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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002
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
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THE MEDICINES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 04-3324394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
FIVE SYLVAN WAY, SUITE 200 07054
PARSIPPANY, NEW JERSEY (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(973) 656-1616
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 this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was approximately $657,828,739 based on the last reported sale
price of the Common Stock on the Nasdaq National Market on February 28, 2003.
Number of shares of the registrant's class of Common Stock outstanding as
of February 28, 2003: 40,820,700.
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THE MEDICINES COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 19
ITEM 3. LEGAL PROCEEDINGS........................................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................ 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 40
ITEM 11. EXECUTIVE COMPENSATION...................................... 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.................. 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 51
ITEM 14. CONTROLS AND PROCEDURES..................................... 51
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K...... 52
Signatures............................................................ 53
Certifications........................................................ 54
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a specialty pharmaceutical company with growing revenue from sales
of our first product, Angiomax, a direct thrombin inhibitor used as an
anticoagulant in patients undergoing coronary angioplasty. The United States
Food and Drug Administration, or FDA approved Angiomax for use as an
anticoagulant in combination with aspirin in patients with unstable angina
undergoing coronary angioplasty in December 2000, and we began selling the
product in the United States in January 2001. Our total net revenue was $14.2
million in 2001 and $38.3 million in 2002, generated almost entirely from sales
of Angiomax in the United States.
We believe that Angiomax has the potential to become a broadly applied
intravenous anticoagulant as a replacement for heparin in the treatment of
arterial thrombosis, a condition involving the formation of blood clots in
arteries. Arterial thrombosis is associated with life-threatening conditions
such as ischemic heart disease, peripheral vascular disease and stroke, all of
which result from decreased blood flow and diminished supply of oxygen to vital
organs. In particular, we are evaluating Angiomax for additional uses in open
vascular surgery such as coronary artery bypass graft surgery, or CABG, in
medical conditions that require urgent treatment such as unstable angina, in
patients with heparin allergy, in children and in peripheral angioplasty.
We are evaluating clevidipine as an intravenous drug for the short-term
control of high blood pressure in patients undergoing cardiac surgery. We have
commenced a study in patients undergoing cardiac surgery comparing clevidipine
with nitroglycerin, a drug that is typically used to control high blood pressure
in patients undergoing cardiac surgery, and plan to commence a Phase 3 clinical
program in 2003.
Our core strategy is to help hospitals alleviate the growing pressure to
treat patients more efficiently, including the demands to improve the
effectiveness and safety of treatment while minimizing the cost. We implement
this strategy by acquiring and developing products in late stages of their
clinical development or after they have been approved for marketing. Cost of
treatment in hospitals is predominantly driven by length of patient stay, while
length of stay is often driven by the occurrence of treatment complications.
Products that are more effective, safe and predictable, which require shorter
periods of treatment or are easier to use than current products, may reduce the
length of hospital stay and, as a direct result, lower total costs. We believe
that products with such attributes are attractive to hospital business
management, physicians, pharmacists and other care staff. We also believe that
promising, well-developed products which fit this profile may be acquired on
reasonable terms from larger pharmaceutical companies in the process of refining
their own product portfolios. We may also acquire rights to such products from
smaller companies seeking competent development and/or commercial collaborations
in this specialized area of medicine.
We believe that our concentration on hospital care enables us to be highly
competitive in terms of the products we can acquire from others, our development
and regulatory processes, the information and services we provide to our
customers and the level of resources we can commit to potential customers. This
concentration has allowed us to develop in-depth know-how related to the
practice of acute hospital care, and gain valuable insights into procurement
processes, usage patterns, caregiver-preferences and the evaluation of products
by our customers. We believe we can focus successfully on this specialty market
without hiring a large sales force and incurring the substantial fixed overhead
costs associated with such personnel and without needing to build or acquire
manufacturing infrastructure.
ANGIOMAX
Overview
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
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angioplasty. We began selling Angiomax in the United States in January 2001.
Angiomax was approved in New Zealand in 1999 and in Canada and Israel in 2002
for indications similar to those approved by the FDA. We are selling Angiomax in
New Zealand and Israel and expect to begin selling Angiomax in Canada in the
second quarter of 2003.
We believe Angiomax, as a direct thrombin inhibitor, is a valuable
replacement for heparin, the anticoagulant that historically has been used in
almost all angioplasty procedures performed. Heparin is also used in most major
cardiac and vascular surgical procedures 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.
As of February 21, 2003, clinical investigators had administered Angiomax
to more than 16,000 patients in clinical trials for the treatment and prevention
of blood clots in a wide range of hospital applications. In clinical trials in
angioplasty, the use of Angiomax compared to heparin resulted in fewer ischemic
complications and fewer bleeding events, including a reduction in the need for
blood transfusion. In addition, in these trials, Angiomax demonstrated that its
therapeutic effect is more predictable than heparin, which enables simplified
dosing.
We believe that Angiomax has the potential to become a broadly applied
intravenous anticoagulant as a replacement for heparin in the treatment of
arterial thrombosis. In particular, we are evaluating Angiomax in clinical
trials for additional uses in open vascular surgery such as CABG, in medical
conditions that require urgent treatment such as unstable angina, in patients
with heparin allergy, in children and in peripheral angioplasty.
Background
Clotting. Normally, blood loss at the site of an injury is limited by the
formation of blood clots, in a process called coagulation. A blood clot is a
collection of cross-linked strands of the protein fibrin, which is made as a
result of coagulation and 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. Current literature suggests that the clotting process is a series
of overlapping phases in which groups of clotting factors are intertwined with
platelets, red blood cells and endothelial cells that line the blood vessels. In
general, clotting serves a life-saving function by reducing bleeding; however,
unwanted clots in arteries can lead to heart attack, stroke or organ failure.
The trigger for the clotting process in an artery is typically a tearing or
spontaneous rupture of plaque, which are deposits of cholesterol, fat and dead
cells that build up under a protective layer of cells, known as endothelial
cells, on a blood vessel wall. When the plaque ruptures, substances released
from cells and plaque that are not normally exposed to the bloodstream come into
contact with the bloodstream. This may happen without an apparent cause or may
be caused as a direct result of, for example, an angioplasty procedure. This
contact triggers the clotting process. In parallel interdependent processes, a
small amount of the clotting factor thrombin is produced and a thin protective
layer of platelets is deposited at the rupture site.
Thrombin has long been recognized as a key factor in the clotting process.
Thrombin is technically a type of enzyme called a protease, like several other
clotting factors. However, thrombin not only converts fibrinogen into the fibrin
strands that hold a clot together, but thrombin also helps to amplify its own
production by activating other clotting factors. Importantly, thrombin also
provides signals, like a hormone does, to various cell types such as platelets
and endothelial cells to initiate responses in coagulation, inflammation, and
possibly other important physiological processes. Thrombin directly activates
platelets, by producing effects through means of surface receptors on the
platelets called protease-activated receptors, or PARs, that provide binding
sites for the effector molecule. PARs carry a hidden message that is unmasked by
the action of the protease, for example, thrombin. Activation of the PAR then
transmits the signal to the platelet, which becomes activated.
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In addition to being a powerful platelet activator through its action on
platelets, thrombin can also recruit more platelets to the site of injury.
Activated platelets not only help close the rupture, but the activated
platelet's membrane becomes a docking site for other clotting factors. The
clotting factors can assemble and much more efficiently produce very large
amounts of thrombin. The thrombin produces fibrin, strands of protein that
interweave and enmesh the platelets into a thrombus, or clot. The clotting
factors on the platelets within the clot continue to produce large amounts of
thrombin after the clot is formed, and the clot can continue to grow.
As a clot blocks the blood vessel, it may then cut off blood supply to the
heart muscle, the brain or other organs. A heart attack, also known as a
myocardial infarction, or MI, occurs if a clot blocks blood supply to the heart
muscle, and the muscle stops working either in part or completely. 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 of clots or the movement of a clot or portions of it downstream
in the blood vessels to new sites.
Anticoagulation Therapy. Anticoagulation therapy attempts to modify
actions of the components in the blood system that activate clot-forming factors
leading to blood clots. When the risks of clot formation cannot be avoided, or
when medical procedures such as angioplasty give rise to an increased risk of
clot formation, anticoagulation therapy is warranted. Anticoagulation therapy
has typically involved the use of drugs to inhibit one or more components of the
clotting process, thereby reducing the risk of clot formation. 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.
Current anticoagulation therapy for angioplasty focuses on the principal
components of the clotting process: thrombin, platelets and fibrin.
-- The actions of thrombin in the clotting process may be inhibited by
direct thrombin inhibitors, such as Angiomax, which act directly on
thrombin. Because thrombin activates platelets, direct thrombin
inhibitors also prevent platelet clumping. The actions of thrombin in
the clotting process may also be inhibited by indirect thrombin
inhibitors, such as heparin, which act to turn off clotting factors
and turn on natural anti-clotting factors such as antithrombin-III,
or AT-III.
-- The aggregation of platelets in the clotting process may be inhibited
by products called platelet inhibitors, which act on different
pathways leading to platelet activation, including specific enzyme
pathways like the cyclo-oxygenase and the adenosine diphosphate, or
ADP, pathways. Two important agents that prevent platelet activation
are aspirin and a class of platelet inhibitors that can be
administered orally and are referred to as thienopyridines, such as
clopidogrel. The use of platelet inhibitors that block activation is
considered important therapy.
-- Other types of platelet inhibitors attempt to block the clumping, or
aggregation of platelets by blocking surface sites, like the
glycoprotein IIb/IIIa, or GP IIb/IIIa, receptor, on the platelet that
allow them to attach to fibrin and each other. The GP IIb/IIIa
inhibitors, although effective at inhibiting platelet aggregation, do
not prevent platelet activation. In fact, many studies have found
that use of these agents, especially at low levels, are associated
with an increase in markers of platelet activation.
-- Fibrin may be dissolved after clotting has occurred by products
called fibrinolytics.
Drugs are currently used alone or in combination with other anticoagulant
therapies to target one or more components of the clotting process. Because of
the interdependence of clotting factors and platelets, drugs that target one or
the other may have effects on the other. For example, a drug that targets
thrombin may have an antiplatelet effect. However, possibly due to the critical,
central role of thrombin, while anti-thrombin drugs have been used alone in
angioplasty, the use of antiplatelet drugs without anti-thrombin drugs generally
has not been successful.
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Disadvantages of Heparin Therapies
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, over 12
million hospitalized patients annually receive heparin therapy. Heparin is a
standard component of acute anticoagulation therapy because of the central role
of thrombin in the clotting process 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 lungs of cows. Heparin is a complex
mixture of animal-derived proteins 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:
-- Weak effect in clots. Because it is an indirect thrombin inhibitor,
heparin is variably effective on thrombin that is bound to clots. In
addition, large amounts of thrombin continue to be produced from
within the clot after clot formation.
-- Activation of platelets. Studies have shown that heparin enhances
the clumping of platelets in unstable angina patients. Heparin
activates platelets by binding to the GP IIb/IIIa receptor on the
platelet surface, and has been shown to decrease the platelet
inhibitory effects of GP IIb/IIIa platelet inhibitors.
-- Increased 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 have low body weight. Recent clinical
trials have shown that bleeding risk may also be increased when
heparin is used in combination with intravenous platelet inhibitors.
-- Unpredictability. A specified dose of heparin provides an
unpredictable level of anticoagulation. As a result of this
unpredictability, use of heparin requires close monitoring.
-- Risk of clinical immune reaction. Heparin may cause the formation of
antibodies, which antibodies may be associated with a clinical
condition known as heparin-induced thrombocytopenia and thrombosis
syndrome, or HIT/HITTS, which is characterized by reduced platelet
counts and potentially by widespread, life-threatening blood clots.
-- Diminished effect in high-risk patients. Heparin's effect may be
reduced in patients who have suffered a prior heart attack and in
patients with unstable angina.
-- Indirect thrombin inhibition. Heparin can only bind to thrombin by
first binding to AT-III which may be absent or present in
insufficient amounts in some patients. AT-III deficiency can be
severe and unpredictable in infants and children.
Heparin derivatives, such as low molecular weight heparins, were developed
to attempt to diminish some of these disadvantages. Low molecular weight
heparins are administered once or twice daily by subcutaneous injection.
Although they tend to be more predictable than heparin in their effect, low
molecular weight heparins exhibit similar clinical challenges to those of
heparin, including a weak effect in a clot that has already formed and a
comparable risk of bleeding. The effects of low molecular weight heparins are
only partially reversible, making their use in surgery or in patients that may
be candidates for surgery impractical.
Angiomax Advantages
Angiomax is a synthetic peptide of 20 amino acids that is a rapid-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 or activate 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 binding of Angiomax to
thrombin is "naturally" reversible because
4
thrombin slowly breaks down the Angiomax molecule, releasing it from binding,
while hirudin remains intact and tightly bound to thrombin. This natural
reversibility is associated with a reduced risk of bleeding.
Angiomax has numerous pharmacological and clinical advantages over heparin
including:
-- Effective in clot-bound thrombin. Angiomax, as a direct thrombin
inhibitor, is equally effective on thrombin in the clot as well as
thrombin circulating in the blood.
-- Inhibition of platelets. Angiomax directly inhibits thrombin which
also inhibits platelet activation through inhibition of platelet
activating receptors, such as the PAR receptors, on the surface of
platelets.
-- Reduced bleeding risk. As a reversible thrombin inhibitor, Angiomax
has consistently shown clinically meaningful reductions in bleeding
compared to heparin.
-- Predictability. As a synthetic peptide, a specified dose of Angiomax
results in a predictable level of anticoagulation.
-- Effective in high-risk patients. Angiomax has been shown to be
effective in patients having suffered prior heart attacks and
patients with acute coronary syndromes.
-- Reduced incidence of thrombocytopenia. Angiomax has been shown to
result in a significant reduction in thrombocytopenia, or lower
platelet counts, an immunogenic disorder associated with heparin.
Use of Angiomax in Coronary Angioplasty
Coronary angioplasty has transformed the management of symptomatic arterial
disease in the last 10 years. The procedure is used to restore normal blood flow
in arteries that supply blood to the heart. In the year 2000, more than one
million coronary angioplasty procedures with or without stenting were performed
in the United States. The coronary angioplasty procedure itself increases the
risk of coronary clotting, potentially leading to MI, CABG, or death.
To prevent clotting, anticoagulation therapy is routinely administered to
patients undergoing angioplasty. Heparin has historically been used as an
anticoagulant in virtually all patients undergoing angioplasty. In addition,
platelet inhibitors such as aspirin, an ADP inhibitor such as Plavix or a GP
IIb/ IIIa inhibitor are often administered to augment heparin.
Clinical Trials in Coronary Angioplasty
We invest significantly in the development of clinical data on the mode of
action and clinical effects of Angiomax in procedures including coronary
angioplasty and stenting.
In almost all of our investigations to date, we have compared Angiomax to
heparin, which until relatively recently was the only injectable anticoagulant
for use in coronary angioplasty, or combinations of drugs including heparin.
Angiomax has been tested against heparin in eight comparative trials and found
to reduce significantly the risk of arterial thrombosis and of bleeding. These
data formed the basis for FDA approval in late 2000 and of our marketing
programs in 2001 and 2002. In 2002, we conducted REPLACE-2 to evaluate Angiomax
as the foundation anticoagulant for angioplasty within the context of modern
therapeutic products and technologies, including coronary stents.
Trials in Angioplasty Performed Prior to REPLACE-2. More than 6,000
patients were studied in various clinical studies of Angiomax in coronary
angioplasty prior to the REPLACE-2 trial. Based on a pooled analysis of Angiomax
patient data for all of these trials, Angiomax-treated patients, as compared to
heparin-treated patients, experienced, when measured seven days after treatment
in the hospital:
-- 43% fewer clinical events as measured by death, MI, revascularization
procedures or major bleeding;
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-- 24% fewer ischemic events as measured by death, revascularization or
MI; and
-- 63% fewer events involving major bleeding.
These pooled data have been accepted for presentation by the American
College of Cardiology in March 2003.
REPLACE-2 Trial in Angioplasty. We completed patient enrollment for the
REPLACE-2 trial in September 2002, only 10 months after start-up in November
2001. The trial was a randomized, double blind study involving 6,002 patients
who were referred for angioplasty in 233 clinical sites in the United States and
eight other countries. In November 2002, the principal investigators reported
30-day patient follow-up results of the trial.
The trial was designed to evaluate whether the use of Angiomax with
provisional use of GP IIb/IIIa inhibitors provides clinical outcomes relating to
rates of ischemic and bleeding events that are superior to heparin alone and the
same as, or non-inferior to, the current standard of low-dose weight-adjusted
heparin plus GP IIb/IIIa inhibitors. These outcomes were designed to be assessed
using formal statistical tests for superiority and non-inferiority.
REPLACE-2 employed two randomized arms:
-- heparin with a GP IIb/IIIa inhibitor, which was either Integrilin or
ReoPro; and
-- Angiomax with the provisional use of a GP IIb/IIIa inhibitor, which
was either Integrilin or ReoPro, if deemed necessary by the physician
during the procedure.
The trial also evaluated the Angiomax regimen against heparin alone using a
historical control arm. The heparin historical control arm of the study was
calculated using an average of the event rates from the EPISTENT and ESPRIT
trials, which were previous angioplasty trials of other companies in which
heparin alone was compared to heparin plus a GP IIb/IIIa inhibitor.
The primary objective of REPLACE-2 was to demonstrate superiority versus
heparin and non-inferiority to heparin plus a GP IIb/IIIa inhibitor for the
quadruple composite endpoint of death, MI, urgent revascularization or major
bleeding. The secondary objectives of REPLACE-2 included superiority versus
heparin and non-inferiority to heparin plus a GP IIb/IIIa inhibitor for a triple
composite endpoint of death, MI or urgent revascularization.
Based on 30-day patient follow-up results, Angiomax met all primary and
secondary objectives for the study:
-- The primary quadruple composite endpoint of death, MI, urgent
revascularization or major bleeding at 30 days was met:
-- Angiomax was superior to heparin alone.
-- Angiomax was non-inferior to heparin plus a GP IIb/IIIa inhibitor.
-- The secondary triple composite endpoint of death, MI or urgent
revascularization at 30 days was met:
-- Angiomax was superior to heparin alone.
-- Angiomax was non-inferior to heparin plus a GP IIb/IIIa inhibitor.
-- The Angiomax treatment group demonstrated a significant decrease in
bleeding complications and thrombocytopenia as compared to heparin
plus a GP IIb/IIIa inhibitor.
7.2% of the patients in the Angiomax treatment group received a GP IIb/IIIa
inhibitor on a provisional basis.
Notably, 97% of patients achieved desired anticoagulation targets with the
initial dose of Angiomax versus only 88% with heparin plus a GP IIb/IIIa
inhibitor, resulting in 12% of the patients with heparin
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plus a GP IIb/IIIa inhibitor having to receive multiple doses of heparin. The
average patient duration of infusion was only 44 minutes with Angiomax versus 12
to 18 hours for patients treated with heparin plus a GP IIb/IIIa inhibitor,
which may facilitate earlier release from the hospital for patients on Angiomax.
The study is continuing beyond these 30-day results, evaluating patient
outcomes for two additional periods indicated in the study protocol: death, MI
or urgent revascularization within six months following angioplasty and death
within one year following angioplasty. We expect to report on these results
later in 2003.
In addition to the objectives described above, the REPLACE-2 trial has a
protocol-defined total hospital resource cost comparison at U.S. clinical trial
sites, which is currently being analyzed, designed to evaluate whether use of
Angiomax plus provisional GP IIb/IIIa inhibitors instead of the combination of
heparin plus a GP IIb/IIIa inhibitor would reduce the costs of antithrombotic
drug therapy and the total cost of care. We expect to report the results of this
pharmacoeconomic analysis later in 2003. We expect these results to show that
medical decision-makers who use Angiomax as part of a safe and effective
anticoagulant therapy will reduce the cost of treating an angioplasty patient
not only by reducing pharmacy acquisition costs, but also by reducing bleeding
and other complications, and reducing the need for other drugs and devices such
as closure devices. We believe the reduction of a hospital's cost of treating an
angioplasty patient is significant because many U.S. hospitals receive a fixed
reimbursement amount for the angioplasties they perform, which amount is not
based on the actual expenses the hospital incurs.
We estimate, based on REPLACE-2 30-day follow-up dosing and administration
data for each of the treatment arms, using wholesale drug acquisition costs, a
difference of more than $400 per patient in pharmacy acquisition cost in favor
of the Angiomax regimen, after taking into account the provisional use of GP
IIb/IIIa inhibitors, versus the heparin plus a GP IIb/IIIa inhibitor regimen.
We intend to submit a supplement for FDA review to update the product
labeling to include the previously reported REPLACE-2 data. In addition, we will
use the REPLACE-2 results as the basis for regulatory updates and submissions in
international markets, including Europe.
Angiomax Commercial Operations in Coronary Angioplasty. We are selling
Angiomax in the United States with a hospital sales force of 86 people as of
February 21, 2003. We expect to increase the size of this sales force to 97 in
early 2003 to meet anticipated increasing customer demands. Our sales force has
been configured to target, as potential hospital customers, the approximately
700 hospitals with cardiac catheterization laboratories in the United States
that perform 500 or more coronary angioplasties per year. Our development,
medical, marketing and sales professionals are qualified and trained to deal
with complex scientific, treatment, pharmacy and economic questions on a
day-to-day basis.
We are focusing our Angiomax marketing efforts on interventional
cardiologists and other key clinical decision-makers at these cardiac
catheterization laboratories. We use educational programs, preceptorships in
leading medical centers, publications, and other targeted marketing techniques
in efforts to increase Angiomax sales. We believe our ability to deliver
relevant, advanced and reliable educational programs to our customers and our
concentrated customer base provides us with significant market presence even in
the highly competitive sub-segments of the hospital market such as cardiology.
We work collaboratively with a number of prominent hospitals and teaching
institutions around the United States who share our mission to educate our
customers in the appropriate use of our products as part of modern practice and
who provide independent guidance to their colleagues.
We sell Angiomax primarily to a limited number of national medical and
pharmaceutical distributors and wholesalers with distribution centers located
throughout the United States, including AmerisourceBergen Drug Company, McKesson
Corporation and Cardinal Health, Inc., each of which accounted for more than 10%
of our revenues for the year ended December 31, 2002. These wholesalers and
distributors then sell to hospitals. If Angiomax is approved for use in other
indications, we intend to market Angiomax for these indications in the United
States by supplementing our commercial organization, or by collaborating with
other health care companies.
7
We market, sell and distribute Angiomax in New Zealand and Israel through
distribution partners, and we expect to begin selling Angiomax in Canada in the
second quarter of 2003 through a distribution partner. In addition, we have
agreements with other distribution partners for future sales of Angiomax that
cover more than 56 additional countries, including an exclusive collaboration
with Nycomed Danmark A/S for the distribution and promotion of Angiomax in 35
countries, including 12 countries in the European Union. We have not received
approval to market Angiomax in any of these countries.
Angiomax Potential Applications
We believe that Angiomax is the leading replacement for heparin in
angioplasty and can become the leading replacement for heparin in the treatment
of arterial thrombosis. In particular, we are evaluating Angiomax for additional
uses in open vascular surgery such as CABG, in medical conditions that require
urgent treatment such as unstable angina, in patients with heparin allergy, in
children and in peripheral angioplasty. If we are able to obtain regulatory
approval in these additional indications, we believe that Angiomax could be
marketed to customers across a spectrum of hospital-based acute cardiovascular
care--in coronary angioplasty, vascular surgery and urgent medical treatment.
At present, we:
-- have recently completed enrollment in a Phase 3 trial program
studying the use of Angiomax in the treatment of HIT/HITTS patients
undergoing coronary angioplasty, the results of which we expect to
report in 2003;
-- are conducting a Phase 2/3 trial program studying the use of Angiomax
as an anticoagulant in patients undergoing CABG, with and without the
use of a bypass pump, and in HIT/HITTS patients undergoing CABG, with
and without the use of a bypass pump;
-- plan to start a randomized Phase 3 trial program to study the use of
Angiomax in patients presenting to the emergency department with
acute coronary syndromes who may be medically managed or ultimately
treated in the catheterization laboratory or operating room;
-- are conducting a Phase 2 trial program to study the use of Angiomax
in neonates and infants up to six months old with active thrombosis;
and
-- are supporting a number of investigations, including clinical
studies, of Angiomax in patients undergoing percutaneous peripheral
angioplasties.
Use of Angiomax in Vascular Surgery. Heparin is used widely as an
anticoagulant in major surgical procedures. Many surgery patients, however,
develop antibodies to heparin as a result of their exposure to heparin. Heparin
antibody positivity is the major marker for the development of HIT/HITTS. Even
absent the clinical condition of HIT/HITTS, the presence of heparin antibodies
alone has been associated with an increased risk of death or major complications
after CABG. In addition, the effects of heparin are routinely reversed with
protamine, the use of which has been associated with an allergic reaction and a
subsequent increase in the risk of death or major complications.
Clinical publications have cited several different rates of CABG patients
who are heparin antibody positive, ranging from 25% to 50%. Clinical data
indicate that heparin antibody positive patients have a significant increase in
major complications of CABG, resulting in increased hospital stay or death.
Based on hospital reimbursement data, in the United States in 2000 there were
nearly 400,000 CABG procedures performed.
Surgeons conduct CABG either on-pump or off-pump. On-pump CABG is conducted
with the use of a cardiac pulmonary bypass machine, a device that pumps the
patient's blood while the heart is stopped and the surgery is conducted. For
off-pump CABG, physicians slow the heartbeat and stop the heart only briefly
during the surgery, and therefore do not use a bypass machine.
We are conducting Phase 3 studies in both on- and off-pump CABG, and
assuming positive results, we intend to submit the data from these studies to
the FDA for consideration of marketing Angiomax in
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patients, including patients who are heparin antibody positive, undergoing CABG.
We have completed a 100 patient Phase 2 trial of Angiomax comparing Angiomax to
heparin in patients undergoing off-pump CABG. Patients in the trial who received
Angiomax experienced more rapid and consistent anticoagulation, a similar level
of bleeding and significant improvement in graft patency. We expect the
principal investigator to publish the Phase 2 data in a medical journal in 2003.
Use of Angiomax in Urgent Medical Treatment. Ischemic heart disease
patients are subject to chest pain that results from a range of conditions, from
unstable angina to acute myocardial infarction. The severe onset of these
cardiac conditions is collectively referred to as acute coronary syndromes, or
ACS. Some ACS patients enter the hospital by way of the emergency department and
are triaged to be medically managed with pharmacotherapy and observation,
scheduled for an angioplasty procedure, and/or scheduled for CABG.
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 results in clot formation and ultimately
decreases coronary blood flow but does not cause complete blockage of the
artery. Unstable angina is often medically managed in the emergency department
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 also undergo coronary angioplasty or
CABG depending on the severity of the disease.
Acute myocardial infarction, or AMI, is a leading cause of death in
ischemic heart disease patients. AMI occurs when coronary arteries, which supply
blood to the heart, become completely blocked by a clot. AMI patients are
routinely treated with heparin, with and without fibrinolytics, in combination
with GP IIb/IIIa inhibitors. AMI patients are increasingly undergoing
angioplasty as a primary treatment to unblock clogged arteries.
Based on hospital reimbursement data, in the United States in 2000 there
were approximately 1,882,000 patients hospitalized for ACS, including 900,000
unstable angina patients and 982,000 patients with heart attacks of varying
severity.
Angiomax has been the subject of five Phase 2 trials 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 that 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.
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 the hospital; and
-- a 59% reduction in death or MI after six weeks.
The company from which we licensed Angiomax, Biogen, Inc. commenced a Phase
3 trial in 1994, the TIMI-8 trial, in unstable angina patients comparing
Angiomax to heparin. The trial was discontinued after enrolling 133 patients
when Biogen discontinued the Angiomax development program. Analysis of the data
from the discontinued study showed the combined incidence of death, MI, or major
bleeding reported in hospital within fourteen days of admission was 2.9% in
Angiomax patients and 13.8% in heparin patients.
9
In 2001, we completed a 17,000 patient randomized Phase 3 clinical trial in
AMI in 46 countries. In this Phase 3 trial, which we refer to as the HERO-2
trial, patients with AMI who were candidates for thrombolytic treatment with
streptokinase received Angiomax or heparin. All patients in the trial also
received aspirin and Streptase, a fibrinolytic. Clinical results were assessed
30 days after treatment. The trial assessed second heart attacks, or
reinfarction, based on both adjudication by a panel of experts and direct
observation by the sites in the trial. In comparison to heparin-treated patients
in the trials, Angiomax-treated patients experienced:
- no significant difference in mortality, the primary endpoint of the
trial;
- 22% fewer second heart attacks; and
- no significant difference in hemorrhagic stroke and transfusions.
The results of the HERO-2 trial were published in The Lancet in December
2001.
Use of Angiomax in Other Indications
Angiomax has been the subject of a number of additional clinical trials for
other indications.
HIT/HITTS. Approximately one to three percent of patients who have
received heparin experience 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 thrombocytopenia, and in some cases in arterial
or venous clotting, which may result in death or the need for limb amputation.
In order to treat a HIT/HITTS patient, an alternative anticoagulant is necessary
because further administration of heparin is not possible.
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. In the approval
letter for Angiomax, the FDA required us to complete our trial designed to
evaluate the use of Angiomax for treatment of HIT/HITTS patients undergoing
angioplasty. That trial has recently completed enrollment and we expect to
report the results of the trial in the second quarter of 2003.
We are also conducting a Phase 3 trial program studying the use of Angiomax
as an anticoagulant in HIT/HITTS patients undergoing CABG, with and without the
use of a bypass pump.
Neonates and Infants (AT-III deficiency). Heparin can only bind to
thrombin by first binding to an anti-clotting factor called AT-III, which may be
absent or present in insufficient amounts in some patients. AT-III deficiency is
often severe or unpredictable in infants and children, making the treatment and
prevention of thrombosis especially difficult. We have commenced a Phase 2 trial
program in neonates and infants up to six months old requiring intravenous
anticoagulation due to active thrombosis.
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
angioplasty. In connection with this approval, the FDA required us to complete
our ongoing trial evaluating the use of Angiomax for the treatment of HIT/HITTS
patients undergoing angioplasty. Patient enrollment for this trial has been
completed and, assuming the results are positive, we expect to submit the
results to the FDA in 2003 for expanded labeling indications. We have received
approval to market Angiomax stored at controlled room temperature which allows
stocking of Angiomax in cardiac catheterization laboratories and other parts of
a hospital where the issue of refrigeration was problematic.
We intend to submit a supplement for FDA review to update the product
labeling to include the 30-day REPLACE-2 data.
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With our European partner, Nycomed, we plan to submit in 2003 a Marketing
Authorization Application, or MAA, to the European Agency for the Evaluation of
Medicinal Products, or EMEA, for Angiomax for use in patients undergoing
coronary angioplasty. In February 1998, an MAA was submitted that we
subsequently withdrew. The withdrawal followed extensive discussions with the
Committee of Proprietary Medicinal Products, or CPMP, relating to the relevance
of the clinical data presented to EMEA to then current European medical
practice. We believe that the results of the REPLACE-2 program address the
issues raised by CPMP.
Angiomax was approved in New Zealand in September 1999 for use in the
treatment of patients undergoing coronary angioplasty. Angiomax was approved in
Canada in October 2002 and Israel in June 2002 for use in unstable angina
patients undergoing coronary angioplasty. We plan to file applications for
marketing authorization in several Latin American countries including Argentina,
Brazil, Mexico and Venezuela.
CLEVIDIPINE
In March 2002, we entered into a study and exclusive option agreement with
AstraZeneca PLC relating to the further study, licensing, development and
commercialization of clevidipine, an intravenous compound for the short-term
control of high blood pressure in patients undergoing cardiac surgery. Blood
pressure control is important in patients undergoing surgery or other
interventional procedures in a hospital. These patients are often treated with
multiple medications, which may increase the duration of the patients' stay in
the intensive care unit. We plan to commence Phase 3 clinical trials in 2003 in
patients undergoing cardiac surgery to investigate the potential of clevidipine
to simplify and improve the treatment of these patients.
Clevidipine belongs to a well-known class of drugs called calcium channel
blockers, which are used to control high blood pressure. Clevidipine acts by
selectively relaxing the smooth muscle cells that line small arteries, resulting
in widening of the artery opening and reduction of blood pressure within the
artery. Unlike some other blood pressure reducing agents, including some other
calcium channel blockers, clevidipine does not appear, based on animal studies,
to have effects on the coronary arteries or the veins, and has not been
associated with quickening of the heart rate in anesthetized patients. Moreover,
clevidipine has been shown in clinical trials to improve the pumping performance
of the heart.
Prior to our agreement with AstraZeneca, AstraZeneca conducted Phase 2
clinical trials of clevidipine. These clinical trials demonstrated that
clevidipine acts to reduce blood pressure rapidly after intravenous infusion.
Clevidipine is metabolized rapidly by enzymes in the blood, which results in the
drug being cleared from the blood stream in a short period of time. Therefore,
the effects of clevidipine are short-lived, and in clinical trials it has been
possible to demonstrate reductions in blood pressure that are dose-dependent and
that cease rapidly after stopping clevidipine infusions.
We believe that attributes of clevidipine demonstrated in clinical trials
to date, namely rapid, titratable onset of effect on blood pressure, simple
preparation and administration, arterial selectivity and rapid metabolism and
elimination, could potentially benefit patients with high blood pressure
undergoing surgical procedures and patients with severely elevated blood
pressure that requires rapid reduction.
We have commenced a study in patients undergoing cardiac surgery comparing
clevidipine with nitroglycerin, a drug that is typically used to control high
blood pressure in patients undergoing cardiac surgery, and plan to commence a
Phase 3 program in 2003. We believe that clevidipine can be efficiently sold by
our U.S. sales force to hospital customers, including Angiomax customers, when
and if clevidipine is approved for sale by the FDA.
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 entered
into a clinical trial agreement with the National Institutes of Allergy and
Infectious
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Diseases, a division of the National Institutes of Health, to conduct a Phase 2
trial of CTV-05 for the treatment of bacterial vaginosis.
In the Phase 2 safety and efficacy trial, the results of which were
announced in April 2002, treatment with CTV-05 did not improve clinical cure
rates at 30 days, the primary endpoint of the trial. Based on that result, we
determined not to make further expenditures related to CTV-05.
In December 2002, we sublicensed our rights to develop CTV-05 to Osel, Inc.
We believe that this arrangement will allow us to participate financially in the
success of CTV-05 if Osel is successful in developing this potentially
beneficial bacteria, while at the same time minimizing our expenditures and
allowing us to focus on other opportunities more directly related to our core
goals.
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. Having determined not to devote further resources
to development of IS-159, we terminated our license of IS-159 in January 2003.
PRODUCT ACQUISITION STRATEGY
We have assembled a management team with significant experience in drug
development and in drug product launches and commercialization.
We plan to continue to seek to acquire and develop late-stage product
candidates or products approved for marketing that help alleviate the growing
pressures on U.S. hospitals to treat patients more efficiently. With regard to
product candidates, we look for an anticipated time to market of four years or
less and existing clinical data which provides reasonable evidence of safety and
efficacy, together with the potential to reduce a patient's hospital stay. In
addition, we aim to acquire approved products that can be marketed in hospitals
by our commercial organization. In making our acquisition decisions, we attempt
to achieve high investment returns by:
-- understanding the market opportunity and potential cost savings 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.
MANUFACTURING
We do not build or operate manufacturing facilities but instead contract
for manufacturing development and/or commercial supply.
Angiomax
In December 1999, we entered into a commercial development and supply
agreement with UCB Bioproducts S.A. for the development and supply of Angiomax
bulk drug substance. All Angiomax bulk drug substance used to date has been
produced by UCB Bioproducts at its facility by means of a chemical synthesis
process. Using this validated manufacturing process, UCB Bioproducts has
completed the manufacture of bulk drug substance to meet our anticipated
commercial supply requirements through the third quarter of 2003. As of the date
of this annual report, we do not intend to purchase any additional product
manufactured using this process.
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Together with UCB Bioproducts, we have developed a second generation
chemical synthesis process to improve the economics of manufacturing 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 development of the Chemilog process and has manufactured validation
and production batches, which have been submitted to the FDA for approval. We
received approvable letters from the FDA on March 14, 2002 and December 12,
2002. In August 2002, we responded to the March 2002 approvable letter. In the
December 2002 approvable letter to us and in a corresponding letter to UCB
Bioproducts, the FDA requested additional data. In February 2003, we submitted
what we believe to be the additional data requested by the FDA from us.
Concurrently, UCB Bioproducts submitted what we believe to be the additional
data requested by the FDA from UCB Bioproducts. Subject to receipt of FDA
approval, we expect to sell Angiomax produced using the Chemilog process in the
third or fourth quarter of 2003.
We have agreed that, assuming successful development and regulatory
approval of the Chemilog process, we would purchase a substantial portion of our
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 under the Chemilog process. Following the expiration of the
agreement, which automatically renews for consecutive three year periods unless
either party provides notice of non-renewal within one year prior to the
expiration of the initial term or any renewal term, or if we terminate the
agreement prior to its expiration, UCB Bioproducts has agreed to transfer the
development technology to us. We may only terminate the agreement prior to its
expiration in the event of a material breach by UCB Bioproducts. If we engage a
third party to manufacture Angiomax for us using this technology during the
first ten years following the date of the first commercial sale of Angiomax
produced under the Chemilog process, we will be obligated to pay UCB Bioproducts
a royalty based on the amount paid by us to the third-party manufacturer.
We have developed reproducible analytical methods and processes for the
fill-finish of Angiomax drug product by Ben Venue Laboratories, Inc. Ben Venue
Laboratories has carried out all of our Angiomax fill-finish activities.
Clevidipine
Astra Production Chemicals has manufactured all clevidipine bulk drug
which, after testing and release by Astra Hassle, has been used in clinical
trials. Both Astra Production Chemicals and Astra Hassle are divisions of
AstraZeneca. The manufacturing process for bulk drug is currently being
transferred to PharmEco, a Johnson Matthey Company, for scale up and manufacture
for Phase 3 clinical trials and commercial supplies. Fresenius Kabi L.P., using
its formulation technology, has manufactured all finished drug product and has
also carried out release testing and clinical packaging.
COMPETITION
The development and commercialization of new drugs is competitive, and we
face competition from major pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies worldwide. Our competitors may develop or
license 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. We are
evaluating Angiomax for additional uses in open vascular surgery such as CABG,
in medical conditions that require urgent treatment such as unstable angina, in
patients with heparin allergy, in children and in peripheral angioplasty. There
are a number of anticoagulant therapies currently on the market, awaiting
regulatory approval or in development for these uses.
13
In general, anticoagulant drugs may currently be classified into four
groups according to their interaction with clotting mechanisms.
Direct thrombin inhibitors
Direct thrombin inhibitors act directly on thrombin, inhibiting the action
of thrombin in the clotting process. Because thrombin activates platelets,
direct thrombin inhibitors also prevent platelet aggregation. Direct thrombin
inhibitors include Angiomax, Refludan from Berlex Laboratories and Argatroban
from GlaxoSmithKline, Texas Biotechnology Corporation and Mitsubishi Chemical
Corp. Both Refludan and Argatroban are approved for use in the treatment of
patients with HIT/HITTS. Argatroban is also approved for use in patients with
HIT/HITTS undergoing angioplasty.
Indirect thrombin inhibitors
Heparin and low molecular weight heparins act by first binding to AT-III.
Heparin is manufactured and distributed by a number of companies as a generic
product. Low molecular weight heparin products include Lovenox from Aventis
Pharmaceuticals, Inc. and Fragmin from Pharmacia Corporation and The Upjohn
Company. Very short molecules of heparin, called pentasaccharide sequences,
include Arixtra from Sanofi-Synthelabo Inc. Heparin is widely used in patients
with ischemic heart disease. Low molecular weight heparins have been approved
for use in the treatment of patients with unstable angina and are being
developed for use in angioplasty and vascular surgery. Arixtra has been approved
for use in the treatment and prevention of deep vein thrombosis and is being
developed for arterial thrombosis.
Platelet inhibitors
Platelet inhibitors, such as GP IIb/IIIa inhibitors, block the aggregation
of platelets by blocking surface sites on the platelets that allow the platelets
to attach to fibrin and to each other. GP IIb/IIIa inhibitors include ReoPro
from Eli Lilly and Company and Johnson & Johnson/Centocor, Inc., Integrilin from
Millennium Pharmaceuticals, Inc. and Schering-Plough Corporation, and Aggrastat
from Merck & Co., Inc. ReoPro is approved and marketed for angioplasty in a
broad range of patients. Integrilin is approved and marketed for angioplasty and
for the management of acute coronary syndromes. Aggrastat is approved for the
management of ACS.
Fibrinolytics
Fibrinolytics, or thrombolytics, dissolve fibrin in clots that have already
formed. Fibrinolytics include Streptase from Aventis, Retevase from Johnson &
Johnson/Centocor, TNKase from Genentech, Inc., and Abbokinase from Abbott
Laboratories. These products are approved for use in the treatment of AMI,
stroke and/or peripheral vascular arterial blockages.
We position Angiomax as an alternative to heparin as baseline
anticoagulation therapy for use in patients with arterial thrombosis. In this
regard, we expect Angiomax to be used with aspirin alone or in conjunction with
other platelet inhibitors or fibrinolytic drugs and to compete with heparin and
the low molecular weight heparin products.
In addition, although platelet inhibitors and fibrinolytic drugs may be
complementary to Angiomax, Angiomax may compete with platelet inhibitors and
fibrinolytic drugs for the use of hospital financial resources. For example,
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, hospitals may be forced to
use either Angiomax or a platelet inhibitor or fibrinolytic drugs but not
necessarily several of the drugs together.
In each case, we will compete with other anticoagulant drugs on the basis
of efficacy, safety, ease of administration and economic value.
We face potential competition from products that currently are in clinical
development. One such potential competitor is an oral indirect thrombin
inhibitor, Exanta, for which AstraZeneca is conducting a
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Phase 3 development study for use in the prevention of deep venous thrombosis
after orthopedic surgery. In addition, development studies of Exanta are ongoing
in the prevention of stroke in patients with atrial fibrilation. We believe that
Exanta's use in these indications will not have an effect upon our planned
positioning for Angiomax.
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 emerging companies taking similar or different approaches to product
acquisition. 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 creates value in patient therapy.
RESEARCH AND DEVELOPMENT
Company-sponsored research and development expenses totaled $38.0 million
in 2002, $32.8 million in 2001 and $39.6 million in 2000. The funding for
Angiomax has represented and will continue to represent a significant portion of
our research and development spending.
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 rely upon trade secrets, know-how,
continuing technological innovations, contractual restrictions 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.
In all, as of February 21, 2003, we exclusively licensed nine 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 are currently set to expire at
various dates ranging from March 2010, in the case of the principal patent
relating to Angiomax, to April 2017.
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 are responsible for prosecuting and
maintaining patents and patent applications relating to Angiomax. Under an
exclusive option agreement, we may license exclusively from AstraZeneca, except
in Japan, patents and patent applications covering formulations and uses of
clevidipine, a compound used to control blood pressure. AstraZeneca would
prosecute and maintain any patents and patent applications that we license
relating to clevidipine, and we would reimburse AstraZeneca for expenses it
incurs in connection with the prosecution and maintenance of the patents or
patent applications. We have exclusively licensed patents and applications
relating to CTV-05 from GyneLogix. Subsequently, we licensed our CTV-05 rights
to Osel on an exclusive basis. Osel has assumed our obligation to prosecute and
maintain the related patents and patent applications.
The patent positions of pharmaceutical and biotechnology firms like us can
be 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 unissued
U.S. patent applications filed prior to November 29, 2000 and patent
applications filed within the last 18 months are maintained in secrecy until
patents issue, and since
15
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.
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 could be competitive with applications we have
acquired or licensed, or could 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. We have a
number of trademarks that we consider important to our business. These
trademarks are protected by registration in the United States and other
countries in which our products are marketed.
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
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, which are 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 on a country-by-country basis earned until the later of (1)
12 years after the date of the first commercial sales of the product in a
country or (2) the date on 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. Under the terms of the agreement, the royalty rate due to Biogen on
sales increases with growth in annual sales of Angiomax. 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 million for certain developmental 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 the
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agreement for material breach by the other party, if the material breach is not
cured within 90 days after written notice. In addition, we may terminate the
agreement for any reason upon 90 days prior written notice. Through February 14,
2003, we have paid a total of approximately $3.9 million in royalties relating
to Angiomax under our agreement with Biogen.
AstraZeneca
In March 2002, we entered into a study and exclusive option agreement with
AstraZeneca relating to the further study, licensing, development and
commercialization of the intravenous blood pressure control pharmaceutical,
clevidipine. Under the terms of the agreement, we agreed to conduct a pilot
study of clevidipine, which we have begun. The agreement provides that upon the
conclusion of the pilot study within 15 months of the date AstraZeneca provided
samples of clevidipine to us, we may acquire, and if the results of the pilot
study meet or exceed a benchmark set forth in the agreement AstraZeneca may
require us to acquire, exclusive worldwide rights (except for Japan) to the
know-how, patents and trademarks relating to clevidipine. We believe that we
will complete the pilot study by the end of the 15-month period. If we do not
complete the pilot study by the end of such period, AstraZeneca may have the
right to terminate the agreement. If we license the product, we plan to develop
clevidipine as a short acting blood pressure control agent for use in hospital
setting. In exchange for the license we would pay $1.0 million upon entering
into the license and up to an additional $5.0 million upon reaching certain
regulatory milestones. In addition, we will be obligated to pay royalties on a
country-by-country basis on future annual sales of clevidipine, and on any
sublicense royalties earned, until the later of (1) the duration of the licensed
patent rights which are necessary to manufacture, use or sell clevidipine in a
country or (2) ten years from our first commercial sale of clevidipine in such
country. The licenses and rights under the agreement remain in force until we
cease selling clevidipine in any country or the agreement is otherwise
terminated. We may terminate the agreement upon 30 days written notice, unless
AstraZeneca, within 20 days of having received our notice, requests that we
enter into good faith discussions to redress our concerns. If we cannot reach a
mutually agreeable solution with AstraZeneca within three months of the
commencement of such discussions, we may then terminate the agreement upon 90
days written notice. Either party may terminate the agreement for material
breach upon 60 days prior written notice, if the breach is not cured within such
60 days.
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 a refusal by the FDA 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 a new drug application, or NDA, or biologics
license application, or BLA;
17
-- satisfactory completion of an FDA inspection of the manufacturing
facility or facilities at which the drug is produced to assess
compliance with current good manufacturing practices, or 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 does not necessarily 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, pharmacodynamics, 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 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. 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. 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.
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.
18
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 required us to complete our 50 patient trial designed to evaluate the
use of Angiomax for treatment of HIT/HITTS patients who need coronary
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 cGMP 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.
We are also subject to foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products which we sell
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Whether or not we obtain FDA approval, we must obtain approval of a
product by the comparable regulatory authorities of foreign countries before
manufacturing or marketing the product in those countries. The approval process
varies from country to country and the time required for these approvals may
differ substantially from that required for FDA approval. Clinical trials in one
country may not be accepted by other countries, and approval in one country may
not result in approval in any other country. For clinical trials conducted
outside the United States, the clinical stages generally are comparable to the
phases of clinical development established by the FDA.
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 February 21, 2003, we employed 147 persons. Our employees are not
represented by any collective bargaining unit, and we believe our relations with
our employees are good.
AVAILABLE INFORMATION
Our Internet address is http://www.themedicinescompany.com. The contents of
our website are not part of this Annual Report on Form 10-K, and our Internet
address is included in this document as an inactive textual reference only. We
make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all amendments to those reports available free of charge
on our website as soon as reasonably practicable after we file such reports
with, or furnish such reports to, the Securities and Exchange Commission, or the
SEC.
ITEM 2. PROPERTIES
We entered into a lease for approximately 17,000 square feet of office
space in Parsippany, New Jersey that we plan to occupy in March 2003, with a
term expiring in January 2013. We currently occupy 12,000 square feet of office
space in Parsippany, New Jersey, under two leases that will terminate upon our
19
relocation in March 2003. In addition, we lease approximately 9,000 square feet
of office space in Cambridge, Massachusetts under a lease expiring in August
2003. We are currently reviewing plans for replacement space in Massachusetts.
We believe our current facilities will be sufficient to meet our needs for the
foreseeable future, except as previously noted, and 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
None.
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, 2002.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND HOLDERS
Our common stock trades on the Nasdaq National Market under the symbol
"MDCO". The following table reflects the range of the high and low bid
information per share of our common stock, as reported on the Nasdaq National
Market for the periods indicated. These prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 2001
First Quarter............................................... $20.48 $ 8.75
Second Quarter.............................................. $22.05 $ 9.10
Third Quarter............................................... $22.20 $ 4.52
Fourth Quarter.............................................. $12.15 $ 4.81
YEAR ENDED DECEMBER 31, 2002
First Quarter............................................... $14.81 $ 9.86
Second Quarter.............................................. $14.33 $ 7.40
Third Quarter............................................... $12.50 $ 7.22
Fourth Quarter.............................................. $17.50 $ 9.45
Mellon Investor Services, LLC is the transfer agent and registrar for our
common stock. As of the close of business on February 21, 2003, we had 231
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.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended December 31, 2002, we received notices of the
following exercises of outstanding common stock purchase warrants:
- On November 7, 2002, an existing investor exercised a warrant covering an
aggregate of 105,209 shares of our common stock;
- On November 19, 2002, an existing investor exercised a warrant covering
an aggregate of 11,983 shares of our common stock;
- On November 20, 2002, an existing investor exercised a warrant covering
an aggregate of 190,026 shares of our common stock.
In each of these warrant exercises, the purchase price of $5.92 per share
was paid in the form of cancellation of a portion of the warrants, in accordance
with the cashless exercise provision included in the warrants; accordingly, we
received no proceeds from the issuance of the shares. In each case, the shares
were issued to an "accredited investor" without registration under the
Securities Act of 1933, as amended, or the securities laws of certain states, in
reliance on the exemptions provided by Section 3(a)(9) of the Securities Act and
in reliance on similar exemptions under applicable state laws.
21
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 years ended December 31, 1998, 1999, 2000, 2001 and 2002. The
pro forma net loss per share data reflect the conversion of our convertible
notes, and accrued interest, and the conversion of our outstanding redeemable
convertible preferred stock, and accrued dividends, into common stock upon the
closing of our initial public offering in August 2000. The net loss per share
data and pro forma net loss per share data do not include the effect of any
options or warrants outstanding. For further discussion of earnings per share,
please see note 8 to our consolidated financial statements.
1998 1999 2000 2001 2002
--------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
STATEMENTS OF OPERATIONS DATA
Net revenue......................... $ -- $ -- $ -- $ 14,248 $ 38,301
Operating expenses
Cost of revenue.................. -- -- -- 2,110 10,284
Research and development......... 24,005 30,345 39,572 32,768 37,951
Selling, general and
administrative................. 6,248 5,008 15,034 36,567 36,808
--------- ---------- ---------- ---------- ----------
Total operating expenses....... 30,253 35,353 54,606 71,445 85,043
--------- ---------- ---------- ---------- ----------
Loss from operations............. (30,253) (35,353) (54,606) (57,197) (46,742)
Other income (expense), net...... 1,302 640 (16,686) 2,313 911
--------- ---------- ---------- ---------- ----------
Net loss......................... (28,951) (34,713) (71,292) (54,884) (45,831)
Dividends and accretion to
redemption value of redeemable
convertible preferred stock.... (3,959) (5,893) (30,343) -- --
--------- ---------- ---------- ---------- ----------
Net loss attributable to common
stockholders................... $ (32,910) $ (40,606) $ (101,635) $ (54,884) $ (45,831)
========= ========== ========== ========== ==========
Net loss attributable to common
stockholders per common share,
basic and diluted.............. $ (6.03) $ (80.08) $ (8.43) $ (1.67) $ (1.23)
========= ========== ========== ========== ==========
Shares used in computing net loss
attributable to common
stockholders per common shares,
basic and diluted.............. 5,454,653 507,065 12,059,275 32,925,968 37,209,931
Unaudited pro forma net loss
attributable to common
stockholders per common share,
basic and diluted.............. $ (1.94) $ (2.10) $ (1.67) $ (1.23)
Shares used in computing
unaudited pro forma net loss
attributable to common
stockholders per common shares,
basic and diluted.............. 17,799,876 24,719,075 32,925,968 37,209,931
AS OF DECEMBER 31,
-------------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- --------- --------- ---------
(in thousands)
BALANCE SHEET DATA
Cash and cash equivalents, available for
sale securities and accrued interest
receivable.............................. $ 29,086 $ 7,238 $ 80,718 $ 54,016 $ 43,638
Working capital (deficit)................. 24,570 (4,103) 68,023 59,744 54,172
Total assets.............................. 29,831 7,991 84,363 78,674 75,300
Convertible notes......................... -- 5,776 -- -- --
Redeemable convertible preferred stock.... 79,384 85,277 -- -- --
Accumulated deficit....................... (54,319) (94,925) (196,560) (251,444) (297,275)
Total stockholders' (deficit) equity...... (54,266) (94,558) 69,239 61,121 53,934
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Consolidated
Financial Data" and our financial statements and accompanying notes included
elsewhere in this annual report. In addition to the historical information, the
discussion in this annual report contains certain forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated by the forward-looking statements due to factors
including, but not limited to, those set forth under "Factors That May Affect
Future Results" below and elsewhere in this annual report.
OVERVIEW
We are a specialty pharmaceutical company with growing revenue from sales
of our first product, Angiomax, a direct thrombin inhibitor used as an
anticoagulant in patients undergoing coronary angioplasty. The FDA approved
Angiomax for use as an anticoagulant in combination with aspirin in patients
with unstable angina undergoing coronary angioplasty in December 2000, and we
began selling the product in the United States in January 2001. Our total net
revenue was $14.2 million in 2001 and $38.3 million in 2002, generated almost
entirely from sales of Angiomax in the United States.
Since our inception we have generated significant losses. We expect to
continue to spend significant amounts on the development of our products and on
the sales and marketing of Angiomax in 2003 and thereafter. In 2003, we plan on
increasing our sales and marketing expenses by approximately 10%, in connection
with anticipated increased customer demands, including expenses related to a
planned increase in the size of our sales force from 86 to 97 persons. We also
plan to continue to invest in clinical studies to expand the use of Angiomax and
to develop new products. Additionally, we plan to continue to evaluate possible
acquisitions of development-stage or approved products that would fit within our
growth strategy. Accordingly, we will need to generate significantly greater
revenues to achieve and then maintain profitability.
Since the announcement of the results of our REPLACE-2 clinical trial,
additional hospitals have granted Angiomax formulary approval and hospital
demand for the product has increased, and we expect that these trends will
continue. In the fourth quarter of 2002, based on data obtained from an industry
third-party, the number of hospitals purchasing Angiomax increased by
approximately 25% as compared to the third quarter of 2002 and the number of
hospitals purchasing four or more boxes of Angiomax increased by approximately
25% as compared to the third quarter of 2002.
Most of our expenditures to date have been for research and development
activities and selling, general and administrative expenses. Research and
development expenses represent costs incurred for product acquisition, clinical
trials, activities relating to regulatory filings and manufacturing development
efforts. We outsource our clinical trials 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 promotion and marketing activities.
In connection with our initial public offering, 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 price of our common stock in our initial public
offering. No additional deferred compensation was recorded during 2001 and 2002
because all of the exercise prices of all grants of stock options during this
period were at the fair market value of our common stock on the date of grant.
We have not generated taxable income to date. At December 31, 2002, net
operating losses available to offset future taxable income for federal income
tax purposes were approximately $218.0 million. If not
23
utilized, federal net operating loss carryforwards will expire at various dates
beginning in 2011 and ending in 2022. We have not recognized the potential tax
benefit of our net operating losses in our balance sheets or statements of
operations. The future utilization of our net operating loss carryforwards may
be limited based upon changes in ownership pursuant to regulations promulgated
under the Internal Revenue Code of 1986, as amended.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets and liabilities,
revenues and expenses, and other financial information. Actual results may
differ significantly from these estimates under different assumptions and
conditions. In addition, our reported financial condition and results of
operations could vary due to a change in the application of a particular
accounting standard.
We regard an accounting estimate underlying our financial statements as a
"critical accounting estimate" if the accounting estimate requires us to make
assumptions about matters that are highly uncertain at the time of estimation
and if different estimates that reasonably could have been used in the current
period, or changes in the estimate that are reasonably likely to occur from
period to period, would have had a material effect on the presentation of
financial condition, changes in financial condition, or results of operations.
Our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements. Not all of these significant accounting
policies, however, require management to make difficult, complex or subjective
judgments or estimates. Our management has discussed our accounting policies
with the audit committee of our board of directors, and we believe that our
estimates relating to revenue recognition and inventory described below fit the
definition of "critical accounting estimates."
REVENUE RECOGNITION
Product Sales. We sell our products primarily to wholesalers and
distributors, who, in turn, sell to hospitals. We recognize revenue from product
sales in accordance with generally accepted accounting principles in the United
States, including the guidance in Staff Accounting Bulletin 101. Revenue from
product sales is recognized when there is persuasive evidence of an arrangement,
delivery has occurred, the price is fixed and determinable, and collectibility
is reasonably assured. However, because our products are sold with limited
rights of return, our recognition of revenue from product sales is also subject
to Statement of Financial Accounting Standards No. 48, or SFAS 48, "Revenue
Recognition When Right of Return Exists." Under SFAS 48, revenue is recognized
when the price to the buyer is fixed, the buyer is obligated to pay us and the
obligation to pay is not contingent on resale of the product, the buyer has
economic substance apart from us, we have no obligation to bring about the sale
of the product and the amount of returns can be reasonably estimated.
We record allowances for product returns, rebates and discounts at the time
of sale, and report revenue net of such allowances. We must make significant
judgments and estimates in determining these allowances. If actual results
differ, we will likely be required to make adjustments to these allowances in
the future:
-- Our customers have the right to return any unopened product with less
than six months to the labeled expiration date, provided that the
product is returned within 12 months of the labeled expiration date.
As a result, we must estimate the likelihood that product sold to
wholesalers might remain in their inventory to within six months of
expiration, and whether the wholesalers might decide to return the
product. We base our estimates on information from customers,
industry data, historic patterns of returns and on the expiration
dates of product being shipped.
24
-- Certain hospitals purchasing our products from wholesalers have the
right to receive a discounted price and a volume-based rebate if they
participate in a group purchasing organization that has a contract
with us. We must estimate the likelihood that product sold to
wholesalers might be ultimately sold to a participating hospital. We
base our estimates on information from customers, industry data,
historic patterns of discounts and customer rebate thresholds.
Collaborations. Revenue from collaborative agreements with partners may
include non-refundable fees or milestone payments. We record these payments as
deferred revenue until contractual performance obligations have been satisfied,
and we recognize these payments ratably over the term of these agreements. When
the period of deferral cannot be specifically identified from the contract, we
must estimate the period based upon other critical factors contained within the
contract. We review these estimates at least annually, which could result in a
change in the deferral period.
INVENTORIES
We record inventory upon the transfer of title from our vendors. Inventory
is stated at the lower of cost or market value with cost determined using a
weighted average of costs. We expensed all costs associated with the manufacture
of Angiomax bulk drug product and finished product to which the title
transferred to us prior to FDA approval of Angiomax and of its original
manufacturing process as research and development. In December 2000, we received
FDA approval for Angiomax and its original manufacturing process. Any Angiomax
bulk drug product manufactured according to its original manufacturing process
to which we took title after FDA approval is recorded as inventory. Together
with UCB Bioproducts, we have developed, but not yet received FDA approval of, a
second generation chemical synthesis process, the Chemilog process, for the
manufacture of Angiomax bulk drug substance. All Angiomax bulk drug product
manufactured using the Chemilog process to which we have taken title to date has
been expensed as research and development. We review the inventory for slow
moving or obsolete amounts based on expected revenues. If actual revenues are
less than expected, we may be required to make allowances for excess amounts in
the future.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Net Revenue. Net revenue increased 169% to $38.3 million in 2002 as
compared to $14.2 million for 2001. Virtually all the revenue was from U.S.
sales of Angiomax, which we commercially launched during the first quarter of
2001. The growth in 2002 was due primarily to increased use of Angiomax by
existing hospital customers and penetration to new hospitals. Since we announced
the results of REPLACE-2 in November 2002, additional hospitals have granted
Angiomax formulary approval and hospital demand for the product has increased.
In 2002, we received $1.5 million from Nycomed as a non-refundable
distributor fee. This payment has been recorded as deferred revenue and is being
recognized ratably over the term of our agreement with Nycomed, which we
currently estimate to be twelve years.
Cost of Revenue. Cost of revenue in 2002 was $10.3 million, or 27% of net
revenue, compared to $2.1 million, or 15% of net revenue in 2001. Cost of
revenue in 2002 consisted of expenses in connection with the manufacture of the
Angiomax sold, which represented 58% of the 2002 cost of revenue, royalty
expenses under our agreement with Biogen which represented 27% of the 2002 cost
of revenue and the logistics costs of selling Angiomax, such as distribution,
storage, and handling, which represented 14% of the 2002 cost of revenue. Prior
to obtaining FDA approval for Angiomax and its original manufacturing process,
all costs of manufacturing Angiomax were expensed as research and development
costs. In late 2000, after obtaining FDA approval for Angiomax and its original
manufacturing process, we began recording the costs of manufacturing Angiomax as
a cost of revenue rather than as research and development expense. As a result,
our cost of manufacturing as a percentage of net revenue increased substantially
in 2002 as we sold a higher percentage of product manufactured after the date of
FDA approval of Angiomax.
25
During 2002, we took delivery of drug material manufactured using the
Chemilog process, which we expensed as research and development. The Chemilog
process must be approved by the FDA before it can be used to produce Angiomax
for sale to the public. Since the Chemilog process has not yet received FDA
approval, we have expensed all costs of manufacturing Angiomax using the
Chemilog process as research and development. If we receive FDA approval of the
Chemilog process by July 2003, we expect to begin selling in the third or fourth
quarter of 2003 Angiomax produced by the Chemilog process whose cost of
manufacturing was previously expensed. As a result, we expect our cost of
manufacturing as a percentage of product revenue will remain at current levels
early in the year and then, subject to FDA approval of the Chemilog process,
decrease substantially by the end of 2003.
We have partially funded development activities relating to the Chemilog
process, paying total development expenses through December 31, 2002 of
approximately $12.1 million, which includes validation and process batch costs
of approximately $4.8 million and $6.7 million incurred in 2001 and 2002,
respectively, and approximately $600,000 of other development costs. We expensed
all of these development costs as research and development in the appropriate
period. Subject to FDA approval of the Chemilog process, we expect to be able to
sell the validation and process batches of Angiomax produced using the Chemilog
process. We are committed to purchase during 2003 approximately $9.7 million of
additional drug material manufactured using the Chemilog process. To the extent
UCB Bioproducts transfers title to this drug material to us prior to FDA
approval of the Chemilog process, we will expense these costs as research and
development.
Research and Development Expenses. Research and development expenses
increased 16% to $38.0 million for 2002, from $32.8 million for 2001. Over
ninety percent of the 2002 expenses related to Angiomax development activities,
of which sixty percent were associated with REPLACE-2. The increase in research
and development expenses was primarily due to higher clinical development costs
of $11.6 million relating to our REPLACE-2 trial and $1.5 million in higher
manufacturing development cost incurred in connection with our receipts of
Angiomax manufactured using the Chemilog process. These higher costs were partly
offset by the absence of clinical development costs of the HERO-2 trial program,
our Phase 3 trial of Angiomax in AMI, that we completed in 2001, and other
development programs savings.
We have a number of clinical trial programs currently underway, or about to
commence, for expanding the applications of Angiomax for use as an intravenous
anticoagulant in the treatment of arterial thrombosis. The funding for Angiomax,
our main product, has represented and will continue to represent a significant
portion of research and development spending. For 2002 and 2001, research and
development expenses related to Angiomax included the costs of clinical trials,
development manufacturing costs for the bulk drug product and the cost
associated with preparation of U.S. and worldwide marketing applications. The
amount of future research and development expenses associated with Angiomax are
not reasonably certain as these costs are dependent upon the regulatory process
and the timing for obtaining marketing approval for other applications of the
product in the United States and other countries. We currently plan to expend
approximately $30 million to $35 million on research and development in 2003, of
which about 80% is planned for Angiomax.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 1% to $36.8 million for 2002, from $36.6
million for 2001. The increase in selling, general and administrative expenses
of $241,000 was primarily due to additional sales expense related to the
promotion of Angiomax, offset in part by lower marketing expenses.
Noncash Stock Compensation. We amortize the deferred stock compensation
that was recorded in 2000 over the respective vesting periods of the individual
stock options. We recorded amortization expense for deferred compensation of
approximately $4.1 million and $3.3 million for the years ended December 31,
2001 and 2002, respectively. We expect to record amortization expense for the
deferred compensation of approximately $2.3 million in 2003 and approximately
$800,000 in 2004. In 2002, we accelerated the vesting of stock options held by
terminated employees in connection with their termination
26
agreements, which resulted in $500,000 in non-cash compensation expense. The
amortization and non-cash compensation expense is included in our operating
expenses in the consolidated statements of operations.
Other Income and Expense. Interest income decreased 70% to $944,000 for
2002, from $3.2 million for 2001. The decrease in interest income of $2.3
million was primarily due to lower cash and available for sale securities
balances and lower available interest rates on securities. For 2002, interest
income was attributable to the investment of the remaining proceeds of our sales
of shares of common stock in a private placement in May 2001 and in a public
offering in 2002. In 2001, interest income was primarily attributable to the
investment of the remaining proceeds of our initial public offering in August
and September 2000.
We had interest expense of $33,000 during 2002 associated with the draw
down of our revolving line of credit at the end of March 2002. We terminated the
revolving line of credit in August 2002. We had no interest expense for 2001. In
2001, we liquidated our $3.0 million principal investment in Southern California
Edison 5 7/8% bonds, recognizing a loss of $850,000 on the sale.
YEARS ENDED DECEMBER 31, 2001 AND 2000
Net Revenue. We had net revenue of $14.2 million in 2001 from sales of
Angiomax. We had no net revenue in 2000.
Cost of Revenue. Cost of revenue in 2001 was $2.1 million, or 15% of net
revenue. The cost of revenue in 2001 consisted of expenses in connection with
the manufacture of the Angiomax sold which represented 12% of the 2001 cost of
revenue, the logistics costs of selling Angiomax such as distribution, storage,
and handling, which represented 38% of the 2001 cost of revenue, and royalty
expenses under our agreements with Biogen which represented 50% of the 2001 cost
of revenue.
Research and Development Expenses. Research and development expenses
decreased 17% from $39.6 million in 2000 to $32.8 million in 2001. Eighty-eight
percent of the 2001 expenditures related to Angiomax development activities, of
which 32% were associated with REPLACE-2 and 28% were related to our HERO-2
trial program. The decrease in research and development expenses of $6.8 million
was primarily due to higher manufacturing development costs related to UCB
Bioproduct's manufacture of Angiomax bulk drug product in 2000, which was
expensed prior to FDA approval, and to lower clinical development costs
associated with the completion in 2001 of the HERO-2 trial program, our Phase 3
clinical trial in AMI. Partly offsetting this decrease in research and
development costs were higher costs related to our trials in angioplasty called
REPLACE-1 and REPLACE-2 and higher development costs related to the Chemilog
process.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 143% to $36.6 million in 2001 from $15.0
million in 2000. The increase in selling, general and administrative expenses of
$21.5 million was primarily due to an increase in marketing and selling expenses
and corporate infrastructure costs arising from an increase in activity relating
to the commercial launch of Angiomax in 2001, including the addition of sales
personnel.
Other Income and Expense. Interest income increased 19% to $3.2 million in
2001 from $2.7 million in 2000. The increase in interest income of $459,000 was
primarily due to interest income arising from the investment of the proceeds of
our initial public offering in August and September 2000 and from the investment
of the proceeds from our sale of 4.0 million shares of our common stock in a
private placement in May 2001.
We had no interest expense in 2001. Interest expense of $19.4 million in
2000 was related to interest charges and amortization of the discount on our
convertible notes issued in October 1999 and March 2000.
During the second quarter of 2001, we liquidated our $3.0 million principal
investment in Southern California Edison 5 7/8% bonds, recognizing a loss of
$850,000 on the sale.
Noncash Stock Compensation. We amortize the deferred stock compensation
that was recorded in 2000 over the respective vesting periods of the individual
stock options. We recorded amortization expense
27
for deferred compensation of approximately $3.7 million and $4.1 million for the
years ended December 31, 2000 and 2001, respectively. The amortization expense
is included in our operating expenses in the consolidated statements of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity. Since our inception, we have financed our operations
through the sale of common and preferred stock, sales of convertible promissory
notes and warrants, interest income and revenues from sales of Angiomax.
In August and September 2000, we received $101.4 million in net proceeds
from the sale of common stock in our initial public offering. Since our initial
public offering, we have received an additional $41.8 million in net proceeds in
May 2001 from the sale of 4.0 million shares of our common stock in a private
placement and $30.9 million in net proceeds in June 2002 from the sale of 4.0
million shares of our common stock in a public offering. Prior to 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.
In March 2002, we entered into a collaboration agreement with Nycomed.
Under the agreement, Nycomed paid us an initial non-refundable fee of $1.5
million and agreed to pay up to $2.5 million in additional milestones based on
regulatory approvals in Europe. In addition, Nycomed purchased 79,428 shares of
our common stock for a total purchase price of approximately $1.0 million.
In March 2002, we entered into a loan and security agreement with Comerica
Bank-California. The agreement allowed us to borrow up to $10.0 million. The
agreement was terminated in August 2002.
On March 5, 2003, we filed a registration statement on Form S-3 which
registered 4,000,000 shares of our common stock under the Securities Act for
sale to the public. Assuming an offering price of $18.94 per share, proceeds to
us would be approximately $70.9 million after deducting underwriting discounts
and commissions and all estimated offering expenses payable by us. We have also
granted the underwriters of the offering an option to purchase up to 600,000
additional shares of common stock. If the underwriters were to exercise this
option, the proceeds to us from the offering would be approximately $81.5
million.
We anticipate using the net proceeds from this offering as follows:
-- to fund further clinical development and commercialization of
Angiomax;
-- to fund research and development of clevidipine; and
-- to provide working capital and for general corporate purposes.
We also may use a portion of the net proceeds to acquire additional products
consistent with our strategy, although we have not allocated any portion of the
net proceeds for any specific acquisition. We cannot provide any assurance as to
when or if we will close this offering.
Cash Flows. As of December 31, 2002, we had $36.8 million in cash and cash
equivalents, as compared to $53.9 million as of December 31, 2001. The major
uses of cash during 2002 include net cash used for operating activities of $45.1
million and net cash used in investing activities of $6.9 million, partly offset
by $34.9 million received from financing activities.
We used net cash of $45.1 million in operating activities during 2002. This
use of cash consisted of a net loss of $45.8 million and an increase in accounts
receivable of $9.5 million and a decrease in accounts payable of $516,000,
partly offset by a decrease in inventory of $2.4 million and increases in
accrued expenses of $2.9 million, deferred revenue of $1.4 million, non-cash
stock compensation of $3.8 million, and depreciation of $555,000. The increase
in accounts receivable can be attributed to the higher sales levels.
28
During 2002, we used $6.9 million in cash in net investing activities,
which consisted principally of the purchase of available for sale securities.
Cash provided by financing activities of $34.9 million during 2002
consisted primarily of the proceeds of the public offering of 4.0 million shares
of our common stock in June 2002 which resulted in net proceeds of $30.9
million. In addition, Nycomed purchased 79,428 shares of our common stock for a
total purchase price of approximately $1.0 million and employees purchased stock
related to option exercises and our employee stock purchase plan for aggregate
net proceeds to us of approximately $3.0 million.
Funding Requirements. We expect to devote substantial resources to our
research and development efforts and to our sales, marketing and manufacturing
programs associated with the commercialization of our products. Our funding
requirements will depend on numerous factors including:
-- whether Angiomax is commercially successful;
-- the progress, level and timing of our research and development
activities related to our additional clinical trials with respect to
Angiomax and to our other product candidates;
-- the cost and outcomes of regulatory reviews;
-- the 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 believe, based on our operating plan as of the date of this annual
report, which includes anticipated revenues from Angiomax and interest income,
and the estimated proceeds of $70.9 million from the offering of our common
stock, that our current cash, cash equivalents and available for sale securities
will be sufficient to fund our operations for the foreseeable future. However,
we expect to periodically assess our financing alternatives and access the
capital markets opportunistically. In addition, if our existing resources are
insufficient to satisfy our liquidity requirements due to slower than
anticipated revenues from Angiomax or otherwise, or if we acquire additional
product candidates, we may need to sell additional equity or debt securities or
seek additional financing through other arrangements. Any sale of additional
equity or debt securities may result in additional dilution to our stockholders,
and we cannot be certain that additional public or private 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 delay, reduce the
scope of, or eliminate one or more of our planned research, development and
commercialization activities, which could harm our financial condition and
operating results.
29
CONTRACTUAL OBLIGATIONS
Our long-term contractual commitments consist of operating leases for our
facilities in Parsippany, New Jersey and Cambridge, Massachusetts, which expire
in January 2013 and August 2003, respectively. Future annual minimum payments
under these operating leases are:
MINIMUM OPERATING LEASE OBLIGATION
YEAR(S) AMOUNT
- ------------------------------------------------------------ ----------
2003........................................................ $ 808,000
2004........................................................ 526,000
2005........................................................ 492,000
2006........................................................ 495,000
2007........................................................ 503,000
Later years................................................. 2,689,000
----------
Total operating lease obligation.................. $5,513,000
==========
In addition to amounts accrued or payable as of December 31, 2002, we have
commitments to make payments to UCB Bioproducts of a total of $9.7 million
during 2003 for Angiomax bulk drug substance to be produced using the Chemilog
process. We also have $1.9 million in contractual commitments for 2003 related
to research and development activities.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein regarding our strategy, future operations, financial
position, future revenues, projected costs, prospects, plans and objectives of
management, other than statements of historical facts, are forward-looking
statements. The words "anticipates," "believes," "estimates," "expects,"
"intends," "may," "plans," "projects," "will," "would" and similar expressions
are intended to identify forward-looking statements, although not all forward-
looking statements contain these identifying words. We cannot guarantee that we
actually will achieve the plans, intentions or expectations disclosed in our
forward-looking statements. There are a number of important factors that cause
actual results or events to differ materially from those disclosed in the
forward-looking statements we make. These important factors include our
"critical accounting estimates" and the risk factors set forth below. Although
we may elect to update forward-looking statements in the future, we specifically
disclaim any obligation to do so, even if our estimates change, and readers
should not rely on those forward-looking statements as representing our views as
of any date subsequent to the date of this annual report.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR ADDITIONAL
NET LOSSES AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
We have incurred net losses since our inception, including net losses of
approximately $45.8 million for the year ended December 31, 2002. As of December
31, 2002, we had an accumulated deficit of approximately $297.3 million. We
expect to make substantial expenditures to further develop and commercialize our
products, including costs and expenses associated with clinical trials,
regulatory approval and commercialization. We will need to generate
significantly greater revenues to achieve and then maintain profitability.
However, we remain unsure as to when we will become profitable, if at all. And,
if we do become profitable, we may not remain profitable for any substantial
period of time. If we fail to
30
achieve profitability within the time frame expected by investors or securities
analysts, the market price of our common stock may decline.
OUR BUSINESS IS VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX
Angiomax is our only commercial product and, we expect, will account for
almost all of our revenues for the foreseeable future. The commercial success of
Angiomax will depend upon its acceptance by regulators, physicians, patients and
other key decision-makers as a safe, therapeutic and cost-effective alternative
to heparin and other products used in current practice, or currently being
developed. If Angiomax is not commercially successful, we will have to find
additional sources of funding or curtail or cease operations.
NEAR-TERM GROWTH IN OUR SALES OF ANGIOMAX IS HIGHLY DEPENDENT ON PHYSICIAN
ACCEPTANCE OF THE REPLACE-2 TRIAL
In the fall of 2002, we completed a 6,002 patient post-marketing Phase 3b/4
clinical trial of Angiomax in coronary angioplasty called REPLACE-2. In November
2002, the principal investigators of the clinical trial announced that, based on
30-day patient follow-up results, Angiomax met all of the primary and secondary
objectives of the trial. We believe that the near-term commercial success of
Angiomax will depend upon the extent to which physicians, patients and other key
decision-makers accept the results of the REPLACE-2 trial. Since the results
were announced, additional hospitals have granted Angiomax formulary approval
and hospital demand for the product has increased. We cannot be certain,
however, that these trends will continue. Some commentators have challenged
various aspects of the trial design of REPLACE-2, the conduct of the study and
the analysis and interpretation of the results from the study, including how we
define bleeding and the clinical relevance of types of ischemic events. If
physicians, patients and other key decision-makers do not accept the trial
results, adoption of Angiomax may suffer, and our business will be materially
adversely affected.
We are continuing to follow the patients involved in the REPLACE-2 trial
for six-month and one-year follow-up periods and are conducting a detailed cost
analysis study to examine per-patient total hospital resource consumption at
U.S. clinical trial sites. If the extended follow-up data are less favorable
than the 30-day patient follow-up data announced to date, or if the cost
analysis is less favorable than we expect, physician adoption of Angiomax may be
adversely affected.
WE CANNOT EXPAND THE INDICATIONS FOR WHICH WE ARE MARKETING 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
In December 2000, we received approval from the FDA for the use of Angiomax
as an anticoagulant in combination with aspirin in patients with unstable angina
undergoing coronary angioplasty. One of our key objectives is to expand the
indications for which Angiomax is approved for marketing by the FDA. In order to
market Angiomax for these expanded indications, we will need to complete our
clinical trials that are currently underway, conduct additional clinical trials,
obtain positive results from those trials and obtain FDA approval for such
proposed indications. If we are unsuccessful in expanding the approved
indications for the use of Angiomax, the size of the commercial market for
Angiomax will be limited.
IF WE DO NOT SUCCEED IN OBTAINING TIMELY APPROVAL FOR A SECOND-GENERATION
PROCESS FOR THE PRODUCTION OF ANGIOMAX BULK DRUG SUBSTANCE, WE MAY NOT BE ABLE
TO SUPPLY OUR CUSTOMERS
All Angiomax bulk drug substance used to date has been produced by UCB
Bioproducts by means of a chemical synthesis process. Using this validated
manufacturing process, UCB Bioproducts has completed the manufacture of bulk
drug substance to meet our anticipated commercial supply requirements through
the third quarter of 2003. As of the date of this annual report, we do not
intend to purchase any additional product manufactured using this process.
31
We have developed, with UCB Bioproducts, a second-generation process for
the production of Angiomax bulk drug substance, which is referred to as the
Chemilog process. This process involves changes to the early manufacturing steps
of our current process and, we expect, will reduce our Angiomax manufacturing
costs in the future. We received approvable letters from the FDA with respect to
the Chemilog process on March 14, 2002 and December 12, 2002. In August 2002, we
responded to the March 2002 approvable letter. In the December 2002 approvable
letter to us and in a corresponding letter to UCB Bioproducts, the FDA requested
additional data. In February 2003, we submitted what we believe to be the
additional data requested by the FDA from us. Concurrently, UCB Bioproducts
submitted what we believe to be the additional data requested by the FDA from
UCB Bioproducts. If the FDA does not approve the Chemilog process by July 2003,
we would expect to consider purchasing additional product produced using our
current process, but potentially on less favorable terms. This product would
likely not be available for a significant period of time, and we could be forced
to reject or limit customer orders for Angiomax until such product is available.
In such event, sales of Angiomax would suffer and our business would be
materially adversely affected.
FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WILL PREVENT US
FROM MARKETING ANGIOMAX ABROAD
We intend to market Angiomax through distribution partners in international
markets, including Europe. In order to market Angiomax in the European Union and
many other foreign jurisdictions, we or our distribution partners must obtain
separate regulatory approvals. Obtaining foreign approvals may require
additional trials and expense. In February 1998, we submitted a MAA to the EMEA
for use of Angiomax in unstable angina patients undergoing coronary angioplasty.
Following extended interaction with European regulatory authorities, the CPMP of
the EMEA voted in October 1999 not to recommend Angiomax for approval in
coronary angioplasty. We withdrew our application to the EMEA in 1999 and, as of
the date of this annual report, plan to resubmit an MAA with the results of the
REPLACE-2 trial. We may not be able to obtain approval or may be delayed in
obtaining approval from any or all of the jurisdictions in which we seek
approval to market Angiomax.
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, distributors, third-party manufacturers, licensors, licensees and
others to conduct development work, manage our clinical trials, manufacture our
products and market and sell our products outside of the United States. 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 clevidipine or any additional product candidates or
products we may acquire on terms that are acceptable to us. Any current or
future arrangements for development and commercialization may not be successful.
If we are not able to establish or maintain agreements relating to Angiomax,
clevidipine or any additional products we may acquire on terms which we deem
favorable, our results of operations would be materially adversely affected.
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 are not 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.
32
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 or otherwise adversely impact the development or
commercialization of Angiomax, clevidipine, 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.
FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT,
MANUFACTURE AND SALE OF OUR PRODUCTS
Our operations to date have generated a substantial need for cash, and this
negative cash flow from operations may persist. Our ability to generate positive
operating cash flow is highly dependent on our ability to achieve our revenue
targets. The clinical development and regulatory approval of Angiomax for
additional indications, the clinical development and regulatory approval of
clevidipine 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.
As of the date of this annual report, we believe, based on our current
operating plan, which includes anticipated revenues from Angiomax and interest
income, and the estimated proceeds of $70.9 million from the offering of shares
of our common stock, that our current cash, cash equivalents and available for
sale securities will be sufficient to fund our operations for the foreseeable
future. If our existing resources are insufficient to satisfy our liquidity
requirements due to slower than anticipated sales of Angiomax or otherwise, or
if we acquire additional product candidates, we may need to sell additional
equity or debt securities or seek additional financing through other
arrangements. Any sale of additional equity or debt securities may result in
additional dilution to our stockholders, and we cannot be certain that
additional public or private 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 delay, reduce the scope of, or eliminate one or
more of our planned research, development and commercialization activities,
which could harm our financial condition and operating results. In addition, in
order to obtain additional financing, we may be required to relinquish rights to
products, product candidates or technologies that we would not otherwise
relinquish.
WE DEPEND 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
We do not manufacture any of our products and do not plan to develop any
capacity to manufacture them. As of the date of this annual report, 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
terms of our agreement with UCB Bioproducts require us to purchase a substantial
portion of our Angiomax bulk drug product from UCB Bioproducts which could
hinder our ability to obtain an additional supplier for Angiomax.
The FDA requires that all manufacturers of pharmaceuticals for sale in or
from the United States achieve and maintain compliance with the FDA's cGMP
regulations and guidelines. There are a limited number of manufacturers that
operate under cGMP regulations capable of manufacturing Angiomax. As of the date
of this annual report, we do not 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, we may be unable to obtain alternative
33
manufacturing, or obtain such manufacturing on commercially reasonable terms or
on a timely basis. If we were required to transfer manufacturing processes to
other third party manufacturers, we would be required to satisfy various
regulatory requirements, which could cause us to experience significant delays
in receiving an adequate supply of Angiomax. 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.
WE DO NOT OWN THE TECHNOLOGY UNDERLYING THE CHEMILOG PROCESS, AND MAY BE
UNABLE TO UTILIZE THE CHEMILOG PROCESS IF UCB BIOPRODUCTS BREACHES OUR
AGREEMENT
Our agreement with UCB Bioproducts for the supply of Angiomax bulk drug
substance provides that UCB Bioproducts owns all of the proprietary technology
that was used to develop and that is employed in the Chemilog process. Although
the agreement requires that UCB Bioproducts transfer this technology to a
secondary supplier of Angiomax bulk drug substance or to us or an alternate
supplier at the expiration of this agreement, if UCB Bioproducts fails or is
unable to transfer successfully this technology, we would be unable to employ
the Chemilog process to manufacture our Angiomax bulk drug substance, which
could increase our manufacturing costs in the future.
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 to market any product for a
particular indication, we will be required to complete pre-clinical studies and
extensive clinical trials in humans to demonstrate the safety and efficacy of
such product for such indication. We are evaluating Angiomax in clinical trials
for additional uses in open vascular surgery such as CABG, in medical conditions
that require urgent treatment such as unstable angina, in patients with heparin
allergy, in children and in peripheral angioplasty. There are numerous factors
that could delay our clinical trials or prevent us from completing our 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 a product
candidate to be safe or effective for the intended use. 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. Even if regulatory
approval to market a product is granted, the regulatory approval may impose
limitations on the indicated use for which the product may be marketed.
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
product candidates or approved products. The success of this strategy depends
upon our ability to identify, select and acquire pharmaceutical products that
meet the criteria we have established. Because we neither 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.
Any product candidate we acquire will require additional research and
development efforts prior to commercial sale, including extensive pre-clinical
and/or clinical testing and approval by the FDA and
34
corresponding foreign regulatory authorities. All product candidates are prone
to the risks of failure inherent in pharmaceutical product development,
including the possibility that the product candidate will not be safe, non-toxic
and effective or approved by regulatory authorities. In addition, we cannot
assure you that any approved products that we develop or acquire will be:
-- manufactured or produced economically;
-- successfully commercialized; or
-- widely accepted in the marketplace.
In addition, proposing, negotiating and implementing an economically viable
acquisition is a lengthy and complex process. 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.
A BREACH OF ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION
RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, COULD CAUSE US TO LOSE LICENSE
RIGHTS THAT ARE IMPORTANT TO OUR BUSINESS OR SUBJECT US TO CLAIMS BY OUR
LICENSORS
We license 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 have exclusively licensed the patents and patent applications
relating to Angiomax from Biogen. Under our agreement with Biogen, we are
subject to commercialization and development, sublicensing, royalty, patent
prosecution and maintenance, insurance and other obligations. If we exercise our
option to acquire an exclusive license to clevidipine from AstraZeneca, we will
be subject to similar obligations with respect to clevidipine. Any failure by us
to comply with any of these obligations or any other breach by us of these
license agreements could give the licensor the right to terminate the license in
whole, terminate the exclusive nature of the license or bring a claim against us
for damages. Any such termination or claim, particularly relating to our
agreement with Biogen, could have a material adverse effect on our business.
Even if we contest any such termination or claim and are ultimately successful,
our stock price could suffer. In addition, upon any termination of a license
agreement, we may be required to license to the licensor any related
intellectual property that we developed.
WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS EFFECTIVELY IF WE ARE UNABLE TO
ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS
Our 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 executive chairman, Dr.
Clive A. Meanwell, or our chief executive officer, David M. Stack, or other key
employees or consultants, our ability to implement successfully our business
strategy 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 our 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.
BECAUSE THE MARKET FOR THROMBIN INHIBITORS IS COMPETITIVE, OUR PRODUCT MAY NOT
OBTAIN WIDESPREAD USE
We have positioned Angiomax as a replacement for heparin, which is a widely
used, inexpensive, generic drug used in patients with arterial thrombosis.
Because heparin is inexpensive and has been widely used for many years,
physicians and medical decision-makers may be hesitant to adopt Angiomax. In
addition, due to the high incidence and severity of cardiovascular diseases,
competition in the market for thrombin inhibitors is intense and growing. There
are a number of direct and indirect thrombin inhibitors
35
currently on the market, awaiting regulatory approval and in development,
including orally administered agents. The thrombin inhibitors on the market
include products for use in the treatment of patients with a clinical condition
known as HIT/HITTS, patients with unstable angina and patients with deep vein
thrombosis.
ANGIOMAX MAY COMPETE WITH ALL GROUPS OF ANTICOAGULANT DRUGS, INCLUDING PLATELET
INHIBITORS AND FIBRINOLYTIC DRUGS, WHICH MAY LIMIT THE USE OF ANGIOMAX
In general, anticoagulant drugs may be classified into four groups: drugs
that directly target and inhibit thrombin, drugs that 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 platelet inhibitors or
fibrinolytic drugs. Although platelet inhibitors and fibrinolytic drugs may be
complementary to Angiomax, we recognize that Angiomax may compete with these and
other anticoagulant drugs to the extent Angiomax and any of these anticoagulant
drugs are approved for the same indication.
In addition, platelet inhibitors and fibrinolytic drugs may compete with
Angiomax for the use of hospital financial resources. For example, 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, hospitals may be forced to
use either Angiomax or platelet inhibitors or fibrinolytic drugs but not
necessarily several of the drugs together.
WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR MORE SUCCESSFULLY
THAN WE DO
Our industry is highly competitive. Our success will depend on our ability
to acquire and develop products and apply technology, and our ability to
establish and maintain markets for our products. Potential competitors in the
United States and other countries include major pharmaceutical and chemical
companies, specialized pharmaceutical companies and 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 or license products or other novel
technologies that are more effective, safer or less costly than existing
products or technologies or products or technologies that 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.
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, the availability and timely delivery of a
sufficient supply of Angiomax, the timing and expenses of clinical trials,
announcements regarding clinical trial results and product introductions by us
or our competitors, the availability and timing of third-party reimbursement and
the timing of regulatory approvals. 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 will likely decrease.
WE MAY UNDERTAKE STRATEGIC ACQUISITIONS IN THE FUTURE AND ANY DIFFICULTIES FROM
INTEGRATING SUCH ACQUISITIONS COULD DAMAGE OUR ABILITY TO ATTAIN OR MAINTAIN
PROFITABILITY
We may acquire additional businesses and products that complement or
augment our existing business. Integrating any newly acquired business or
product could be expensive and time-consuming. We may not be able to integrate
any acquired business or product successfully or operate any acquired business
profitably. Moreover, we may need to raise additional funds through public or
private debt or
36
equity financing to acquire any businesses, which may result in dilution for
stockholders and the incurrence of indebtedness.
OUR REVENUES ARE SUBSTANTIALLY DEPENDENT ON A LIMITED NUMBER OF WHOLESALERS TO
WHICH WE SELL ANGIOMAX, AND SUCH REVENUES MAY FLUCTUATE FROM QUARTER TO QUARTER
BASED ON THE BUYING PATTERNS OF THESE WHOLESALERS
We sell Angiomax primarily to a limited number of national medical and
pharmaceutical distributors and wholesalers with distribution centers located
throughout the United States. During the year ended December 31, 2002, revenues
from the sale of Angiomax to three wholesalers totaled approximately 94% of our
net revenues. Our reliance on this small number of wholesalers could cause our
revenues to fluctuate from quarter to quarter based on the buying patterns of
these wholesalers. In addition, if any of these wholesalers fail to pay us on a
timely basis or at all, our financial position and results of operations could
be materially adversely affected.
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
for use as an anticoagulant in patients undergoing coronary angioplasty and
which has been approved for sale in Canada, Israel and New Zealand for
indications similar to those approved by the FDA, 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 product and product
candidates will be subject to extensive and rigorous ongoing domestic and
foreign government regulation of, among other things, the research, development,
testing, manufacture, labeling, promotion, advertising, distribution and
marketing of our products and product candidates. 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 companies like us are generally
uncertain and involve complex legal, scientific and factual issues. Our success
depends significantly on our ability to:
-- obtain and maintain U.S. and foreign patents;
-- protect trade secrets;
37
-- 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 and many foreign jurisdictions are typically
not published until eighteen months after filing and because publications of
discoveries in the scientific literature often lag behind actual discoveries, we
cannot be certain that others have not filed or maintained patent applications
for technology used by us or covered by our pending patent applications without
our being aware of these applications.
We exclusively license U.S. patents and patent applications and
corresponding foreign patents and patent applications relating to Angiomax from
Biogen. As of the date of this annual report, we exclusively license six issued
U.S. patents relating to Angiomax. The principal U.S. patent that covers
Angiomax expires in 2010. The U.S. Patent and Trademark Office has rejected our
application for an extension of the term of the patent beyond 2010 because the
application was not filed on time. We are exploring an alternative to extend the
term of the patent, but we can provide no assurance that we will be successful.
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 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 patients in clinical trials,
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 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. As of the date of this annual report, we
are covered, with respect to our commercial sales in the United States, Israel
and New Zealand and our clinical trials, by primary product liability insurance
in the amount of $20.0 million per occurrence and
38
$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 commercialize our products, we may wish to increase our product
liability insurance. 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.
OUR ABILITY TO GENERATE FUTURE REVENUE FROM PRODUCTS WILL DEPEND ON
REIMBURSEMENT AND DRUG PRICING
Acceptable levels of reimbursement of drug treatments by government
authorities, private health insurers and other organizations will have an effect
on our ability to successfully commercialize, and attract collaborative partners
to invest in the development of, product candidates. We cannot be sure that
reimbursement in the United States or elsewhere will be available for any
products we may develop or, if already available, will not be decreased in the
future. If reimbursement is not available or is available only to limited
levels, we may not be able to commercialize our products, and may not be able to
obtain a satisfactory financial return on our products.
Third-party payers increasingly are challenging prices charged for medical
products and services. Also, the trend toward managed health care in the United
States and the changes in health insurance programs, as well as legislative
proposals to reform health care or reduce government insurance programs, may
result in lower prices for pharmaceutical products, including any products that
may be offered by us. Cost-cutting measures that health care providers are
instituting, and the effect of any health care reform, could materially
adversely affect our ability to sell any products that are successfully
developed by us and approved by regulators. Moreover, we are unable to predict
what additional legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future
or what effect such legislation or regulation would have on our business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is confined to our cash, cash equivalents and
available for sale securities. We place our investments in high-quality
financial instruments, primarily money market funds, corporate debt and U.S.
government agency 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, 2002, we held $43.5 million in
cash, cash equivalents, and available for sale securities, all due within one
year, which had an average interest rate of approximately 2.0%.
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 10.0%, we do not believe that it would have a material
impact on our results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements required to be filed hereunder are filed as
Appendix A hereto, are listed under Item 15(a)(1) and are included elsewhere in
this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, directors and key employees and their respective
ages are as follows:
NAME AGE POSITION
- ---- --- --------
Clive A. Meanwell, M.D., Ph.D.*........... 45 Executive Chairman and Chairman of the
Board of Directors
David M. Stack*........................... 51 Chief Executive Officer, President and
Director
Steven H. Koehler, M.B.A.*................ 52 Vice President and Chief Financial Officer
Gary Dickinson............................ 51 Vice President
Sonja Barton Loar, Pharm. D., M.M. ....... 42 Vice President
David C. Mitchell......................... 49 Vice President
Stephanie Plent, M.D. .................... 41 Vice President
John D. Richards, D.Phil.*................ 46 Vice President
Fred M. Ryan, M.B.A. ..................... 51 Vice President
Peter Teuber, Ph.D.*...................... 44 Vice President
John W. Villiger, Ph.D. .................. 47 Vice President
Leonard Bell, M.D......................... 44 Director
Stewart J. Hen, M.B.A., M.S. ............. 36 Director
M. Fazle Husain, M.B.A.(1)................ 38 Director
T. Scott Johnson, M.D.(1)................. 55 Director
Armin M. Kessler, Dh.c.(1)(2)............. 64 Director
Nicholas J. Lowcock, M.B.A.(2)............ 39 Director
James E. Thomas, M.Sc.(2)................. 42 Director
- ------------
* Executive Officer
(1) Member of Audit Committee
(2) Member of the Compensation Committee
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 a director since the inception of
our company in July 1996 and has served as our Executive Chairman since
September 2001. From 1996 to September 2001, Dr. Meanwell served as our Chief
Executive Officer and President. 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 currently serves as a director of Endo Pharmaceuticals Inc.
Dr. Meanwell received an M.D. and a Ph.D. from the University of Birmingham,
United Kingdom.
David M. Stack has been our President and Chief Executive Officer and a
director since September 2001. From April 1, 2000 to September 2001, Mr. Stack
served as a Senior Vice President. From January 2000 to September 2001, Mr.
Stack also served as President and General Partner of Stack Pharmaceuticals,
Inc., a commercialization, marketing and strategy consulting firm serving
healthcare companies, and, from January 2000 to December 2001, 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. Mr. Stack currently serves as a
director of BioImaging Technologies, Inc. Mr. Stack received a B.S. in biology
from Siena College and a B.S. in pharmacy from Albany College of Pharmacy.
40
Steven H. Koehler, M.B.A. has been our Vice President and Chief Financial
Officer since April 2002. From March 2002 to April 2002, Mr. Koehler served as
our Vice President, Finance and Business Administration. From July 2001 to March
2002, Mr. Koehler was Vice President, Finance and Chief Financial Officer of
Vion Pharmaceuticals, Inc., a biotechnology company which develops cancer
treatments. From April 1999 to July 2001, Mr. Koehler served as Vice President,
Finance and Administration and as a member of the executive board of Knoll
Pharmaceuticals, Inc., a wholly owned subsidiary of BASF Corporation, the U.S.
subsidiary of a transnational chemical and life sciences company. From June 1997
to April 1999, Mr. Koehler was Vice President, Finance and Controlling for Knoll
AG in Ludwigshafen, Germany, the former global pharmaceutical subsidiary of BASF
AG. From November 1995 to June 1997, he served as Vice President, Value Based
Management for Knoll AG. Mr. Koehler was Vice President, Finance and Treasurer
for Boots Pharmaceuticals, Inc. from 1993 until its acquisition by Knoll in
1995. Mr. Koehler is a Certified Public Accountant. Mr. Koehler received a B.A.
degree from Duke University and an M.B.A. degree from the Kellogg Graduate
School of Management, Northwestern University.
Gary Dickinson has been a Vice President since April 2001 with a focus on
human resources activities. From March 2000 to April 2001, Mr. Dickinson was the
Vice President of Human Resources of Elementis Specialties, Inc., a specialty
chemicals manufacturing firm. From January 1997 to April 2001, Mr. Dickinson was
the Senior Director of Human Resources of Bristol-Myers Squibb Company, a
pharmaceuticals firm. Mr. Dickinson holds a B.A. from the University of
Sheffield, United Kingdom.
Sonja Barton Loar, Pharm. D., M.M., has been a Vice President since June
2000 with a focus on Regulatory Affairs. Dr. Loar joined us in June 2000 as the
Senior Director of Regulatory Affairs. Prior to joining us, Dr. Loar spent eight
years at Interneuron Pharmaceuticals, Inc., most recently as Vice President of
Regulatory Affairs. Prior to this, Dr. Loar was in international regulatory
affairs with Searle Pharmaceuticals Inc., a pharmaceutical company, and worked
in clinical research at DuPont Critical Care. Dr. Loar holds a Doctor of
Pharmacy from the University of Nebraska, after which she completed a two-year
hospital pharmacy residency at the University of Kentucky. In addition, Dr. Loar
holds a Masters of Management from the Kellogg Graduate School of Management,
Northwestern University.
David C. Mitchell has been a Vice President since December 2000 with a
focus on information technology and information systems. From February 1999 to
December 2000, Mr. Mitchell was the Vice President of Information Technology for
Innovex Americas, Inc., a subsidiary of Innovex Inc., a contract pharmaceutical
company. From July 1997 to October 1998, Mr. Mitchell was Director of
Information Technology at NBC Broadcasting. From 1985 to July 1997, Mr. Mitchell
served as the Director of Information and Technology at the Walt Disney Company.
Mr. Mitchell received a Bachelor of Music from Arizona State University.
Stephanie Plent, M.D., has been a Vice President since July 2002 with a
focus on medical policy and economics. Dr. Plent joined us in July 2000. Prior
to joining us, Dr. Plent spent six years as Medical Director for Disease
Management, Aetna US Healthcare Inc., an insurance company, and before that as a
consultant in the Health Care Practice at Arthur D. Little Inc., a consulting
firm. Dr. Plent received her medical degree from the Royal Free Hospital School
of Medicine, United Kingdom.
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 an M.A. and a 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.
41
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. From April 2000 to September 2001, Mr. Ryan 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 Corporation, a pharmaceutical company,
in the United States 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. He received
a B.S. and a B.A. degrees from Bryant College and his M.B.A. from Fairleigh
Dickinson University.
Peter Teuber, Ph.D. has been a Vice President since June 2001 with a focus
on product development. From February 1990 to May 2001, Dr. Teuber held
positions at Roche Pharmaceuticals, Inc., a global pharmaceutical company,
working on product development, strategic marketing and business development. He
led the development and global marketing team working on XELODA(R), an oral
treatment, from the product's first human trials through the initial New Drug
Application filings, two supplemental filings and approval in the United States,
Europe and over 70 other countries. In addition, at Roche Dr. Teuber acted as
the head of project management and served as a member of the global regulatory
management team. Dr. Teuber received a Ph.D., in Pharmacy from the University of
Basel in Switzerland.
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, Inc., a global pharmaceutical company, 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 a Ph.D. in
neuropharmacology from the University of Otago.
Leonard Bell, M.D. has been a director since May 2000. From January 1992 to
March 2002, Dr. Bell served as the President and Chief Executive Officer,
Secretary and Treasurer of Alexion Pharmaceuticals, Inc., a pharmaceutical
company. Since March 2002, Dr. Bell has served as the Chief Executive Officer,
Secretary and Treasurer of Alexion Pharmaceuticals, Inc. Since 1993, Dr. Bell
has served as an Adjunct Assistant Professor of Medicine and Pathology at the
Yale University School of Medicine. From 1991 to 1992, Dr. Bell was an Assistant
Professor of Medicine and Pathology and co-Director of the Program in Vascular
Biology at the Yale University School of Medicine. From 1990 to 1992, Dr. Bell
was an attending physician at the Yale-New Haven Hospital and an Assistant
Professor in the Department of Internal Medicine at the Yale University School
of Medicine. Dr. Bell was the recipient of the Physician Scientist Award from
the National Institutes of Health and Grant-in-Aid from the American Heart
Association. Dr. Bell is the recipient of various honors and awards from
academic and professional organizations and his work has resulted in more than
45 scientific publications, invited presentations and patent applications. Dr.
Bell is an invited Member of the State of Connecticut Governor's Council on
Economic Competitiveness and Technology and a director of Connecticut United for
Research Excellence, Inc. He also served as a director of the Biotechnology
Research and Development Corporation from 1993 to 1997. Dr. Bell currently also
serves as a director of Alexion Pharmaceuticals, Inc. Dr. Bell received an A.B.
from Brown University and an M.D. from the Yale University School of Medicine.
Stewart J. Hen, M.B.A., M.S. has been a director since February 2001. Since
January 2003, Mr. Hen has been a Managing Director of Warburg Pincus LLC, a
private equity investment firm. From May 2000 to January 2003, Mr. Hen was a
Vice President of Warburg Pincus LLC. Mr. Hen focuses on investments in the
emerging life sciences area, including biotechnology, specialty pharmaceuticals,
drug delivery and diagnostics. From 1996 to May 2000, Mr. Hen was a consultant
at McKinsey & Company, a consulting firm, where he advised pharmaceutical and
biotechnology companies on a range of strategic management issues. Mr. Hen
served at Merck & Company, a pharmaceutical company, from 1991 to 1994 in
manufacturing operations. Mr. Hen currently also serves as a director of
Synaptic Pharmaceuticals Corp.
42
Mr. Hen received a B.S. in chemical engineering from the University of Delaware,
an M.S. in chemical engineering from the Massachusetts Institute of Technology
and an M.B.A. from The Wharton School of the University of Pennsylvania.
M. Fazle Husain, M.B.A. has been a director since September 1998. Since
1987, Mr. Husain has been employed by Morgan Stanley & Co. Incorporated, an
investment banking firm, and is currently a Managing Director. Mr. Husain is
also a Managing Director of Morgan Stanley Venture Capital III, Inc. Mr. Husain
focuses primarily on investments in the health care industry, including health
care services, medical technology and health care information technology. He
currently also serves as a director of Allscripts Healthcare Solutions, Inc.,
Healthstream, Inc., Cross Country, Inc. and several privately held companies.
Mr. Husain received an Sc.B. degree in chemical engineering from Brown
University and an M.B.A. from the Harvard Graduate School of Business
Administration.
T. Scott Johnson, M.D. has been a director since September 1996. In July
1999, Dr. Johnson founded JSB Partners, L.P., an investment bank focusing on
mergers and acquisitions, private financings and corporate alliances within the
health care sector. From September 1991 to July 1999, Dr. Johnson served as a
founder and managing director of MPM Capital, L.P., a venture capital firm. Dr.
Johnson received both a B.S. and an M.D. from the University of Alabama.
Armin M. Kessler, Dh.c. has been a director since October 1998. Dr. Kessler
joined us after a 35-year career in the pharmaceutical industry, which included
senior management positions at Sandoz Pharma Ltd., Basel, Switzerland, United
States and Japan (now Novartis Pharma AG) and, most recently, at Hoffmann-La
Roche, Basel where he was Chief Operating Officer and Head of the Pharmaceutical
Division until 1995. Dr. Kessler currently also serves as a director of Spectrum
Pharmaceuticals, Inc. and Gen-Probe Incorporated. Dr. Kessler received degrees
in physics and chemistry from the University of Pretoria, a degree in chemical
engineering from the University of Cape Town, a law degree from Seton Hall and
an honorary doctorate in business administration from the University of
Pretoria.
Nicholas J. Lowcock, M.B.A. has been a director since December 2000, and he
previously served as a director from September 1996 until December 1998. Mr.
Lowcock has served as a Managing Director of Warburg Pincus LLC, a private
equity investment firm, since January 2000. Since October 2002, Mr. Lowcock has
also been a member of the Executive Management Group of Warburg Pincus LLC. Mr.
Lowcock has been a member of Warburg Pincus LLC since 1994 and previously served
as a Vice President. From 1992 to 1994, Mr. Lowcock was a consultant with the
Boston Consulting Group. Mr. Lowcock currently also serves as a director of
several privately held companies. Mr. Lowcock is also a director of Project Hope
U.K., a charity devoted to improving healthcare in developing nations. Mr.
Lowcock received a B.A. in Experimental Psychology from Oxford University and an
M.B.A. from The Wharton School of the University of Pennsylvania.
James E. Thomas, M.Sc. has been a director since September 1996. Since
March 2001, Mr. Thomas has served as Managing Partner of Thomas, McNerney &
Partners, LLC, a health care private equity investment fund. From 1989 to June
2000, Mr. Thomas served in various capacities, including from 1994 to 2000, as a
Partner and Managing Director, at E.M. Warburg, Pincus & Co., LLC, a private
equity investment firm. From 1984 to 1989, Mr. Thomas was a Vice President of
Goldman Sachs International, an investment banking firm, in London. Mr. Thomas
currently also serves as a director of Transkaryotic Therapies, Inc. and Wright
Medical Group. Mr. Thomas received a B.Sc. in finance and economics from The
Wharton School of the University of Pennsylvania and an M.Sc. in economics from
the London School of Economics.
43
ITEM 11. EXECUTIVE COMPENSATION
The following table presents summary information for the years ended
December 31, 2000, 2001 and 2002, for:
- our chief executive officers;
- our three most highly compensated executive officers who were serving at
the end of the fiscal year; and
- one additional individual, John M. Nystrom, for whom disclosure would
have been required but for the fact that he was not serving as an
executive officer at the end of the fiscal year,
These six individuals are referred to collectively as the named executive
officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION($)(2)
- ----------------- ---- ---------- ---------- ------------ ------------------
Clive A. Meanwell, M.D., Ph.D.(3).... 2002 $300,000 $180,000 123,000 $ 990
Executive Chairman 2001 $300,000 $ 50,000 15,000 $ 770
2000 $250,000 $ 85,000 424,781 $ 852
David M. Stack(4).................... 2002 $265,000 $115,000 204,000 $1,325
President and Chief Executive
Officer 2001 $197,917 $ 40,000 215,000 $ 516
2000 $112,500 $ 45,000 227,500 $ 320
Peter Teuber, Ph.D.(5)............... 2002 $200,000 $119,986 50,000 $ 420
Vice President
Steven H. Koehler(6)................. 2002 $172,689 $ 65,000 250,000 $ 874
Vice President and Chief Financial
Officer
John D. Richards, D. Phil............ 2002 $150,000 $ 48,000 25,000 $ 450
Vice President 2001 $150,000 $ 30,000 15,000 $ 450
2000 $143,958 $ 42,100 51,591 $ 304
John M. Nystrom(7)................... 2002 $198,519 -- -- --
Former Vice President 2001 $185,000 $ 15,000 5,000 $1,651
2000 $165,000 $ 50,000 121,101 $ 580
- ---------------
(1) Perquisites for the named executive officers did not exceed the lesser of
$50,000 or 10% of total salary and bonus for the respective fiscal years and
accordingly have been omitted in accordance with SEC rules.
(2) The dollar amount in the "Other Annual Compensation" column represents life
insurance premium payments made by us on behalf of the named executive
officer.
(3) Dr. Meanwell served as our President and Chief Executive Officer from 1996
to September 2001. In September 2001, he became our Executive Chairman.
(4) Mr. Stack became our President and Chief Executive Officer in September
2001. Mr. Stack served as our Senior Vice President from April 2000 to
September 2001.
(5) Dr. Teuber became our Vice President in June 2001.
(6) Mr. Koehler became our Vice President in March 2002 and our Chief Financial
Officer in April 2002.
(7) Mr. Nystrom served as our Vice President from September 1998 to July 2002.
44
OPTION GRANTS IN 2002
The following table summarizes information regarding options granted to
each of the named executive officers during the year ended December 31, 2002.
Options granted in 2002 become exercisable in 48 equal monthly installments,
commencing one month after the vesting commencement date, which is typically the
grant date.
Amounts in the following table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the SEC and do not represent an estimate or projection
of our future common stock prices. These amounts represent assumed rates of
appreciation in the value of our common stock from the fair market value on the
date of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of our common stock and overall stock market conditions.
The amounts reflected in the following table may not be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1)
------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------------
NAME GRANTED IN 2002 SHARE DATE 5% 10%
- ---- ---------- ----------- --------- ---------- ------------- -------------
Clive A. Meanwell.......... 123,000 6.5% $15.50 12/10/12 $1,198,988 $3,038,470
David M. Stack............. 100,000 5.3% $10.77 6/26/12 $ 677,320 $1,716,461
104,000 5.5% $15.50 12/10/12 $1,013,778 $2,569,113
Peter Teuber............... 50,000 2.6% $15.50 12/10/12 $ 487,393 $1,235,150
Steven H. Koehler.......... 200,000 10.6% $12.82 3/13/12 $1,612,486 $4,086,356
50,000 2.6% $15.50 12/10/12 $ 487,393 $1,235,150
John D. Richards........... 25,000 1.3% $15.50 12/10/12 $ 243,697 $ 617,575
John M. Nystrom............ -- -- -- -- -- --
- ---------------
(1) The percentage of total options granted to employees in 2002 is calculated
based on options granted to employees under our 1998 stock incentive plan,
as amended and 2001 non-officer, non-director employee stock incentive plan,
or 2001 Plan.
OPTION EXERCISES IN 2002 AND OPTION VALUES AT DECEMBER 31, 2002
The following table sets forth information regarding options exercised by
each of the named executive officers during the fiscal year ended December 31,
2002 and exercisable and unexercisable stock options held as of December 31,
2002 for each of the named executive officers.
Amounts shown under the column "Value Realized" represent the difference
between the option exercise price and the closing sale price of our common stock
on the date of exercise. Amounts shown under the column "Value of Unexercised
In-the-Money Options at December 31, 2002" have been calculated based on the
closing sale price of our common stock on the Nasdaq National Market on December
31, 2002 of $16.02 per share, without taking into account any taxes that may be
payable in connection with the transaction, multiplied by the number of shares
underlying the option, less the exercise price payable for these shares.
45
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN THE MONEY OPTIONS
ACQUIRED DECEMBER 31, 2002 AT DECEMBER 31, 2002
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
Clive A. Meanwell, M.D., Ph.D..... -- -- 320,731 282,930 $3,607,082 $1,517,560
David M. Stack.................... 14,000 $187,335 216,489 416,011 $1,346,321 $1,302,071
Peter Teuber, Ph.D. .............. -- -- 53,229 136,771 $ 132,006 $ 260,144
Steven H. Koehler, M.B.A. ........ -- -- -- 250,000 -- $ 666,000
John D. Richards, D. Phil......... 15,500 $156,230 29,951 51,615 $ 278,701 $ 185,892
John M. Nystrom................... 95,320 $800,751 -- -- -- --
DIRECTOR COMPENSATION
Each of our non-employee directors who attends, either in person or by
phone, at least 75% of the meetings of the board of directors held during the
year receives annual compensation of $12,500. In addition, each member of our
audit or compensation committee who attends, either in person or by phone, at
least 75% of the meetings of the committee on which he served held during the
year receives an additional $12,500. Directors are reimbursed for expenses in
connection with their attendance at board meetings.
In addition, non-employee directors may receive stock options and other
equity awards under our 1998 stock incentive plan and our 2000 outside director
stock option plan, or 2000 Plan. In May 2002, we granted each of Drs. Bell,
Johnson and Kessler, and Messrs. Hen, Husain, Lowcock and Thomas an option under
our 2000 Plan to purchase 7,500 shares of common stock at an exercise price of
$8.51 per share.
2000 OUTSIDE DIRECTOR STOCK OPTION PLAN
Our 2000 Plan was adopted by our board of directors on May 15, 2000. Under
the plan, our non-employee directors are eligible to receive non-statutory
options to purchase shares of our common stock. A total of 250,000 shares of our
common stock may be issued upon the exercise of options granted under the 2000
Plan. As of December 31, 2002, options to purchase 145,000 shares of our common
stock were outstanding under the 2000 Plan.
Under the terms of the 2000 Plan, each non-employee director will be
granted an option to purchase 20,000 shares of our common stock on the date of
his or her initial election to the board of directors. In addition, beginning
with the 2003 annual meeting of stockholders each non-employee director will
receive an option to purchase 12,500 shares of our common stock on the date of
each annual meeting of our stockholders, other than a director who was initially
elected to the board of directors at any such annual meeting.
All options granted under the 2000 Plan vest in 48 equal monthly
installments commencing one month after the date of grant and have an exercise
price per share equal to the closing sale price of our common stock on the
Nasdaq National Market on the date of grant. An optionee may exercise his or her
option only while he or she is a director and for one year after he or she
ceases to be a director. Unexercised options expire ten years after the date of
grant. Options granted under the 2000 Plan are not transferable or assignable
other than by will or the laws of descent and distribution and expire upon an
acquisition event, which is defined to mean (1) any merger or consolidation
which results in our stockholders prior to the transaction holding less than a
majority of the voting power of the combined or acquiring entity immediately
after the transaction, (2) any sale of all or substantially all of our assets or
(3) our complete liquidation.
46
EMPLOYMENT AGREEMENTS
Dr. Meanwell serves as our Executive Chairman pursuant to the terms of an
employment agreement dated September 5, 1996. This agreement renews
automatically on a yearly basis unless either party provides written notice of
non-renewal at least 90 days prior to the expiration of the then-current term.
Pursuant to the terms of the agreement, Dr. Meanwell's annual compensation is
determined by our board of directors. If Dr. Meanwell terminates his employment
for good reason, as defined in the agreement, or if we terminate his employment
other than for cause, Dr. Meanwell will be entitled to three months salary and
the same health, disability and other benefits as were provided during his
employment for a period ending upon the earlier of (1) three months after the
date of his termination, or (2) the date upon which Dr. Meanwell commences
full-time employment with a new employer. Dr. Meanwell has agreed not to compete
with us during the term of his employment and for a period of one year after his
termination, unless such termination is at our election or at the election of
Dr. Meanwell for good reason.
Mr. Stack serves as our Chief Executive Officer and President pursuant to
the terms of an employment agreement dated November 1, 2001. This agreement
renews automatically on a yearly basis unless either party provides written
notice of non-renewal at least 90 days prior to the expiration of the
then-current term. Pursuant to the terms of the agreement, Mr. Stack's annual
salary is $265,000, and he is eligible to receive a bonus of up to 40% of his
base salary. If Mr. Stack terminates his employment for good reason, as defined
in the agreement, or if we terminate his employment other than for cause, Mr.
Stack will be entitled to three months salary and the same health, disability
and other benefits as were provided during this employment for a period ending
upon the earlier of (1) three months after the date of his termination, or (2)
the date upon which Mr. Stack commences full-time employment with a new
employer. Mr. Stack has agreed not to compete with us during the term of his
employment and for a period of one year after his termination, unless such
termination is at our election or at the election of Mr. Stack for good reason.
Dr. Richards serves as one of our Vice Presidents pursuant to the terms of
an employment agreement dated October 16, 1997. This agreement renews
automatically on a yearly basis unless either party provides written notice of
non-renewal. Pursuant to the terms of the agreement, Dr. Richards' annual
compensation is determined by our board of directors. If Dr. Richards terminates
his employment for good reason, as defined in the agreement, or if we terminate
his employment other than for cause, Dr. Richards will be entitled to three
months salary and the same health, disability and other benefits as were
provided during his employment for a period of three months after the date of
his termination. Dr. Richards has agreed not to compete with us during the term
of his employment and for a period of one year after his termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee consists of Dr. Kessler and Messrs. Lowcock and
Thomas, none of whom ever has been an officer or employee of our company and
each of whom served on the compensation committee throughout 2002.
None of our executive officers has served as a director or member of the
compensation committee, or other committee serving an equivalent function, of
any other entity, one of whose executive officers served as one of our directors
or as a member of our compensation committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table presents information we know regarding the beneficial
ownership of our common stock as of January 31, 2003 for each person, entity or
group of affiliated persons whom we know to beneficially own more than 5% of our
common stock. The table also sets forth such information for our directors and
named executive officers, individually, and our directors and executive officers
as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
Except as indicated by footnote, to our knowledge, the persons named in the
table have sole voting and investment power with
47
respect to all shares of common stock shown as beneficially owned by them.
Common stock purchase warrants and options to purchase shares of common stock
that are exercisable within 60 days of January 31, 2003 are deemed to be
beneficially owned by the person holding such options for the purpose of
computing ownership of such person, but are not treated as outstanding for the
purpose of computing the ownership of any other person. Applicable percentage of
beneficial ownership is based on 39,935,531 shares of common stock outstanding
as of January 31, 2003.
Unless otherwise indicated in the footnotes, the address of each of the
individuals named below is: c/o The Medicines Company, Five Sylvan Way, Suite
200, Parsippany, New Jersey 07054.
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER: OWNED OWNED
- ------------------------------------------------------- ------------ ---------------
Wellington Management Company, LLP(1).................. 5,357,240 13.4%
Biotech Growth N.V.(2)................................. 3,656,425 9.0%
T. Rowe Price Associates, Inc.(3)...................... 2,996,810 7.5%
Mutuelles AXA(4)....................................... 2,096,430 5.2%
QFinance, Inc.(5)...................................... 2,062,520 5.2%
Clive A. Meanwell(6)................................... 616,608 1.5%
David M. Stack(7)...................................... 249,264 *
Steven H. Koehler(8)................................... 55,125 *
John M. Nystrom(9)..................................... 2,205 *
John D. Richards(10)................................... 32,153 *
Peter Teuber(11)....................................... 65,180 *
Leonard Bell(12)....................................... 15,343 *
Stewart J. Hen(13)..................................... 1,657,019 4.1%
M. Fazle Husain(14).................................... 230,613 *
T. Scott Johnson(15)................................... 84,824 *
Armin M. Kessler(16)................................... 91,311 *
Nicholas J. Lowcock(17)................................ 1,657,852 4.1%
James E. Thomas(18).................................... 67,543 *
All directors and executive officers as a group (12
persons)............................................. 3,181,234 7.8%
- ------------
* Represents beneficial ownership of less than 1%.
(1) Includes shares owned by various investors for which Wellington Management
Company, LLP serves as investment advisor with shared power to direct
investments and/or to vote the shares. The shares were acquired by
Wellington Trust Company, NA, a wholly owned subsidiary of Wellington
Management Company, LLP. The address of Wellington Trust Company, NA and
Wellington Management Company, LLP is 75 State Street, Boston,
Massachusetts 02109. This information is based on a Schedule 13G/A filed by
Wellington Management Company, LLP with the SEC on February 12, 2003.
(2) Consists of warrants to purchase 675,925 shares and 2,980,500 shares owned
directly by Biotech Growth N.V. with respect to which BB Biotech AG and
Biotech Growth N.V. share voting and dispositive power. Biotech Growth N.V.
is a wholly owned subsidiary of BB Biotech AG. The address of Biotech
Growth N.V. is Calle 53, Urbanizacion Obarrio, Torre Swiss Bank, Piso 16,
Panama City, Zona 1, Republic of Panama. This information is based on a
Schedule 13G/A filed by BB Biotech AG on behalf of Biotech Growth N.V. with
the SEC on February 14, 2003.
(3) Includes shares owned by various individual and institutional investors for
which T. Rowe Price Associates, Inc. serves as investment advisor with
power to direct investments and/or sole power to vote the shares. For
purposes of the reporting requirements of the Securities Exchange Act of
1934, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of
such shares; however, T. Rowe Price Associates, Inc. expressly disclaims
that it is, in
(footnotes on next page)
48
fact, the beneficial owner of such shares. The address of T. Rowe Price
Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202. This
information is based on a Schedule 13G/A filed by T. Rowe Price Associates,
Inc. with the SEC on February 4, 2003.
(4) Includes 8,000 shares owned directly by AXA Rosenberg Investment Management
LLC, a wholly owned subsidiary of AXA, 1,977,330 shares held by Alliance
Capital Management L.P., a majority owned subsidiary of AXA Financial,
Inc., on behalf of unaffiliated third-party client discretionary investment
advisory accounts and 111,100 shares owned by The Equitable Life Assurance
Society of the United States, a wholly owned subsidiary of AXA Financial,
Inc. Mutelles AXA, a group of companies consisting of AXA Conseil Vie
Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurance Vie
Mutuelle and AXA Courtage Assurance Mutuelle, is the parent holding company
of AXA. AXA is the parent holding company of AXA Financial, Inc. For
purposes of the reporting requirements of the Securities Exchange Act of
1934, as amended, Mutelles AXA (and each company of the group thereof) and
AXA are deemed to be beneficial owners of such shares; however, each
expressly disclaims that it is, in fact, the beneficial owner of such
shares. The address of AXA Conseil Vie Assurance Mutuelle, AXA Assurances
I.A.R.D. Mutuelle and AXA Assurance Vie Mutuelle is 370, rue Saint Honore,
75001 Paris, France. The address of AXA Courtage Assurance Mutuelle is 26,
rue Louis le Grand, 75002 Paris, France. The address of AXA is 25, avenue
Matignon, 75008 Paris, France. The address of AXA Financial, Inc. is 1290
Avenue of the Americas, New York, New York 10104. This information is based
on a Schedule 13G filed by AXA Conseil Vie Assurance Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurance Vie Mutuelle, AXA Courtage
Assurance Mutuelle, AXA and AXA Financial, Inc. with the SEC on February
12, 2003.
(5) Consists of shares owned directly by QFinance, Inc. with respect to which
Quintiles Transnational Corp. and QFinance, Inc. share voting and
dispositive power. QFinance, Inc. is a wholly owned subsidiary of Quintiles
Transnational Corp. The address of QFinance, Inc. is c/o Quintiles
Transnational Corp., 4709 Creekstone Drive, Suite 200, Durham, North
Carolina 27703. This information is based on a Schedule 13G/A filed by
Quintiles Transnational Corp. and QFinance, Inc. with the SEC on February
14, 2003.
(6) Includes warrants to purchase 59,143 shares and options to purchase 354,879
shares. Excludes 350,000 shares subject to a pre-paid variable forward
sales contract, pursuant to which Dr. Meanwell pledged 350,000 shares to
secure a future obligation to deliver a maximum of 350,000 shares in
February 2006.
(7) Includes options to purchase 244,264 shares.
(8) Includes options to purchase 53,125 shares.
(9) Includes 1,100 shares held by one of Dr. Nystrom's children. Dr. Nystrom
disclaims beneficial ownership of the shares held by his child.
(10) Includes options to purchase 25,053 shares.
(11) Includes options to purchase 65,105 shares.
(12) Consists of options to purchase 15,343 shares. The address of Dr. Bell is
c/o Alexion Pharmaceuticals, Inc., 352 Knotter Drive, Chesire, Connecticut
06410.
(13) Consists of options to purchase 15,418 shares held by Mr. Hen and 1,641,601
shares held by Warburg, Pincus Ventures, L.P. Warburg, Pincus & Co. is the
sole general partner of Warburg, Pincus Ventures, L.P. Warburg, Pincus
Ventures, L.P. is managed by Warburg Pincus LLC. Mr. Hen is a member of
Warburg Pincus LLC and a general partner of Warburg, Pincus & Co. Mr. Hen
may be deemed to have an indirect pecuniary interest (within the meaning of
Rule 16a-1 under the Securities Exchange Act of 1934, as amended) in an
indeterminate portion of the shares beneficially owned by Warburg, Pincus
Ventures, L.P. Mr. Hen disclaims beneficial ownership of all of the shares
owned by the Warburg Pincus entities. The address of Mr. Hen is c/o Warburg
Pincus LLC, 466 Lexington Avenue, New York, NY 10017. This information is
based on a Schedule 13D/A filed by Warburg Pincus LLC with the SEC on
December 12, 2002.
(14) Includes options to purchase 5,001 shares held by Mr. Husain, 190,737
shares held by Morgan Stanley Venture Partners III, L.P., 18,272 shares
held by Morgan Stanley Venture Investors III, L.P., and 8,343 shares held
by The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr. Husain
is a Managing Member of Morgan Stanley Venture Partners III, LLC, which is
the general partner of each of the Morgan Stanley funds described above.
Mr. Husain disclaims such beneficial ownership except to the extent of his
pecuniary interest therein.
(15) Includes 5,000 shares held by Dr. Johnson as trustee, warrants to purchase
13,744 shares held by Dr. Johnson and options to purchase 5,001 shares held
by Dr. Johnson. The address of Dr. Johnson is c/o JSB Partners, Damonmill
Square 6A, Concord, Massachusetts 01742.
49
(16) Includes 3,000 shares held by Dr. Kessler's wife, warrants to purchase
33,796 shares held by Dr. Kessler and options to purchase 19,601 shares
held by Dr. Kessler.
(17) Consists of options to purchase 16,251 shares held by Mr. Lowcock and
1,641,601 shares held by Warburg, Pincus Ventures, L.P. Warburg, Pincus &
Co. is the sole general partner of Warburg, Pincus Ventures, L.P. Warburg,
Pincus Ventures, L.P. is managed by Warburg Pincus LLC. Mr. Lowcock is a
member of Warburg Pincus LLC and a general partner of Warburg, Pincus & Co.
Mr. Lowcock may be deemed to have an indirect pecuniary interest (within
the meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as
amended) in an indeterminate portion of the shares beneficially owned by
Warburg, Pincus Ventures, L.P. Mr. Lowcock disclaims beneficial ownership
of all of the shares owned by the Warburg Pincus entities. The address of
Mr. Lowcock is c/o Warburg Pincus LLC, 466 Lexington Avenue, New York, NY
10017. This information is based on a Schedule 13D/A filed by Warburg
Pincus LLC with the SEC on December 12, 2002.
(18) Includes options to purchase 15,343 shares. The address of Mr. Thomas is
Woods End Road, New Canaan, Connecticut 06840.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2002 about the
securities authorized for issuance under our equity compensation plans,
consisting of our 2001 Plan, our 2000 Plan, our 1998 stock incentive plan, as
amended, and our employee stock purchase plan.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
NUMBER OF SECURITIES UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN (A))
- ------------- -------------------- ------------------- ------------------------
(A) (B) (C)
Equity compensation plans approved by
security holders.................... 3,918,726 $12.06 1,581,871
Equity compensation plans not approved
by security holders................. 919,931 $ 9.51 252,880
--------- ------ ---------
Total............................ 4,838,657 $11.57 1,834,751
2001 NON-OFFICER, NON-DIRECTOR EMPLOYEE STOCK INCENTIVE PLAN
In May 2001, our board of directors approved the 2001 Plan pursuant to
which non-statutory stock options for up to 1,250,000 shares of common stock
were authorized to be issued to our employees, consultants and advisors and
those of our subsidiaries. The 2001 Plan has not been approved by our
stockholders.
Our board is authorized to administer the 2001 Plan, to adopt, amend and
repeal the administrative rules, guidelines and practices relating to the 2001
Plan and to interpret the provisions of the 2001 Plan. Our board may amend,
suspend or terminate the 2001 Plan at any time. In accordance with the
provisions of the 2001 Plan, our board of directors may delegate any or all of
its powers under the 2001 Plan to one or more committees or subcommittees of the
board.
Our board selects the recipients of awards under the 2001 Plan and
determines:
- the number of shares of common stock covered by such awards;
- the dates upon which such awards become exercisable;
- the exercise price of options; and
- the duration of the options.
50
If any award granted under the 2001 Plan expires or is terminated,
surrendered, canceled or forfeited, the unused shares of common stock covered by
such option or other award will again be available for grant under the 2001
Plan.
Our board is required to make appropriate adjustments in connection with
the 2001 Plan to reflect any stock split, reverse stock split, stock dividend,
recapitalization, combination of shares, reclassification of shares, spin-off or
other similar event to the extent that the board determines, in good faith, that
such as adjustment is necessary and appropriate. Upon the occurrence of an
acquisition event, as defined in the 2001 Plan, the 2001 Plan requires our board
to take one or more of the following actions with respect to any then
outstanding options and other awards:
- provide that each outstanding option or award will be assumed, or an
equivalent option or award will be substituted by, the successor entity
or an affiliate of the successor entity;
- provide that all outstanding options become exercisable in full for a
specified period of time before such acquisition event takes place, even
if such options would not have been exercisable otherwise; and
- if the acquisition event involves a cash payment to holders of common
stock in exchange for their shares of common stock, provide for the
termination of all outstanding options and provide for a cash payment to
each option holder equal to the amount by which (1) the cash payment per
share of common stock paid the holders of common stock multiplied by the
number of shares of common stock subject to such outstanding option
(whether or not exercisable), exceeds (2) the total exercise price of
such options.
Upon the occurrence of a change in control, as defined in the 2001 Plan,
that is not an acquisition event, each option shall become immediately
exercisable in full if, on or prior to the first anniversary of the date of the
change in control event, a termination event, as defined in the 2001 Plan,
occurs, provided that the parties involved in the change of control have not
explicitly agreed to the contrary.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Based on their
evaluation of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Exchange Act) as of a date within 90 days of
the filing of this Annual Report on Form 10-K, our principal executive officers
and principal financial officer have concluded that our disclosure controls and
procedures are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and are operating in an effective manner.
(b) Changes in Internal Controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.
51
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
(1) Financial Statements. The Consolidated Financial Statements are
included as Appendix A hereto and are filed as part of this Report. The
Consolidated Financial Statements include:
PAGE
----
1. Report of Independent Auditors........................... F-2
2. Consolidated Balance Sheets.............................. F-3
3. Consolidated Statements of Operations.................... F-4
4. Consolidated Statements of Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)....... F-5
5. Consolidated Statements of Cash Flows.................... F-7
6. Notes to Consolidated Financial Statements............... F-8
(2) Exhibits. The exhibits set forth on the Exhibit Index following
the signature page to this Report are filed as part of this Report. This
list of exhibits identifies each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Report.
(b) Reports on Form 8-K:
On October 25, 2002, we filed a current report on Form 8-K, dated
October 22, 2002, with the SEC in connection with our announcement of
financial results for the quarter and nine-month period ended September 30,
2002.
On November 27, 2002, we filed a current report on Form 8-K, dated
November 21, 2002, with the SEC in connection with a trading plan pursuant
to Rule 10b5-1 under the Exchange Act entered into by our President and
Chief Executive Officer, David Stack, and a pre-paid variable forward sales
contract entered into by our Executive Chairman, Clive Meanwell.
52
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 February 27, 2003.
THE MEDICINES COMPANY
By: /s/ CLIVE A. MEANWELL
------------------------------------
Clive A. Meanwell
Executive Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 27, 2003:
SIGNATURE TITLE(S)
--------- --------
/s/ CLIVE A. MEANWELL Executive Chairman and Chairman of the Board of
- ------------------------------------------ Directors (Principal Executive Officer)
Clive A. Meanwell
/s/ DAVID M. STACK Chief Executive Officer and President and Director
- ------------------------------------------ (Principal Executive Officer)
David M. Stack
/s/ STEVEN H. KOEHLER Vice President, Chief Financial Officer, Treasurer and
- ------------------------------------------ Secretary (Principal Financial and Accounting Officer)
Steven H. Koehler
/s/ LEONARD BELL Director
- ------------------------------------------
Leonard Bell
/s/ STEWARD J. HEN Director
- ------------------------------------------
Steward J. Hen
/s/ M. FAZLE HUSAIN Director
- ------------------------------------------
M. Fazle Husain
/s/ T. SCOTT JOHNSON Director
- ------------------------------------------
T. Scott Johnson
/s/ ARMIN M. KESSLER Director
- ------------------------------------------
Armin M. Kessler
/s/ NICHOLAS J. LOWCOCK Director
- ------------------------------------------
Nicholas J. Lowcock
/s/ JAMES E. THOMAS Director
- ------------------------------------------
James E. Thomas
53
CERTIFICATIONS
I, Clive A. Meanwell, certify that:
1. I have reviewed this annual report on Form 10-K of The Medicines
Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ CLIVE A. MEANWELL
--------------------------------------
Clive A. Meanwell
Executive Chairman
Dated: March 4, 2003
54
I, David M. Stack, certify that:
1. I have reviewed this annual report on Form 10-K of The Medicines
Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ DAVID M. STACK
--------------------------------------
David M. Stack
President and Chief Executive Officer
Dated: March 4, 2003
55
I, Steven H. Koehler, certify that:
1. I have reviewed this annual report on Form 10-K of The Medicines
Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ STEVEN H. KOEHLER
--------------------------------------
Steven H. Koehler
Chief Financial Officer
Dated: March 4, 2003
56
APPENDIX A
INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF
THE MEDICINES COMPANY
PAGE
----
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Medicines Company
We have audited the accompanying consolidated balance sheets of The
Medicines Company as of December 31, 2001 and 2002, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows, for each of the three years in
the period ending December 31, 2002. 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, 2001 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 11, 2003
F-2
THE MEDICINES COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
2001 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 53,884,376 $ 36,777,007
Available for sale securities............................. 125,000 6,731,728
Accrued interest receivable............................... 6,757 129,414
Accounts receivable, net of allowance of $0.05 million as
of December 31, 2001 and 2002.......................... 6,119,325 15,664,432
Inventories............................................... 16,610,928 14,178,660
Prepaid expenses and other current assets................. 550,564 660,720
------------- -------------
Total current assets................................... 77,296,950 74,141,961
Fixed assets, net........................................... 1,223,528 924,497
Other assets................................................ 153,076 233,854
------------- -------------
Total assets........................................... $ 78,673,554 $ 75,300,312
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,805,476 $ 8,291,995
Accrued expenses.......................................... 8,747,114 11,678,078
------------- -------------
Total current liabilities.............................. 17,552,590 19,970,073
Commitments and contingencies............................... -- --
Deferred revenue............................................ -- 1,395,833
Stockholders' equity:
Preferred stock, $1.00 par value per share, 5,000,000
shares authorized; no shares issued and outstanding.... -- --
Common stock, $.001 par value per share, 75,000,000 shares
authorized at December 31, 2001 and December 31, 2002,
respectively; 34,606,582 and 39,894,285 issued and
outstanding at December 31, 2001 and December 31, 2002,
respectively........................................... 34,607 39,894
Additional paid-in capital................................ 321,041,704 354,239,193
Deferred compensation..................................... (8,593,773) (3,125,494)
Accumulated deficit....................................... (251,443,682) (297,274,830)
Accumulated other comprehensive income.................... 82,108 55,643
------------- -------------
Total stockholders' equity............................. 61,120,964 53,934,406
------------- -------------
Total liabilities and stockholders' equity............. $ 78,673,554 $ 75,300,312
------------- -------------
See accompanying notes.
F-3
THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 2001 2002
------------- ------------ ------------
Net revenue..................................... $ -- $ 14,247,724 $ 38,301,286
Operating expenses:
Cost of revenue............................... -- 2,110,425 10,284,033
Research and development...................... 39,572,297 32,767,394 37,951,458
Selling, general and administrative........... 15,033,585 36,566,761 36,807,679
------------- ------------ ------------
Total operating expenses................... 54,605,882 71,444,580 85,043,170
Loss from operations............................ (54,605,882) (57,196,856) (46,741,884)
Other income (expense):
Interest income............................... 2,704,126 3,163,208 943,583
Interest expense.............................. (19,390,414) -- (32,847)
Loss on sale of investment.................... -- (850,000) --
------------- ------------ ------------
Net loss........................................ (71,292,170) (54,883,648) (45,831,148)
Dividends and accretion to redemption value of
redeemable preferred stock.................... (30,342,988) -- --
------------- ------------ ------------
Net loss attributable to common stockholders.... $(101,635,158) $(54,883,648) $(45,831,148)
============= ============ ============
Basic and diluted net loss attributable to
common stockholders per common share.......... $ (8.43) $ (1.67) $ (1.23)
Unaudited pro forma basic and diluted net loss
attributable to common stockholders per common
share......................................... $ (2.10) $ (1.67) $ (1.23)
Shares used in computing net loss attributable
to common stockholders per common share:
Basic and diluted............................. 12,059,275 32,925,968 37,209,931
Unaudited pro forma basic and diluted......... 24,719,075 32,925,968 37,209,931
See accompanying notes.
F-4
THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------------- -------------------- ADDITIONAL PAID-IN DEFERRED STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------------- ---------- ------- ------------------ --------------
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
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 $(17,279,612)
Adjustments to deferred
compensation for
terminations............... (197,485) 197,485
Amortization of deferred
stock compensation......... 3,726,433
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 (13,355,694)
Repurchase of common stock... (11,239) (11) --
Employee stock purchases..... 297,366 298 743,147
Issuance of common stock
through private
placement.................. 4,000,000 4,000 41,798,975
Adjustments to deferred
compensation for
terminations............... (626,755) 626,755
Amortization of deferred
stock compensation......... 4,135,166
Net loss.....................
ACCUMULATED
COMPREHENSIVE
INCOME TOTAL STOCKHOLDERS'
ACCUMULATED DEFICIT (LOSS) EQUITY/(DEFICIT)
------------------- ------------- -------------------
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
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.................... --
Adjustments to deferred
compensation for
terminations............... --
Amortization of deferred
stock compensation......... 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... (196,560,034) (1,946) 69,238,983
Repurchase of common stock... (11)
Employee stock purchases..... 743,445
Issuance of common stock
through private
placement.................. 41,802,975
Adjustments to deferred
compensation for
terminations............... --
Amortization of deferred
stock compensation......... 4,135,166
Net loss..................... (54,883,648) (54,883,648)
F-5
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------------- -------------------- ADDITIONAL PAID-IN DEFERRED STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------------- ---------- ------- ------------------ --------------
Currency translation
adjustment.................
Reclassification adjustment
for realized loss on
available for sale
securities.................
Comprehensive loss...........
----------- ------------- ---------- ------- ------------ ------------
Balance at December 31, 2001... -- $ -- 34,606,582 $34,607 $321,041,704 $ (8,593,773)
Employee stock purchases..... 738,081 738 2,993,498
Issuance of common
stock--Nycomed purchase.... 79,428 79 999,921
Issuance of common
stock--through public
sale....................... 4,000,000 4,000 30,906,000
Issuance of common
stock--Warrant purchases... 470,194 470 (547)
Adjustments to deferred
compensation for
terminations............... (2,191,644) 2,191,644
Non-cash stock compensation--
terminations............... 490,261
Amortization of deferred
stock compensation......... 3,276,635
Net loss.....................
Currency translation
adjustment.................
Reclassification adjustment
for realized loss on
available for sale
securities.................
Comprehensive loss...........
----------- ------------- ---------- ------- ------------ ------------
Balance at December 31, 2002... -- $ -- 39,894,285 $39,894 $354,239,193 $ (3,125,494)
=========== ============= ========== ======= ============ ============
ACCUMULATED
COMPREHENSIVE
INCOME TOTAL STOCKHOLDERS'
ACCUMULATED DEFICIT (LOSS) EQUITY/(DEFICIT)
------------------- ------------- -------------------
Currency translation
adjustment................. 47,446 47,446
Reclassification adjustment
for realized loss on
available for sale
securities................. 36,608 36,608
------------
Comprehensive loss........... (54,799,594)
------------- -------- ------------
Balance at December 31, 2001... $(251,443,682) $ 82,108 $ 61,120,964
Employee stock purchases..... 2,994,236
Issuance of common
stock--Nycomed purchase.... 1,000,000
Issuance of common
stock--through public
sale....................... 30,910,000
Issuance of common
stock--Warrant purchases... (77)
Adjustments to deferred
compensation for
terminations............... --
Non-cash stock compensation--
terminations............... 490,261
Amortization of deferred
stock compensation......... 3,276,635
Net loss..................... (45,831,148) (45,831,148)
Currency translation
adjustment................. (42,240) (42,240)
Reclassification adjustment
for realized loss on
available for sale
securities................. 15,775 15,775
------------
Comprehensive loss........... (45,857,613)
------------- -------- ------------
Balance at December 31, 2002... $(297,274,830) $ 55,643 $ 53,934,406
============= ======== ============
See accompanying notes.
F-6
THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 2001 2002
------------ ------------ ------------
Cash flows from operating activities:
Net loss............................................ $(71,292,170) $(54,883,648) $(45,831,148)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation........................................ 277,307 470,930 555,026
Amortization of premium on available for sale
securities....................................... -- -- 66,517
Amortization of discount on convertible notes....... 19,013,486 -- --
Non-cash stock compensation expense................. 3,726,433 4,135,166 3,766,895
Loss on sales and disposal of fixed assets.......... 14,631 2,113 1,079
Changes in operating assets and liabilities:
Accrued interest receivable...................... (1,337,703) 1,386,171 (122,657)
Accounts receivable.............................. -- (6,119,325) (9,545,107)
Inventory........................................ (1,963,491) (14,620,838) 2,405,669
Prepaid expenses and other current assets........ (312,027) (85,806) (108,340)
Other assets..................................... (82,391) 96,927 (80,778)
Accounts payable................................. (1,823,602) 2,819,943 (516,068)
Accrued expenses................................. 5,708,535 (377,245) 2,887,070
Deferred revenue................................. -- -- 1,395,833
------------ ------------ ------------
Net cash used in operating activities.......... (48,070,992) (67,175,612) (45,126,009)
Cash flows from investing activities:
Purchase of available for sale securities........... (51,098,901) (7,430,886) (6,782,470)
Maturities and sales of available for sale
securities....................................... 9,083,090 49,863,097 125,000
Purchase of fixed assets............................ (834,160) (735,571) (247,218)
------------ ------------ ------------
Net cash provided by (used in) investing
activities.................................. (42,849,971) 41,696,640 (6,904,688)
Cash flows from financing activities:
Proceeds from revolving line of credit borrowings... -- -- 10,000,000
Repayments of revolving line of credit borrowings... -- -- (10,000,000)
Proceeds from issuance of convertible notes and
warrants......................................... 13,348,779 -- --
Proceeds from issuances of preferred stock, net..... 6,095,338 -- --
Proceeds from issuances of common stock, net........ 101,636,334 42,546,409 34,904,155
Dividends paid in cash.............................. (118) -- --
------------ ------------ ------------
Net cash provided by financing activities...... 121,080,333 42,546,409 34,904,155
Effect of exchange rate changes on cash............... (280) 14,583 19,173
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents...... 30,159,090 17,082,020 (17,107,369)
Cash and cash equivalents at beginning of period...... 6,643,266 36,802,356 53,884,376
------------ ------------ ------------
Cash and cash equivalents at end of period............ $ 36,802,356 $ 53,884,376 $ 36,777,007
============ ============ ============
Non-cash transactions:
Dividends on preferred stock........................ $ 31,894,474 $ -- $ --
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 255,781 $ -- $ 32,847
============ ============ ============
Taxes paid.......................................... $ -- $ 6,303 $ 35,069
============ ============ ============
See accompanying notes.
F-7
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. NATURE OF BUSINESS
The Medicines Company (the "Company") was incorporated in Delaware on July
31, 1996. The Company is a specialty pharmaceutical company engaged in the
acquisition, development and commercialization of late-stage development drugs
or drugs approved for marketing. The U.S. Food and Drug Administration approved
Angiomax(R) (bivalirudin) for use as an anticoagulant in combination with
aspirin in patients with unstable angina undergoing coronary angioplasty in
December 2000, and the Company commenced sales of Angiomax in the first quarter
of 2001. The Company was considered to be a development-stage enterprise, as
defined in Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development-Stage Enterprises," through December 31, 2000. With the
commencement of sales in 2001, the Company is no longer considered to be a
development-stage enterprise.
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. The Company has no
unconsolidated subsidiaries.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain reclassifications have been made to prior years' information to
conform to the 2002 presentation.
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, dependence on key customers and
suppliers, 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, available for sale securities and
accounts receivable. The Company believes it minimizes its exposure to potential
concentrations of credit risk by placing investments in high-quality financial
instruments with high quality institutions. At December 31, 2002, approximately
$31.2 million of the cash and cash equivalents balance was invested in a single
fund, the Munder Money Market Fund, a no-load money market fund.
The Company's products are sold primarily to a limited number of national
medical and pharmaceutical distributors and wholesalers with distribution
centers located throughout the United States. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and, during 2002,
such losses were
F-8
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
within the expectations of management. During 2001 and 2002, the Company's
revenues from three of its customers totaled approximately 94% of net revenues.
At December 31, 2001 and 2002, these same customers represented approximately
$5.9 million, or 97%, and $15.1 million, or 96%, respectively, of gross accounts
receivable.
CASH, CASH EQUIVALENTS AND AVAILABLE FOR SALE SECURITIES
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 2001 and 2002 consist of investments in money market
funds. These investments are carried at cost, which approximates fair value.
The Company considers securities with original maturities of greater than
three months to be available for sale securities. 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 cost of debt
securities in this category is adjusted for amortization of premium and
accretion of discount to maturity. The estimated fair value of the available for
sale securities is determined based on quoted market prices or rates for similar
instruments. At December 31, 2001, the Company held a certificate of deposit for
$125,000 with a one-year term that was pledged as a security deposit on its
facility lease in Parsippany, New Jersey. This certificate of deposit matured in
2002.
Available for sale securities consisted of investments in corporate bonds,
United States government agency notes and certificates of deposit with
maturities of less than one year and are summarized as follows:
UNREALIZED FAIR
2001 COST GAIN VALUE
- ---- ---------- ---------- --------
Certificate of Deposit............................ $ 125,000 $-- $125,000
---------- -- --------
TOTAL........................................ $ 125,000 $-- $125,000
========== == ========
UNREALIZED FAIR
2002 COST GAIN VALUE
- ---- ---------- ---------- ----------
Certificates of deposit......................... $1,499,944 $ -- $1,499,944
Corporate debt securities....................... 2,606,044 7,042 2,613,086
U.S. government agency notes.................... 2,609,965 8,733 2,618,698
---------- ------- ----------
TOTAL...................................... $6,715,953 $15,775 $6,731,728
========== ======= ==========
During the second quarter of 2001, the Company sold its $3.0 million
investment in Southern California Edison 5 7/8% bonds, which were originally due
on January 15, 2001, realizing a loss of $850,000 on the sale. There were also
maturities of available for sale securities during the year ended December 31,
2001, which are disclosed in the accompanying consolidated statements of cash
flows. There were no realized gains or losses in 2002.
REVENUE RECOGNITION
The Company sells its products primarily to wholesalers and distributors
who, in turn sell to hospitals. The Company recognizes revenue from product
sales in accordance with generally accepted accounting principles in the United
States including the guidance in Staff Accounting Bulletin 101. Revenue from
product sales is recognized when there is persuasive evidence of an arrangement,
delivery has occurred, the price is fixed and determinable, and collectibility
is reasonably assured. However because the Company's products are sold with
limited rights of return, the Company's recognition of revenue from product
sales is
F-9
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
also subject to the Statement of Financial Accounting Standards No. 48, or SFAS
48, "Revenue Recognition When Right of Return Exists." Under SFAS 48, revenue is
recognized when the price to the buyer is fixed, the buyer is obligated to pay
the Company and the obligation to pay is not contingent on resale of the
product, the buyer has economic substance apart from the Company, the Company
has no obligations to bring about sale of the product and the amount of returns
can be reasonably be estimated. The Company reserves for estimated returns at
the time of sale and revenues are reported net of such amounts.
The Company records allowances for product returns, rebates and discounts,
and reports revenue net of such allowances. The Company must make significant
judgments and estimates in determining the allowances. If actual results differ,
the Company will likely be required to make adjustments to these allowances in
the future:
-- The Company's customers have the right to return any unopened product
with less than six months to the labeled expiration date, provided
that the product is returned within 12 months of the labeled
expiration date. As a result, the Company must estimate the
likelihood that product sold to wholesalers might remain in their
inventory to within six months of expiration and determine if it will
be returned. The Company bases its estimates on information from
customers, historic patterns of returns, industry data and on the
expiration dates of product currently being shipped.
-- Certain hospitals purchasing the Company's products from wholesalers
have the right to receive a discounted price and a volume-based
rebate if they participate in a group purchasing organization that
has a contract with the Company. As a result, the Company must
estimate the likelihood that product sold to wholesalers might be
ultimately sold to a participating hospital. The Company bases its
estimates on information from customers, industry data, historic
patterns of discounts and customer rebate thresholds.
Revenue from collaborative agreements may include non-refundable fees or
milestone payments. These payments are recorded as deferred revenue until
contractual performance obligations have been satisfied, and they are recognized
ratably over the term of these agreements. When the period of deferral cannot be
specifically identified from the contract, the Company must estimate the period
based upon other critical factors contained within the contract. The Company
reviews these estimates, at least annually, which could result in a change in
the deferral period.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs were
approximately $807,000, $1,258,000 and $837,000 for the years ended December 31,
2000, 2001 and 2002, respectively.
INVENTORIES
Inventory is recorded upon the transfer of title from our vendors.
Inventory is stated at the lower of cost or market value with cost determined
using a weighted average of costs. All costs associated with the manufacture of
Angiomax bulk drug product and finished product to which the title transferred
to us prior to FDA approval of Angiomax and of its original manufacturing
process were expensed as research and development. In December 2000, we received
FDA approval for Angiomax and its original manufacturing process. Any Angiomax
bulk drug product manufactured according to its original manufacturing process
to which we took title after FDA approval is recorded as inventory. Together
with UCB Bioproducts, the Company has developed, but not yet received FDA
approval of, a second generation chemical synthesis process, the Chemilog
process, for the manufacture of Angiomax bulk drug substance. All Angiomax bulk
drug product manufactured using the Chemilog process to which title has
transferred to the Company to
F-10
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
date has been expensed as research and development. The Company reviews the
inventory for slow moving or obsolete amounts based on expected revenues. If
actual revenues are less than expected, allowances for excess amounts may be
required in the future.
INVENTORIES 2001 2002
- ----------- ----------- -----------
Raw materials.............................................. $14,547,422 4,126,870
Work-in-progress........................................... 1,991,874 8,370,949
Finished Goods............................................. 71,632 1,680,841
----------- -----------
TOTAL................................................. $16,610,928 $14,178,660
=========== ===========
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.
RESEARCH AND DEVELOPMENT
Expenditures for research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" 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").
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
123 to stock-based employee compensation:
YEARS ENDED DECEMBER 31,
----------------------------------------
2000 2001 2002
------------ ----------- -----------
Net loss attributable to common
stockholders--As reported.................. $101,635,158 $54,883,648 $45,831,148
Deduct: Total stock-based compensation
expense determined under fair value based
method for all stock option awards and
discounts under the Employee Stock Purchase
Plan, net of amortization of deferred stock
compensation............................... 4,515,446 10,923,152 2,477,278
Net loss attributable to common
stockholders--Pro forma.................... $106,150,604 $65,806,800 $48,308,426
Net loss per share attributable to common
stockholders--As reported.................. $ (8.43) $ (1.67) $ (1.23)
Net loss per share attributable to common
stockholders--Pro forma.................... $ (8.80) $ (2.00) $ (1.30)
F-11
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
---------------------------------
2000 2001 2002
--------- --------- ---------
Expected dividend yield............................. 0% 0% 0%
Expected stock price volatility..................... 70% 96% 90%
Risk-free interest rate............................. 6.32% 4.0% 3.0%
Expected option term................................ 3.35 3.34 2.79
years years years
TRANSLATION OF FOREIGN CURRENCIES
The functional currencies of the Company's foreign branches and
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. Stockholders' equity is exchanged
using historical rates at 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' equity. 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 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
branches and subsidiaries' financial statements and unrealized gains and losses
on available for sale securities.
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
F-12
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
convertible preferred stock and accrued dividends and convertible notes and
accrued interest through the balance sheet date into shares of the Company's
common stock (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 manages its business and operations as one segment and is
focused on the acquisition, development and commercialization of late-stage
development drugs and drugs approved for marketing. The Company has license
rights to Angiomax(R) and has the option to license the rights to another
potential product, clevidipine. Revenues reported to date are derived primarily
from the sales of the Company's Angiomax(R) product.
3. THE COMPANY'S PLANS AND FINANCING
The Company has incurred substantial losses since inception. To date, the
Company has primarily 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 commercialization activities for the
foreseeable future, and the Company plans to fund these expenditures by
increasing revenue or through debt or equity financing, if possible, and to
secure collaborative partnering arrangements that will provide available cash
funding for operations. Should revenue growth or additional debt or equity
financing or collaborative partnering arrangements be unavailable to the
Company, it will restrict certain of its 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) 2001 2002
------------ ----------- -----------
Furniture, fixtures and equipment.......... 3 $ 675,482 $ 785,190
Computer hardware and software............. 3 1,314,358 1,443,076
Leasehold improvements..................... 5 250,585 269,448
----------- -----------
2,240,425 2,497,714
Less: Accumulated depreciation............. (1,016,897) (1,573,217)
----------- -----------
$ 1,223,528 $ 924,497
=========== ===========
Depreciation expense was approximately $277,000, $471,000 and $555,000 for
the years ended December 31, 2000, 2001 and 2002, respectively.
F-13
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
2001 2002
---------- -----------
Compensation related....................................... $1,142,131 $ 2,812,737
Development services....................................... 3,311,060 3,118,093
Product returns, rebates and discounts..................... 772,641 2,906,778
Sales and marketing........................................ 2,202,632 651,375
Royalties and commissions.................................. 707,313 1,676,718
Legal, accounting and other................................ 611,337 512,377
---------- -----------
$8,747,114 $11,678,078
========== ===========
6. CONVERTIBLE NOTES AND COMMON STOCK PURCHASE WARRANTS
In October 1999, the Company issued $6,000,000 of 8% convertible notes
(October Notes) and 1,013,877 Common Stock purchase warrants (October Warrants)
to existing investors, raising proceeds of $6,000,000. The October 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. Each October Warrant provides the holder with the right to
purchase one share of Common Stock at a price of $5.92 per share at any time
prior to October 19, 2004. The Company recorded $325,355 as the fair value of
the October Warrants using the Black-Scholes method and the estimated fair value
of the Common Stock on the date of the issuance of the October Warrants, and
$5,674,645 as the value of the October Notes on the issuance date. The discount
on the October Notes was amortized to interest expense over the expected term of
the October Notes to June 2000. Since the October Notes were issued in October
1999, the carrying amount at December 31, 1999 approximated their fair value at
December 31, 1999. Upon completion of the Company's sale of Series IV redeemable
convertible preferred stock (Series IV Redeemable Convertible Preferred Stock)
in May 2000, the principal and accrued interest on the October Notes were
converted into 1,393,909 shares of Series IV Redeemable Convertible Preferred
Stock. At December 31, 2002 there were 694,897 October Warrants outstanding.
In March 2000, the Company issued $13,348,779 of 8% Convertible Notes
(March Notes) and 2,255,687 Common Stock Purchase Warrants (March Warrants) to
current stockholders, raising proceeds of $13,348,779. The March Notes were
convertible into shares of Common Stock upon a subsequent private sale of Common
Stock, provided that such sale resulted in aggregate gross proceeds of at least
$6,000,000. Each March 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 Company recorded approximately $18,800,000 as the
value of the March Warrants using the Black-Scholes method and the estimated
fair value of the Common Stock on the date of the issuance of the March
Warrants. The discount on the March Notes was amortized over the expected term
of the Notes 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 Redeemable Convertible Preferred Stock in May 2000,
the principal and accrued interest on the March Notes were converted into
3,141,457 shares of Series IV Redeemable Convertible Preferred Stock. At
December 31, 2002 there were 1,679,078 March Warrants outstanding.
7. 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.
F-14
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying financial statements and footnotes including all share and per
share amounts reflect the reverse stock split.
SERIES I, SERIES II, SERIES III AND SERIES IV REDEEMABLE CONVERTIBLE PREFERRED
STOCK
The Company had four series of redeemable convertible preferred stock. A
brief summary of the Series I, Series II, Series III (Series I Redeemable
Convertible Preferred Stock, Series II Redeemable Convertible Preferred Stock,
Series III Redeemable Convertible Preferred Stock, respectively) and Series IV
Redeemable Convertible Preferred Stock follows. At December 31, 2000, 2001 and
2002, there were no shares of any series of redeemable convertible preferred
stock outstanding.
In August 1998, the Company executed an agreement (Exchange Agreement)
under which 8,892,912 shares of Common Stock and 41,992 shares of Series A
redeemable preferred stock (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 Series A Redeemable
Preferred Stock would have resulted in the issuance of a fractional share of the
Series A Redeemable 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 October and March Notes and accrued interest were
converted into 4,535,366 shares of Series IV Redeemable Convertible Preferred
Stock. The Series IV Redeemable Convertible Preferred Stock carried terms and
conditions similar to the Series I, II, III Preferred Stock. The Series IV
Redeemable Convertible Preferred Stock was convertible into Common Stock at a
1-for-0.73 conversion rate and automatically converted upon the closing of the
Company's initial public offering (IPO). 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 IPO, 30,659,957 shares of the Series I, II, III and
IV 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.
PREFERRED STOCK
Following the conversion of the Series I, Series II, Series III and Series
IV Redeemable Convertible Preferred Stock upon the closing of the IPO, there
were 5,000,000 shares of the Company's preferred stock (Preferred Stock)
authorized, none of which has been issued.
COMMON STOCK
Common stockholders are entitled to one vote per share and dividends when
declared by the Company's board of directors (Board of Directors), subject to
the preferential rights of any outstanding shares of Preferred Stock.
F-15
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In its IPO on August 11, 2000, the Company sold 6,000,000 shares of 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 Series I, II, III and IV 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.
In May 2001, the Company received $41.8 million from a private placement of
4,000,000 shares of Common Stock sold to both new and existing shareholders at a
price of $11.00 per share. The shares sold in the private placement were
subsequently registered for resale.
In March 2002, the Company received $1.0 million in proceeds from the sale
of shares of Common Stock to Nycomed at the then fair market price of $12.59 per
share at the time of purchase. In June 2002, the Company received $30.9 million
in proceeds from the sale of 4.0 million shares of Common Stock in a public
offering at a price of $8.20 per share.
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 2000, 2001 and 2002, the
Company repurchased 22,205, 11,239 and 177 shares, respectively, of unvested
Common Stock for $0.001 per share. There were no shares of unvested Common Stock
at December 31, 2002.
STOCK PLANS
In April 1998, the Company adopted the 1998 Stock Incentive Plan (the "1998
Plan"), which provides for the grant of stock options, restricted stock and
other stock-based awards to employees, directors and consultants. 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 1998 Plan generally vest in
increments over four years and have a ten year term.
In January 2000, the Board of Directors approved an amendment to the 1998
Plan to increase the number of shares available under the 1998 Plan to
1,448,259. In May 2000, the Board of Directors approved an amendment to the 1998
Plan to increase the number of shares available under the 1998 Plan to
4,368,259. In February 2002, the Board of Directors also adopted, subject to
shareholder approval which was received in May 2002, an increase in the number
of shares of common stock under the 1998 Plan to 6,118,259 shares.
The Board of Directors also approved the 2000 Employee Stock Purchase Plan
(the "2000 ESPP") 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 outside directors. Both the 2000 ESPP and the 2000 Directors Stock
Option Plan have received stockholder approval.
In May 2001, the Board of Directors approved the 2001 Non-Officer,
Non-Director Employee Stock Incentive Plan (the "2001 Plan"), which provides for
the grant of nonstatutory stock options to employees, consultants and advisors,
of the Company and its subsidiaries. The 2001 Plan provides for the issuance of
up to 1,250,000 shares of stock. The Board of Directors administers the 2001
Plan, although it may
F-16
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
delegate its authority to one or more committees and, in limited circumstances,
to one or more of the executive officers.
Prior to the Company's IPO, the Board of Directors determined the fair
value of the Common Stock in its good faith judgment at each option grant date
for grants under the 1998 Plan considering a number of factors including the
financial and operating performance of the company, recent transactions in the
Common Stock and Preferred Stock, if any, the values of similarly situated
companies and the lack of marketability of Common Stock. Following the IPO, the
fair value is determined based on the traded value of Common Stock.
During the period January 1, 2000 to September 30, 2000, the Company issued
2,273,624 options at exercise prices below the estimated fair value of the
Common Stock as of the date of grant of such options based on the price of the
Common Stock in connection with the IPO. The total deferred compensation
associated with these options is approximately $17.3 million. Included in the
results of operations for the years ended December 31, 2000, 2001 and 2002 is
compensation expense of approximately $3.7 million, $4.1 million and $3.3
million, respectively, associated with such options. Total deferred compensation
is reduced when the associated options are cancelled prior to exercise. During
2000, 2001 and 2002, cancellation of options that had not been exercised
resulted in a reduction in total deferred compensation of approximately $0.2
million, $0.6 million and $2.2 million, respectively. In 2002, the Company
accelerated the vesting of stock options held by terminated employees in
connection with their termination agreements, which resulted in $0.5 million in
non-cash stock compensation expense. The amortization and non-cash compensation
expense is included in our operating expenses in the consolidated statements of
operations.
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.
F-17
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of stock option activity under all the Company's stock option
plans are as follows:
WEIGHTED AVERAGE
EXERCISE PRICE PER
NUMBER OF SHARES SHARE
---------------- ------------------
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
Granted....................................... 2,090,000 11.25
Exercised..................................... (216,118) 2.45
Canceled...................................... (329,086) 14.94
---------- ------
Outstanding, December 31, 2001................ 4,759,950 $10.16
Granted....................................... 1,945,700 12.71
Exercised..................................... (708,723) 3.88
Canceled...................................... (1,158,270) 12.39
---------- ------
Outstanding, December 31, 2002................ 4,838,657 $11.57
========== ======
Available for future grant at December 31,
2002........................................ 1,625,377
==========
The weighted average per share fair value of options granted during 2000,
2001 and 2002 was $10.34, $7.17 and $6.95, respectively. There were no options
granted during 2001 and 2002 with an exercise price below the fair market value
of the underlying shares on the date of grant. The weighted average fair value
and exercise price of options granted during 2000 that were granted with
exercise prices below fair market value were $9.35 and $4.68, respectively. The
weighted average fair value and exercise price of options granted with exercise
prices equal to fair value were $13.19 and $24.96, respectively, during 2000,
$7.17 and $11.25, respectively, during 2001, and $6.95 and $12.71, respectively,
during 2002.
The following table summarizes information about stock options from all the
Company's stock option plans outstanding at December 31, 2002:
OPTIONS OUTSTANDING
----------------------------------------------------
WEIGHTED OPTIONS VESTED
AVERAGE ---------------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING AT CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING AT EXERCISE PRICE
PER SHARE 12/31/02 (YEARS) PER SHARE 12/31/02 PER SHARE
- --------------- -------------- ---------------- ---------------- -------------- ----------------
$0.69- $5.90 1,152,169 7.55 $ 4.24 721,210 $ 3.90
$5.92- $10.60 1,036,882 8.80 8.57 232,588 7.65
$10.76- $13.80 1,124,192 8.91 12.29 241,609 12.53
$14.88- $18.10 1,072,900 9.45 16.03 118,336 17.22
$21.50- $30.00 452,514 7.90 24.78 251,124 24.77
--------- ---- ------ --------- ------
4,838,657 8.59 $11.57 1,564,867 $10.15
========= ==== ====== ========= ======
F-18
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 2002, there were 9,047,383 shares of Common Stock reserved
for future issuance under the 2000 ESPP, for conversion of the October Warrants
and March Warrants and for grants made under the 1998 Plan, the 2001 Plan and
the 2000 Directors 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 for 2000
gives effect to the conversion of the Series I, II, III and IV Redeemable
Convertible Preferred Stock and the October Notes and March Notes and accrued
interest as if converted at the date of original issuance.
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 2001 2002
------------- ------------ ------------
BASIC AND DILUTED
Net loss............................... $ (71,292,170) $(54,883,648) $(45,831,148)
Dividends and accretion on redeemable
convertible preferred stock.......... (30,342,988) -- --
------------- ------------ ------------
Net loss attributable to common
stockholders......................... $(101,635,158) $(54,883,648) $(45,831,148)
============= ============ ============
Weighted average common shares
outstanding.......................... 12,225,537 32,987,766 37,223,342
Less: unvested restricted common shares
outstanding.......................... (166,262) (61,798) (13,411)
------------- ------------ ------------
Weighted average common shares used to
compute net loss per share........... 12,059,275 32,925,968 37,209,931
============= ============ ============
Basic and diluted net loss per share... $ (8.43) $ (1.67) $ (1.23)
============= ============ ============
UNAUDITED PRO FORMA BASIC AND DILUTED
Net loss............................... $ (71,292,170) $(54,883,648) $(45,831,148)
Interest expense on convertible
notes................................ 19,390,414 -- --
------------- ------------ ------------
Net loss used to compute pro forma net
loss per share....................... $ (51,901,756) $(54,883,648) $(45,831,148)
============= ============ ============
Weighted average common shares used to
compute net loss per share........... 12,059,275 32,925,968 37,209,931
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.................... 12,659,800 -- --
------------- ------------ ------------
Weighted average common shares used to
compute pro forma net loss per
share................................ 24,719,075 32,925,968 37,209,931
============= ============ ============
Unaudited pro forma basic and diluted
pro forma net loss per share......... $ (2.10) $ (1.67) $ (1.23)
============= ============ ============
Options to purchase 3,215,154, 4,759,950 and 4,838,657 shares of Common
Stock have not been included in the computation of diluted net loss per share
and pro forma net loss per share for the years ended December 31, 2000, 2001 and
2002, respectively, as their effects would have been antidilutive. Warrants to
purchase 3,269,564, 3,156,073 and 2,373,975 shares of Common Stock were also
excluded
F-19
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
from the computation of diluted net loss per share and pro forma net loss per
share for the years ended December 31, 2000, 2001 and 2002, 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,
---------------------------
2001 2002
------------ ------------
Deferred tax assets:
Net operating loss carryforwards....................... $ 68,689,000 $ 86,128,000
Research and development credit........................ 5,062,000 7,556,000
Intangible assets...................................... 998,000 886,000
Other.................................................. 491,000 1,543,000
------------ ------------
75,240,000 96,113,000
Valuation allowance...................................... (75,240,000) (96,113,000)
------------ ------------
Net deferred tax assets.................................. $ -- $ --
============ ============
The Company has increased its valuation allowance by $20,873,000 in 2002 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 has not yet determined the
effect of these rules on the utilization of its net operating loss and credit
carryforwards. The Company assesses the need for the valuation allowance at each
balance sheet date based on all available evidence.
At December 31, 2002, 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 approximately as follows:
FEDERAL RESEARCH
FEDERAL NET AND DEVELOPMENT
OPERATING LOSS TAX CREDIT
YEAR OF EXPIRATION CARRYFORWARDS CARRYFORWARDS
- --------------------------------------------------- -------------- ----------------
2011............................................... $ 929,000 $ 22,000
2012............................................... 15,260,000 527,000
2018............................................... 27,876,000 425,000
2019............................................... 33,800,000 1,000,000
2020............................................... 45,335,000 1,176,000
2021............................................... 49,700,000 1,000,000
2022............................................... 45,500,000 2,787,000
------------ ----------
$218,400,000 $6,937,000
============ ==========
For state tax purposes, net operating loss carryforwards of approximately
$196,000,000 expire in the years 2003 through 2010. State research and
development tax credit carryforwards are approximately $620,000.
F-20
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LICENSE AGREEMENTS
ANGIOMAX(R)
In March 1997, the Company entered into an agreement with Biogen, Inc. for
the license of the anticoagulant pharmaceutical bivalirudin, which the Company
has developed 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 $2.0 million on the closing date and is obligated to pay up to an
additional $8.0 million upon reaching certain Angiomax sales milestones, which
are the first commercial sales of Angiomax for the treatment of acute myocardial
infarction in the United States and Europe. In addition, the Company will pay
royalties on future sales of Angiomax and on any sublicense royalties on a
country-by-country basis 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 on
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. Under the terms of
the agreement, the royalty rate due to Biogen on sales increases with growth in
annual sales of Angiomax. 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 the
Company met in 1998. The license 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 by the other party, if the material
breach is not cured within 90 days after written notice. In addition, the
Company may terminate the agreement for any reason upon 90 days prior written
notice. The Company recognized royalty expense under the agreement of $1.1
million in 2001, and $2.8 million in 2002 for Angiomax sales.
CLEVIDIPINE
In March 2002, the Company entered into a study and exclusive option
agreement with AstraZeneca PLC relating to the further study, licensing,
development and commercialization of the intravenous blood pressure control
pharmaceutical, clevidipine. Under the terms of the agreement, the Company
agreed to conduct a pilot study of clevidipine, which has begun. The agreement
provides that upon the conclusion of the pilot study within 15 months of the
date AstraZeneca provided samples of clevidipine to the Company, the Company may
acquire, and if the results of the pilot study meet or exceed a benchmark set
forth in the agreement AstraZeneca may require the Company to acquire, exclusive
worldwide rights (except for Japan) to the know-how, patents and trademarks
relating to clevidipine. If we do not complete the pilot study by the end of
such 15-month period, AstraZeneca may have the right to terminate the agreement.
If the Company licenses the product, it plans to develop clevidipine as a short
acting blood pressure control agent for use in hospital setting. In exchange for
the license, the Company will pay $1.0 million upon entering into the license
and up to an additional $5.0 million upon reaching certain regulatory
milestones. In addition, the Company will be obligated to pay royalties on a
country-by-country basis on future annual sales of clevidipine, and on any
sublicense royalties earned, until the later of (1) the duration of the licensed
patent rights which are necessary to manufacture, use or sell clevidipine in a
country or (2) ten years from our first commercial sale of clevidipine in such
country. The licenses and rights under the agreement remain in force until the
Company ceases selling clevidipine in any country or the agreement is otherwise
terminated. The Company may terminate the agreement upon 30 days written notice,
unless AstraZeneca, within 20 days of having received the Company's notice,
requests that the Company enter into good faith discussions to redress its
concerns. If the Company cannot reach a mutually agreeable solution with
AstraZeneca within three months of the commencement of such discussions, the
Company may then terminate the agreement upon 90 days written notice. Either
party may terminate the agreement for material breach upon 60 days prior
F-21
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
written notice, if the breach is not cured within such 60 days. The Company has
had made no payments to date under this agreement.
11. STRATEGIC ALLIANCES AND RELATED PARTIES
UCB
In December 1999, the Company entered into a commercial supply agreement
with UCB Bioproducts S.A. ("UCB") for the development and supply the Angiomax
bulk drug substance. Under the terms of the commercial supply agreement, UCB
completed development of a modified production process known as the "Chemilog"
process and filed an amendment in 2001 to its drug master file for regulatory
approval of the Chemilog process by the FDA. In addition, UCB manufactured two
validation batches of Angiomax bulk drug substance using the Chemilog process in
2001, with a third validation batch completed in January 2002. In addition, the
Company has agreed to purchase a substantial portion of its Angiomax bulk drug
product from UCB 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 the Company terminates the
agreement prior to its expiration, UCB 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 a royalty based
on the amount paid by the Company to the third-party manufacturer.
During 2000, 2001 and 2002 the Company recorded $14.6 million, $19.4
million and $9.7 million, respectively, in costs related to UCB's production of
Angiomax bulk drug substance and Angiomax related development activities, of
which $12.8 million, $4.8 million and $6.8 million were expensed as research and
development in 2000, 2001 and 2002, respectively, as FDA approval of Angiomax or
the related manufacturing processes had not been received. In addition, $1.5
million was also expensed in 2001 related to cancellation of a contract
commitment with UCB. The Company has committed to purchase $9.7 million of
additional Angiomax bulk drug substance produced by the Chemilog process in
2003.
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 the Company's products, including
clinical and non-clinical development services, project management, project
implementation, pharmacoeconomic services, regulatory affairs and post marketing
surveillance services and 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, 2002, the Company has entered
into approximately 46 work orders with PharmaBio and has paid PharmaBio a total
of $14.4 million. During 2000, 2001, and 2002, expenses incurred for such
services were approximately $2.3 million, $2.3 million, and $1.1 million
respectively, of which approximately $13,000 was recorded in accounts payable
and accrued expenses at December 31, 2002.
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 provided the Company with
F-22
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 2001, the Company has paid Innovex $1.8
million under these agreements. The Company did not make any payments to Innovex
in 2002 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 and the Angiomax work order, Innovex was to provide a sales
force of up to 52 representatives, a sales territory management system and
operational support for the launch of Angiomax. The Company provided 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 agreed to pay a daily fee for each day worked by the members of the
Innovex sales force. The Company was also responsible for reimbursing Innovex
for expenses incurred in providing its services and for the incentive
compensation paid to the sales force. The Company had the right to terminate the
work order and the master services agreement at any time upon 90 days prior
written notice and could hire members of the sales force, potentially incurring
additional fees to Innovex. In June 2001, the Company notified Innovex of its
decision to terminate the agreement with Innovex, and in October, the Company
hired most of the Innovex sales representatives. Through December 31, 2002, the
Company has paid Innovex $7.0 million under the master services agreement and
work order.
During 2000, 2001 and 2002, total expenses incurred for services provided
by Innovex were approximately $1.7 million, $5.6 million and $0.0, respectively,
of which approximately $440,000, $275,000 and $0.0 were recorded in accounts
payable and accrued expenses at December 31, 2000, 2001 and 2002, respectively.
STACK PHARMACEUTICALS
In 2000, the Company entered into an agreement, with Stack Pharmaceuticals
Inc. (SPI), an entity controlled by David M. Stack, then one of the Company's
senior vice presidents. Pursuant to the terms of this agreement, SPI performed
infrastructure services for the Company, which included providing office
facilities, equipment and supplies, and such consulting, advisory and related
services for the Company as was agreed upon from time to time. For the
infrastructure services, the Company agreed to pay SPI a service fee of $20,100
per month. From January 2000 through March 2000, SPI provided the Company with
consulting services under a consulting agreement that expired on March 31, 2000.
In November 2001, the Company terminated its agreement with SPI when David M.
Stack became President and Chief Executive Officer of the Company. As part of
the termination agreement, the Company assumed SPI's facility lease in
Parsippany, New Jersey and acquired all its furniture and equipment for
approximately $70,000. Through December 31, 2001, the Company had paid SPI
$711,000 under these agreements. The Company did not make any payments to SPI in
2002.
F-23
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities in Parsippany, New Jersey and Cambridge,
Massachusetts, and certain office furniture and equipment at those facilities
under operating leases. The leases for the Parsippany and Cambridge facilities
expire in January 2013 and August 2003, respectively.
Future annual minimum payments under all non-cancelable leases
- --------------------------------------------------------------
2003......................................................... $ 808,000
2004......................................................... 526,000
2005......................................................... 492,000
2006......................................................... 495,000
2007......................................................... 503,000
Later years.................................................. 2,689,000
----------
TOTAL FUTURE ANNUAL MINIMUM PAYMENTS......................... $5,513,000
==========
Rent expense was approximately $504,000 $634,000 and $685,000 in 2000, 2001
and 2002, respectively.
In addition to amounts accrued or payable as of December 31, 2002, the
Company has commitments to make payments to UCB Bioproducts of a total of $9.7
million during 2003 for Angiomax bulk drug substance to be produced using the
Chemilog process. The Company also has $1.9 million in contractual commitments
for 2003 related to research and development activities.
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
The Company has an employee savings and retirement plan which is qualified
under Section 401(k) of the Internal Revenue Code. The Company's employees may
elect to reduce their current compensation 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-24
THE MEDICINES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial data for the
years ended December 31, 2001 and 2002.
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
2001 2001 2001 2001 2002 2002 2002 2002
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue................ $ 1,861 $ 2,048 $ 3,526 $ 6,813 $ 7,715 $ 7,156 $ 9,133 $14,297
Cost of sales.............. 332 319 565 894 1,085 1,647 2,227 5,324
Total operating expenses... 21,987 18,196 15,623 15,639 19,726 20,439 20,561 24,317
Net loss................... (19,056) (16,003) (11,309) (8,516) (11,641) (13,141) (11,212) (9,837)
Net loss attributable to
common stockholders...... (19,056) (16,003) (11,309) (8,516) (11,641) (13,141) (11,212) (9,837)
Basic and diluted net loss
attributable to common
stockholders per common
share.................... $ (0.63) $ (0.49) $ (0.33) $ (0.25) $ (0.34) $ (0.37) $ (0.29) $ (0.25)
Pro forma basic and diluted
net loss attributable to
common stockholders per
common share............. (0.63) (0.49) (0.33) (0.25) (0.34) (0.37) (0.29) (0.25)
Market Price
High..................... $ 20.48 $ 22.05 $ 22.20 $ 12.15 $ 14.81 $ 14.33 $ 12.50 $ 17.50
Low...................... $ 8.75 $ 9.10 $ 4.52 $ 4.81 $ 9.86 $ 7.40 $ 7.22 $ 9.45
F-25
INDEX TO EXHIBITS
NUMBER DESCRIPTION
------ -----------
3.1(1) Third Amended and Restated Certificate of Incorporation of
the registrant
3.2(5) Amended and Restated By-laws of the registrant, as amended
4.1(1) Form of Common Stock Purchase Warrant dated October 19, 1999
4.2(1) Form of Common Stock Purchase Warrant dated March 2, 2000
10.1(1) 1998 Stock Incentive Plan, as amended
10.2(5) 2000 Employee Stock Purchase Plan, as amended
10.3(2)* 2000 Outside Director Stock Option Plan
10.4(6) 2001 Non-Officer, Non-Director Employee Stock Incentive Plan
10.4(1) Amended and Restated Registration Rights Agreement, dated as
of August 12, 1998, as amended, by and among the registrant
and the other parties thereto
10.6(1)+ Chemilog Development and Supply Agreement, dated as of
December 20, 1999, by and between the registrant and UCB
Bioproducts S.A.
10.7(1)+ License Agreement, dated as of June 6, 1990, by and between
Biogen, Inc. and Health Research, Inc., as assigned to the
registrant
10.8(1)+ License Agreement dated March 21, 1997, by and between the
registrant and Biogen, Inc.
10.9(1)+ Development and Commercialization Agreement, dated August
16, 1999, by and between the registrant and GyneLogix, Inc.
10.10(4) Termination Agreement, dated November 1, 2001, by and
between the Registrant and Stack Pharmaceuticals, Inc.
relating to the Services Agreement dated April 1, 2000, as
amended
10.11(3) Form of Stock Purchase Agreement dated May 11, 2001 between
the registrant and the selling stockholders party thereto
10.12(1)* Employment agreement dated September 5, 1996 by and between
the registrant and Clive Meanwell
10.15(2)* Employment Agreement dated October 16, 1997 by and between
the registrant and John D. Richards
10.18(4)* Amended and Restated Employment Agreement, dated November 1,
2001, by and between the Registrant and David M. Stack
10.19(1) Lease for One Cambridge Center dated March 15, 1997 by and
between Boston Properties, Inc. and the registrant, as
amended
10.20(2) Lease for Five Sylvan Way dated August 15, 2000, by and
between the registrant and Mack-Cali Morris Realty LLC
10.21(4) Assignment and Assumption of Lease, dated October 18, 2001,
by and between the Registrant and Stack Pharmaceuticals,
Inc.
10.22 Lease for 8 Campus Drive dated September 30, 2002 by and
between Sylvan/Campus Realty L.L.C. and the registrant
21(2) Subsidiaries of the registrant
23 Consent of Ernst & Young LLP, Independent Auditors
99.1 Executive Chairman -- Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
NUMBER DESCRIPTION
------ -----------
99.2 Chief Executive Officer -- Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.3 Chief Financial Officer -- Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
- ---------------
* Management contract or compensatory plan or arrangement filed as an exhibit
to this form pursuant to Items 15(a) and 15(c) of Form 10-K
+ Confidential treatment was granted for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act
(1) Incorporated by reference to the exhibits to the registration statement on
Form S-1 (registration no. 333-37404)
(2) Incorporated by reference to the exhibits to the registration statement on
Form S-1 (registration no. 333-53280)
(3) Incorporated by reference to the exhibits to the registration statement on
Form S-1 (registration no. 333-61430)
(4) Incorporated by reference to the exhibits to the registrant's quarterly
report on Form 10-Q for the quarter ended September 30, 2001
(5) Incorporated by reference to the exhibits to the registrant's annual report
on Form 10-K for the fiscal year ended December 31, 2001
(6) Incorporated by reference to the exhibits to the registration statement on
Form S-8 (registration no. 333-74612)