon the closing of
the sale of shares of common stock in an underwritten public offering. The
Series IV Redeemable Convertible Preferred Stock issued on May 17, 2000
contained a beneficial conversion feature based on the estimated fair market
value of common stock into which it is convertible. In accordance with EITF
98-5, the total amount of such beneficial conversion is approximately
$25,450,000. The beneficial conversion is analogous to a dividend and was
recognized during 2000 when issued. Simultaneously with the closing of the
Company's initial public offering, 30,659,957 shares of Redeemable Convertible
Preferred Stock then outstanding (including accrued dividends for the period
August 1, 2000 to August 11, 2000) were converted into 22,381,735 shares of
common stock.
F-13
48
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the rights, preferences and privileges of the Series I, Series II,
Series III and Series IV Redeemable Convertible Preferred Stock ("Series
Preferred Stock") is as follows:
Dividends. The holders of each series of Series Preferred Stock are entitled to
receive, prior to any distribution to the holders of Common Stock, preferential
cumulative dividends payable in additional shares of such series of Series
Preferred Stock at a rate of 7% per share per annum of the liquidation value of
such series of Series Preferred Stock. Such dividends were paid annually
commencing on July 31, 1999.
Liquidation. In the event of any liquidation, dissolution or winding up of the
Company (either voluntary or involuntary), the holders of Series Preferred Stock
are entitled to receive, out of the assets of the Company available for
distribution to its stockholders, a per share amount equal to $2.00 per share in
the case of the Series I Preferred Stock, $3.50 per share in the case of the
Series II Preferred Stock and $4.32 in the case of the Series III and Series IV
Preferred Stock, plus any accrued but unpaid dividends (the liquidation value).
These distributions will be made prior to any distributions to other
stockholders. Any amounts remaining after making such distributions will be
distributed to the holders of Common Stock and Series Preferred Stock on parity
with each other. If the remaining assets of the Company available for
distribution to its stockholders are insufficient to pay all of the holders of
Series Preferred Stock, distributions will be made first to the Series IV
Preferred Stockholders, then to Series III Preferred Stockholders and then to
the Series I and II Preferred Stockholders on a pro-rata basis.
Conversion. Holders of shares of Series Preferred Stock have the right to
convert their shares at any time into shares of Common Stock. The conversion
rate for each series of Series Preferred Stock is 0.73-for-1. The conversion
rate for each series of Series Preferred Stock is subject (i) to proportional
adjustments for splits, reverse splits, recapitalizations, etc., and (ii) to
formula-weighted average adjustments in the event that the Company issues
additional shares of Common Stock or securities convertible into or exercisable
for Common Stock at a purchase price less than the applicable conversion price
then in effect, other than the issuance of shares to directors, officers,
employees and consultants pursuant to stock plans approved by the Board of
Directors and certain other exceptions. Each share of Series Preferred Stock
will be automatically converted into shares of Common Stock upon the closing of
the sale of shares of Common Stock at a price of at least $8.90 per share
(subject to appropriate adjustment for stock dividends, stock splits,
combinations and other similar recapitalizations affecting such shares) in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, resulting in at least $15,000,000 of gross
proceeds to the Company.
Redemption. The Company will redeem the outstanding shares of Series Preferred
Stock in three equal annual installments commencing July 31, 2002 at a price
equal to the liquidation value of such shares.
Voting. Generally, holders of shares of Series Preferred Stock vote on all
matters, including the election of directors, with the holders of shares of
Common Stock on an as-converted basis, except where a class vote is required by
law.
Accretion. Series Preferred Stock is accreted to its redemption value to
recognize issuance costs over the period from issuance to redemption using the
interest method and to reflect accrued but unpaid dividends.
Common Stock
Common Stockholders are entitled to one vote per share and dividends when
declared by the Board of Directors, subject to the preferential rights of
preferred stockholders.
Upon the completion of its Initial Public Offering ("IPO") on August 11, 2000,
the Company sold 6,000,000 shares of its common stock at a price of $16.00 per
share. In addition, on September 8, 2000, the underwriters of the IPO exercised
their over-allotment option and purchased an additional 900,000 shares of common
stock at a price of $16.00 per share. The company received proceeds of
approximately $101.4 million, net of underwriting discounts and commissions, and
expenses. Simultaneously with the closing of the IPO, 30,659,957 shares of
Redeemable Convertible Preferred Stock then outstanding
F-14
49
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(including accrued dividends for the period August 1, 2000 to August 11, 2000)
were converted into 22,381,735 shares of common stock.
During 1996, 1997 and 1998, certain employees of the Company purchased 335,800,
627,070 and 32,850 shares of common stock, respectively, for $0.001 per share.
These shares are subject to restriction and vesting agreements that limit
transferability and allow the Company to repurchase unvested shares at the
original purchase price. The shares vest ratably over a four-year period that
generally begins on each employee's hire date. During 1998, 1999 and 2000, the
Company repurchased 107,979, 56,378 and 22,205 shares, respectively, of unvested
common stock for $0.001 per share. There were 62,722 shares of common stock
unvested at December 31, 2000.
Stock Plans
In April 1998, the Company adopted the 1998 Stock Incentive Plan (the "Plan"),
which provides for the grant of stock options, restricted stock and other
stock-based awards to employees, directors and consultants. The plan allows for
the issuance of up to 1,083,259 shares of common stock through April 2008. The
Board of Directors determines the term of each option, the option price, the
number of shares for which each option is granted and the rate at which each
option is exercisable. During 1999, the Board of Directors amended all
outstanding grants to allow holders the opportunity to exercise options prior to
vesting. Exercised options that are unvested are subject to repurchase by the
Company at the original exercise price. Options granted under the plan generally
vest in increments over four years.
In January 2000, the Board of Directors approved an amendment to the Plan to
increase the number of shares available under the Plan to 1,448,259. In May
2000, the Board of Directors approved an amendment to the Plan to increase the
number of shares available under the Plan to 4,368,259. In addition, the Board
of Directors also approved the 2000 Employee Stock Purchase Plan which provides
for the issuance of up to 255,500 shares of common stock to participating
employees and the 2000 Directors Stock Option Plan which provides for the
issuance of up to 250,000 shares of common stock to the Company's directors.
Both the 2000 Employee Stock Purchase Plan and the 2000 Directors Stock Option
Plan have received stockholder approval.
Prior to the Company's initial public offering, the Board of Directors of the
company determined the fair value of the Company's common stock in its good
faith judgment at each option grant date for grants under the Plan considering a
number of factors including the financial and operating performance of the
company, recent transactions in the Company's common and preferred stock, if
any, the values of similarly situated companies and the lack of marketability of
the company's common stock. Following the Company's initial public offering, the
fair value is determined based on the traded value of the Company's common
stock.
During the period January 1, 2000 to September 31, 2000, the Company issued
2,273,624 options at exercise prices below the estimated fair value of the
Company's common stock as of the date of grant of such options based on the
price of the Company's common stock in connection with the Company's initial
public offering. The total deferred compensation associated with these options
is approximately $17.3 million. Included in the results of operations for the
year ended December 31, 2000 is compensation expense of approximately $3.7
million associated with such options.
The Company has elected to follow APB 25 in accounting for its stock options
granted to employees because the alternative fair value accounting provided for
under SFAS 123, requires the use of option valuation models that were not
developed for use in valuing employee stock options. Because the exercise price
of the Company's stock options generally equals the market price of the
underlying stock on the date of grant, no compensation is recognized under APB
25. Had compensation costs for the Plan been determined based on the fair value
at the grant dates as calculated in accordance with SFAS 123, the Company's net
loss for the year ended December 31, 1999 and 2000 would have been increased to
the pro forma amounts indicated below.
F-15
50
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1999 2000
----------- ----------- ------------
Net loss attributable to common stockholders--As
reported........................................... $32,909,701 $40,605,911 $101,635,158
Net loss attributable to common stockholders--Pro
forma.............................................. $32,965,764 $40,771,828 $106,150,604
Net loss per share attributable to common
stockholders--As reported.......................... $ (6.03) $ (80.08) $ (8.43)
Net loss per share attributable to common
stockholders--Pro forma............................ $ (6.04) $ (80.41) $ (8.80)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
--------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1999 2000
---------- ---------- ----------
Expected dividend yield.................................... 0% 0% 0%
Expected stock price volatility............................ 70% 70% 70%
Risk-free interest rate.................................... 4.70% 5.45% 6.32%
Expected option term....................................... 3.38 years 3.30 years 3.35 years
A summary of stock option activity under the 1998 Stock Incentive Plan and the
2000 Directors Stock Option Plan are as follows:
-----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Outstanding, December 31, 1997.............................. -- $ --
Granted..................................................... 734,745 1.11
Exercised................................................... (2,037) 0.64
Canceled.................................................... (27,437) 0.88
--------- ----------------
Outstanding, December 31, 1998.............................. 705,271 1.12
Granted..................................................... 239,075 1.23
Canceled.................................................... (175,380) 1.05
--------- ----------------
Outstanding, December 31, 1999.............................. 768,966 1.16
Granted..................................................... 3,080,424 9.80
Exercised................................................... (227,523) 1.26
Canceled.................................................... (406,713) 1.22
--------- ----------------
Outstanding, December 31, 2000.............................. 3,215,154 $ 9.43
========= ================
Available for future grant at December 31, 2000............. 1,173,545
=========
The weighted average per share fair value of options granted during 1998, 1999
and 2000 was $0.55, $0.62 and $10.34, respectively. The weighted average fair
value and exercise price of options granted during 2000 which were granted with
exercise prices below the fair market value were $9.35 and $4.68, respectively.
The weighted average fair value and exercise price of options granted during
2000 which were granted with exercise prices equal to the fair market value were
$13.19 and $24.96, respectively.
F-16
51
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options from the 1998
Stock Incentive Plan and the 2000 Directors Stock Option Plan outstanding at
December 31, 2000:
- ------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS VESTED
-------------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE OUTSTANDING EXERCISE
EXERCISE PRICES AT 12/31/00 LIFE (YEARS) PRICE AT 12/31/00 PRICE
- --------------- -------------- ---------------- -------- -------------- --------
$ 0.69 - $ 3.08 911,673 8.72 $ 1.63 363,052 $ 1.46
$ 4.79 - $ 4.79 850,450 9.39 $ 4.79 115,582 $ 4.79
$ 5.92 - $12.00 631,231 9.52 $ 6.69 3,815 $ 5.92
$19.88 - $24.00 183,750 9.85 $ 22.76 -- --
$24.13 - $30.63 638,050 9.93 $ 25.60 -- --
-------------- ---------------- -------- -------------- --------
3,215,154 9.36 $ 9.43 482,449 $ 2.29
============== ================ ======== ============== ========
Common Stock Reserved for Future Issuance
At December 31, 2000, there were 7,913,763 shares of common stock reserved for
future issuance under the Employee Stock Purchase Plan, for conversion of the
Common Stock Warrants and for grants made under the 1998 Stock Incentive Plan
and the 2000 Director Stock Option Plan.
8. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted, and
unaudited pro forma basic and diluted net loss per share for the respective
periods. The unaudited pro forma basic and diluted net loss per share gives
effect to the conversion of the redeemable convertible preferred stock and the
convertible notes and accrued interest as if converted at the date of original
issuance.
---------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1999 2000
------------ ------------ -------------
Basic and Diluted
Net loss................................................... $(28,950,798) $(34,712,895) $ (71,292,170)
Dividends and accretion on redeemable convertible preferred
stock.................................................... (3,958,903) (5,893,016) (30,342,988)
------------ ------------ -------------
Net loss attributable to common stockholders............... $(32,909,701) $(40,605,911) $(101,635,158)
============ ============ =============
Weighted average common shares outstanding................. 6,075,948 850,238 12,225,537
Less: unvested restricted common shares outstanding........ (621,295) (343,173) (166,262)
------------ ------------ -------------
Weighted average common shares used to compute net loss per
share.................................................... 5,454,653 507,065 12,059,275
============ ============ =============
Basic and diluted net loss per share....................... $ (6.03) $ (80.08) $ (8.43)
============ ============ =============
F-17
52
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
---------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1999 2000
------------ ------------ -------------
Unaudited Pro forma basic and diluted
Net loss................................................... $(34,712,895) $ (71,292,170)
Interest expense on convertible notes...................... 197,455 19,390,414
------------ -------------
Net loss used to compute pro forma net loss per share...... $(34,515,440) $ (51,901,756)
============ =============
Weighted average common shares used to compute net loss per
share.................................................... 507,065 12,059,275
Weighted average number of common shares assuming the
conversion of all redeemable convertible preferred stock
and convertible notes and accrued interest at the date of
original issuance........................................ 17,292,811 12,659,800
------------ -------------
Weighted average common shares used to compute pro forma
net loss per share....................................... 17,799,876 24,719,075
============ =============
Unaudited pro forma basic and diluted net loss per share... $ (1.94) $ (2.10)
============ =============
Options to purchase 768,966 and 3,215,154 shares of common stock have not been
included in the computation of diluted net loss per share for the years ended
December 31, 1999 and 2000, respectively, as their effects would have been
antidilutive. Warrants to purchase 1,013,877 and 3,269,564 shares of common
stock were excluded from the computation of diluted net loss per share for the
year ended December 31, 1999 and 2000, respectively, as their effect would be
antidilutive.
9. INCOME TAXES
The significant components of the Company's deferred tax assets are as follows:
----------------------------------
DECEMBER 31,
----------------------------------
1999 2000
-------------- ----------------
Deferred tax assets:
Net operating loss carryforwards.......................... $ 30,864,000 $ 48,494,000
Research and development credit........................... 2,074,000 3,576,000
Intangible assets......................................... 1,139,000 1,233,000
Other..................................................... 36,000 86,000
------------ ----------------
34,113,000 53,389,000
Valuation allowance......................................... (34,113,000) (53,389,000)
------------ ----------------
Net deferred tax assets..................................... $ -- $ --
============ ================
The Company has increased its valuation allowance by $19,276,000 in 2000 to
provide a full valuation allowance for deferred tax assets since the realization
of these future benefits is not considered more likely than not. The amount of
the deferred tax asset considered realizable is subject to change based on
estimates of future taxable income during the carryforward period. If the
Company achieves profitability, these deferred tax assets would be available to
offset future income taxes. The future utilization of net operating losses and
credits may be subject to limitation based upon changes in ownership under the
rules of the Internal Revenue Code. The Company will assess the need for the
valuation allowance at each balance sheet date based on all available evidence.
F-18
53
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 2000, the Company had federal net operating loss carryforwards
available to reduce taxable income, and federal research and development tax
credit carryforwards available to reduce future tax liabilities, which expire as
follows:
----------------------------------
FEDERAL RESEARCH
FEDERAL NET AND DEVELOPMENT
YEAR OF OPERATING LOSS TAX CREDIT
EXPIRATION CARRYFORWARDS CARRYFORWARDS
- ---------- -------------- ----------------
2011........................................................ $ 930,000 $ 22,000
2012........................................................ 15,260,000 527,000
2018........................................................ 27,876,000 425,000
2019........................................................ 33,802,000 1,002,000
2020........................................................ 44,282,000 1,300,000
------------ ----------------
$122,150,000 $ 3,276,000
============ ================
For state purposes, net operating loss carryforwards of approximately
$116,042,000 expire in the years 2001 through 2004. State research and
development tax credit carryforwards are approximately $300,000.
10. LICENSE AGREEMENTS
Angiomax
In March 1997, the Company entered into an agreement with Biogen, Inc. for the
license of the anticoagulant pharmaceutical, bivalirudin (now known as
Angiomax). Under the terms of the agreement, the Company acquired exclusive
worldwide rights to the technology, patents, trademarks, inventories and
know-how related to Angiomax. In exchange for the license, the Company paid $2
million on the closing date and is obligated to pay up to an additional $8
million upon reaching certain Angiomax sales milestones, including the first
commercial sale of Angiomax for the treatment of AMI in the United States and
Europe. In addition, the Company shall pay royalties on future sales of Angiomax
and on any sublicense royalties earned until the later of (1) 12 years after the
date of the first commercial sale of the product in a country or (2) the date in
which the product or its manufacture, use or sale is no longer covered by a
valid claim of the licensed patent right in such country. The agreement also
stipulates that the Company use commercially reasonable efforts to meet certain
milestones related to the development and commercialization of Angiomax,
including expending at least $20 million for certain development and
commercialization activities, which we met in 1998. The license and rights under
the agreement remain in force until our obligation to pay royalties ceases.
Either party may terminate for material breach, and the Company may terminate
the agreement for any reason upon 90 days prior written notice. During December
2000, the Company received approval from the U.S. Food and Drug Administration
(FDA) for the sale of Angiomax for certain indications.
CTV-05
In August 1999, the Company entered into an agreement with Gynelogix, Inc. for
the license of the biotherapeutic agent CTV-05, a strain of human lactobacillus
currently under clinical investigation for applications in the areas of
urogenital and reproductive health. Under the terms of the agreement, the
Company acquired exclusive worldwide rights to the patents and know-how related
to CTV-05. In exchange for the license, the Company has paid $400,000 and is
obligated to pay an additional $100,000 upon reaching certain development and
regulatory milestones and to fund agreed-upon operational costs of Gynelogix
related to the development of CTV-05 on a monthly basis subject to a limitation
of $50,000 per month. In addition, the Company is obligated to pay royalties on
future sales of CTV-05 and on any sublicense royalties earned until the date on
which the product is no longer covered by a valid claim of the licensed patent
rights in a country. The agreement also stipulates that the Company must use
commercially reasonable efforts in pursuing the development, commercialization
and marketing of CTV-05 to maintain the license. The license and rights under
the agreement remain in force until our obligation to pay royalties ceases.
Either party may terminate the agreement for material breach, and may terminate
the agreement for any reason upon 60 days prior written notice.
F-19
54
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
IS-159
In July 1998, the Company entered into an agreement with Immunotech S.A. for the
license of the pharmaceutical IS-159 for the treatment of acute migraine
headache. Under the terms of the agreement, the Company acquired exclusive
worldwide rights to the patents and know-how related to IS-159. In exchange for
the license, the Company paid $1 million on the closing date and is obligated to
pay up to an additional $4.5 million upon reaching certain development and
regulatory milestones. In addition, the Company shall pay royalties on future
sales of IS-159 and on any sublicense royalties earned until the date on which
the product is no longer covered by a valid claim of the licensed patent rights
in a country. The agreement also stipulates that the Company must use
commercially reasonable efforts in pursuing the development, commercialization
and marketing of IS-159 and meet certain development and regulatory milestones
to maintain the license. The licenses and rights under the agreement remain in
force until the company's obligation to pay royalties ceases. Either party may
terminate the agreement for material breach, and the Company may terminate the
agreement for any reason upon 60 days prior written notice
11. STRATEGIC ALLIANCES
UCB
In December 1999, the Company entered into a commercial supply agreement with
UCB-Bioproducts S.A. ("UCB") to develop and supply Angiomax bulk drug substance.
Under the terms of the agreement, UCB Bioproducts is also responsible for
developing the Chemilog process in coordination with the Company and obtaining
regulatory approval for use of the process. The Company has agreed to partially
fund UCB Bioproducts' development activities. The funding is due upon the
completion by UCB Bioproducts of development milestones. If UCB Bioproducts
successfully completes each of these development milestones, the Company
anticipates total development funding to be approximately $9.1 million. During
1999 and 2000, expenses incurred for such services were approximately $811,000
and $560,000, respectively, of which approximately $469,000 and $789,000 was
recorded in accounts payable and accrued expenses at December 31, 1999 and 2000,
respectively. In addition, the Company has agreed to purchase Angiomax bulk drug
product exclusively from UCB Bioproducts at agreed upon prices for a period of
seven years from the date of the first commercial sale of Angiomax produced
under the Chemilog process. Following the expiration of the agreement, or if the
Company terminates the agreement prior to its expiration, UCB Bioproducts will
transfer the development technology to the Company. If the Company engages a
third party to manufacture Angiomax using this technology, the Company will be
obligated to pay UCB Bioproducts a royalty based on the amount paid by the
Company to the third-party manufacturer.
During 1999, the Company placed an order with UCB Bioproducts for the
manufacture of Angiomax bulk drug product. Manufacture of $14.2 million of this
material was completed in 2000, of which $12.2 million was expensed during the
period. All costs associated with the manufacture of Angiomax bulk drug product
and finished products to which title was transferred to the Company prior to the
date of FDA approval of Angiomax were expensed as research and development. The
Company recorded Angiomax bulk drug product to which title transferred after the
date of FDA approval of Angiomax as inventory. In November 2000, the Company
placed additional orders with UCB Bioproducts for the manufacture of Angiomax
bulk drug product. Under the terms of these orders, the Company is scheduled to
take title to material and become obligated to make payments totaling
approximately $24.0 million in fiscal 2001 and early fiscal 2002.
Lonza
In September 1997, the Company entered into an agreement with Lonza AG ("Lonza")
for the development of a new commercial manufacturing process for an advanced
intermediate compound used in the manufacturing of Angiomax ("Angiomax
intermediate"). In November 1998, the Company entered into an additional
agreement with Lonza for the engineering, procurement and installation of
equipment for the initial manufacturing of the Angiomax intermediate using the
new process. The agreement also contemplated the purchase of the Angiomax
intermediate from Lonza at specified prices for an anticipated two-year period
following initial production and stipulated the basic principles of a long-term
commercial
F-20
55
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
supply contract. In January 2000, the Company notified Lonza of its intention to
terminate the agreement. As a result of the termination, the Company retained
certain ownership rights to intellectual property and was responsible for
reimbursement of all costs incurred under the terms of the agreement through the
date of notice. Approximately $1,572,000 was recorded in accounts payable and
accrued expenses at December 31, 1999. There was no outstanding obligation to
Lonza at December 31, 2000.
PharmaBio
In August 1996, the Company entered into a strategic alliance with one of its
stockholders, PharmaBio Development Inc. ("PharmaBio"), a wholly owned
subsidiary of Quintiles Transnational Corporation ("Quintiles"). Under the terms
of the strategic alliance agreement, PharmaBio and any of its affiliates who
work on the Company's projects will, at no cost to the Company, review and
evaluate, jointly with the Company, development programs designed by the Company
related to potential or actual product acquisitions. The purpose of this
collaboration is to optimize the duration, cost, specifications and quality
aspects of such programs. PharmaBio and its affiliates have also agreed to
perform other services with respect to our products, including clinical and
non-clinical development services, project management, project implementation,
pharmacoeconomic services, regulatory affairs and post marketing surveillance
services and statistical, statistical programming, data processing and data
management services pursuant to work orders agreed to by the Company and
PharmaBio from time to time. Through December 31, 2000, the Company has entered
in approximately 40 work orders with PharmaBio and has paid PharmaBio a total of
$10.9 million. During 1998, 1999 and 2000, expenses incurred for such services
were approximately $1.7 million, $3.7 million and $2.3 million, respectively, of
which approximately $1.2 million and $813,000 was recorded in accounts payable
and accrued expenses at December 31, 1999 and 2000, respectively. At December
31, 2000, the Company had open orders with PharmaBio for such services that
reflect estimated aggregate future payments of approximately $3.4 million.
Innovex
In January 1997, the Company entered into a consulting agreement with Innovex,
Inc. ("Innovex"), a subsidiary of Quintiles, which was subsequently superceded
by a consulting agreement executed with Innovex in December 1998. Pursuant to
the terms of the agreement, Innovex provides the Company with consulting
services with respect to pharmaceutical marketing and sales. Since December
1997, the Company has also entered into various clinical services agreements
with Innovex pursuant to which Innovex has provided project management, clinical
monitoring, site management, medical monitoring, regulatory affairs, data
management and quality assurance services with respect to clinical trials of
Angiomax. None of the clinical services agreements is currently outstanding.
Through December 31, 2000 the Company has paid Innovex $1.8 million under these
agreements.
In December 2000, the Company signed a master services agreement and a work
order with Innovex under which Innovex agreed to provide contract sales,
marketing and commercialization services relating to Angiomax. Under the master
services agreement, Innovex may provide additional services unrelated to
Angiomax pursuant to work orders entered into from time to time. Under the
master services agreement and the Angiomax work order, Innovex will provide the
Angiomax sales force of 52 representatives, a sales territory management system
and operational support for the launch of Angiomax. The Company will provide the
marketing plan and marketing materials for the sales force and other sales and
marketing support and direction for the sales force. For Innovex services, the
Company has agreed to a daily fee for each day worked by the members of the
sales force. The Company will reimburse Innovex for expenses incurred in
providing the services and for the incentive compensation paid to the sales
force of Innovex. The company has the right to terminate the work order and the
master services agreement at any time upon 90 days prior written notice. The
Company may hire members of the sales force, although the Company may incur
additional fees to Innovex. Through December 31, 2000, the Company had paid
Innovex $1.1 million for its services under the master services agreement and
work order. Total fees for 2001 under this agreement are estimated to be
approximately $8.2 million subject to adjustments in the size of the sales force
and other commercial factors.
F-21
56
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1998, 1999 and 2000, expenses incurred for services provided by Innovex
were approximately $943,000, $616,000 and $1.7 million respectively, of which
approximately $102,000, $280,000 and $440,000 were recorded in accounts payable
and accrued expenses at December 31, 1998, 1999 and 2000, respectively.
Stack Pharmaceuticals
In April 2000, the Company entered into an agreement with Stack Pharmaceuticals,
an entity controlled by David Stack, one of the Company's senior vice
presidents, which was amended in August 2000. Pursuant to the terms of this
agreement, as amended, Stack Pharmaceuticals will perform infrastructure
services for us, which includes providing office facilities, equipment and
supplies for the Company's employees based in New Jersey, and such consulting,
advisory and related services for the Company as may be agreed upon from time to
time. For the infrastructure services, the Company has agreed to pay Stack
Pharmaceuticals a service fee of $20,100 per month. The term of this agreement
continues until April 1, 2001, but either party may terminate it earlier upon 90
days prior written notice. From January 2000 through March 2000, Stack
Pharmaceuticals provided the Company with consulting services under a consulting
agreement that expired on March 31, 2000. Through December 31, 2000, the Company
had paid Stack Pharmaceuticals $407,000 under these agreements. The was no
outstanding obligation to Stack Pharmaceuticals at December 31, 2000.
12. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities in Cambridge, Massachusetts and Parsippany,
New Jersey and certain office furniture and equipment at those facilities under
operating leases. The leases for the Cambridge and Parsippany facilities expire
in August 2003 and September 2005, respectively. Future annual minimum payments
under all non-cancelable operating leases are $590,000, $712,000, $429,000,
$210,000 and $160,000 in 2001, 2002, 2003, 2004 and 2005, respectively. Rent
expense was approximately $326,000, $442,000 and $504,000 for the years ended
December 31, 1998, 1999 and 2000, respectively.
The Company is involved in ordinary and routine matters and litigation
incidental to its business. There are no such matters pending that the Company
expects to be material in relation to its financial condition or results of
operations.
13. EMPLOYEE BENEFIT PLAN
401(k) Plan
The Company has an employee savings and retirement plan which is qualified under
Section 401 of the Internal Revenue Code. Our employees may elect to reduce
their current compensation by up to the statutorily prescribed limit and have
the amount of such reduction contributed to the 401(k) plan. The Company may
make matching or additional contributions to the 401(k) plan in amounts to be
determined annually by the board of directors. The Company has not made any
matching or additional contributions to date.
F-22
57
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial data for the years
ended December 31, 1999 and 2000.
THREE MONTHS ENDED
------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
-------- -------- --------- -------- -------- -------- --------- --------
1999 1999 1999 1999 2000 2000 2000 2000
- -----------------------------------------------------------------------------------------------------------------------------------
In thousands, except per share data
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses ................... $ 8,483 11,715 9,000 6,155 11,840 8,706 10,297 23,763
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss ................................... (8,137) (11,369) (8,877) (6,330) (19,243) (20,408) (9,459) (22,182)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss attributable to common
stockholders ............................... (9,573) (12,806) (10,375) (7,852) (20,773) (47,596) (11,083) (22,182)
- -----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss attributable
to common stockholders per common share..... $(21.09) $ (25.62) $ (19.21) $(13.45) $ (32.91) $ (68.65) $ (0.67) $ (0.74)
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma basic and diluted net loss
attributable to common stockholders per
common share ............................... (0.48) (0.66) (0.49) (0.33) (0.55) (0.38) (0.34) (0.74)
- -----------------------------------------------------------------------------------------------------------------------------------
The net loss for each quarter of 2000 was higher compared to the corresponding
quarter of 1999. There were higher research and development costs in every
quarter of 2000 associated with increased enrollment rates in the HERO-2 trial
in AMI, in the third and fourth quarters of 2000 related to the initiation of
the REPLACE clinical trial program in angioplasty, and in the first and fourth
quarters of 2000 in connection with the receipt of Angiomax bulk drug substance
to which title was taken prior to FDA approval. These increases in research and
development costs were partly offset by lower development costs in all quarters
of 2000 related to the discontinuation of the semilog manufacturing program and
reduction in the IS-159 activities. Higher selling, general and administrative
expenses associated with the commercial launch of Angiomax also contributed to
the higher net loss in the last three quarters of 2000 as compared to the
corresponding quarters of 1999. Higher interest expense in the first two
quarters of 2000 resulted from the amortization of the discount on convertible
notes issued in October 1999 and March 2000. In the second quarter of 2000, we
recorded a dividend on the beneficial conversion associated with the issuance of
convertible preferred stock in May 2000. In addition, in all the quarters of
2000, amortization of deferred compensation on the grant of stock options also
contributed to the higher 2000 quarterly losses.
F-23
58
INDEX TO EXHIBITS
Number Description
- ------ -----------
3.1** Third Amended and Restated Certificate of Incorporation of the registrant
3.2** Amended and Restated By-laws of the registrant
10.1** 1998 Stock Incentive Plan
10.2** Form of 2000 Employee Stock Purchase Plan
10.3** Amended and Restarted Registration Rights Agreement, dated as of August 12, 1998, as amended to date, by and
among the registrant and the other parties set forth on the signature pages thereto
10.4** Third Amended and Restarted Stockholder's Agreement, dated as of August 12, 1998, as amended to date, by and
among the registrant and the other parties set forth on the signature pages thereto
+10.5** Chemilog Development and Supply Agreement, dated as of December 20, 1999, by and between the registrant and UCB
Bioproducts S.A.
+10.6** License Agreement, dated as of June 6, 1990, by and between Biogen, Inc. and Health Research, Inc., as assigned
to the registrant
+10.7** License Agreement dated March 21, 1997, by and between the registrant and Biogen, Inc.
+10.8** Development and Commercialization Agreement, dated August 16, 1999, by and between the registrant and GyneLogix,
Inc.
10.9** Consulting Agreement, dated December 1, 1998, by and between Innovex Inc. and the registrant
10.10** Alliance Agreement, dated August 1996, by and between the registrant and PharmaBio Development Inc., as amended
10.11** Services Agreement dated April 1, 2000 by and between the registrant and Stack Pharmaceuticals Inc.
#10.12** Employment agreement dated September 5, 1996 by and between the registrant and Clive Meanwell
#10.13** Employment agreement dated March 10, 1997 by and between the registrant and John Villiger
#10.14** Employment agreement dated September 29, 1998 by and between the registrant and John Nystrom
#10.15** Employment agreement dated October 20, 1997 by and between the registrant and Peyton Marshall
#10.16** Employment agreement dated March 30, 2000 by and between the registrant and David Stack
10.17** Lease for One Cambridge Center dated March 15, 1997 by and between Boston Properties, Inc. and the registrant,
as amended
10.18** Form of Common Stock Purchase Warrant dated October 19, 1999
10.19** Form of Common Stock Purchase Warrant dated March 2, 2000
#10.20* Form of 2000 Outside Director Stock Option Plan
10.21** Letter of Intent dated July 20, 2000 by and between Innovex Inc. and the registrant
10.22*** Amendment No. 1 dated as of August 8, 2000 to the Services Agreement between the registrant and Stack
Pharmaceuticals, Inc.
10.23* Master Service Agreement effective as of November 17, 2000 between Innovex Inc. and the registrant
++10.24 Sales Force Work Order #8475 effective as of November 17, 2000 between Innovex Inc. and the registrant
#10.25* Employment Agreement dated October 16, 1997 by and between the registrant and Thomas P. Quinn, as amended
#10.26* Employment Agreement dated October 16, 1997 by and between the registrant and John D. Richards
10.27* Lease for 5 Sylvan Way dated August 15, 2000, by and between the registrant and Mack-Cali Morris Realty LLC
21* Subsidiaries of the registrant
23 Consent of Ernst & Young LLP, Independent Auditors
- ----------
# Management contract or compensatory plan or arrangement filed as an exhibit to
this form pursuant to Items 14 (a) and 14 (c) of Form 10-K
+ Confidential treatment was granted for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act
++ Confidential treatment has been sought for certain portion of this Exhibit
pursuant to Rule 24(b) promulgated under the Securities Exchange Act
* Incorporated by reference from the exhibits to the registration statement on
Form S-1 (registration no. 333-53280)
** Incorporated by reference from the exhibits to the registration statement on
Form S-1 (registration no. 333-37404)
*** Incorporated by reference from the exhibits to the registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 2000